Poverty Reduction

Financial crises impoverish the middle classes and make life much more difficult for the poor. Whether they are generated globally or are homegrown, crises have a serious impact on standards of living and everyday life, particularly in low-income countries where social safety nets are often inadequate. Financial instability has major costs both in terms of forgone economic growth and welfare. The effects can be dire.

Studies from the World Bank and other leading institutions clearly show that financial crises can result in dramatic reductions in growth and increases in poverty levels. Financial crises push people into poverty, prevent people from escaping it, and are contributing factors in worsening health outcomes and child deaths.

It is therefore imperative to strengthen financial systems and promote stable economies in order to reduce the extraordinary impact financial crises have on the world’s most vulnerable people.

And regardless of whether economic times are good or bad, we must improve access to financial systems for those who have traditionally been unable to participate in them. Making financial systems more inclusive goes a long way towards breaking the vicious circle of poverty: by allowing people to borrow, save, manage risk, and insure themselves against events that otherwise perpetuate their impoverishment. More and more, financial inclusion is being recognized as a catalyst for economic development. The ability to participate in financial markets is a prerequisite to economic success. There is a need to develop and implement effective regulation and supervisory tools that work in this context in order to expand and sustain healthy, effective microfinance sectors. If regulation and supervision remain weak, these sectors will suffer and so too will those relying on them.