Over a billion people around the world live in households with daily per capita income of less than a dollar. Poverty alleviation is clearly the most pressing economic objective at the global level. For over half a century now national governments and supra-national organizations like the World Bank and the UNDP have directed their efforts and channeled significant amount of money towards this end with mixed results. The battle against poverty remains an uphill one.
There are several reasons for the relatively limited success of top-down poverty alleviation programs, an important one being the communication gap between the policy makers and the intended beneficiaries of these projects. An alternative approach to development that puts the beneficiaries in the driver's seat and believes in the idea of "support rather than charity" is the bottom-up strategy of encouraging self-help among the poor. Micro-finance activities, i.e. providing the poor with better access to financial credit , are an important component of such an endeavor. With a world-wide trend towards free market economies, such activities are more in line with the larger economic environment and have enjoyed moderate to spectacular success in several countries including Bolivia, Bangladesh and Indonesia.
The relationship between economic reform and economic growth on the one hand and credit on the other, is easy to understand. As more and more economic activities go out of the hands of governments and para-statal organizations in the course of economic reform , growth takes place largely in private hands with the help of credit and own resources. Availability of credit, however, often proves to be a stumbling block in developing countries. In 1998 the ratio of domestic private credit to GNP was round 0.50 in developing countries as against 1.50 in developed countries. Improving access to credit for productive agents and households is of paramount significance.