Savings Gap Flashcards
Two main reasons for low savings
low income
low access to banks
What is a savings gap?
when there is a gap between the amount of money held at
banks in the form of savings, and the amount of money that firms want to borrow from banks
What is the problem with firms having no money to lend?
no investment - AD and LRAS shift left - low economic growth - stay poor - low incomes - low savings e.t.c
also low profit - low corp tax rev - low development
Definition of microfinance?
where small loans are provided to tiny business who otherwise would have had no access to financial services
How does microfinance work?
firms can now borrow - increase investment - increase productivity - decrease prices - more competitive - higher income - higher saving e.t.c
also more corp tax rev
Microfinance eval
microfinance lends often charge very high interest rates
borrowers will spend all income paying back loan - maintains savings gap
(could go bankrupt and unemployed too
