History of micro finance

http://www.guardian.co.uk/katine/2008/jun/03/livelihoods.projectgoals1

In 1974, an economics lecturer at the University of Chittagong, Bangladesh, lent $27 to a group of impoverished villagers. Thirty years later, the lecturer, Muhammad Yunus, won the Nobel peace prize and microfinance become the world's favorite development idea, the silver bullet that will cure world poverty and spread the wealth-creating force of capitalism across the globe. Only last month, Gordon Brown to help support microfinance institutions (MFIs) in Africa.

Microfinance has a beguiling simplicity and a record of success not just in promoting financial resilience but in achieving other social objectives – reaching the excluded, empowering women and developing the capacity of small groups of people to take control of their own lives.

Muhammud Yunus founded his Grameen Bank in 1983 to make very small loans – perhaps £15 a time – to the poor and uncreditworthy. Since then it has loaned about £3 billion to more than six million of the very poorest in Bangladesh and across the Asian sub-continent, yet it remains entirely self-financing. Borrowers' deposits cover the costs.

Although Grameen Bank is now instituting programmes for the destitute, its historical association has been with the slightly less poor, helping them to set up micro-enterprises that provide sustainable family incomes. It is a very slow process. The bank's impact research suggests that each year, only 5% of their clients are lifted out of poverty. Ill health, poor education and natural disasters are the three critical predictors of failure.

It is now experimenting with a holistic approach (where basic medical care is available at the same place the customer would go to repay an instalment of the loan), and offering adult education. It funds 20,000 student loans a year and provides 50,000 scholarships for schooling. It is also trying to find ways of helping creditors survive disaster, whether it is a personal accident or a major flood.

Professor Muhammad Yunus. Photograph: David Levene

Microfinance is now widely used in Africa, where among its pioneers is Care International UK, Barclays partner in developing financial services for the Katine project. While Grameen Bank is an institution that makes rigorous demands on its borrowers – new borrowers sign up in peer groups to, "the 16 Grameen decisions" (a range of pledges on everything from vegetable growing to no dowries) – Care International builds on the traditional village savings and loans associations (VSLAs) where a group saves a small amount each month and lends it out for immediate needs at high rates of interest.

At the end of each year, the VSLA's account is reckoned and profits paid out to investors before the group re-forms. It is small-scale, finite and an important tool in helping very poor people meet daily challenges such as the unforeseen medical bill, or an item of school uniform. In Katine, and other areas scarred by recent conflict, these groups can play an important role in rebuilding trust within a community.

At its lowest level, microfinance sees people through the worst of times. It is a form of insurance, of pooled risk among a group of villagers or neighbors’ where repayment is high because the borrowing is from friends and acquaintances.

At the next level, which many participants never aspire to, it might involve borrowing to start up a small enterprise, or to expand an existing one. Village savings and loan associations are less good for business because of the high interest rates charged and the short term of the loans. Care International's objective is to reach the most excluded and also to enable those who want to graduate into the more formal microfinance sector.

However, the success of microfinance has come under increasing scrutiny as evidence is demanded by donors and governments for the claims made for it as an economic and a social tool. Microfinance is a grown-up global brand now, and some of the shine has worn off.

As long ago as 1997, the Asian-based development analyst Vijay Mahajan was warning that although improving poor people's ability to withstand financial shocks is important, it did not make them less poor in itself. If it is to work as a tool of poverty alleviation, microfinance needs to support business. Yet a majority of people would rather have a safe job than take on the risks of running a business.

Katine shopkeeper Simon Eebu. Photograph: Dan Chung

Borrowing can be a cause rather than a cure for problems. People borrow to repay earlier loans and get overwhelmed by debt. Drop-out rates in East Africa have been as high as 60%, although they are much lower in Bangladesh where the Grameen programme operates in a more intensively structured manner. For the poorest, a safe place to save is the first essential. Meanwhile, evidence on the ground suggests that extending credit to the poorest delivers less than when it is targeted at those just above the poverty line. Finally Mahajan argues over-emphasis on microfinance can deter structural investment without which business will not work.

