Microfinance

Banks lend against collateral and a credit record, which the poorest lack

Before a bank makes a loan, it checks the borrower's income and past borrowing. It may also require collateral, often property or equipment it could seize and sell if the loan is not repaid, or a cosigner who pledges to repay. The poorest households in low-income countries seldom have any of these.

In those countries incomes are spent at once on necessities such as food, and the lack of saving means a lack of funds for investment. Research by the economists Abhijit Banerjee and Esther Duflo finds households trapped in low incomes because they cannot muster enough investment to push themselves out of poverty.