Can Microfinancing Help?

Posted in News by AGavin on September 19th, 2007

Source: Africa News

Despite considerable natural resources and business opportunities on the African continent, millions of Africans still live under the poverty line. Microfinancing is perceived as an efficient weapon against poverty. Its aim is to empower the poor and enable them to have a starting capital from which they can develop their own business.AfricaNews interviewed Guillermo Salcedo, Oikocredit  Microfinance Manager on the subject.  Oikocredit  is a worldwide organisation operating in the development and microfinancing sectors with office in Africa, Latin American, Central and Eastern Europe and Asia. Here are excerpts from the interview with Guillermo 

AfricaNews: What is the role of micro finance in the development of Africa? How does it make a difference? 

Guillermo Salcedo (GS): Similar to other developing countries and regions worldwide, micro finance in Africa is contributing to greater access, inclusion and opportunities for the largely marginalised poor. 

Access to credit and financial services in general, such as savings, money transfers and micro insurance is of great importance to everyday economic life. Micro finance makes possible such access tailored to meet the needs and capacity of low–income families and micro–entrepreneurs.  With increasing access and outreach of financial services, the progressive inclusion of traditionally marginalized people and sectors into the mainstream economy and society can be achieved, as well as the empowerment of such disadvantaged groups, including women. Through access to financial services for the poor, opportunities for a better life can be created: 

-Opportunities of self–employment by starting a small business or of creating jobs for the unemployed with the growing of small and micro businesses;  -Opportunities to improve family income and help cover essential or emergency needs such as health and education for the children. 

Despite such potential and desired results of microfinance, it must be recognized that African reality has proved in many ways to be more challenging than in other continents as poverty seems to be deeper and more difficult to eradicate and diseases such as AIDS and malaria continue to have significant impact on families, children, institutions and organisations posing greater challenges to the potential contributions of micro finance initiatives.  It is also clear that there are other perhaps greater needs (health, education, basic services and infrastructure) other than small credits or financial services, for which micro finance does not have an answer or solution.   AfricaNews: In which African countries is Oikocredit involved in micro finance? Why in these specific countries? 

GS: Through its 4 Regional Offices based in Kenya, Ghana, Ivory Coast and South Africa, and the Global Credits Unit based in the Netherlands, Oikocredit supports 70 active micro finance projects in 12 African countries, including: Ghana, Kenya, Malawi, Mali, Mauritius, Mozambique, Senegal, South Africa, Tanzania, Togo, Tunisia and Uganda. As of August 2007, total capital outstanding with African micro finance projects amounts to EUR 26.6 million. 

The countries currently covered respond to both historical reasons having to do with the organisational development of Oikocredit since its start in 1975 as well as new opportunities that are generated with the growth of the microfinance sectors in new countries.  In the coming years Oikocredit hopes to further expand its presence in both sub–Saharan Africa as well as Northern Africa and add new countries to its micro finance portfolio. 

AfricaNews: What have you learnt from earlier micro finance projects? What do you do different now? 

GS: Expertise grows with experience and indeed, with more than 30 years in development finance; lessons learnt from past projects have allowed us to consistently improve our analytical skills and decision-making process.  Although risk-taking is an inherent characteristic of Oikocredit’s socially responsible and ethical financing, particularly of projects of high social relevance and impact, one of the key lessons learnt through the years is that providing finance to extremely weak projects which do not have good prospects of becoming sustainable in the long run or show very high probability of failure can be more harmful than beneficial for all stakeholders. All and especially high–risk projects need to be screened in a responsible and professional manner before a financing decision is made and, when possible and necessary, technical assistance must be arranged to support and ensure a successful outcome. 

  This is particularly relevant in the younger and more challenging African micro finance environment, where the availability and provision of technical assistance can be crucial to the success of a project. In this respect, Oikocredit participates in key partnerships with like-minded organisations, such as with ICCO and Rabobank in the Terrafina Programme, which approach is to provide an integral services of technical assistance at the macro, meso and micro level to set solid grounds for sustained financial support to African MFI.   

AfricaNews: Can you describe one of your successful micro finance projects in Africa? 

GS: Oikocredit has many successful experiences in Africa, supporting a wide range of small, medium and large micro finance organisations, from traditional indigenous grassroots savings and credit cooperatives (SACCO’s) to fully fledged microfinance banks.
One recent successful experience is with ENDA Inter-Arabe: Launched in 1990, ENDA Inter-Arabe (ENDA–IA) was originally created for the promotion of environmental issues and urban development. ENDA–IA soon realised that its client’s incomes were not sufficient to support their families. Facing these challenges, small groups of women developed small in-house businesses, using their skills and local markets. However, profitability level and expansion opportunities were constrained by the lack of working capital due to the absence of sources of credit.  

In order to fill in the gap, ENDA–IA decided in 1995 to launch a micro credit programme with the mission to provide sustainable financial and non-financial services to micro entrepreneurs in poor neighbourhoods of Tunisia. ENDA started its activities with limited capital and a virtually untrained team, but the Institution grew steadily and is today a solid and self-sustainable institution providing financial services through its 21 branches all over Tunisia. ENDA–IA provides group loans, managed by the beneficiaries themselves based on participatory principles.  ENDA–IA’s current portfolio is now close to EUR 14 million with 50, 000 active clients of which 60% are women entrepreneurs. Its outstanding performance obtained the recognition of many local and international microfinance actors. Facing strong demand for its services, in 2005 ENDA–IA approached Oikocredit for a EUR 2 million loan equivalent in local currency, granted in March 2006. Given the high growth rates and positive experience to date, additional funding is now being considered, intended to increase the organisation’s outreach to target 100,000 active clients in the next 3 years. 

AfricaNews: What is the future of micro finance in Africa? 

GS: Micro finance has proven to be a successful and sustainable development finance model, replicable worldwide, capable of reaching millions of poor and disadvantaged people by providing access to essential financial resources and services and, through these, to small entrepreneurial activities and employment opportunities to people in need. We believe that the development of micro finance in Africa will bring similar outcomes and contributions to improving people’s livelihoods.