What is Poverty?
We use the term “poorest” or “very poor” to refer to people living on less than $1 per day or in the bottom half of those living below their nation’s poverty line. We use the term “poor” to mean those living in poverty above $1 per day or in the upper half of those living below their nation’s poverty line.*
* Microcredit Summit Campaign data
What Causes Poverty?
Poverty is a macro problem, with causes as wide as they are deep. Political instability, natural disasters, corruption, socio-economic disparities and prejudice, lack of access to education and lack of infrastructure are just a few of the key reasons that people all over the world are poor and remain poor.
What are the Effects of Poverty?
While the causes of poverty might be macro, the effects are felt on a micro level, creating hardship for communities, families, men, women and children.
Its worst attribute is that poverty breeds poverty; it is virtually impossible to break free from its grasp. If one cannot afford proper nutrition or health care for one’s family, children grow up at greater risk of acquiring a life-threatening or disabling disease. If one cannot afford to educate one’s children, they will have few avenues for a life different than that of their parents. If one cannot afford to buy one’s own land or home or livestock, there are few opportunities to build assets that will last over time.
Most of the world’s poor are self-employed. Without the security of formal jobs, each day they work from dawn to dusk, whether by raising chickens, selling produce in markets or weaving baskets. All or most of this money goes toward basic survival; however, there is little to no money left over to improve their quality of life or expand their businesses. Thus, living in poverty almost always means that the harsh reality of today will repeat itself tomorrow.
Why Can’t the Poor Improve Their Own Lives?
In many cases it’s because many of the world’s poor have little access to the financial products and services that help those in the developed world bridge the gap when times are tough. Without life or health insurance, diseases and illness go untreated and the death of an income earner is a dramatic hardship for a family. Without access to loans or credit, shop-owners cannot buy products in bulk and farmers cannot buy machinery or even seeds after a natural disaster or a poor yield the season before. Without access to savings accounts, money is hidden in walls or floorboards where it can be stolen or lost in a flood or fire.
In many cases local money lenders are the only available source of capital. They provide loans to smooth incomes during rough times or to help individuals improve their small businesses, but they do so at exorbitant annual interest rates, often from 300 percent to 3,000 percent. Under this system, virtually all of a borrower’s financial gains are passed directly to the money lender. Individuals are unable to reap the rewards of their own hard work.