Monday, February 25, 2008

Credit not the only way out of poverty


Written by Muhota wa kimotho
Photo by: Joan Pereruan
Women sell clothes and artefactsat Nairobi’s Maasai market: It is assumed that loans for business activitieswould help the poor and the marginalised, who are mainly women, to break away from their poverty circle.

February 25, 2007:
During my many years work in microfinance in Africa, in the South East Asia and the Pacific Region (SEAPRO) and my attending many Microfinance conferences/ workshops, in Africa, in US, in Europe and in SEAPRO, it has become clear to me that many microfinance practitioners emphasise and have unwavering faith in the long-term effectiveness of small MF loans, averaging between $100 -$150, the latter figure being on the higher side, as an effective tool of poverty reduction.

It is generally assumed that over time, these small credit facilities (loans) for business activities will enable the poor and the marginalised, who are mainly women, to break away from their poverty circle and to enjoy a range of financial services like the rest of us, which were heretofore unavailable to them..

But, I have second thoughts on the emphasis placed mainly on the credit component of microfinance as a highly effective tool to achieve the hoped for goal. More and more, it has become clear to me that the over-emphasis and narrow focus on availing small loans to the poor and marginalised—especially those poor who have not made prior efforts and/or have had no opportunity to do business before, cannot be considered the answer to achieving meaningful and long-term sustainable poverty alleviation.

In fact, it is clear to me that microfinance is only an intermediation tool for poverty alleviation. To reduce poverty meaningfully, the majority of the microfinance clients must “graduate” to Small and medium Enterprise (SME’s) activities, if our people are truly break way from the poverty circle.

. In various countries on the African content and South East Asia and the Pacific Region, where successful microfinance programmes are in place, microfinance practitioners have made the world of the poor and marginalised less dark and have moved the poor from the level of a mere dream to the level of having hope.

However, we, the practitioners, the donors and all the stakeholders in the microfinance industry, would be doing the poor, the marginalised and ourselves great disservice, if we do not ensure the continuity of the microfinance momentum and strive to make microfinance sustainable in the long-term.

To reduce poverty, significantly and noticeably world-wide, the time has come for all stakeholders—practitioners, support institutions, and donors to go back to the “drawing board” and review the basic assumptions on which the microfinance industry has been built to date.

A critical analysis of our core assumptions, on the basis of the lessons learned during the past 15 years or so of the mushrooming of MFIs in the third word, would, in my opinion, significantly increase the chances of long-term sustainability of the microfinance industry worldwide. The assumptions to be reviewed could include but not be restricted to the following:

We need to view microfinance as a long-term business activity with a social mission, purpose and goal, and recognise, fully, that if the business mission, purpose and goal fail, the social mission will most assuredly also fail.

Accept and genuinely appreciate that business, microfinance or otherwise, is not easy and that not every poor and marginalised person has the wish, the desire, the will, the ability or the capacity to develop into a microfinance entrepreneur.

Regardless of socio/economic status, there are some of us who simply do not have the mind of an entrepreneur and would happily welcome an opportunity to be employed by a successful local microfinance entrepreneur.

For the non-entrepreneur, no amount of credit availability will transform such person into a successful business man/woman, more than buying me a piano would transform me into a successful musician.

Wa Kimotho is an advisor to the Central Bank of Nigeria.

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