Rural Poverty and Microcredit in Third World Economies Essay

Rural Poverty and Microcredit in Third World Economies - Essay Example The traditional obsession with macro policies implemented at the state level has at most been disastrous. This, coupled with the inefficient delivery of aid to the poor nations, has only increased corruption, high and persistent inflation and unemployment, political repression and burdensome external and public sector debts (Woller and Wordworth 269) . This paper is divided into two parts. Part one looks at the latest strategy, microcredit, floated as a possible solution to ending rural poverty in Third World countries. Microcredit embodies the specific recognition that the lack of access to credit can be a limiting factor for significant numbers of the economically active poor. The second part seeks out a way through which the West can deliver aid effectively, efficiently and accountable to help combat rural poverty. The origins of microcredit Since the end of World War II few countries have moved from underdeveloped to developed status with the exception of the Asian tiger economi es. Though the reasons for this remain numerous and complex, Woller and Wordworth (268) attribute a large portion of the blame to widespread macro development policy failure. In the past it was believed that the best way to tackle poverty is through top-down, state-led development policies modeled on the experience of the Western industrial nations. These policies favored large-scale industrialization and concentration of economic power on elite groups. To make matters worse the international aid community reinforced the ills of these policies by pouring billions of dollars into numerous, and often dubious, large-scale state development projects (Woller and Wordsworth 268). Worse still, from the late 1960s, a rural alternative to the state-led modernization drive called the Green Revolution was initiated. The Green Revolution essentially forced Western agricultural practices on indigenous Third World peasant farmers, with many small family plots being expropriated by central gover nments and leased out to huge multinationals in the Europe and America. The end result of all these policies was uneven industrialization, high and persistent inflation and unemployment, endemic corruption, political repression and burdensome external and public sector debts (Woller and Wordsworth 269). In recent years economic growth has picked up creating a new sense of optimism for the Third World. However, even in a best-case scenario, it would be foolish to expect poverty eradication in these countries in the next few years. Woller and Wordsworth (270) are convinced that in the absence of policies that provide economic opportunities for the poor, macro development policies will continue to bypass the poor. What the Less Developed Countries (LDCs) need are small, concrete efforts that emanate from the grass-roots. The microcredit movement is part of this new paradigm that has emerged from the underground economy of the poor. The microcredit rationale Microcredit is defined as programs that extend small loans to poor people for self-employment projects that generate income (Woller and Wordsworth 267). With limited employment opportunities, in both rural and urban areas, millions of poor people in LDCs must earn their living through self-employment in the informal economy. This involves engaging in activities such as hawking, bicycle and/or rickshaw transportation, collecting scrap and running small shops. However, even these self-employment opportunities require capital for starting up, running or expansion.