In 2005, the year that the UN dedicated to microfinance, others also stressed the need to begin by helping poor people to save and cast some doubts on the effectiveness of group financing.

Meanwhile the move to regulate and standardize microfinance institutions (MFIs) in order to create the climate where they can play a more formal role in the economy risks jeopardizing some of the things they do best – reaching the poorest and the disempowered. One study suggested a marked decline in the take-up of loans by women from regulated MFIs.

Care International acknowledges that many people who join village savings and loan groups want nothing more than a safe place to save and access to their money or to small borrowings for emergencies. But a few will want to go further: perhaps first to some form of simple insurance, and then to borrowing for investment.

So as well as setting up VSLAs, the organization provides expertise and advice to the next level of microfinance institutions, which will be a source of capital for VSLAs ready to expand and wanting to lend at more competitive rates of interest. And to fund that level, it has set up a global organization, MicroVest. Microfinance has limitations, but it remains one of the most promising ways of tackling poverty.

Microfinance - Background  http://www.iilj.org/courses/FDMicrofinanceBackground.asp

Microfinance consists of the provision of financial services in small increments, typically to very poor people. 

History

The beginnings of the microfinance movement are most closely associated with the economist Muhammed Yunus, who in the early 1970's was a professor in Bangladesh. In the midst of a country-wide famine, he began making small loans to poor families in neighboring villages in an effort to break their cycle of poverty. The experiment was a surprising success, with Yunus receiving timely repayment and observing significant changes in the quality of life for his loan recipients. Unable to self-finance an expansion of his project, he sought governmental assistance, and the Grameen Bank was born.  In order to focus on the very poor, the Bank only lent to households owning less than a half-acre of land. Repayment rates remained high, and the Bank began to spread its operations to other regions of the country. In less than a decade, the Bank was operating independently from its governmental founders and was advertising consistent repayment rates of about 98%. In 2006 Yunus was awarded the Nobel Peace Prize.

The success of the Grameen Bank did not go unnoticed. Institutions replicating its model sprang up in virtually every region of the globe. Between 1997 and 2002, the total number of MFIs grew from 618 to 2,572. Altogether, these institutions claimed about 65 million clients, up from 13.5 million in 1997 and still growing at 35% a year. The amount of money flowing to clients also continues to climb rapidly and the Grameen Bank has extended over $750 million worth of credit in the past two years alone.

Alongside the explosion of the microfinance industry in absolute terms, there has been a steady growth in private financing for MFIs. The bulk of microfinance funding is still provided by development-oriented international financial institutions and NGO's. Yet estimates place demand for unmet financial services at roughly 1.8 billion individuals. Even at its current growth rates, it is clear that microfinance will only be extended to meet this enormous demand by leveraging private capital, flows of which dwarf all other potential sources. Commercial financing has grown most rapidly in Latin America, where regulated financial institutions now serve 54% of the continent's microfinance clients and, importantly, are now responsible for 74% of the region's loans. Overall, 2005 saw private lending to MFIs jump from $513 million to $981 million.

This jump in investment is a reflection of an increasing number of sustainable MFIs worldwide.  In addition to earning a profit, sustainable microfinance providers are in a better position than their subsidized peers to expand their operations and share of the market. Thus in a study by the Consultative Group to Assist the Poor (CGAP) in which operationally-sustainable MFIs represented only 46% of the sample, they accounted for 77% of borrowers served.  The push towards sustainable institutions and the resulting growth of commercial

financing raise some important questions about the true mission of MFIs and how best to expand their reach. These issues are further developed in the materials below.

 

Benefits of microfinance

The very poor are unusually susceptible to income shocks. Death, illness, natural disaster, or other catastrophes can have devastating effects on households existing at or just above a subsistence level. With no asset base on which to draw in the crisis, they may be forced to severely reduce their level of consumption, which can be dangerous if it means forgoing basic healthcare and nutrition. Additionally, they may sell off important, income producing assets, exacerbating their economic difficulties well into the future.

