Microfinance in Africa

ImageMicrofinance, “the supply of loans, savings, and other basic financial services to the poor”, has been hailed as a route through which those traditionally unable to borrow from banks can develop their businesses and ultimately escape poverty. The development of microfinance in its current form is credited to Dr Mohammed Yunnus in the 1970s, who went on to found the Grameen Bank in 1983 and won the Nobel Peace Prize in 2006

The World Bank estimates that some 160 million people in developing countries are served by microfinance. In Africa, as of 2011, there are 8 million microfinance borrowers and microinsurance coverage has increased some 200% between 2008 and 2011.

The popularity and use of microfinance is growing in Africa, as can be seen from upcoming conferences in the continent. The Africa Microinsurance Microfinance Conference 2013 and the West Africa Microfinance Conference are set to take place in March 2013. In other parts of the world, the UK All Party Parliamentary Group on Agriculture and Food for Development are hosting a seminar this month entitled “Joining the dots: financial inclusion for smallholder farmers.” The International Labour Organization this year has published a series of papers on microinsurance.

Microfinance provision has also expanded beyond business, and new initiatives such as Kiva allow individuals to provide microloans to projects in developing countries.

But experts warn that microfinance is not a panacea for poverty and is instead a tool that must be used responsibly. In some cases microfinance has led to people being trapped in a debt cycle and unable to escape poverty. A systematic review of the impact of microfinance in Africa by the Evidence for Policy and Practice Information and Coordinating Centre (EPPI-Centre) of the University of London lays out some of the pitfalls around microfinance.

For more information on microfinance, visit CGAP’s Microfinance Gateway, a comprehensive online resource on financial services for the poor.

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