Extreme poverty has been the first goal-target of sustainable development initiatives since the UN began the various development programs based on the 2030 Sustainable Development Goals. That goal, to eradicate extreme poverty completely, has since been adjusted to a goal of 3% from the current estimate of 10% of the global population who live in extreme poverty.
Extreme poverty is decreasing around the world, but not fast enough. This conclusion has been reached by the major thought leaders working in the field- the Gates Foundation, Brookings Institute, the United Nations Development Programmes. The work that has been done since the Sustainable Development goals were first written to eradicate extreme poverty have led to new understandings and definitions of extreme poverty.
In 2015 the World Bank took the last number, $1.25 per day, and adjusted it for increased cost of goods and services to $1.90 per day. The original dollar figure for extreme poverty was found by averaging the standards for consumption and purchasing power in the poorest countries. The new figure does not take into account these changing national poverty lines. The UN currently estimates 836 million people are living in extreme poverty world wide.
The UN has taken a multidimensional approach to defining extreme poverty, and has measured its effects across health, education, and standard of living. Measures of health include infant and child mortality and measures of malnutrition; standards of living include issues such as access to safe drinking water and electricity in the home.
The leaders working to eradicate or significantly reduce extreme poverty agree on several things. Economic growth will need to be inclusive across populations in order to provide opportunity that is sustainable, and efforts need to be focused on Africa.
The new understanding of global poverty and financial dynamics takes into account the rise of the middle class in Asia– the Brookings Institute estimates that half of the world is now considered to be living in the middle class. In addition both new opportunities and refined measurement in India will lead to significantly reduced extreme poverty–less than 50 million in 2018. Africa remains problematic, with increasing levels of extreme poverty.
If economic growth will need to be inclusive and multidimensional, what role does microfinance play for those living in extreme poverty? The early narratives were that microfinance could provide opportunities for sustainable small businesses, the kind that could lift families out of extreme poverty and, hopefully, into the middle class. With more experience, it was understood that a multidimensional approach to services was needed to support that ambitious goal. People needed education, inclusive financial services, a vibrant market, infrastructure such as communications and transportation, in order to be successful in the long term with a small business venture supported by microfinance. In addition, areas of conflict and significant social and gender inequity were not successful in a free market approach for the new small business owner.
Some analysts note that understanding how to run a small business and having an entrepreneurial mindset, combined with financial literacy education, is needed for a successful venture. Others note that in geographic areas of extreme poverty, microfinance can saturate a community with more small businesses of a similar nature than the market can support. In addition, having to use micro loans for emergencies and daily needs, rather than having savings, worsens the situation for many families.
Studies of the impacts of microfinance has shown disparate results, and some of this disparity is in how success is measured. A macroeconomic study which looked at both overall participation in micro lending programs and country-wide poverty levels showed that the more people participating in micro lending programs, the lower the country-wide poverty levels. Most studies that are looking at poverty reduction are measuring short-term outcomes; these outcomes also are showing mixed results, with some showing up to an 18% reduction in extreme poverty, to the most challenged and disadvantaged clients having the poorest outcomes. In many cases, the need to divert funds from an economic opportunity to emergency consumption is the key to failure.
But the broadest range of mixed results of microfinance initiatives on those living in extreme poverty seems to be regional and country based, and these results are impacted by issues outside traditional financial services: infrastructure, financial inclusion and literacy, conflict, health and education, and most importantly, gender inequality.
There is no question that gender dynamics impacts the success or failure of microfinance initiatives. Improving economic opportunity alone does not always show an impact on the multidimensional attributes the UN is using to measure extreme poverty, such as health and education- these factors are impacted by social and cultural factors that may have as much power as economics. Microfinance has been highly associated with the gender inequality that impacts women and children around the world. However, the multidimensional nature of gender inequality means that microfinance is only a single factor in a multi-factorial issue.
Extreme poverty is also a multi-factorial issue, and while micro lending and other financial inclusion efforts can impact extreme poverty, financial services in isolation are unlikely to lift people out of extreme poverty.
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