Inclusive Financing through Micro-credit
Introduction
In 2012, The World Bank estimated that 43% of all people in Africa were living below the poverty line, with poverty reduction not matching the rate of economic growth on the continent. The majority of those living in poverty in Africa are unemployed and do not have access to lines of credit. Micro-finance offers wider access to financial services, particularly to the neediest in African society. Micro-finance has therefore been hailed as an effective poverty alleviation and developmental tool for African communities, particularly for female recipients. Components of micro-finance include micro-credit, micro-savings and micro-insurance services. The provision of microfinance enables aspiring female entrepreneurs to increase their income or expand their businesses.
Furthermore, the gender gaps in income, asset ownership and education means that;
- Women are the least likely to access credit from formal institutions. Without assets to hold as collateral, women are unable to get traditional loans.
- Low levels of education, the gender wage gap, along with high household spending burdens, reduce women’s capacity to save their income for either investment or emergencies.
Formal lending institutions generally shy away from providing micro-finance services to Africa’s poor as they have difficulty in ascertaining creditworthiness, while poorly-defined property rights limit the potential for collateralisation. Due to the aforementioned constraints, lending institutions exhibit risk aversion when dealing with micro-finance projects, and greater effort is required to support micro-credit initiatives, specifically for rural African women.
The NEPAD Spanish Fund for African Women Empowerment provided disbursements to projects which provided seed capital for the establishment of small and micro businesses; provided microfinance at low interest rates to female entrepreneurs with viable business plans; facilitated collaboration with local micro-financing projects and private banks; provided training on the efficient utilisation of micro-finance; promoted the establishment of rural savings and loans associations and the development of new micro-finance delivery systems for female entrepreneurs.
The outcomes of these projects are consistent with the AU’s Agenda 2063 Aspiration 1 which calls for a prosperous Africa, based on inclusive growth and sustainable development with the priority to secure incomes, jobs and decent work for all, as well the goal for Africa to take full responsibility for financing her development as outlined in Aspiration 7. The projects further relate to the Millennium Development Goals (MDGs), and subsequent Sustainable Development Goals (SDGs) which consider gender equity, equality and women’s economic empowerment as pre-conditions for sustainable growth.
The Good Practice Approach and Success Stories
The following two projects outline the success that was achieved in inclusive financing through micro-credit by the NSF.
GAWFA (Gambia Women’s Finance Association): Empowering Women Through Microfinance
The GAWFA (Gambia Women’s Finance Association) was instrumental in providing access to microcredit to 10,231 low-income women and 409 men in 105 communities from the North Bank region of The Gambia. This helped to finance the expansion or development of their businesses, assist with repaying loans, increase their savings, and improve their livelihoods in general. Most of the funding was disbursed as microloans. In addition, 1,545 women and 64 men were trained in entrepreneurship and business skills and 375 women and 25 men were trained on GAWFA’s Mobile Banking Technology platform to perform financial transactions and operations in a more transparent and accountable manner. It is estimated that a total of 25,000 people benefitted from these interventions.
The GAWFA micro-credit/loan scheme benefitted 10,231 women in The Gambia by assisting in creating jobs and financial returns to the beneficiaries. Of these, 1,545 women were trained in entrepreneurship and business skills and 375 women were trained on GAWFA’s Mobile Banking Technology platform to perform financial transactions and operations in a more transparent and accountable manner. Both interventions assisted in increasing both the competencies of the beneficiaries and the oversight mechanisms which ensured the success of the initiative.
Increasing the accessibility of micro-credit to women in Africa is crucial to support economic growth and empower women as income generators in their communities. This, in turn, leads to job creation. The success of the project was also attributable to the provision of mobile banking facilities which increased the transparency of financial transactions and other banking operations, which is often a concern among users in these communities.
