The lack of access to funds for the poor in many countries of Asia, Latin America, and Africa, is due to the unavailability of collateral. Since the poor of these countries do not have any asset that they can provide as security. Thus, the idea of poverty alleviation remains elusive for many. Moneylenders and traditional financial institutions do not trust in their ability to pay the loan back.
Microcredit comes as a savior for these people who want to get out of the vicious cycle of poverty. Thus, micro-lending helps these people to find a way towards prosperity and better quality of life.
They can engage in a productive activity to contribute towards their prosperity and economic development of the country. Countries in South East Asia, notably Bangladesh have championed the concept of micro-loans to the poor. Dr. Muhammad Younis remains the pioneer in using the micro-lending to help poor come out of abject poverty.
Why There is Need for More Microcredit in Developing Countries?
There is meager salary or wage in the developing countries. A lot of the workforce in developing nations is self-employed. Therefore, the spreading of entrepreneurship is the only way to increase employment opportunities. Thus, it can prove to be one of the leading ways to reduce poverty.
The availability of employment opportunities for the needy can help uplift their overall status in the society. It is due to these reasons that we see an increase in the number of such programs. The objective, implementation arrangements, and target groups may differ.
How Can Microcredit Work to Poor’s Benefit?
There are several ways to which it can help achieve the poverty alleviation goals.
The Limitations of Small Business Loans
All programs to help alleviate poverty may not have the same kind of effectiveness. Sometimes, the results they do not have statistical significance. They fail to deliver a clear demarcation of the achievement of goals relating to sustainability in the long term. Therefore, the measurement of their efficacy remains difficult in many cases.
It is true that people with business knowledge have better chances of success. However, understanding alone cannot suffice or replace human characteristics required to succeed as an entrepreneur. For example, the knowledge may not be able to give them superhuman qualities like dedication, commitment, a focus on the goal, and an untiring mindset to achieve the goal. The cost of alleviating poverty remains dubious. There is little info available on the actual business growth achieved. Therefore, the programs may not necessarily be able to offer the kind of growth that many expect. Also, many of the micro-lending schemes do not become successful. More information needs to be provided so that the policymakers can do better projects and overcome the inherent risks they possess.
Also, micro-lending is not the only way to accomplish success. There are many other ways through which we can help alleviate poverty and uplift the lives of the poor. More studies are needed to know about the new entrepreneurial approaches and their effectiveness.