A large number of MFIs have set-up networks in many African countries taking advantage of increased pressure on governments to deregulate the economy and the financial sector, encourage competition in all sectors, and create the conducive environment for increased production. Thus, micro-finance delivery has become an attractive business over the last decade in Africa. Some of these MFIs are local based, while others are either regional or even international. Most of the MFIs are specialised in the delivery of small loans to a wide range of clients, and specially the “poorest of the poor”. MFIs encompass different kinds of organisations, such as limited companies, para-statals, in addition to those legally registered as MFIs (Magill, 1994). Experience shows that some MFIs may also channel delivery and recovery of funds through other existing banks with whom they may have an operations agreement. Thus such MFIs, may not directly be involved in loan disbursements, repayment collection, or business monitoring, etc.
MFIs operate in a niche market because they address the needs of those clients who are considered ‘high-risk’ by bigger banks. High-risk groups or individuals are characterised as those with very few assets, requiring very small loans, high degree of close follow-up, business appraisal and evaluation, as well as those engaged in activities whose income is fluctuating such as small-holder farmers or petty traders. Thus, the MFIs cater for a market with an operationally acceptable demand level and where clients can be protected from the unreasonable conditions of the informal moneylenders.
Such MFIs, however, charge high administrative costs and higher charges for risk coverage, which is in addition to the market interest rates, and taking advantage of the niche market for micro loans. Both in Malawi and Ethiopia, field observation suggests that, other than agriculture credit, repayments are required to start immediately, starting the week after the loan has been disbursed, and repayments are in weekly instalments. Lending is done on group basis and also on individual basis. In most cases clients are expected to form their own groups before approaching the MFI for a loan and those who perform well can later be eligible for individual loans. Some MFIs have their own training modules which a potential group or individual client should undergo. The training may be implemented by the MFI credit officers, or the local community development officers for an incentive payment.
Field observations show that most MFIs in Malawi and Ethiopia can be categorised as profit oriented, with a clear business approach, with a good network into the rural areas, and with minimum expenditures on training or group mobilisation allowing for high repayment rates with minimum risk exposure. Discussions with different stakeholders revealed an underlying assumption that simply the existence or operations of an MFI in an area will automatically address poverty.
MFIs, on the other hand argue that they are not required to and do not always have the responsibility for justifying whether their activities reduce poverty. Some MFIs have, however, undertaken impactanalysis studies on a need-basis which reveals that income has been increased amongst their clients. Nevertheless, this is very much anecdotal and limited to some cases and cannot be proven or established as long term trend.
ECONOMIC RESEARCH PAPERS NO 74 (January 2003)
Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia by Sunita Pitamber
To learn more about this author, visit African Development Bank's Website.
Like this article? Share it with your friends
|
|
African Development Bank
(Visit African's Website)
The African Development Bank is the
premier financial development institution
of Africa, dedicated to combating poverty
and improving the lives of people of the
continent and engaged in the task of
mobilizing resources towards the economic
and social progress of its Regional Member
Countries.The Bank’s s mission is to
promote economic and social development
through loans, equity investments, and
technical assistance.
The ADB is a multilateral development bank
whose shareholders include 53 African
countries and 24 non-African countries
from the Americas, Asia, and Europe. It
was established in 1964, with its
headquarters in Abidjan, Côte d’Ivoire,
and officially began operations in 1967.
|
|
|
African Development Bank's
Complete
List Of
African-Accounts
Articles
|
|
If you enjoyed this article, get African Development Bank's Complete List of African-Accounts Articles For FREE!
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
