When examining the income impacts of microfinance programmes, it is important to recognise that there is a significant difference between “increasing income” and “reducing poverty”. Despite the prevalent emphasis on raising income as the central objective of development programmes, the two are not synonymous. The present paper argues that it is time to move away from the preoccupation with “raising income” to focusing on “improving net wealth and income security”.
This paper tries to demonstrate that microfinance services (particularly quality financial services that have been developed to address the differing needs of clients) empower the poor to cope with and overcome many shocks, in particular through diversifying their income sources.
It concludes that, given the right economic conditions, (reasonable levels of inflation, access to markets etc.), well designed microfinance services can reduce poverty.