June 26, 2017 5.27am BST A modest increase in microlending to the poorest of the world could lift over 10.5 million people from extreme poverty. This is the conclusion of my study, which was published last month in the B.E. Journal of Macroeconomics, which discovered that microfinance not just reduces. The number of households in poverty, but also the extent to which the poor are.
Today, 836 million people (or 12%) of the global population live in extreme poverty. And on less than US$1.25 every day. Based on data from 106 of the world’s developing countries from 1998 to 2013 to study. The effectiveness of microlending as an effective poverty-reduction instrument. I found that a mere 10 percent increase in the gross microfinance. Portfolio of loans per customer could reduce this figure by 1.26 percent.
Although the world has made some progress in the last 15 years towards achieving those UN Millennium Development Goals (MDGs). Which put eradicating hunger and poverty at the at the top of the world agenda but extreme. Poverty is still an issue that needs to be addressed. It remains an important issue in the Sustainable Development 2015-2030 Goals.
In 2015, the percentage of the population in extreme poverty was down to 14%, down from 50 percent in 1990. As per the MDG Monitor. However, within Sub-Saharan Africa, more than 40% of the population have less than US$1.25 daily. Extreme poverty is believed to be increasing across Western Asia. Although poverty may have diminished however, it is still an element in the lives of people.
In Addition, It Helps To Reduce Poverty Microlending
The idea of providing small-sized loans (as as little as $10 or up to $5000) to those. Who are extremely poor in addition to other financial. Products like savings accounts and financial education was the idea from economics professor Mohammad Yunus.
The 1970s were when he started offering credit to women who were poor in the town in Jobra, Bangladesh. So they could start projects that generated income to provide for their families and themselves. In 2006, the initiatives earned Yunus as well as his microcredit focused Grameen Bank a Nobel Peace Prize.
Since then, different forms of microlending have been launch in a variety of nations, from India up to United States. According to a 2015 study by advocacy organization Microcredit Summit Campaign, by 2013, more than 3,098 microfinance organizations had reached more than 211 million clients across the globe which is less than half those living in poverty.
Microfinance Investment Microlending
In 2017 the market for microfinance investment in small, medium and micro businesses, as well as the offering of financial services to these enterprises, is predict to expand by about 10 percent to 15 percent. A much higher rate of growth is anticipate to seen in India along with in the Asia-Pacific region.
Access to credit allows low-income people to start their own businesses earning more money and enhancing their lives. A lot of lenders pair their smaller loans, financial products and services by providing peer-to-peer assistance, networking opportunities and even health care services to enhance their clients’ chances of developing a small-scale business that is successful.
As a result, many economists claim that microfinance holds a significant capacity to help reduce the burden of poverty. However, evidence of how microfinance can be effective isn’t clear. Studies that have examined its impact on the rural areas of Pakistan as well as cities Kenya and Uganda and other developing countries have both proved and disproved the idea of Mohammud’s idea.
Evidence From All Over The Globe
My research aimed at making sense of this unconclusive evidence by using an economic macro-view that ties the data of many countries to present a clearer picture.
Officially, the definition of poverty is by 2 World Bank indicators: the poverty headcount ratio (which determines the percentage of the population that is living less than US$1.25 per day threshold) and the gap between poverty and income (which determines the extent to which below the poverty line individuals fall in average and is express in terms of percentage).
The most important variable in my study is participation in microfinance-related programs. I determined the term in two different ways, for each of the countries that I studied: the percentage of total clients as a percentage of the national population and the average amount of loans (gross loans over all clients) with microfinance data taken from the Microcredit Summit Campaign and MIX Market) A microfinance auditing company.
What I observed was a negative correlation between microfinance involvement and poverty. That is, the more people living in the country that received loans, the lower the level of the poverty rate it recorded. So, in the typical developing country an increase in the loan portfolio of a client of just 10% can reduce the rate of extreme poverty in the country by 0.0126 percent.
Also, I found that microfinance helps reduce the extent of poverty and reduces the gap between an individual’s daily living expenses in the present US$1.25 per day threshold for extreme poverty (the poor have a zero percentage deficit).