Microfinance is not necessarily a panacea for the eradication of poverty but one among a multiplicity of strategies available for fighting the scourge. The multidimensional characteristic feature of poverty requires, not one strategy, to extinguish it. Most African countries have very weak financial systems. The World Bank cited
Microfinance is meant to deepen the financial system so that the poor can also have access to financial resources. Poverty is largely a rural phenomenon in Sub-Saharan Africa. This has seen the greater majority marginalized from the financial mainstream. The objective of rural microfinance is to realize an inclusive financial system so that the economically active rural poor have access to a full package for financial services that will enable them to escape poverty. Micro-finance is a proven but under-utilized development and poverty reduction tool.
Microfinance for SME Development:
Building an “entrepreneurship culture” is an investment in valuable “social capital” for business. Small and medium sized enterprises (SMEs) potentially constitute the most dynamic firms in emerging economies. Although they are most likely to move into areas of comparative advantage and high value addition, they often face economic, institutional, and legal obstacles. Hindrances include limited access to working capital and long-term credit, legal and regulatory restrictions, inadequate infrastructure, high transaction costs, and limited managerial and technical expertise. Despite the presence of multiple and often interrelated constraints, however, the widespread belief, on which policies to support SMEs are based, is that the lack of finance constitutes the main obstacle to the growth of SMEs.
SMEs are powerful contributors to the Gross Domestic Product (GDP) of many countries. Narayan Deepa in Empowerment and Poverty Reduction: A Sourcebook records that the the informal sector is responsible for 83 percent of new jobs in Latin America and Caribbean and 93 percent of new jobs in Africa. In
In spite of these statistics, development of small to medium enterprises fails to feature prominently in development plans of the majority of African countries. This is manifest in the manner in which the access to financial services by these groups receives marginal attention. More than 78 percent of the people in
According to Marris Peter and Somerset Anthony in African Businessman: A Study for Entrepreneurship and Development In Kenya almost all the African businessmen interviewed (more than 67%) cited lack of capital as their greatest difficulty in doing business. Access to financial services by SMEs, especially those that excluded in the rural areas, will lead to a large contribution towards the development of rural economies.
Access to financial services led to the innovative use of technology in
African countries can also replicate the same so as to empower the rural people with access to communication technology, information (to avoid information asymmetry) and markets.