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Rural finance and rural poverty More than a billion poor people lack access to the basic financial services which are essential for them to manage their precarious lives.
Microfinance is one way of fighting poverty in rural areas, where most of the world’s poorest people live. It puts credit, savings, insurance and other basic financial services within the reach of poor people. Through microfinance institutions such as credit unions and some non-governmental organizations, poor people can obtain small loans, receive remittances from relatives working abroad and safeguard their savings. Accessing small amounts of credit at reasonable interest rates gives people with the willingness and knowhow an opportunity to set up a small business. Records show that poor people are a good risk, with higher repayment rates than conventional borrowers. In countries as diverse as Bangladesh, Benin and Dominica, repayment rates are as high as 97 per cent. Poor women often have the best credit ratings. In Bangladesh, for example, women default on loans less often than men, and credit extended to women has a much greater impact on household consumption and quality of life for children. Women’s status, both in their homes and communities, is improved when they are responsible for loans and for managing savings. When they generate and control their own income, women gain a level of power that means they can make decisions independently and command more respect. Source: Microfinance: macro benefits, IFAD (2004) |
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Good management of even the smallest assets can be crucial to very poor people, who live in precarious conditions, threatened by lack of income, shelter and food. To overcome poverty, they need to be able to borrow, save and invest, and to protect their families against risk. But with little income or collateral, poor people are seldom able to obtain loans from banks and other formal financial institutions. And even when they do have income or collateral, the amounts they require are often too small to appeal to banks.
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