Does Microcredit Really Help the Poor?

This paper critically examines the poverty reduction claims of microcredit.

Microcredit is believed to make self-employment and small enterprise possible for the poor and raise them above the poverty line. The paper examines studies on the subject and states that:

• Microcredit does seem to increase income and consumption;
• It is not clear whether increase in consumption is caused by increase in profits from the business financed by microcredit, or whether it is directly financed by the credit obtained for business;
• Those who already have a business or have the potential to start one are likely to use microcredit for business, while those who do not are likely to use microcredit for consumption;
• It is not clear how microcredit affects the social dimensions of poverty such as access to education, health, gender equality, and empowerment.

Finally, the real cause of poverty is the inability of the poor to become involved in income-generating activity as they lack knowledge, skills, and capabilities. Microcredit should be accompanied by other programs that improve the skills and knowledge of the poor in order to decrease poverty.