Increasing the capacity to unite the developing world could lift more than 10.5 million people out of extreme poverty. That is one conclusion to my study, published last month in The B. Journal of Macroeconomics, which found that Microfinance not only reduces how many households live in poverty but also how poor they are.
Currently, 836 million people – or 12% of the world’s population – live in extreme poverty, living on less than US $ 1.25 a day. Using data from 106 developing countries between 1998 and 2013 to test the effectiveness of microlending as a poverty alleviation tool, I found that a 10% increase in the minimum per capita loan portfolio could reduce this number by 1.26%.
While the world has seen some progress over the past 15 years in achieving the UN Millennium Development Goals (MDGs), which puts poverty and poverty at the top of the global agenda, extreme poverty remains a major challenge. It remains important for the Sustainable Development Goals of 2015-2030.
In 2015, the proportion of the world’s population living in extreme poverty dropped to 14% from 50% in 1990, according to the MDG Monitor. But in Sub-Saharan Africa, more than 40% of the population continues to live on less than US $ 1.25 a day. And extreme poverty seems to be on the rise in West Asia.
Poverty may have returned, but it is clear that it remains a major factor in people’s lives.
Minimum and poverty reduction
The practice of giving small loans (as little as US $ 10 or $ US500) to the very poor, along with other financial services such as savings accounts and financial training, was reported by economist Mohammad Yunus.
In the 1970’s, she began by lending to poor women in the village of Jobra, Banglish, so that they could introduce income-generating projects to help support themselves and their families. In 2006, those tests defeated Yunus and his Grameen Bank focusing on a small Nobel Peace Prize.
Since then, a number of international approaches have been introduced in many lands, from India to the United States. According to a 2015 report from the Microcredit Summit Campaign, by 2013, 3,098 institutions of higher learning had reached more than 211 million clients worldwide, with less than half of them living in extreme poverty.
In 2017, the market for small investment in small, medium and micro enterprises, as well as the provision of financial services to those businesses, is expected to grow at a rate of 10% to 15%. The strongest growth is expected in India and the Asia-Pacific region.
Debt collection enables poor people to become entrepreneurs, increase their income, and improve their quality of life. Many lenders go with their small loans and financial services with peer support, networking opportunities and health care to improve their clients ’challenges in building a successful small business.
In doing so, many economists are submitting, demonstrating that powerful intelligence has the great potential to reduce poverty.
But the evidence that microfinance actually works. A study examining its impact on rural Pakistan, cities in Kenya and Uganda, among other developing countries, has confirmed and contradicted Mohammad Yunus’ innovations.
Evidence from around the world
My study was intended to make sense of this incomparable evidence, to take an economic approach that draws information to many countries combined to give a clear picture.
Officially, poverty is measured using two World Bank indicators: the poverty rate (measuring the percentage of people living below the US $ 1.25 mark per day) and the poverty gap (which measures how low the population falls, on average, and is expressed as a percentage).
Impact of policy
Microfinance is not a panacea. Numerous studies have shown that the specifics of a particular country and culture determine how little technology will be associated with poverty, and sometimes with negative consequences