IV. Module II: Linking Microfinance to Poverty Eradication

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 To learn more about this author, visit United Nations Economic Commission for Africa's Website.

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