Financial services that allow poor people to save in times of prosperity and borrow or collect insurance when necessary allow them to maintain a consistent level of consumption without selling off income-producing assets.  Microfinance can also provide an opportunity for expanding or pursuing new business opportunities that allow poor people to increase or diversify the sources of their income.  

It has also been argued by advocates that microfinance can also promote the development of a traditional financial sector. Most obviously, by alleviating poverty, microfinance can deepen the market for more traditional financial services.  In addition, MFIs and their clients can lobby for the creation of clearinghouses for information on borrowers' credit histories, easing of interest rate controls, greater foreign ownership of financial institutions, and opening local capital markets beyond a country's political elite, among other reforms. Such improvements could strengthen the financial sector as a whole, creating a feedback loop that could serve to lift even more families out of poverty.

Microfinance can also generate important non-economic benefits. For instance, many microfinance programs are aimed specifically at women.  It has been suggested that access to financial services enhances women's power and influence in the household. Their ability to make decisions over certain purchases and their new status as important household earners has been linked not only to increased bargaining power, but also to a decreased incidence of domestic violence. (Lower incidences of abuse could also be the result of third party scrutiny from loan officers and, in the case of group lending, fellow borrowers.) Furthermore, the opportunity to pursue business opportunities may make women more likely to use contraceptives and lower fertility rates. 

In addition, many MFIs couple their loan programs with educational efforts.  For example, loan officers may provide information on contraceptive use or disease prevention or domestic economics as well as methods of controlling saving and spending habits and various aspects of small business management.

 

Challenges associated with lending to the poor

Ultimately, microfinance is designed as a tool to reach impoverishes households that are not otherwise served by more traditional financial institutions. There are several reasons why it is difficult to lend money to the poor.

Hidden information

The primary problem with lending to the poor, and the main obstacle that microfinance is designed to overcome, is banks' lack of information about the inherent riskiness of potential clients.  The transaction costs of evaluating individual borrowers are very high relative to the size of the loans likely to be made to poor borrowers.  This means that to cover the expense of screening individual borrowers banks would be forced to charge correspondingly high interest rates to their clients.   Moreover, it is doubtful whether screening will provide accurate information given that potential borrowers have incentives to misrepresent their credit history and the risks of their respective projects. Without accurate information, banks will still charge high rates to cover the frequent incidence of default among the risky borrowers that will inevitably join their client base. Either way, interest rates will be high enough to drive borrowers with safe but relatively low returns out of the market. This problem is referred to as adverse selection.

Governments sometimes respond to this problem by imposing restrictions on interest rates charged by financial institutions in the form of usury laws or interest rate caps. With rates constrained, it would become impossible to provide banking services to the poor without significant and costly subsidies.

Moral hazard

Even borrowers whose projects are not inherently risky may refuse either to use their loans productively or, if they do use the loans productively, to repay their loans if their lenders have no means of enforcing their obligations.  This problem of moral hazard may arise because, for instance, local judges are biased in favor of debtors or police forces are stretched too thin to provide assistance. This problem can be exacerbated by competition among lenders, as in the absence of competition a lender can encourage repayment by refusing to provide future credit.

Absence of credit history

In societies with developed credit markets, problems stemming from inadequate information and moral hazard are mitigated by the fact that lenders routinely investigate borrowers' credit histories. . A record of a borrower's repayment history provides lenders with valuable information about the likelihood of future repayment.  In addition, the ability to tarnish a borrower's credit history and thereby limit the borrower's access to future credit provides lenders with leverage that they can use to induce repayment.

Lack of collateral

Another response to problems of hidden information is to require that borrowers provide collateral, meaning an asset that the lender can easily seize and, perhaps, sell in the event of default.  This allows banks to charge low interest rates even in the face of poor information about the borrower's prospects.  But many of the impoverished borrowers that microfinance seeks to reach lack assets that can effectively serve as collateral. When they do have assets,

they have are often illiquid. Livestock, for example, is not only subject to destruction, but can be very difficult to convert on the market for a traditional bank inexperienced in selling it. Furthermore, among these sorts of clients the only assets they have may be critical to their means of subsistence and legal or ethical restrictions may prevent banks from foreclosing upon them.

