Africa Needs Microfinance - Financial Services are Imperative for Progress

by Eric Thurman
June 09, 2008

Eric Thurman - is a professional advisor to donors and consultant for international NGOs. He has supervised grants in more than half of the nations of the world. He also has directed microlending programs in 30 countries when he was CEO of Opportunity International and later Hope International. In 2007, he and a client, Philip B. Smith, co-authored the book A Billion Bootstraps, a popular introduction to the microfinance movement.

Africa is a contradiction. It has so many assets, including vast riches in natural resources and some of the most exquisite scenery on Earth. Most Africans are extremely friendly, community-minded, and very hard-working people. At the same time it is a sad continent, home to hundreds of millions of people for whom survival is a daily struggle. The United Nations Human Development Index ranks 177 nations annually according to health, literacy, and income. This year, African nations occupy all of the lowest 24 places on the list. This group represents half of the countries on the continent. Arguably, Africa is the poorest region of the world.
Without doubt, it is time to maximize the abundant resources of Africa, especially the human assets. Microfinance is an excellent tool to achieve this goal. A close look at the realities of Africa reveals factors which must be taken into consideration as part of any effort in development. Economic patterns here are different from other parts of the world. First, few people have wage-paying jobs. Self-employment dominates the labor force. Also, people are more dispersed than in most other parts of the world. In a situation where the population is geographically scattered and self-employment is the norm, microfinance is a proven, practical way to boost personal income. Large public works projects or signs of industrial development are rare. Foreign direct investment and job creation in any form should be encouraged wherever possible, but no one is suggesting that these will produce large scale employment for Africans anytime soon.

The Importance of Finance in Africa

From my observations while working in economic development across the continent, a speedy and cost-efficient way to stimulate economic activity among Africans is to bolster the kinds of income-generating activities they already practice. If an individual is selling retail goods, as many are, it is most helpful to make certain he or she has an adequate inventory and a large enough variety of products to meet his or her customers’ demands. For those involved in animal husbandry or agriculture, it is most helpful to assure them that they have enough financing to weather seasonal fluctuations in income. Basic finance of this kind is currently in very short supply. Though most Africans deal with small sums of money regularly, they may never come into contact with a bank throughout their entire lifetimes. Complete lack of access to financial services for so many people stunts development, which is why few people who live in cash-only economies ever progress beyond bare subsistence. Most of these people are extremely vulnerable and cannot maximize the value of the few resources they have.

Read more from: Harvard review - http://www.harvardir.org/articles/1722/