Paper

Microcredit and Poverty Alleviation: Can Microcredit Close the Deal?

Understanding the relationship between microcredit and household’s' graduation out of poverty
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This paper explores the relationship between microcredit and poverty reduction. It posits a household model that outlines the economic environment within which various types of family microenterprises operate. The paper highlights a number of issues that impinge on household earnings such as the nature of the labor market, technology, product demand, and entrepreneurial skills. It also investigates the impact of microcredit on female empowerment and consumption patterns. The paper states that impact of microcredit is likely to be different across household types as well as across different economic environments. It identifies several demand and supply constraints to the households graduation from poverty. Conclusions include:

  • Immediate factors that affect households' incomes adversely are credit limits and relatively high interest rates charged by MFIs;
  • Constraints to a household's graduation from poverty are difficult to overcome in a traditional economic environment marked by stagnant technology and market saturation;
  • Microcredit has a positive effect on women's empowerment and family's human development indicators;
  • Women's empowerment does not spring automatically from the introduction of microcredit;
  • Women's empowerment seems to closely track women's trajectory of economic success.

About this Publication

By Quibria, M.G.
Published