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Guest post by: United Nations Economic Commission for Africa Become an Author

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There is a fundamental linkage between microfinance and poverty eradication in that the
latter depends on the poor gaining access to, and control over, economically productive
resources, which includes financial resources. For the resource-poor of Africa, survival often
depends on subsistence agriculture and/or small income-generating activities at the home or in
the local marketplace. In many instances, microenterprises rather than formal employment
creates an informal economy that comprise as much as 70% of the national economy. Yet the
lack of saving and access to finances creates a state of perpetual scarcity, a poverty cycle that
restricts people's potential to improve their livelihoods. As already noted, the lack of financial
services is not the only limiting factor in income generation: other pervasive social, economic,
and political barriers also play a key role. Within this complex system, however, there is a
clear need for better microfinance services for Africa's poor, which can play a key role in poverty
eradication (Box IV).


An understanding of how microfinance initiatives impact poverty eradication
necessitates a definition of poverty that corresponds to a local definition of wealth. This, of
course, can vary from context: i.e. whereas financial assets may equate with wealth in urban
areas, livestock or land may be valued in rural areas. Allowing for such diversity, the following
discussion will focus on the material and non-material benefits of microfinancing.

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

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