Alexia gave a helpful overview of microfinance and how microfinance has evolved over the past few decades from the provision of microcredit alone to the creation of an entire financial system that serves the poor not only with loans but also with savings, payments and insurance services. Microfinance is used by the poor to manage their small and irregular cash flow in order to cope with seasonal events such as harvests, and unforeseen circumstances such as illnesses or funerals.
Financial services allow people to face life’s risks and opportunities. While microfinance is not a panacea and cannot replace investments in areas like education and health, it can empower individuals to plan for the future and build assets to improve their living conditions.
Alexia went on to discuss the current state of financial services access in Africa, describing how uneven access to microfinance institutions is across the continent. Some countries have made much progress in extending financial inclusion, such as Kenya and its successful mobile banking system, while other countries like Liberia and Namibia have little experience with microfinance organisations and markets for these institutions are miniscule.
Alexia outlined key constraints hampering the provision of microfinance in Africa, including a lack of capacity at all levels of financial system, high costs of delivering services within African markets (due to lack of infrastructure and low population densities) and excessive government intervention in financial services delivery.
The call also discussed a new ‘Capacity-Building Fund for Microfinance in Africa’, which the UK Department for International Development and the World Bank are currently developing. Alexia explained what critical features should be put in place to ensure that the proposed Fund effectively reaches poor people and helps them escape poverty.
We encourage you to listen to the call to learn more about microfinance in Africa and the Capacity-Building Fund. You can access a recording of the call on our website. Please do take the action for this month, which is to write to your MP to ask them to help ensure the Capacity-Building Fund supports those microfinance institutions that target the poor and improve their chances of escaping poverty.