The following accounts bear testimony to the success of the GAWFA project:
Arrabiatou Fofana: “I was volunteering in a building material store prior to becoming a beneficiary of this GAWFA project. Thank God, after receiving financial and technical advisory services support from the project, I am able to establish and operate my own building material store in my community. I am now able to independently take care of my own needs as a woman and also support my family in their various needs such as medical bills, education and other household needs”
Njamatou Ceesay NgainSanjal: “I am proud to be part of an organisation that innovated such a financial delivery technology to support low income women. It makes life very easy for me living in a rural community as far as financial transactions are concerned and, what is more amazing, is that I need not to move an inch and get my financial need solved at my doorstep at an affordable cost. I feel financially included and economically empowered”
The Centre for African Women and Economic Empowerment (CAWEE), promoted women’s entrepreneurship and economic empowerment by organising advocacy/consultative forums in Addis Ababa, Ethiopia. These forums successfully addressed the challenges faced by Ethiopian women in business and facilitated the provision of micro-finance to female entrepreneurs and small business owners. Attendance at the forums directly benefitted 1,233 Ethiopian women and it was estimated that media coverage reached 20,000 listeners and readers.
Collaboration between NGOs, the private sector and the public sector is critical to the development and growth of micro-finance initiatives. A large component of this is the base support and educational initiatives provided by NGOs and the public sector, which help to reduce the risk in the private sector when distributing credit to African women. The consultative forums held by CAWEE were a great illustration of this. At these forums, policy ideas and workable recommendations were developed by members of parliament, women’s associations, local and international NGOs as well as by academics. As a direct result of these forums, ENAT Bank was formed. The bank focused on providing financial products and services to aspiring businesswomen. This has led to the economic empowerment and emancipation of thousands of Ethiopian women, who continue to benefit from the affordable financial products and services offered to women.
The success of the consultative forum hosted by the CAWEE highlights the importance of discussion with key individuals and groups within an area targetted by a project. This allows the organisation to tailor micro-finance initiatives to maximise its impact. Furthermore, these solutions, like ENAT Bank, can have a positive long-term impact on a region if set up correctly with the needs of the local community in mind.
Key Lessons Learned from the Micro-credit Sector Projects
Implement policy interventions that promote an enabling environment for women to access micro-credit
Future micro-credit projects should prioritise advocacy efforts that lobby for change in governmental policies regarding the provision of and access to micro-credit for women in Africa. An example of this was the project undertaken by the Centre for African Women and Economic Empowerment (CAWEE), which promoted women’s entrepreneurship and economic empowerment through organising consultative forums, which addressed the challenges faced by Ethiopian women entrepreneurs. Policy ideas and workable recommendations were developed by members of parliament, women’s associations, local and international NGOs as well as by academics. ENAT Bank, which focuses on providing financial products and services to aspiring businesswomen, was established as a direct result of the forums. This has benefitted thousands of Ethiopian women. An important component of the success of this project was the collaboration with various stakeholders to ensure that solutions were feasible, viable and effective.
Address cultural and religious dynamics with respect to issues relating to loans
It is important to factor in cultural and religious dynamics when initiating micro-credit projects. There is a need to apply Islamic financial principles and banking practices in an accommodative manner when undertaking micro-finance projects in predominantly Muslim countries. For example, the Women’s Rights Awareness Programme (WRAP) found it critical to address cultural and religious practices with respect to issues of employment, loan savings and bank interest in rural communities in Kenya. WRAP held Question-&-Answer sessions to address concerns that Muslim communities had, as the individuals believed that “earning savings” from interest was unjust according to their religious norms. Ensuring sufficient consideration of religious and cultural norms improves the efficiency and effectiveness of projects, whilst also maintaining the principle of intersectionality. These considerations are particularly important in financial spheres, due to the close relationship between finances and family dynamics, which are further informed by culture and religion.
The structure, efficient use and management of micro-credit financing are crucial to ensuring optimal use of the finances provided. Without an improvement in the competencies of the beneficiaries of micro-credit and effective accountability practices implemented by the providers of credit, little benefit would be experienced by the impoverished women. An example of this is The Gambian Women’s Finance Association (GAWFA) micro-credit/loan scheme which benefitted 10,231 women in The Gambia by assisting in creating jobs and financial returns to the beneficiaries. Of these, 1,545 women were trained in entrepreneurship and business skills and 375 women were trained on GAWFA’s Mobile Banking Technology platform to perform financial transactions and operations in a more transparent and accountable manner. This intervention assisted in increasing both the competencies of the beneficiaries and the oversight mechanisms which ensured the success of the initiative.
Increase linkages among the banking sector, private sector, and micro-finance