Micro finance in chaina

China’s economy may lead the region in many ways, but in one surprising area it is lagging behind: microfinance. The concept of distributing small loans to the poor has flourished across Asia since its introduction in Bangladesh three decades ago. Yet it has a notably minimal footprint in China.

A casual observer might say China doesn’t need microfinance. After all, it is now the world’s third-largest economy. But beyond the prosperous cities, millions of people still languish in poverty. China has the second-largest number of poor after India. About 254 million people in China lived on less than $1.25 a day in 2005 (as measured in purchasing power parity dollars), according to the World Bank. The income gap is widening between rural and urban areas and has today reached a historical high.

Microfinance is one tool that can reduce this entrenched poverty by providing entrepreneurs with credit, just as it has in other developing countries. Loan sizes would be larger than in India because GDP at purchasing power parity per capita in China is higher at $5,962 versus $2,972 in India, according to 2008 World Bank figures. But loans would still be used for income-generating activities such as raising livestock, buying materials for micro-businesses and farming, and setting up small trade and services. This is especially pertinent as the government seeks to create a “harmonious society” in part through poverty reduction and human development.

At the moment it is very difficult for China’s poorest citizens to get loans. The absence of civil society in China until recently means there are few established poverty-reduction programs and the role that they can play is relatively new. There is no coherent government policy to foster and oversee microfinance and there are no clear laws governing the industry. In addition, Chinese microfinance institutions are allowed to operate only in the county where they are registered, and obtaining licenses is a highly bureaucratic process.

Despite China’s extensive banking system, which includes government rural credit co-operatives that are meant to serve poor people in the countryside, the neediest are left out. Co-op loans tend to be too big, cumbersome and bureaucratic for the poorest citizens to access, and bank branches are not conveniently located.

Some Chinese microfinance institutions are starting to address this by partnering with foreign groups to learn their methods and put operations into place. That is a crucial first step, but their efforts will be limited unless Beijing creates a regulatory environment favorable for microfinance institutions. The government could start by boosting microfinance through

private village banks. This would require dropping investment restrictions on foreigners and loosening local license requirements.

China is understandably cautious after the failure of rural cooperative funds, which were depository institutions established in the 1980s to funnel lending to rural areas. Lack of effective supervision and meddling from local governments led to their closure in 1991. Many peasants never received their deposits back. Microfinance institutions, however, could be restricted from taking deposits, so wouldn’t present the same risk.

It will take hard work and reform to grow microfinance in China. But millions of poor people in China could benefit from the opportunities provided by a small but powerful loan.

Mr. Akula is founder and chairperson of SKS Microfinance. Mr. Khanna, the author of “Billions of Entrepreneurs” (Harvard Business School, 2008), is Jorge Paulo Lemann Professor at Harvard Business School and serves on SKS Microfinance’s board of directors.

Featured in Wall Street Journal Online, October 7, 2009

There are three main categories of microfinance investors: public investors, also known as international or development finance institutions (DFIs); individual investors, whether retail or high net worth; and institutional investors. See Figure 1. (p.2)

Failures of Microfinance

Despite the hoopla surrounding microcredit, few have studied its impact.10 One of the most comprehensive studies reaches a surprising conclusion: Microloans are more beneficial to borrowers living above the poverty line than to borrowers living below the poverty line.11

This is because clients with more income are willing to take the risks, such as investing in new technologies, that will most likely increase income flows. Poor borrowers, on the other hand, tend to take out conservative loans that protect their subsistence, and rarely invest in new technology, fixed capital, or the hiring of labor.

