Linkages for Microfinance Provision

In a recent online discussion organised by the United Nations Capital Development Fund (UNCDF) Voices of Microfinance, it was observed that according to the Report of the Commission for Africa, "MFIs alone are not the answer. Banks and other financial institutions, domestic and international, have far greater resources to take up the challenge of enterprise financing and come up with innovative financing schemes."

Question: Do you agree? If not, why? If so, what concrete steps can be taken to generate greater involvement by banks and other financial institutions in responding to the financial needs of poor people in sub-Saharan Africa?

I shared my opinion as follows:
In global comparison, poverty levels are highest in sub-Saharan Africa with recent figures showing that over half of the population is living on less than US$1 per day and three-quarters on less than US$2 per day (Chen and Ravallion, 2000). As such, the challenges to entrepreneurial growth are even greater, and include the devastating effects of the HIV/AIDS pandemic, high illiteracy levels, inadequate vocational skills training programmes, poor telecommunication and other infrastructure. While MFIs have the flexibility, empathy for the poor and innovative solutions to the financial needs of the poor, they lack the capacity for wider outreach to meet the financial needs of the poor in Sub-Sahara Africa. Furthermore, due to the enormity of the challenges, both financial and otherwise, that are faced by the poor in Sub-Sahara Africa, it is a fact that MFIs alone are not the answer, neither are commercial banks.

Commercial banks have distinct strengths as well and do have the potential to bridge the gap that leads to exclusion of the poor from the formal financial system. They have the expertise and know-how; they have the capacity in terms of financial capital, human resources and infrastructure; they also have the technology. However, they lack the empathy and understanding of the needs of the poor due to their profit-driven culture.

As such, there is need for concerted effort among all stakeholders, in the financial services sector, in order to meet the financial needs of the poor in Sub-Sahara Africa. We need to establish proper linkages and partnerships between commercial banks on one hand, and MFIs and other non-formal and informal financial service providers on the other for us to achieve financial inclusion of the poor in Sub-Sahara Africa.

Kennedy Bisani Lweya
PhD student in Microfinance University of Reading
United Kingdom