The last twenty years have seen significant advances in understanding and providing financial services to better advance development and eradicate poverty. This includes providing the financial means to save, access credit, and start small businesses, with the potential to enhance community development, as well as local and national policy making. When properly harnessed and supported, microfinance can scale-up beyond the micro-level as a sustainable part of the process of economic empowerment by which the poor can lift themselves from poverty.
Microfinance is not a panacea for poverty and related development challenges, but rather an important tool in the mission of poverty eradication. Poverty is a multidimensional problem, embedded in a complex and interconnected political, economic, cultural, and ecological system. Owing to poverty's large scope and multiplicity of actors, there is no single guaranteed approach to its eradication. Within this system, solutions are as multifaceted as the causes. Such a systems’ perspective is critical in creating an enabling environment for sustainable poverty eradication. Problems and solutions are not isolated phenomena, but occur within an interconnected system in which actors and actions have reciprocal consequences.
Consequently, poverty eradication is a complex mission and requires commitment, cooperation, and cohesion at all levels of development – individual, household, community, national, and global. While microfinance alone does not improve roads, housing, water supply, education and health services, it can play an important role in making these and other sustainable contributions to the community. As microfinance becomes more widely accepted and moves into the mainstream, the supply of services to the poor may likewise increase, improving efficiency and outreach, while lowering costs. This, in turn, can have a multiplier effect on people's standard of living. Perhaps the greatest contribution of microfinance is that it empowers people, providing them with confidence, self-esteem, and 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 report examines microfinance as a strategy for poverty eradication in the African context, extracting common lessons and principles for an African microfinancing model. Certainly, microfinancing and the context in which it occurs – Africa – are both dynamic and diverse, and can not be limited to the confines of any one model. Thus, this microfinancing model is not proposed as a definitive formula for successful microfinancing, but rather a guideline to inform and be adapted to the specific microfinance contexts that characterize such a vast continent as Africa.
This report could be titled, Banking on Africa's People, in that input from Africans themselves were foremost in designing the methodology and the desired outcome of this study. Research methodology stressed a participatory perspective, providing a space for Africans to express themselves, listening to and learning from their experiences and lessons. As the foregoing Preface notes, the overall study producing this report combined and drew upon not only development literature, but also field observations and dialogue with and between Africans working in microfinance.
Emphasis has been placed on adapting principles of traditional finance schemes to modern finance methods, building upon existing African culture to improve microfinance initiatives that are well adapted to Africa’s specific needs. The report reflects the conviction that Africa's most valuable resources and ally in poverty eradication is its own people and institutions. Microfinancing, like any strategy for poverty eradication, must involve the people themselves in examining the problems and creating the solutions if it is to be sustainable with those upon whom development is targeted.
Microfinance in Africa: Combining the Best Practices of Traditional and Modern Microfinance Approaches towards Poverty Eradication
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