Microloans sometimes even reduce cash flow to the poorest of the poor, observes Vijay Mahajan, the chief executive of Basix, an Indian rural finance institution. He concludes that microcredit “seems to do more harm than good to the poorest.”12 One reason could be the high interest rates charged by microcredit organizations. Acleda, a Cambodian commercial bank specializing in microcredit, charges interest rates of about 2 percent to 4.5 percent each month. Some other microlenders charge more, pushing most annual rates to between 30 percent and 60 percent.13 Microcredit proponents argue that these rates, although high, are still well below those charged by informal moneylenders. But if poor clients cannot earn a greater return on their investment than the interest they must pay, they will become poorer as a result of microcredit, not wealthier.

Another problem with microcredit is the businesses it is intended to fund. A microcredit client is an entrepreneur in the literal sense: She raises the capital, manages the business, and takes home the earnings. But the “entrepreneurs” who have become heroes in the developed world are usually visionaries who convert new ideas into successful business models. Although some microcredit clients have created visionary businesses, the vast majority are caught in subsistence activities. They usually have no specialized skills, and so must compete with all the other self-employed poor people in entry-level trades.14 Most have no paid staff, own few assets, and operate at too small a scale to achieve efficiencies, and so make very meager earnings. In other words, most microenterprises are small and many fail – contrary to the United Nations’ hype that microentrepreneurs will grow thriving businesses that lead to flourishing economies.

This should not be too surprising. Most people do not have the skills, vision, creativity, and persistence to be entrepreneurial. Even in developed countries with high levels of education and access to financial services, about 90 percent of the labor force is employees, not entrepreneurs.15

The reality of microcredit is less attractive than the promise.16 Even a stalwart proponent of neoliberal policies like The Economist is beginning to conclude that “the few studies that have been done suggest that small loans are beneficial, but not dramatically so.”

Definition of 'Microfinance'

A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

What is Microfinance?

Microfinance refers to a variety of financial services that target low-income clients, particularly women. Since the clients of microfinance institutions (MFIs) have lower incomes and often have limited access to other financial services, microfinance products tend to be for smaller monetary amounts than traditional financial services. These services include loans, savings, insurance, and remittances. Microloans are given for a variety of purposes, frequently for microenterprise development. The diversity of products and services offered reflects the fact that the financial needs of individuals, households, and enterprises can change significantly over time, especially for those who live in poverty. Because of these varied needs, and because of the industry's focus on the poor, microfinance institutions often use non-traditional methodologies, such as group lending or other forms of collateral not employed by the formal financial sector.

MIX recognizes many general definitions of microfinance, but for analysis purposes, employs a functional definition: Microfinance services – as opposed to financial services in general – are retail financial services that are relatively small in relation to the income of a typical individual. Specifically, the average outstanding balance of microfinance products is no greater than 250% of the average income per person (GNI per capita).

http://www.themix.org/about/microfinance#ixzz2RYLrghqp

Definition of 'Poverty'

A state or condition in which a person or community lacks the financial resources and essentials to enjoy a minimum standard of life and well-being that's considered acceptable in society. Poverty status in the United States is assigned to people that do not meet a certain threshold level set by the Department of Health and Human Services.

Where people's basic needs for food, clothing, and shelter are not being met. Poverty is generally of two types:

(1) Absolute poverty is synonymous with destitution and occurs when people cannot obtain adequate resources (measured in terms of calories or nutrition) to support a minimum level of physical health. Absolute poverty means about the same everywhere, and can be eradicated as demonstrated by some countries.

2) Relative poverty occurs when people do not enjoy a certain minimum level of living standards as determined by a government (and enjoyed by the bulk of the population) that vary from country to country, sometimes within the same country. Relative poverty occurs everywhere, is said to be increasing, and may never be eradicated.

