Examining the impact of microfinance services - increasing income or reducing poverty?
When examining the income impacts of microfinance programmes, it is important to recognize that there is a significant difference between increasing income and reducing poverty. Despite the prevailing emphasison raising incomes as the central objective of development programmes, the two are not synonymous. Clearly, the use to which income is put is as important in determining poverty and welfare as the level
of income itself - increased income can be (and often is) gambled away. It is also important to recognize that poverty is neither linear nor static, and that today's not-so-poor may well be tomorrow's poorest-
and vice versa. It is for this reason that the poor place so much emphasis on diversifying their sources of income, since this reduces their exposure to catastrophic income loss. Finally, in the context
of the drive to create businesses that provide jobs, the differences between the quality of formal and informal sector employment must be noted. These differences also explain why, for many, having diversified
sources of home-based income is preferable to depending on exploitative informal sector employment. It is clear that, given the right economic conditions, (reasonable levels of inflation, access to markets
etc.), well-designed microfinance services can reduce poverty.
on raising incomes as the central objective of development programmes, the two are not synonymous. Clearly, the use to which income is put is as important in determining poverty and welfare as the level
of income itself - increased income can be (and often is) gambled away. It is also important to recognize that poverty is neither linear nor static, and that today's not-so-poor may well be tomorrow's poorest-
and vice versa. It is for this reason that the poor place so much emphasis on diversifying their sources of income, since this reduces their exposure to catastrophic income loss. Finally, in the context
of the drive to create businesses that provide jobs, the differences between the quality of formal and informal sector employment must be noted. These differences also explain why, for many, having diversified
sources of home-based income is preferable to depending on exploitative informal sector employment. It is clear that, given the right economic conditions, (reasonable levels of inflation, access to markets
etc.), well-designed microfinance services can reduce poverty.
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