Poverty Alleviation and Micro-credit Institutions - Essay Example

Policy Brief: Poverty alleviation and Micro-credit s World Bank is the leading international financial that works towards improving the living standard of the people in the developing and under-developed countries through easy credit to various poverty alleviation programs run by the states and the voluntary agencies for the poor. In the recent times, micro credits and micro-credit institutions have become popular mechanisms of empowerment of underprivileged segment of society living in extreme poverty and sub human conditions in various parts of the world.

Need for alternative financial institutions The commercial banks primarily disburse credit and loans to people and institutions who have repayment capability and at the same time, ensure that loans are against securities that can be used to compensate them in case of default in repayment. These criteria become irrelevant for informal sector where people are living below poverty line and have neither job security nor any other kind of financial backing. To improve the living conditions and raise their living standard, non formal mechanisms of micro-credit become essential in the rural areas.

The micro credit is designed to promote empowerment through income generating activities.Mechanisms utilized by micro-credit institutions The institutions facilitate easy credit to poor and ensure repayment through innovative schemes and incentives. The problems due to asymmetry in information, screening and enforcement are often overcome through integrated approach and providing inter-linkages to the credit and the commodities. The institutions also promote formation of self help groups and compulsory contribution to the emergency fund that can be utilized by the members in times of emergencies.

Potential impact of micro-credit programs on poverty alleviation The micro-financing is one of the key factors of poverty alleviation programs as it helps to provide the poor with the necessary credit to start income generating activity and thereby raise the living standard of the people in the developing countries. The innovative mechanisms and integrated approach help facilitate minimum standard of living and access to medical facilities, food and housing for every human being, irrespective of race, religion, political belief and socio-economic conditions.

RecommendationsWorld Bank is one the premier financial institutes of the world that must take initiative in encouraging microfinance to the informal sector in the developing economies.To encourage more funding through other international aid agencies and private donors, World Bank must facilitate requisite information and updated database of beneficiaries and poverty alleviation programs of under-developed and developing economies.It should device effective control measures that would prevent misuse of funds and at the same time, ensure that the fund actually reaches the needy and used by them to improve their living standard.

The bank should encourage more proactive participation from the non government agencies and corporate houses to contribute to the socio-economic development and empowerment of the vulnerable segment of the society, so that they become part of mainstream population and help contribute towards its development.