: http://www.businessdictionary.com/definition/poverty.html#ixzz2RYNwlLbY

Indian definition

In India, norms set by the country’s main planning body to calculate poverty have been slammed by critics who fear they will exclude vast numbers of the needy from social welfare programs. About one third of India’s 1.2 billion populations is poor, according to official estimate

"Poverty" defined as an economic condition of lacking both money and basic necessities needed to successfully live, such as food, water, education, healthcare, and shelter. There are many working definitions of "poverty," with considerable debate on how to best define the term. Lack of income security, economic stability and the predictability of one's continued means to meet basic needs all serve as absolute indicators of poverty. Poverty may therefore also be defined as the economic condition of lacking predictable and stable means of meeting basic life needs.

20 Poorest Countries In The WorldBy Sammy S. on May 27, 2012

What are the poorest countries in the world? The rankings below were published in Wikipedia from International Monetary Fund’s 2011 gross domestic product per capita (GDP per capita) report and reflecting the countries with the lowest purchasing power parity (PPP). Since 1970, there has been encouraging news emerging from developing countries. According to the UN’s 2010 Human Development Report, life expectancy in developing countries has increased from 59 years in 1970 to 70 years in 2010. School enrollment climbed from 55% to 70% of all primary and secondary school-age children. Also, in the last forty years, per capita GDP doubled to more than ten thousand U.S. dollars. Poor countries are catching up with the wealthier countries, but not all countries are making fast progress. For example, some countries in Sub-Sahara Africa have little or no progress, largely due to the HIV epidemic and civil wars.

The 20 Poorest Countries:

#1. Congo, Democratic Republic of the

GDP Per Capita: $348 (As of 2011)

Not to be mixed with the neighboring Republic of Congo, the Democratic Republic of the Congo has become the poorest country in the world as of 2010. Democratic Republic of the Congo was known as Zaire until 1997. Congo is the largest country in the world that has French as an official language – the population of D.R Congo is about six million larger than the population of France (71 million people in D.R Congo vs 65 million in France). The Second Congo War beginning in 1998 has devastated the country. The war that involves at least 7 foreign armies is the deadliest conflict in the world since World War II – by 2008 the Second Congo War and its aftermath had killed 5.4 million people.

#2. Liberia

GDP Per Capita: $456 (As of 2011)

Liberia is one of the few countries in Africa that have not been colonized by Europe. Instead, Liberia was founded and colonized by freed slaves from America. These slaves made up the elite of the country and they established a government that closely resembled that of the United States of America. In 1980 the president of Liberia was overthrown and a period of instability and civil war followed. After the killings of hundreds of thousands, a 2003 peace deal was led to democratic elections in 2005. Today, Liberia is recovering from the lingering effects of the civil war and related economic dislocation, with about 85% of the population lives below $1 a day.

#3. Zimbabwe

GDP Per Capita: $487 (As of 2011)

The government of Zimbabwe released its largest bank note 100 trillion dollar bill issued on January 2009. In addition to the economic problems the life expectancy of Zimbabwe is the lowest in the world – 37 years for men and just 34 for women. One of the problems for the early deaths are the 20.1% of the population with HIV and AIDS. The health issues aren’t seeing any improvement.

#4. Burundi

GDP Per Capita: $615 (As of 2011)

Burundi is known for its tribal and civil wars.  Burundi have never really had any peaceful time between the everlasting civil wars as a result its the fourth poorest country. Owing in part to its landlocked geography, poor legal system, lack of economic freedom, lack of access to education, and the proliferation of HIV and AIDS.  Approximately 80% of Burundians live in poverty and according to the World Food Programme 57% of children under 5 years suffer from chronic malnutrition; 93% of Burundi’s exports revenues come from selling coffee.

#5. Eritrea

GDP Per Capita: $735 (As of 2011)

Affected by the Italian colonizers of the 19th century.  Eritrea’s advantage of controlling the sea route through the Suez Canal made the Italians to colonized it just a year after the opening of the canal in 1869 and same reason the British conquered it in 1941.  The present Eritrea’s economic conditions have not improved and real gross domestic product growth averaged 1.2 percent between 2005 and 2008; in 2009 GDP growth was estimated at 2.0 percent.

