Microfinance as an Instrument of Poverty Alleviation: an Overview
Quinoness, B.
Publication Date: 2000
Published by: Initiative in Research and Education for Development in Asia - INASIA
Document Type: Paper
What is the basic instrument available to the poor for alleviating economic deprivation?
This paper states that savings is the first instrument of poor households to alleviate economic deprivation. It further states that the poor have various uses for credit. It says that when credit is accessible, the poor use credit for protectional purposes and as incomes increase over time, they use credit to adapt to technological change. Specifically the paper looks at - Demand for financial services of the poor
- Benefits of credit to the poor;
- 'Minimalist' vs. 'integrated approach'
- Design of effective microfinance programs;
- Conducive policy environment for microfinance.
Drawing from studies in Asia, Africa, & Latin America, the paper sees that credit contributes directly to an increase in production and income, particularly when credit is used to purchase new technology
The paper also finds that credit can be a cost effective means for reducing unemployment and underemployment and that technological innovation is more evident among clients with larger loans. However, it questions whether microfinance programs should give more emphasis on making deposit services to the poor accessible, more dependable, convenient, less costly, flexible, and financially attractive. It argues that accessible and efficient deposit services will help poor households better manage their financial assets and smoothen consumption patterns. Looking at the constraints of credit, the paper says that the impact of credit is generally constrained by the macroeconomic environment. It finds that macroeconomic stability and growth contributes to greater economic gains from credit.
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