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
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
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
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)