Economic Portfolio - Development economics - Essay Example

rris, director of the Microcredit Summit Campaign, reports in The State of the Microcredit Summit Campaign Report 2006 that in the autumn of 2006, 3,133 microfinance institutions served 113 million families during the previous year. While that is a laudable accomplishment, more than 500 million families that would almost certainly benefit from microcredit remain impoverished, and at least another 300 million more might benefit from it. According to our best calculations, we estimate that only one out of every eight people who could benefit from microcredit currently has access to it.

As a weapon to fight poverty, microcredit is as vital as education, health, human rights, and good government and yet, as Richard Weingarten, executive secretary of the UN Capital Development Fund, says, “The demand for microfinance services remains largely unmet, especially in Africa.” Less than 1% of World Bank funding goes to microcredit. So, why does microcredit work so well in developing countries? The reason is the economies of developing countries are different from those of developed countries, often operating on a microscale, compared to the economies of the developed world.

What may at first appear to tourists as a flea market when visiting a developing country is in fact the community’s version of a mega-mall where all exchanges of goods are in cash. In place of massproduced name-brands, the market sells homegrown produce, household goods in small quantities, such as single bars of soap or a few squares of toilet paper, and clothing – much of it locally produced – plus a limited assortment of small luxuries that only a few shoppers can afford. Many of the vendors work from dawn to dusk for incomes that, without a little credit, often do not meet their families’ basic needs.

Every financial transaction has to be completed in cash, there are no banks or alternative sources for loans and no other access to financial services. A savings account is cash under the