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Access to Credit: A Viable Means of Poverty Alleviation

Shawna-Gay White
2010

Abstract

Poverty reduction has been the concern of all nations irrespective of their stages of development. While there are many theories dedicated to poverty alleviation, the common element that many of them have is the need for access to credit. If the talented poor are allowed credit access they can invest in capital that will increase their income. In providing this access, several financial products are being used: payday lending, credit cards, and microfinance. Unfortunately, however, payday lending and credit card use tends to exacerbate and not alleviate the poverty problem. Payday lenders charge borrowers a high proportional fee that results in borrowers paying exorbitant interest on a small loan. Similarly, the abundance of fees charged on credit card purchases leaves many borrowers struggling under a mountain of debt that they cannot support.

Nevertheless, the use of microfinance in conjunction with adequate training can provide potential microentrepreneurs with the business skills and the access to credit needed to lift themselves out of poverty. Microloans enable borrowers to form businesses that will provide them with higher income. Additionally, the training they receive ensures that they are more adequately prepared to run a microenterprise and thus are more likely to be success. The result is a viable means of poverty alleviation.

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