#6. Central African Republic

GDP Per Capita: $768 (As of 2011)

Despite its significant mineral resources; uranium reserves in Bakouma, crude oil, gold, diamonds, lumber, hydropower  and its arable land, it remains one of the poorest countries in the world.  Diamonds constitute the most important export of the Central Africans Republic, accounting for 40–55% of export revenues. The 2010 UNDP Human Development Report ranks CAR near the bottom of its Human Development Index (159th out of 162 countries) and unlikely to meet its MDG goals. The proportion of Central Africans living on $1 a day has decreased slightly to 62%  but it needs to be half of that in order to reach the 2015 goal.

#7. Niger

GDP Per Capita: $771 (As of 2011)

With over 80% of its land is covered by the giant desert of Sahara, Niger has a Gross Domestic Product (GDP) per capita in Parity Purchasing Power (PPP) terms of US$771 as of 2011, one of the lowest in Africa. Niger’s poverty is exacerbated by political instability, extreme vulnerability to exogenous shocks and inequality which affects girls, women and children disproportionately. In January 2000, Niger’s newly elected government inherited serious financial and economic problems including a virtually empty treasury and was qualified for enhanced debt relief under the International Monetary Fund program for Highly Indebted Poor Countries.

#8. Sierra Leone

GDP Per Capita: $849 (As of 2011)

A West African country with English as its official language, Sierra Leone has relied on mining, especially diamonds, for its economic base and home to the third largest natural harbour in the world where shipping from all over the globe berth at Freetown’s famous Queen Elizabeth II Quay.  It is among the top diamond producing nations in the world, and mineral exports remain the main foreign currency earner and also among the largest producers of titanium and bauxite, and a major producer of gold. Despite this natural wealth, 70% of its people live in poverty. If you have seen the movie Blood Diamond you should know that it is based on Sierra Leone.

#9. Malawi

GDP Per Capita: $860 (As of 2011)

Malawi has one of the lowest per capita incomes in the world, with 53% (2004) living under the poverty line. In December 2000, the IMF stopped aid disbursements due to corruption concerns, and many individual donors followed suit, resulting in an almost 80% drop in Malawi’s development budget. In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program. In December 2007, the US granted Malawi eligibility status to receive financial support within the Millennium Challenge Corporation (MCC) initiative. Agriculture accounts for 35% of GDP, industry for 19% and services for the remaining 46%.  In addition, some setbacks have been experienced, and Malawi has lost some of its ability to pay for imports due to a general shortage of foreign exchange, as investment fell 23% in 2009.

#10. Togo

GDP Per Capita: $899 (As of 2011)

This small, sub-Saharan economy suffers from anemic economic growth and depends heavily on both commercial and subsistence agriculture, which provides employment for a significant share of the labor force. Cocoa, coffee, and cotton generate about 40% of export earnings with cotton being the most important cash crop. Togo is among the world’s largest producers of phosphate. Approximately one half of the population lives below the international poverty line of US$1.25 a day.

#11. Madagascar

GDP Per Capita: $934 (As of 2011)

Madagascar’s mainstay of growth are tourism, agriculture and the extractive industries. Approximately 69% of the population lives below the national poverty line threshold of one dollar per day. The agriculture sector constituted 29% of Malagasy GDP in 2011, while manufacturing formed 15% of GDP. Tourism dropped more than 50% in 2009 compared with the previous year, and many investors are wary of entering the uncertain investment environment.

#12. Afghanistan

GDP Per Capita: $956 (As of 2011)

Afghanistan is probably the only poorest country in the world that doesn’t need any introduction. Due to the decades of war and nearly complete lack of foreign investment, the nation’sGDP per capita stands at $956. Its unemployment rate is 35% and 42 % of the population live on less than $1 a day.  As tribal warfare and internecine feuding has been one of their chief occupations since time immemorial. History has never seen Afghanistan lose a war. They might be one of the poorest but they know how to fight. Instead of a traditional army they simply resist with small counter attacks that eventually tire out the enemy.

