Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
3Activity
0 of .
Results for:
No results containing your search query
P. 1
Explore the potential and limitations of micro-finance initiatives in alleviating poverty. Use relevant examples to support your answer.

Explore the potential and limitations of micro-finance initiatives in alleviating poverty. Use relevant examples to support your answer.

Ratings: (0)|Views: 45 |Likes:
Microfinance is seen by many as a means of poverty reduction. Others believe that it is limited as a development tool because in many cases it does not reach the poorest of the poor, instead affecting the better-off portions of poor populations. This essay examines these issues
Microfinance is seen by many as a means of poverty reduction. Others believe that it is limited as a development tool because in many cases it does not reach the poorest of the poor, instead affecting the better-off portions of poor populations. This essay examines these issues

More info:

Published by: Undergraduate Awards on Sep 01, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
See more
See less

10/27/2013

 
Name
Damien mc Sweeney 
Module
FE 3016 Micro-financeand Development 
Student Number 
104115091
Date
08/11/07Assignment Number 1
Explore the potential and limitations of micro-financeinitiatives in alleviating poverty. Use relevant examples to support your answer.
 
Introduction
In the world we live in today almost one billion people live on less than $1 a day with 2.5 billion living on less than $2 a day (World Bank, 2007) Beyond income, poverty makes people vulnerable to economic shocks, natural disasters, violence, and crime. They alsosuffer because of little education, inadequate health services, and lack of clean water andsanitation. Microfinance is seen by many as a means of poverty reduction and refers toloans, savings, insurance, transfer services and other financial products targeted at low-income clients (Crowley et al, 2005, p.4).In contemporary times it plays a substantial role in the development of many African,Asian, and Latin American nations. Such importance is placed on it, that the UN,supported by various organizations and development agendas
1
declared 2005, ‘theInternational Year of Micro credit’, calling “for the building of inclusive financial sectorsand the strengthening of the powerful, but often untapped, entrepreneurial spirit whichexists in communities around the world” (www.yearofmicrocredit.org). However, despitesuch powerful support, microfinance is not without its critics such as Professor MalcomHarper co-author of “What is wrong with microfinance?” who believes that it is limitedas a development tool because in many
 
cases it
 
does not reach the poorest of the poor,instead affecting the better-off portions of poor populations. The following essay willexamine these issues and explore the potential and limitations of micro-finance initiativesin alleviating poverty.
Potential of Micro-finance Initiatives (MFIs) inAlleviating Poverty.
Small enterprises and most of the poor in the developing world have very limited accessto deposit and credit facilities and other financial services provided by formal financialinstitutions. For example, in Ghana and Tanzania, only about 5–6 percent of the population has access to the banking sector (Basu et al, Sep 2004, p.3). The Grameen
1
Development agendas that emphasize microfinance in reducing poverty include the G8 Declarationsof 2005 and 2004; the UN 2005 World Summit, the Commission on Private Sector Development, theBrussels Programme of Action; and the Africa Commission Report (UNCDF, Oct 2005)
 
2
 
Bank, launched in Bangladesh in 1976 by Nobel Prize winner Muhammad Yunus, popularized the idea of giving poor people tiny loans to launch businesses with a goal of  poverty alleviation. Yunus' innovation has broad appeal. In 1997 only about 7.6 millionfamilies had been served by microcredit worldwide, however, as of Dec. 31, 2004, some3,200 micro credit institutions reported reaching more than 92 million clients
2
, with 73%of these living in dire poverty at the time of their first loan (Business Week, December 26
th
2005).Micro-credit allows poor people to acquire productive assets such as education, tools andeven micro enterprises which they can use to generate additional income which in turnallows them to repay their debts. Over time a virtuous cycle of increasing income andinvestment will allow people to break out of the poverty trap (Crowley et al, 2005, p.22-23).For example, in Uganda, New America Foundation Senior Fellow and ColumbiaUniversity professor Dr. Fred Ssewamala started a pilot for orphaned and vulnerablechildren. The children each received savings accounts and were offered a 2:1 match ontheir savings, which were often contributions of family members and friends with theview of secondary education expenses or investment in an income generating activity.The savings averaged US$50.52 per participant in a 6-month period and with the match,the average participant accumulated US$303 per year, a significant amount for Uganda,where annual per capita income is less than US$300 (Zimmerman,www.microfinancegateway.org).Micro credit can allow poor people to smooth their consumption and cash flow over a period where income and production is seasonal, thus allowing people to overcometemporary shortages of food and financial resources. For example, amongst poor farmersand laborers, by the time planting season arrives households may have run out of foodreserves and may have no or little financial resources to purchase the agricultural inputsnecessary for planting (Crowley et al, 2005, p.23 -24). Micro credit also has the potentialto alleviate poverty through the whole area of disaster risk management, such as wasdemonstrated in Bangladesh in 1998 after experiencing the worst floods in its history.About 30 million people were affected in 52 out of 64 districts. The damages to standingcrops, livestock and houses were overwhelming and the income generating activities of rural landless people were almost suspended. The Bangladeshi Rural AdvancementCommittee (BRAC) participated in flood relief and mitigation by extending loans to
2
 
According to the 2005 State of the Micro credit Summit Campaign Report
3

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->