MICROFINANCE IN AFRICA
Women4Resources
PRESENTATION BY NANCY K LIDUBWI
TEMPLE OF PEACE, CARDIFF
23RD JULY 2009

Introduction

• Micro Finance (MF) is an old practice having been in existence in various parts of the world from as early as the 12th and 13th century.
• It has been operational in Japan for the last 400 years (Bastelaer, 1999).
• In some of the African countries like Kenya, Tanzania etc it has been practiced by women known to each other in ROSCAs (Rotating Savings and Credit Associations)
• Its been argued that the ROSCAs although fluid in nature, are 90% more efficient than MF and are more inclusive.
• ROSCAs have been found to have minimal default from members as they are run on trust and use members’ income however little (Harper, 1998).
• Other forms of credit are co-operative savings and credit Unions, trade credit and money lenders.
• MF as a concept was packaged and introduced into the market in the early 1990s to strengthen informal lending groups mentioned above. Its modelled around the Grameen Bank started by Prof. Yunus in Bangladeshi in 1974 to lend money to poor women who could not access banking services.
• It is argued that the informal lending groups came into being due to the unwillingness of major banks to lend to the poor or those perceived to be a financial risk. The success of the Grameen bank led to organisations beginning to lend to small groups and individuals.
• MF includes the borrowing (micro credit) and deposit taking (micro-savings).
• (small amounts of money-from £100-£500, sometimes even £50)
• MF can also be defined as part of financial services meant to create economic growth, wealth and reduce poverty among poor people (Hulme & Mosley 1996), or ‘provision of small loans, saving facilities with no (or very low) minimum deposit, and other financial services like insurance, money transfer, or bill payment designed for people who live on low incomes or are otherwise excluded from the commercial products of conventional financial Institutions’ Rogaly, 1999:59.

Poverty Reduction

• Available research shows that MF if well packaged, can contribute to most of the goals set in the MDG.
• There is evidence that most clients who have experienced positive changes and moved up the poverty ladder were actually in small businesses with their own money before they joined MF organisations.
• Some of the examples given include clients in Ghana where clients increased their incomes by $36 compared to $18 for non-clients (Littlefield et al, 2003).
• 89% of clients in SHARE’s programme also experienced a positive change than the less poor; 60% moved from very poor to moderate poor and 28% from being very poor to non-poor-S Asia (Simanowitz and Walter, 2002).
• 41% of CRECER’s clients live on US $1 from below poverty line.
• Women who have accessed credit have been found to be better off, educated their children, taken care of their health and expanded their businesses.
• Positive impact exhibited in South Asia can be said of Africa though among less poor women.
• It is not known if MF empowers women to an extend of being part of the decision making organ in patriarchal societies, or the argument around economic empowerment for women. There is very little research on this. Available research shows that even in the Grameen Bank and BRAC success, some women were sent by their husbands to borrow money on their behalf either to marry or undertake their own work and that women did not have equal voice in decision making as they were controlled by their husbands. That at times, credit was found to be a route cause of domestic violence against women as they struggled with their husbands to control the money and the business. This is certainly an area for more research.
• Despite the success of MF in Asia, there is a debate around the real beneficiaries of MF and whether it reaches the most vulnerable in the society, those at the ladder of the poverty line.
• Both empirical and anecdotal evidence shows that the success of Grameen Bank and BRAC in Bangladeshi have been through initiatives developed to reach both the very poor and poor women at different levels. The two undertook research which revealed that poor women were being left out of credit facilities. They initiated pro-poor programmes (goat diary in Rangpur in India, food aid), meeting the Poor's immediate needs and only introducing credit facilities for business when they were certain that their beneficiaries could now move up and join the MF programme.

Why the poor are left out of Micro Finance

• Strict lending requirements set out by MFI to ensure 100% returns from their money
• This includes; a condition that one must be in a group of 6-10 women and run a business for 6 months to a year,
• Compulsory savings sometimes weekly amounts dictated by MFIs before they can access credit. It could be from 5-6 months savings
• Buying post books to record business activity, savings, withdrawals
• Compulsory weekly or fortnightly/monthly payments from the time the credit is offered.
• Some women do fall off from MFIs when unable to meet payment requirements and have their investments (livestock, pots etc) confiscated and auctioned leaving them in micro debt and worse off.

Sustainable livelihoods Approach

• MF improves the living standards of recipients. However, it can not reduce poverty among the very poor as a stand alone PR strategy.
• The Sustainable livelihoods approach uses a diversified model that believes that its not always and only cash credit that the poor, vulnerable women need. Governments and organisations should not divert resources meant for poverty reduction to MF but rather, work towards meeting the immediate needs of the poor. Poor households need basic needs-food, clean water, healthcare, housing, education, social programmes that are pro-poor.
• They need input credit-drought resistant food crops like cassava, sweet potatoes, sorghum, millet, bananas, horticulture that are not labour intensive; dairy goats. These can be grown by almost all households without much financial investment. They need food security at the household level before being weaned into micro credit.
• There are good examples of poor households that have benefited from input credit and been able to use their enormous human resource –family labour to produce food both for home consumption and for the market and moved from the bottom of the poverty line to a stable position a above the poverty line, no longer living on less than US dollar a day.
• This is the model Women for Resources is encouraging in the African countries they work.
References
• Bastelaer T (1999) Does social capital facilitate the Poor's Access to credit? A review of the microeconomic literature. World Bank 1999
• Hulme D and Mosley P (1996) Finance against poverty, vol.1, Routeledge, London. UK
• Rogaly B and (1999) Poverty, Social exclusion and Micro finance in Britain. Oxfam
• Rogaly B and S Johnson (1997) Micro finance and poverty reduction, Oxford; Oxfam, UK
• Simanowitz A and Walter (2002) Ensuring Impact- Reaching the poorest while building financially self sufficient Institutions, and showing Improvement in the lives of the poorest women and their families. IDS, UK
• Littlefield E, Murdoch J, and Hashemi s (2003) IS MICROFINANCE AN EFFECTIVE STRATEGY TO REACH THE MILLENIUM DEVELOPMENT GOALS?