Two different poverty reduction approaches: Neoliberal market based microfinance versus social rights defender basic income

Abstract

Particularly for the last two decades along with the pivotal role of World Bank, microfinance has become one of the most popular poverty reduction strategies. There is a huge literature including empirical and theoretical studies on its efficiency and success on poverty alleviation. Despite this worldwide popularity, in a growing number of recent studies microfinance has been subjected to severe criticisms in that it has almost no success in solving inequality and redistribution problems deeply rooted in poverty. It has been accused of transforming the poor into the entrepreneur-client, being a poverty trap for the poor, reproducing the poverty cycle recursively and most crucially serving for neoliberalism. The first part of this study is allotted to these criticisms on microfinance policies. The main cause for poverty is lack of sustainable income. To generate this income for the poor to get out of poverty, there is one other alternative that has started to gain more interest in poverty reduction circle namely basic income. Basic income departs significantly from the microfinance model in that it is an income-generation suggestion based on the premise that the fight against poverty should be carried out within the context of social rights and inequality. This paper also aims to focus on the alternative paradigm of basic income poverty reduction by making a brief comparison between microfinance and basic income favoring the latter over the former.