Tuesday, June 02, 2009
Poverty alleviation: Role of Financial and Insurance Institutions
The stabilization of the kwacha on the market coupled with the lowering on bank interest rates can be a panacea to economic development most especially in trying to fish the poor from the vicious cycle of grinding poverty. The lowering of the interest rates could lead to widening access to credit and mortgage facilities to many poor people.
Access to credit is an important element in economic development as it supports small-business creation and provides greater financial flexibility to local communities and to the whole economy as a whole. Access to credit among the poor is one of the vital weapons in the struggle against the ‘silent holocaust’ of poverty.
Loans have a great effect to help the poor to diversify their risks, invest in productive assets, and enable education, healthcare and lifestyle expenses to be within reach. Access to credit enables the poor to smooth consumption during periods of low income or unexpected loses without having to sell productive assets or spend working capital.
A great challenge to financial institutions in the present scenario is that it appears that the financial system in its present state favours larger corporate borrowers than individual households. Further beyond, smaller borrowers receive higher-priced loans than the large corporate borrowers. In the very end, the lowering of bank interest rates has had little impact on the lives of poor.
His Excellency the State President Dr. Bingu wa Mutharika once challenged banking institutions to revise their credit banking policies to be in line with means for fighting poverty among the masses. Recently, the Minister of Economic Planning and Development Hon. Ken Lipenga added a voice to the same call. In a country where over half of the population live below the poverty line, it sounds more of an alienating factor to expect the same people to have collateral in case of requesting for loans.
S. Rutherford stresses that a good financial service for the poor is one that is done in the most convenient, flexible, affordable and surest way.
Worldwide banks are now positively responding to the call of providing financial services to the poor. Permanent access to financial services can help poor people take control of their lives. To overcome poverty, people need to be able to borrow, save, invest and protect their families against risks. As Lannart Barg argues, direct access to financial services can allow very poor people to progress.
Access to credit performs wonders when it is supported by access to insurance services. Whilst both savings and credit facilities are integral in assisting the poor overcome unforeseen loses their benefits are limited to the capacity of the individual to save or make repayments says Sabbir Patel in the article: “Insurance and poverty alleviation.”
In the agro-based Malawi economy, many poor people require access to insured loans to invest in farming. In many areas in Malawi people can benefit from livestock insurance as well as crop insurance schemes. Such insurances have the power to protect the farmers from loses of climatic and natural disasters.
At present the poor have little means for money management as there is little access to banking and insurance services. It only requires a little change in the business philosophies of banking and insurance institutions to enable the poor enjoy the benefits of their services. As expressed in the book: “Empowerment and poverty reduction,” empowering poor men and women requires the removal of formal and informal institutional barriers that prevent the poor from taking action to improve their well being – individually or collectively – and limit their choices.
The development of the nation must start with addressing the plight of the poor who are in the majority.
Access to credit is an important element in economic development as it supports small-business creation and provides greater financial flexibility to local communities and to the whole economy as a whole. Access to credit among the poor is one of the vital weapons in the struggle against the ‘silent holocaust’ of poverty.
Loans have a great effect to help the poor to diversify their risks, invest in productive assets, and enable education, healthcare and lifestyle expenses to be within reach. Access to credit enables the poor to smooth consumption during periods of low income or unexpected loses without having to sell productive assets or spend working capital.
A great challenge to financial institutions in the present scenario is that it appears that the financial system in its present state favours larger corporate borrowers than individual households. Further beyond, smaller borrowers receive higher-priced loans than the large corporate borrowers. In the very end, the lowering of bank interest rates has had little impact on the lives of poor.
His Excellency the State President Dr. Bingu wa Mutharika once challenged banking institutions to revise their credit banking policies to be in line with means for fighting poverty among the masses. Recently, the Minister of Economic Planning and Development Hon. Ken Lipenga added a voice to the same call. In a country where over half of the population live below the poverty line, it sounds more of an alienating factor to expect the same people to have collateral in case of requesting for loans.
S. Rutherford stresses that a good financial service for the poor is one that is done in the most convenient, flexible, affordable and surest way.
Worldwide banks are now positively responding to the call of providing financial services to the poor. Permanent access to financial services can help poor people take control of their lives. To overcome poverty, people need to be able to borrow, save, invest and protect their families against risks. As Lannart Barg argues, direct access to financial services can allow very poor people to progress.
Access to credit performs wonders when it is supported by access to insurance services. Whilst both savings and credit facilities are integral in assisting the poor overcome unforeseen loses their benefits are limited to the capacity of the individual to save or make repayments says Sabbir Patel in the article: “Insurance and poverty alleviation.”
In the agro-based Malawi economy, many poor people require access to insured loans to invest in farming. In many areas in Malawi people can benefit from livestock insurance as well as crop insurance schemes. Such insurances have the power to protect the farmers from loses of climatic and natural disasters.
At present the poor have little means for money management as there is little access to banking and insurance services. It only requires a little change in the business philosophies of banking and insurance institutions to enable the poor enjoy the benefits of their services. As expressed in the book: “Empowerment and poverty reduction,” empowering poor men and women requires the removal of formal and informal institutional barriers that prevent the poor from taking action to improve their well being – individually or collectively – and limit their choices.
The development of the nation must start with addressing the plight of the poor who are in the majority.
