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.
First, to ensure the efficacy of the microcredit, we need to ensure that it is combined with finance and training. The additional training can significantly improve the chances of success for the small business owners. The right training can help in the promotion of the labor market activities. An increase in labor market activity directly relates to helping reduce poverty.
The training can also help in teaching the necessary business knowledge. Many small loan schemes do not become successful because there is a lack of discipline. Therefore, training plays a central role in increasing effectiveness of microcredits given to the poor for entrepreneurship.
Support is critical in alleviating poverty. It means taking care of the requirements of the participants of a small business loan. This support increases the success chances of small ventures. It also takes care of any follow-up services that can come in handy in bettering the effectiveness of the program.
Involvement of private sector can only be increased with the increase in delivery of programs. It means providing better results against the micro-funding efforts to ensure accomplishment of the real purpose behind it.
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.