Want to Decrease Poverty? Increase Rural Financial Inclusion

According to the World Bank, between 1990 and 2013, the number of people living in extreme poverty fell by nearly 1.1 billion. Since the 2008 financial crisis, the proportion of people in extreme poverty fell from 17.8 per cent of the global population, to 10.8 per cent.

But, the next billion will be harder.

Poverty is reduced by addressing inequality, and when a country’s economic growth is more evenly distributed among its citizens. However, we know that isn’t as easy as it sounds, and inequality exists for many different reasons.

Nowhere is this more keenly felt than in remote, rural communities. Of all the worlds poor, 75-80 per cent live in rural areas, with 64 per cent relying on agriculture for their income. Whilst we have seen dramatic reductions in poverty in China and India over the past 20 years from economic growth, this has been mostly urban focused and has not trickled down to rural communities.

In some places, this means a widening gap between rich and poor, and a split between rural and urban versions of poverty. This trend inevitably leads to migration from rural communities to cities small and large, in search of more opportunities and incomes for families. It isn’t uncommon for men to leave their households, putting pressure on women to raise families, tend to crops and maintain homes or for women to leave households to work as domestic servants in cities or other countries. Communities become more divided through economic forces.

The challenge for microfinance providers is to help provide economic growth opportunities in these rural areas through providing access to funding and working with partners to promote radically enhanced farm incomes. It is where there is the most need, and where the most vulnerable people reside.

Microfinance networks continue to deal with the familiar challenges of serving rural markets, the costs involved, and the inefficiency of servicing remote clients. But it is essential to continue innovating microfinance services by: finding ways to cut out inefficiency, using technology to serve more clients and save time and money for loan officers and clients alike, and forming partnerships with public and private sectors to do so. For sustainable and sizeable change it is imperative that the engine is private sector economic growth itself which has vastly more resources and incentive than government or NGOs. The role of microfinance is to work with private sector along with other partners and local communities to facilitate the engine’s operation in communities, opening up future opportunities.

As this Month of Microfinance kicks off, a focus on serving rural populations and targeting those at the bottom of the economic ladder is essential. It is the way the microfinance industry will truly make a difference, and make sure the world’s rural poor don’t get left behind.

By Peter Harlock (Global Strategy Director, Vision Fund International)

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