Collective and cooperative support is a critical microfinance strategy at both the local level, in the form of solidarity groups, and at the national and regional level in the form of networking groups. Collective organization has several advantages in microfinance initiatives, the foremost that they pool together human and material resources. In Africa, group organizing has proven itself an effective strategy for MFI sustainability that Africans are especially predisposed. Group formation for individual and community goals is a pre-existing, "homogeneous" mode of organization in Africa that already operates in traditional financial schemes and is readily adaptable to new microfinance initiatives. The group has proven especially effective in the rural setting, where 80% of Africa's population reside (Box 1). The relative isolation, small size, and common resources of villages engenders a mentality and approach to problems that are seen as mutual rather than individual.
MFIs can utilize and support groups with regular meeting to reinforce group solidarity, discipline, and consistent repayments. Groups are especially effective for educating and training microfinance participants, enhancing networking and information dissemination. They are also an important participatory tool that can reduce administrative cost by giving certain responsibilities, such as loan monitoring, to the members themselves. Typically, small group size is more effective to ensure that members genuinely know and trust each other.
Microfinance group members are typically more ready to take ownership for and support microfinance initiatives. Mutual trust and peer pressure within savings and credit groups ensure participation and repayment in microcredit programmes. The support and strength of a group often raises community consciousness and creates a common infrastructure to solve problems common to all, pooling local knowledge and resources for initiatives, such as bulk purchasing and transportation, collective bargaining, and common infrastructure development – i.e. water pumps, health care, and education schemes. Groups empower individuals to support each other not just financially, but also emotionally. The group impresses upon members that they are not alone or helpless, but can rely upon the support of their community, and cultivate self-esteem through contributing to each other. This non-material benefit is an important resource, especially during individual or collective crisis.
The benefits of organizing are not limited to the local group level, but can scale-up through networking MFIs. Microfinance networks enhance MFI coordination, monitoring, advocacy, and outreach. Networks allow MFIs to integrate approaches and better consolidate, share, and disseminate human and productive resources, including technical, traditional, and cultural knowledge. Such collaboration widens the group of stakeholders involved in the microfinance dialogue, and provides a legitimate and accountable vehicle to lobby for State and international actors to channel assistance. Access to these support structures available in networking enables MFIs to benefit from economies of scale and scope, providing certain services at lower institutional costs than otherwise possible. In some case it may be cost effective for MFIs to outsource part of its operation to partner organizations more capable of efficiently performing a service (i.e. establishing an information management system).
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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