Microfinance the silver bullet to eradicate poverty?
Microfinance has long been seen as “the silver bullet” to eradicate poverty – but it is not as simple as that, ING economists say. More in the September 2014 economic update video for eZonomics.
In this video, ING senior economist Gerben Hieminga examines the rapid growth of the sector and shows how microfinance is a tool to improve the physical and mental health of its customers as well as a tool to fight poverty.
Rapid growth but a long way to go
Microfinance provides financial services to poor people in developing countries. Hieminga explains that globally 2.5 billion people are excluded from formal financial services and of these still 1.2 billion are living in extreme poverty. He says that although “the sector has grown rapidly there is still a huge gap to be closed”.
Financial inclusion is key
Hieminga explains that financial inclusion is at the centre of the discussion on how to improve the lives of the poor. In order to be successful the sector must have an accurate understanding of the impact of microfinance on its clients.
ING’s latest microfinance report A Billion to Gain? - released in September 2014 - tells the stories of more than 2,500 customers in India and Ghana.
Increase to income
The findings suggest that microfinance was used productively in 93% of the loans in India and 59% in Ghana. Hieminga says microfinance enabled clients to increase their income by 13% in India and 10% in Ghana. “We found positive empowerment of women in India, and children in both countries benefiting from parents’ ability to boost spending on education and improved diets,” he concludes.