SMEs, Microcredit and Poverty Reduction in Developing Countries.

Abstract

In recent years, much effort has been made and many studies have been put forward with regards to economic development and the reduction of poverty. The effort to ensure economic development and the alleviation of poverty is mainly focused in the underdeveloped and developing economies. Microcredit and small and medium enterprise (SMEs) finance are the two main alternative strategies, as put forward by many scholars, which create employment and micro-loan opportunities in many low-income countries. This study aims at capturing and/or discussing the extent to which these two alternative strategies have contributed to the reduction of poverty through the provision of micro-loans, and the creation of employment opportunities, thereby fostering economic development. Moreover, more than 80 percent of enterprises in the world are SMEs. These enterprises accounts for almost 60 percent of the private sector employment and make a large contribution to innovation and support regional development. Most importantly, the SME sector create self-employment for individuals, thereby helping them to be self-innovative. Microcredit on the hand is a relevant instrument that addresses credit constraint. The micro-loans that are given to an individual or a group of individuals will enable them to undertake entrepreneurial activities that will broadly foster self-economic development. These microcredit programmes play an important role in reducing income inequality, enhancing household income and creating employment for low-income households worldwide. However, there has been some doubts about microcredit and unanswered questions such as: does microcredit really help the poor?; are microcredit interest rates too excessive?; how has microcredit contributed to the reduction of poverty?; are microcredit programmes empowering women in developing countries?, are still been asked till date. This study attempts to give answers to these famously asked questions and also elaborate the impact of microcredit and SMEs on the reduction of poverty.