Dynamics between savings and credit for low-income households Literature review

Access to micro finance and micro credit for the poor has sparked critical debates over its ‘acclaimed’ successes and failures. Advocates of the micro finance agenda argue that expanding access to micro finance and micro credit to the poor forms an important constituent of the new developmental agenda. Becker et al (2008) argue that financial ‘exclusion’ is a barrier to economic development, and that there is a need to build financial systems that will foster more financial ‘inclusion’. Murdoch (1995 and 2005) argues that due to its positive results, the micro finance sector has grown, expanded and gained popularity. Impact assessments on the effects of access to micro credit on the poor indicate that it can improve the welfare of the poor.1 Access to micro credit is seen as a mechanism that enables poor people to mitigate short term financial constraints and economic shocks.