Microfinance initiatives are more likely to succeed in a supportive national, regional, and international environment. Applying a systems’ perceptive, poverty eradication is recognized as a multi-scale endeavor with different partners participating at the local, national, regional, and international levels. Whereas the foregoing discussion has focused on microfinance lessons for the local level, this section will broaden the scope with lessons that scale up through the state to the global community.
Acknowledge and Empower African People: Outside intervention should adopt learning approaches rather than blueprint approaches to microfinancing that recognize and utilize African insights and experience. In many cases, "outside experts" are paternalistic or distrustful with resource-poor Africans, holding them responsible for their state as a result of low motivation, initiative, and education. This attitude reinforces charity and relief rather than the capacitybuilding of the poor towards self-reliance and development. Outside assistance must employ bottom-up, participatory approaches that ensure that microfinance schemes are built around people rather than people around them. Participatory approaches are not only more culturally appropriate and hence sustainable for local needs, they foster more equitable distribution of benefits as development is accountable to a more representative community.
Establish Realistic Expectations: Drawing upon participatory input and reliable research, donors must establish practical and culturally sensitive goals for microfinance initiatives. Institutional sustainability typically takes between eight to twelve years in Africa, and in many instances selfsufficiency is not feasible. While an increase in MFI revenue can be achieved by an increase in volumes of loans, pressure to scale-up and achieve greater outreach can over-extend MFIs, which are often unable to recruit personnel and establish a suitable infrastructure to sustain such operational expansion. This is especially true when operating in disadvantaged rural areas, which incur additional costs associated with low and dispersed population density. Research supports that the cost of establishing a microfinance network in remote areas is approximately 80% higher than in more accessible regions. Wherever the MFI operates, it is also important to adjust credit and production expectations to the material needs of the resource poor. Too often outside donors base their expectations on assumptions of unlimited growth imported from industrialized economies; in a world of limited resources, such assumptions are ultimately unrealistic.
Conduct Research: Research is an invaluable tool to better understand and support microfinance initiatives. An analysis of the local microfinance environment, (i.e. population, organizational culture, natural resources, and economy), helps to promote microfinance strategies that complement these realities, utilizing assets of the area, and reinforcing the capacity for social, economic, and organizational innovation. Institutional appraisal is another research tool that allows donors to better access and support MFIs' poverty outreach and impact, the quality of the financial services and the loan portfolio, governance and transparency, management capacity and efficiency, financial performance, and plans for the future.
Adopt Policies Supporting Microfinance Infrastructure: Policy changes can reinforce a supporting infrastructure in which MFIs function, influencing the practices of finance ministries, central banks, the commercial banking system, and donors in the country (Box V). Policies should encourage MFIs to establish themselves as formal, regulated financial institutions, provide low minimum capital requirements, and streamline reporting standards. Other important infrastructure changes should support liberal interest rates so that MFIs can charge necessary rates to sustain operations; develop financial networks for resource transfers among retail microfinance institutions; and establish credit ratings on clients, (thus reducing the risk of clients who repay one institution while borrowing from another).
Create a Supportive Legal Environment: A supportive legal environment builds credence and confidence in MFIs. With legal authority as a financial intermediary, MFIs are able to improve their outreach and performance. MFI regulations should be flexible, involve microfinance practitioners in policy development, and encourage a range of institutions. A legal framework in which the microfinance community operates can support microfinance standards, and a competent and uncorrupt judicial process can ensure people of prudence in the managing of financial transfers.
Develop Standards and Assessment Tools: Policy leaders in the national and international community can work with microfinance practitioners in Africa to build consensus and commitment on core principles and standards in microfinance. Microfinance standards include organizational, operating, financial and reporting standards that will lead to the recognition of microfinance as a legitimate sector in the financial services industry. Reliable microfinance standards reinforce trust and confidence in MFIs and can be used to enhance operational efficiency.
Transform Public Structures: In many cases, an effective infrastructure for microfinance exists within public agencies, such as the postal system. Postal Savings Banks (PSBs) already exist in countries such as Uganda, Kenya, Tanzania, and Cameroon. PSBs have a comparative advantage to develop microfinance services on a large-scale basis. Their geographic coverage of both urban and rural national territory can offer effective outreach through preexisting networks. This potential, however, is contingent upon the proper restructuring, guidance, and monitoring of PBSs.
Supportive Microenterprise Initiatives: It is important to remember that microenterprise development is a essential extension of microfinance schemes. National and international actors can promote legislation, business services, and infrastructure to enable African microentrepreneurs and produces to increase market opportunities, technical know-how, and management.
Reinforce Staff Training: Staff training improves operational efficiency, sustainability, and outreach. Training includes financial management, credit and savings management and methods, and alternative management information systems, using technological resources from the region when possible. Staff training creates social ties between staff members, and strengthens overall morale, loyalty, and the MFI's corporate identity. Trainers can train and develop a pool of trainers from the local population, who are familiar with local languages, customs, and norms.
Typically, qualified trainers who are intimately familiar with the area and people perform better and are willing to accept sacrifices for the cause.
Utilize pre-existing structures, such as the Postal Savings Banks (PBS): In many cases, an effective infrastructure for microfinance exists within public agencies, such as the postal system.
Postal Savings Banks offer an important comparative advantage in geographical coverage for both rural and urban outreach. The transformation of PBSs into microfinance institutions is contingent upon proper restructuring, monitoring, and the introduction of appropriate technology and training. Building upon examples elsewhere, such as Japan’s PBS, can reinforce this transformation.
Promote Networking and Cooperation: National and international actors should reinforce cooperation and coordination among actors at all levels in the design, management, and assessment of microfinance initiatives. Mechanisms should be created for the exchange of knowledge and experience among African microfinance practitioners, including the use of the Internet, dissemination of written material, field level practitioner exchanges, and best practice workshops. Regional coordinating committees and sub-regional conferences can bring together microfinance policy makers, leaders, and representatives from bilateral, multilateral and intergovernmental development partners to access and compare microfinance progress. Coordination among various microfinance actors also ensures complimentary rather than competing policies.
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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