Microfinance and Poverty Reduction: Some International Evidence

Developing an effective poverty reduction strategy

This paper states that microfinance has proven to be an effective poverty reduction tool and should be included in strategy for poverty reduction. Microfinance helps to promote economic growth and development. It contributes to improved resource allocation, promotion of markets, and adoption of better technology. Poor households use microfinance to move from everyday survival to planning for the future. They invest in better nutrition, housing, health and education. The paper shows that access to efficient provision of microcredit can enable the poor to:

Smooth consumption;
Manage risks;
Gradually build assets;
Develop microenterprises;
Enhance income earning capacity;
Enjoy improved quality of life.

The paper also discusses characteristics of financial systems in developing counties. The formal financial sector does not meet the needs of the poor, who then turn to the informal financial sector. Poor people need other kinds of support, such as small grants, employment and training programs, and infrastructure improvements, coupled with savings, to journey out of poverty.