#13. Guinea

GDP Per Capita: $1,083 (As of 2011)

Guinea also has diamonds, gold, and other metals. The country has great potential for hydroelectric power. Bauxite and alumina are currently the only major exports. Guinea’s poorly developed infrastructure and rampant corruption continue to present obstacles to large-scale investment projects. Agriculture employs 80% of the nation’s labor force. Under French rule, and at the beginning of independence, Guinea was a major exporter of bananas, pineapples, coffee, peanuts, and palm oil. From independence until the presidential election of 2010, Guinea was governed by a number of autocratic rulers, which has contributed to making Guinea one of the poorest countries in the world.

#14. Mozambique

GDP Per Capita: $1,085 (As of 2011)

One of the poorest and most underdeveloped country in the world, 75% of the population engages in small-scale agriculture, which still suffers from inadequate infrastructure, commercial networks, and investment. The minimum legal salary is around US$60 per month.

#15. Ethiopia

GDP Per Capita: $ 1,093 (As of 2011)

Ethiopia suffers from poverty, and poor sanitation.  In the capital city of Addis Ababa, 55% of the population lives in slums. Despite its fast growth in recent years, GDP per capita is one of the lowest in the world, and the economy faces a number of serious structural problems. Ethiopia’s economy is based on agriculture, which accounts for 41% of GDP and 85% of total employment. Agricultural productivity remains low, the sector suffers from poor cultivation practices and frequent drought.

#16. Mali

GDP Per Capita: $1,128 (As of 2011)

With 50% of the population living below the international poverty line of US$1.25 a day, Mali is one of the poorest countries in the world.  Some of its natural resources are gold, uranium, livestock, and salt. Mali remains dependent on foreign aid. Economic activity is largely confined to the riverine area irrigated by the Niger River and about 65% of its land area is desert or semidesert. Mali experienced economic growth of about 5% per year between 1996-2010. The government in 2011 completed an IMF extended credit facility program that has helped the economy grow, diversify, and attract foreign investment.

#17. Guinea-Bissau

GDP Per Capita: $1,144 (As of 2011)

Guinea-Bissau’s legal economy depends mainly on farming and fishing, but trafficking in narcotics is probably the most lucrative trade. With 60% of the population living below the poverty line, drug traffickers based in Latin America use Guinea-Bissau, along with several neighboring West African nations, as a transshipment point to Europe for cocaine. The government and the military did almost nothing to stop this business.

#18. Comoros

GDP Per Capita: $ 1,232 (As of 2011)

Made up of three islands with rapidly increasing population, and few natural resources. As of 2008 about 50% of the population lives below the international poverty line of US$1.25 a day, due to numerous coups d’etat since independence in 1975.

#19. Haiti

GDP Per Capita: $1,235 (As of 2011)

Haiti is a free market economy that enjoys the advantages of low labor costs and tariff-free access to the US for many of its exports. Poverty, corruption, and poor access to education for much of the population are among Haiti’s most serious disadvantages. Haiti’s economy suffered a severe setback in January 2010 when a 7.0 magnitude earthquake destroyed much of its capital city, Port-au-Prince, and neighboring areas. Already the poorest country in the Western Hemisphere with 80% of the population living under the poverty line and 54% in abject poverty, the earthquake inflicted $7.8 billion in damages.  Seven out of ten Haitians live on less than US$2 a day, according to the International Red Cross.

#20. Uganda

GDP Per Capita: $1,317 (As of 2011)

Uganda is one of the poorest nations in the world, with 37.7 percent of the population living on less than $1.25 a day. Uganda has substantial natural resources, including fertile soils, regular rainfall, small deposits of copper, gold, and other minerals, and recently discovered oil. Despite making enormous progress in reducing the countrywide poverty incidence from 56 percent of the population in 1992 to 31 per cent in 2005, poverty remains deep-rooted in the country’s rural areas, which are home to more than 85 per cent of Ugandans.

[Source: Wikipedia/International Monetary Fund]

Microfinance: A Tool for Poverty Reduction

Micro Mess