Microcredit has captured a lot of attention in recent years—often being referred to as a revolutionary mechanism for the developing world. However, it hasn’t worked nearly as well in Africa as it has in parts of Asia. This has said to be in part because it is newer in Africa and the models haven’t been adjusted, or because populations are more rural and dispersed, or because the underlying economies are growing more slowly and so investment opportunities are fewer.
Sub-Saharan Africa (SSA) has experienced slow economic growth over the past several years primarily due to its poor capital accumulation. Individuals do not commonly save their own money in Africa yielding a general dependence on public savings. This contrasts to Asia where private savings are critical. Microfinance may not be the only solution but it can be an instrument used to promote much-needed private savings so as to generate sustainable economic growth. Micro-financing institutions could make capital accessible for the poor and more importantly, allow them to securely invest their savings so they can earn interest off of those deposits and make larger investment expenditures in the future.
Microfinance also yields non-material benefits for its participants. It brings individuals to feel confident and self-empowered as they obtain the financial means to play a larger role in their development. The potential of microfinance far exceeds the micro level, scaling up to address macro problems associated with poverty eradication. This alone does not build roads, supply water and develop communities, but it is an essential means to achieving these things.
Microloans come with very high interest rates, which sometimes places its participants in a worse situation than before. These small loans are extremely expensive, and so borrowers often pay annual interest rates of 20 to 30 %. This becomes an issue because when the money is not invested soundly, the borrower becomes stuck in mounting debts.
MF is commonly thought of as small loans, but this sector provides access to savings accounts and insurance services that would not otherwise be accessible on account of economic and/or social status. Micro lending has proven itself to be a powerful system for helping people become self-sufficient. Ultimately, you are giving low-income people an opportunity to empower themselves by providing a means of saving money, borrowing money and accessing insurance.
Women constitute the vast majority of users of micro-credit and savings services. Interestingly enough, it has done more to bolster the status of women, and to protect them from abuse, than most laws have been able to accomplish (Half the Sky, Kristof & WuDunn). One reason why microloans are almost always made to women is because women tend to suffer the most from poverty. Mortality data shows that in famines and droughts, it is mostly girls who die, not boys. When Tanzania experiences extreme rainfall patterns, the numbers of unproductive old women killed for witchcraft doubles, compared to normal years. Other murders do not increase, only those of “witches”. This was found in a study done by an American development economist, Edward Miguel.
Another reason is to place more monetary control in the hands of women. One early pair of studies found that when women hold assets or gain incomes, family money is more likely to be spent on nutrition, medicine, and housing and consequently children are healthier. In developing countries, females are a commonly marginalized group. If the family savings are in the woman’s name, and thus in her control, that gives her more heft in family decision-making.
It is not just for anyone living below the poverty line, but also for segments of the poor population that are considered to be economically active. Those who carry out activities of their families, even if these revenues are low and precarious. Micro finance offers help to get them started by giving them access to financial services they are generally excluded from, and in ways that are suited to their economic and management skills.
Micro financing is not a new concept. This idea of providing small microcredit has existed since the 1700s. The rate of payment default for loans is surprisingly low – more than 90 % of loans are repaid. It is not just a financing system, but a tool for social change, especially for women.
MFI’s might also offer plus activities such as entrepreneurial and life skills training, and advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children.
http://kathleenheadseast.blogspot.com/2010/07/microfinance-progress-with-yogurt.html
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