Ensure Access to Microcredit

Promoting microcredit as a positive rural development intervention

This paper looks into interventions of the Government of Uganda to promote microfinance. It explores the reasons why these efforts have not resulted in increased financial access or poverty alleviation.

The paper states that microfinance is only beneficial to the upper and middle income poor, and not for the poorest of the poor. High transaction costs deplete funds available for borrowers to invest in business and thus break the cycle of poverty. The fact that the first installment is due in the first month of disbursal date also limits the effectiveness of microfinance because the borrowers investing on farms and small businesses that depend on harvests get no grace period.

The paper concludes that microcredit schemes treat symptoms, and not the causes of poverty. They generally ignore the complex matrix of power relations that circumscribe the capacities of the rural poor. This might result in the inappropriate and unsuccessful use of microcredit.