Tweet

Poverty Measurements and Relevance of Micro-credit

Written by: African Development Bank

Article Overview: Some recent studies on poverty have attempted to put forth terms and classifications of the very poor in a way that will allow the reader to imagine the extreme helplessness, and a state of extreme destitute amongst the people under discussion.

Poverty Measurements and Relevance of Micro-credit

Some recent studies on poverty have attempted to put forth terms and classifications of the very
poor in a way that will allow the reader to imagine the extreme helplessness, and a state of extreme
destitute amongst the people under discussion. The poorest of the poor, as they are more commonly
referred to, have also sometimes been called the ‘hardcore poor’ (Hashemi, 1997), the ultra-poor
(African Development Bank, 2002) or the ‘chronic poor1 ’. While this paper does not aim to redefine
who are the poor, it will use the term ‘poorest of the poor’ to identify the group of people
who are economically on the outer edges of survival and managing to continue their existence
and live with or below an average $1 per day.
Poverty is commonly defined as ‘the inability to attain a minimal standard of living’ measured in
terms of necessary basic needs and services. Furthermore, the concept of a ‘poverty line’ has
internationally become accepted as an indicator of poverty which measures the monetary amount
needed to purchase a basket of estimated minimum calorie intake and the social services needed
to live a healthy life, below this estimated line an individual or household is considered poor
(African Development Bank, 2002; Lipton, 1997). Poverty is therefore characterized by the inability
of individuals and households to acquire sufficient resources to satisfy their basic needs.
Furthermore, poverty is not static. Research shows that some people may be suffering from poverty
from time to time, while others are permanently poor. Therefore, poverty within the present
discussion is identified to indicate when the ‘net outcome’ of the process of change experienced
by an individual or household is socio-economically negative or unchanged, also sometimes referred
to as ‘vulnerability’ status. (UNDP, 2001, Glewwe and Hall 1998; Grooteart and Kanbur 1995).
In view of the recognition that poverty was contextual, that it was not static, and that it was
relative, micro-credit was introduced as a mechanism for the poor to pursue poverty reduction
activities which were within their means and capacities (von Pischke, 1996). Micro-credit
programmes were meant to help the poor generate income and alleviate poverty sustainably (Chao-
Beroff, 1999). It became an important development concept since the 1980s, especially after the
many publications and reports on the positive experience of the Grameen Bank.
The Grameen Model (Yunus, 1989), which made micro-credit even more popular, specifically for
women, and included for the first time a community approach to poverty reduction and challenged
serious obstacles to borrowing, such as collateral, male guarantor or co-signer for female clients,
and repayment modalities. A further development took place in this model through some
experiences in Latin America, such as that of Americans for Community Co-operation in Other
Nations (ACCION), which introduced a business approach to micro-credit, through cost-recovery
and management as well as individual lending within the group (Berenbach and Guzman, 1999).
Therefore, micro-credit evolved further into a development and poverty reduction mechanism based broadly on the Grameen model and other local experiences. The most commonly found
micro-credit delivery channels in the low-income African countries are: profit making micro-finance
institutions, credit unions, and village banks (Holt, 1994). However, it is the MFIs that most of
the time have a better rural and urban outreach network and more money to inject, due to their
access to multiple fund sources. The discussion will attempt to highlight the differential impact on
poverty reduction and will give analytical perspective on micro-credit panacea.

ECONOMIC RESEARCH PAPERS
NO 74
(January 2003)
Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia
by
Sunita Pitamber

Related Articles
  When is microfinance NOT an appropiate tool? FAQ
  III. BACKGROUND - Microfinance in Africa
  PAPER WRAP-UP: Beware of Bad Microcredit by Steve Beck and Tim Ogden
  African Countries Focus on Microfinance: Twelve African Nations Engaged in the International Year of Microcredit to Date
  What is microfinance? FAQ

Article Tags: african development bank, calorie intake, existence, glewwe, helplessness, household, households, lipton, micro credit, outer edges, poverty line, social services, survival, undp, vulnerability



Related Forum Posts
For bloggers - If one is a blogger, it is imperative to have a guest blogger within ones niche. I had someone contact me just yesterday, and she is a vegan. Let me clarify, my main blog is a vegetarian blog, called Groovy Vegetarian. For guest bloggers on GV, only related would work. Such as any topic on vegetarianism, veganism, or green living. As those are the general topics i cover. Anything else would not gel well. Also for search engine purposes, it is important as well. Relevance is a key factor in SEO.
Re: What or Who Sparks Your Business Interest - this might be surprise to you, but poverty spark my business interest. Poverty is prevalent in Africa. And I discovered early in life that people that own their businesses are richer than anypne else. I decided to get out of the poverty level and business provided a way of escape.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

What is an Adaptive Organization

Creating a Better Place to Work

Email Marketing Made Easy #11 - Avoiding Spam

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.