Effectiveness of credit targeting the poor: the case of rural microenterprises in Burkina Faso

Strategies to reduce poverty are increasingly incorporating microcredit services into their poverty fighting. However, there is little empirical evidence for activities whose funding would be more beneficial for the poor or on the effects of credit on the recipients',well-being. This article analyzes the effectiveness of credit targeted at rural microenterprises (RME) and revenue sources that are most beneficial for the poor. Results show that consumption attributable to additional RME funds alone can lift 11-25% of the populations of households involved in the processing sector out of poverty; the corresponding figure is 39.83% for those in the handicraft sector, 42.15% for those in the service sector, and 44.1% for those operating in the trade sector. An analysis of the propoor character of revenue sources in the rural environment indicates that most RMEs operate in sectors or areas in which revenues benefit the non-poor directly. Nevertheless, the job-creation effects (1.06 permanent direct jobs and 0.66 temporary direct jobs for each RME) will benefit the poor as a result of the pro-poor character of informal rural wage-earning employment. RMEs have a significant potential for reducing poverty in rural areas if targeted efforts result in improved access to related credit for poor developers and direct funding from "wealthier" developers toward job creation.