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Introduction - Abstract - Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia

Guest post by: African Development Bank

Article Overview: Poverty reduction has been identified as the overarching long term goal for most of the development interventions in Africa, and more recently crystallised in the Millennium Development Goals and the New Partnership for Africa’s Development (NEPAD). In Africa, more than 40% of its 750 million people live below the internationally recognized poverty line of $1 a day, and the evidence is even more worrying for sub-saharan Africa.

Free Download - References: Human Capital and Economic Development By African Development Bank
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Introduction - Abstract - Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia

Poverty reduction has been identified as the overarching long term goal for most of the development
interventions in Africa, and more recently crystallised in the Millennium Development Goals and
the New Partnership for Africa’s Development (NEPAD). In Africa, more than 40% of its 750
million people live below the internationally recognized poverty line of $1 a day, and the evidence
is even more worrying for sub-saharan Africa. The number of poor people has grown relentlessly,
causing Africa’s share of the world’s absolute poor to increase from 25% to 30% in the 1990s
(UNDP, 2001 and 2002). However, Africa’s development challenges go deeper than low income,
falling trade shares, low savings, and slow growth. They also include high inequality, uneven
access to resources, social exclusion, and insecurity, especially amongst women. While some African
countries are showing promising economic progress and are making notable strides in addressing
major development constraints, such as Uganda, the majority of the continent is still under great
stress to meet the human survival needs. More specific concern is raised due to rural-urban
disparities in income distribution, access to education and health services, and prevalence of
ethnic or cross-boundary conflict. In particular, the most outstanding factor is the gender disparity
in access to resources, such as land, credit, technology, markets and production information and
skills development.
In most African countries women tend to account for an average 51% of the population, and
make up about 65% of the rural labour force. In addition, women tend to shoulder the greater
burden of child and family welfare, social and community obligations, engaging in more than one
economic activity as well as undertaking domestic chores. In connection with the growing emphasis
on poverty reduction sustainably, micro-credit has been recognized as the most necessary and ‘the
missing ingredient’ which is most effective in reducing poverty of the poorest of the poor (Otero
and Rhyne, 1994; Khandker, 1998). Thus, many rural based micro-finance programmes have
attempted to address the women specific need for micro-credit. Female entrepreneurs and microcredit
borrowers tend to face greater constraints than men such as socio-cultural barriers, legal
and structural constraints, higher rates of illiteracy, inadequate experience in credit management,
and constraints related to collateral, marketing, inputs, production technology, to name just a few.
This paper analyses the effectiveness of micro-credit as a means to reducing poverty, with particular
focus on women, and demonstrates, through the critical analysis of some country-specific examples,
that the use and supply of micro-credit does not always lead to a sustainable impact on household
or female poverty reduction. This will be done through the analysis of the micro credit delivery mechanisms and related conditions of the micro-finance institutions (MFIs) projects and
programmes.
This paper uses the term micro-credit and micro-finance interchangeably. The methodology used
in this paper is field observations, in addition to interviews and discussions with micro-credit
delivery officers as well as clients in Ethiopia and Malawi. The field investigations were carried
out at different points in time during the period 2001 and 2002.

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

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Home > African-Accounts > African Development Bank > Introduction Abstract Factors Impeding the Poverty Reduction Capacity of Microcredit Some Field Observations from Malawi and Ethiopia
Article Tags: african countries, community obligations, development challenges, development constraints, development interventions, domestic chores, economic progress, family welfare, gender disparity, human survival, labour force, long term goal, micro credit, millennium development goals, nepad, poverty line, poverty reduction, sub saharan africa, technology markets, trade shares

About the Author: African Development Bank
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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.

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