Effect Of Microfinance On Poverty To Overcome

By Author: Arjun A
Total Articles: 1
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There is extensive evidence that microfinance has a positive impact on the first Millennium Goal: that the number of people living in extreme poverty (defined as those living on less than $1 per day) will be reduced by half between 1990 and 2015.There are fewer studies examining the effects of microfinance on the other Millennium Goals, but what evidence exists generally indicates a positive impact.The literature confirms that most microfinace programs do not serve the poorest. However, there are some institutions that do, and the evidence indicates that the poorest can definitely benefit from microfinace in terms of increased incomes, and reduced vulnerability.

There is also evidence to support the premise that it is possible for a microfinance institution to serve the poorest and also achieve financial sustainability.

Evidence:
1. A follow-up survey done in 1998/1999 included the households from the previous survey (1991/1992—on which the conclusions in the book Fighting Poverty with Microcredit: Experience in Bangladesh are based), new households from the same villages, new households from new villages ...
... in old thanas, and three more thanas are surveyed.
The drop-out rate increased from 5% to 10% from 91/92 to 98/99.
2. Microfinance participants do better than non-participants in both 91/92 and 98/99 in per capita income, per capita expenditure, and household net worth. The incidence of poverty among participating households is lower in 98/99 than in 91/92, and lower than among nonparticipating households in both periods.
The programs have spillover effects on the local economy, but the impacts are very small.
3. We find that women’s credit has a large and statistically significant impact on two of three measures of the health of both boy and girl children. Credit provided (to) men has no statistically significant impact…A 10% increase in (latent) credit provided to female’s increases the arm circumference of their daughters by 6.3%, twice the increase that would be expected from a similar proportionate increase in credit provided to men. Female credit also has a significant, positive but somewhat smaller effect on the arm circumference of sons. Female credit is estimated to have large, positive and statistically significant effects on the height-forage of both boys and girls.” No statistically significant effects were found for Body Mass Index.
4. Among the economically active poor of the developing world, there is strong demand for smallscale commercial financial services—for both credit and savings. Where available, these and other financial services help low income people improve household and enterprise management, increase productivity, smooth income flows and consumption cost, enlarge and diversify their microbusiness and increase their incomes.
5. Is poverty static? Anti-poverty programs often assume so. Recent studies suggest, however, that poor households move in and out of poverty a great deal. Research from the UK Institute of Development Studies shows that poverty has two parts: a chronic part and a transitory part. The researchers therefore examined the impact of two different types of policy - those designed to smooth out incomes and those designed to promote income growth - on the extent of transitory and chronic poverty in rural Pakistan. The study suggests that policies which help households to smooth income can dramatically reduce transitory poverty. But in the long-term, only large and sustained growth in household incomes will reduce chronic poverty.