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I. WHAT CAN MICROFINANCE DO FOR AFRICA?

Written by: United Nations Economic Commission for Africa

Article Overview: When properly harnessed, microfinance offers a variety of benefits to the African people. Foremost, microfinance initiatives can effectively address material poverty, the physical deprivation of goods, services, and the income to attain them. When properly guided, the material benefits of microfinancing can extend beyond the household into the community. At the personal level, microfinance can effectively address issues associated with “non-material poverty, which includes social and psychological effects that prevent people from realizing their potential.

I. WHAT CAN MICROFINANCE DO FOR AFRICA?

When properly harnessed, microfinance offers a variety of benefits to the African people.
Foremost, microfinance initiatives can effectively address material poverty, the physical
deprivation of goods, services, and the income to attain them. When properly guided, the
material benefits of microfinancing can extend beyond the household into the community. At
the personal level, microfinance can effectively address issues associated with “non-material
poverty, which includes social and psychological effects that prevent people from realizing their
potential.

The economic performance of Sub-Saharan Africa (SSA) and other regions over the past
three decades has been closely associated with their savings and investments. In fact, Africa’s
relatively slow economic growth has been linked to its poor capital accumulation.

Three approaches could be used to assess the performance of savings:
♦ Africa lags behind others regions of similar size and structure. Its gross domestic
savings averaged 8 percent in the 1980s, while for the same period South East Asia,
and especially Newly Industrialised Economies (Republic of South Korea, Taiwan,
Singapore) reached respectively 23 and 35 percent.
♦ Africa’s saving performance over time displays a downturn of saving rates over the
past three decades.
♦ There is a disparity between actual performance and planned performance. The use of
the two-gap model revealed that the targeted regional savings rates of 16.6 percent in
1995 and 20 percent in 2000 was needed to achieve overall economic growth of 5
percent in Africa by 2000. Up to 1998, the achieved average saving rate was far from
the target (Calgagovski et al., 1991)1.

Other patterns of Africa’s saving include its dependence on public savings in contrast to
Asia, where private savings are critical. Promoting private savings in Africa is crucial for two
reasons. First, evidence from South East Asian countries shows that sustaining high economic growth is contingent upon significant levels of capital accumulation. Second, SSA characterised
by its heavy dependence on foreign savings, mostly ODA, to fill the investment-saving gap that
averaged 11 percent of GDP for the 1970-95 period. Due to the binding lending constraints that
SSA countries are facing in the international capital markets or external balance conditionality
imposed by bilateral and external donors, the promotion of national saving could boost
investment and influence the prospects for sustainability of growth. Identifying policies and
institutions that promote saving should be crucial in any strategy aimed at easing the transition to
less aid dependence of SSA.

Total saving is low in SSA and even worse, only a small share of it is transformed into
financial savings. For instance, in Senegal, the financial savings (the change of the difference
between M2-M1)2 averaged solely 8 percent of national savings, showing the difficulties of
formal financial sector in mobilizing savings and providing financial services, especially for the
poor. Microfinance institutions could play an important role in meeting the financial needs of
households and microentreprises. Above and beyond the microcredit facet, microfinance could
contribute to poverty reduction by offering adequate savings services. On the supply side,
microfinance could be the best instrument to bring about poverty eradication by loosening
constraints on capital, opening the door to investment, smoothing consumption over time, and
meeting emergency needs for liquidity. On the demand side, empirical evidence shows that a
significant segment of the poor are savers and that the microfinance institutions could support
them by looking after their savings in a secure manner and by helping them accumulate interests
on their deposits. The poor will able to deal with emergency and to make significant investment
expenditures.

The performances of microfinance institutions could be caught through their institutional
financial viability and their outreach to the poor people. Technical, political, social factors could
influence these performances, reinforcing the need to combine the strengths of traditional and
modern Micro-finance approaches.

Microfinance in Africa: Combining the Best
Practices of Traditional and Modern
Microfinance Approaches towards
Poverty Eradication

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Article Tags: capital accumulation, east asian countries, economic performance, first evidence, gap model, gross domestic savings, industrialised economies, material benefits, material poverty, microfinance, private savings, psychological effects, republic of south korea, slow economic growth, south east asia, south east asian countries, sub saharan africa, target, three decades, time displays



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Re: Hello from South Africa - you are welcome to the forum of achievers.its great to have you here,i also reside in SOUTH AFRICA.


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