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U.N. Says Loans Aren’t Only Answer

September 2, 1998

UNITED NATIONS (AP) _ Small loans should not be viewed as a primary means of eradicating poverty because many recipients are not in position to use the money effectively, according to a U.N. report released Tuesday.

The report questions the strategy of relying on so-called microcredit loans, which came to prominence in the last decade as expectations for public financing diminished.

The theory behind the loans was that just a few hundred dollars could help someone get started on a money-making enterprise with a minimum of cost and bureaucracy.

The report noted that some lending institutions in Asia and Latin America have been successful in making the loans. But it cited studies showing there are ``limits to the use of credit as an instrument for poverty eradication.″

``Many people, especially the poorest of the poor, are usually not in a position to undertake an economic activity, partly because they lack business skills, and even the motivation for business,″ the study says.

The costs of starting a small business can also be prohibitive, particularly when coupled with overall high interest rates in some developing countries, the report notes.

The report recommends that loans be provided in the context of access to land, appropriate technology, markets, self-help solidarity groups and counseling. The report stressed that the loans should be considered only one component of an overall strategy to foster small business enterprise.

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