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The Impact of Microfinance

How poor is the world?

In 2013, 10.7% of the world’s population lived on less than US$1.90 a day. By fall 2015, for the first time in history, less than 10% of the world’s population was living in extreme poverty — down from 37% in 1990 and 44% in 1981. For its latest estimates, The World Bank used an updated international poverty line of US $1.90 a day, which incorporates new information on differences in the cost of living across countries(the PPP exchange rates). The new line, however, preserves the real purchasing power of the previous line(of $1.25 a day in 2005 prices) in the world’s poorest countries.

While poverty rates have declined in all regions, The World Bank emphasizes that the progress has been uneven:

  • The reduction in extreme poverty between 2012 and 2013 was mainly driven by East Asia and Pacific (71 million fewer poor) — notably China and Indonesia — and South Asia (37 million fewer poor) — notably India.

  • Half of the extremely poor live in Sub-Saharan Africa. The number of poor in the region fell only by 4 million with 389 million people living on less than US$1.90 a day in 2013, more than all the other regions combined.

  • A vast majority of the global poor live in rural areas and are poorly educated, mostly employed in the agricultural sector, and over half are under 18 years of age.

  • As for the US — more than 45 million Americans are still living below the poverty line.

Extensive poverty in absolute numbers is both a significant inhibitor of harmonizes global growth and an opportunity for businesses and governments to expand the consumer realm without sacrificing long-term prosperity and wellbeing of the poor of the world.

Over the past decades, financial institutions have been developing a range of products to meet the diverse needs of this broad and underserved market across regions. Efforts in public and private sectors lead to nearly 1.1 billion people being able to move out of extreme poverty since 1990.

The emergence of microfinance as the answer to poverty

Microfinance — the provision of financial services to low-income people — has long been considered to be a strong tool in facilitating financial inclusion and building long-term resiliency in the face of unexpected hardships for vulnerable individuals and households around the world — in developed and developing countries alike. In 2016, banks catered to only 33% of the total number of borrowers for microfinance globally.

According to the Convergences Microfinance Barometer Statistics, the global microlending landscape has been experiencing a slow-but-steady growth. In 2016, microfinance institutions(MFIs) reached 132 million low-income clients with a loan portfolio worth US$102 billion. The total number of borrowers in the glob ...

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