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Microfinance and Poverty in Bolivia

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  • P. Mosley

Abstract

Both in its institutional range and in its penetration of financial markets, the microfinance sector in Bolivia rivals any in the world, and has played a major part in extracting the macro-economy from meltdown since the mid-1980s. We seek specifically to assess its impact on poverty, and do this through small-sample surveys on four microfinance institutions, two urban and two rural, using a range of poverty concepts: income (generated both through the borrower's enterprise and through the labour market), asset holdings and diversity, and various measures of vulnerability. All the institutions studied had, on balance, positive impacts on income and asset levels, with income impacts correlating negatively with income on account of poor households choosing to invest in low-risk, low-return assets. Microfinance may, however, augment vulnerability: average debt-service ratios of microfinance clients are disturbingly high, and if the coping mechanisms used by borrowers fail, borrowers may be forced out of the microfinance system, possibly resulting in decapitalisation and impoverishment. Poorer households are more restricted in their choice of coping strategy, and many as a consequence 'choose' coping strategies more likely to jeopardise their long-term income prospects, in particular asset sales and cuts in children's schooling. The more successful low-income borrowers are those who have voluntary savings deposits and do not rush into fixed capital purchases too early: collapse back into poverty is associated with multiple crises and the failure of one or more 'safety nets', in particular of one or more 'safety nets', in particular support from a member's solidarity group. The following actions appear to be promising for the further reduction of poverty in Bolivia: stronger efforts to mobilise rural savings, removal of lower limits on loan size, and the introduction of appropriate insurance mechanisms. In comparison with other anti-poverty measures, microfinance appears to be successful and relative cheap at reducing the poverty of those close to the poverty line, but ineffective, by comparison with labour-market and infrastructural measures, in reducing extreme poverty.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Journal of Development Studies.

Volume (Year): 37 (2001)
Issue (Month): 4 ()
Pages: 101-132

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Handle: RePEc:taf:jdevst:v:37:y:2001:i:4:p:101-132

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Related research

Keywords: Microfinance; Poverty; Income; Rural Savings; Loan Size; Insurance; Bolivia;

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Cited by:
  1. Irene Fafaliou & John Donaldson, 2007. "The Contribution of Privatization to Welfare," International Advances in Economic Research, Springer, vol. 13(4), pages 461-474, November.
  2. Shaw, Judith, 2004. "Microenterprise Occupation and Poverty Reduction in Microfinance Programs: Evidence from Sri Lanka," World Development, Elsevier, vol. 32(7), pages 1247-1264, July.
  3. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor and Francis Journals, vol. 33(3-4), pages 391-416.
  4. Carmen Velasco & Reynaldo Marconi, 2004. "Group dynamics, gender and microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(3), pages 519-528.
  5. Katsushi Imai & Thankom Arun & Samuel Kobina Annim, 2010. "Microfinance and Household Poverty Reduction: New evidence from India," The School of Economics Discussion Paper Series 1008, Economics, The University of Manchester.
  6. Ulrike Vogelgesang, 2001. "The Impact of Microfinance Loans on the Clients' Enterprises: Caja Los Andes, Bolivia," GK working paper series 2001-03, Post Graduate Programme "Allocation on Financial Markets", University of Mannheim, revised Nov 2001.
  7. Christopher J. Green & Victor Murinde, 2003. "Flow of funds: implications for research on financial sector development and the real economy," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 1015-1036.
  8. Asalatha, B. P. & Vijayamohanan, Pillai N., 2010. "Raising the ‘Beatrice’s Goat’: The Indian Experience in Microcredit," MPRA Paper 29049, University Library of Munich, Germany.
  9. Reynaldo Marconi & Paul Mosley, 2006. "Bolivia during the global crisis 1998-2004: towards a 'macroeconomics of microfinance'," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(2), pages 237-261.
  10. Katsushi Imai & Thankom Arun, 2008. "Does Microfinance Reduce Poverty in India?," The School of Economics Discussion Paper Series 0814, Economics, The University of Manchester.
  11. Suman Ghosh & Eric Van Tassel, 2008. "A Model of Mission Drift in Microfinance Institutions," Working Papers 08003, Department of Economics, College of Business, Florida Atlantic University.
  12. Paul Mosley, 2007. "The ‘political poverty trap’: Bolivia 1999-2007," WEF Working Papers 0020, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  13. Hermes, Niels & Lensink, Robert, 2011. "Microfinance: Its Impact, Outreach, and Sustainability," World Development, Elsevier, vol. 39(6), pages 875-881, June.
  14. Sarah Gibb, 2008. "Microfinance’s Impact on Education, Poverty, and Empowerment: A Case Study from the Bolivian Altiplano," Development Research Working Paper Series 04/2008, Institute for Advanced Development Studies.
  15. Stijn Claessens & Erik Feijen, 2006. "Financial Sector Development and the Millennium Development Goals," World Bank Publications, The World Bank, number 7145, April.
  16. Jonathan Lashley & Karen Lord, 2002. "Microcredit in the Caribbean: Experiences & Best Practices," IDB Publications 23738, Inter-American Development Bank.

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