The Role of Access to Finances and Poverty Reduction in Developing Countries. A Critical Literature Review

Abstract

Purpose: Financial institutions improves the well-being of participants through job creation, increasing income and building assets (wealth). It makes poor people to be homeowners through schemes such as housing microfinance. The overall objective of this study was to examine influence of access to finances and poverty reduction in developing countries. A critical literature review

Methodology: The paper used a desk study review methodology where relevant empirical literature was reviewed to identify main themes and to extract knowledge gaps.

Findings: This study concluded that access to home improvement finances led to improvement in living conditions from living in shanties to permanent dwellings hence better living conditions and reduction in poverty. Access to school fees loans led to higher enrolment rates in schools improving literacy levels in developing countries and hence reducing poverty. Lower interest rates led to more access to microfinance loans and in the long run a reduction in poverty, availability of collaterals meant ability to pay and credit worthiness of respondent’s hence easier access to microfinance loans which leads to poverty reduction in the long run. Favourable credit policy led to increased access to microfinance loans and vice versa.

Unique Contribution to Theory, Policy and Practice: This study recommended that financial institutions that are able to give out loans to help serve the poor, should arrange mechanisms to improve technical and business skills of the poorest through training and loan utilization. This will enhance their business skills to use credit and establish market channels for their products.