Microfinance In Africa

For a wannabe small business owner or a family in a poor village in need of a loan, options are few. In developing countries in Africa, microfinance has helped alleviate this problem. This article will set out the main principles of microfinance, how it helps the African people, and what its drawbacks are.

What is microfinance and how does it benefit people?

Microfinance is a form of credit offered to individuals or entities who would not have had access to it otherwise. Usually, this would be a low-income person or one who does not have a strong credit history. Through microfinance or microcredit, the persons or group can improve their situation and sustain themselves financially. In addition to the pure microfinance solutions, non-governmental organizations, credit cooperatives, rural banks, and non-bank financial institutions all work in different parts of Africa.

Institutions also provide other financial services such as deposits, the ability to pay with mobile apps, and more. Through these services, they represent a whole spectrum of possible uses for microfinance bodies.

Housing is one major area where microfinance works. Small loans with short repayment terms work well in getting a house built more quickly. It can also help a small farmer, taxi driver, or hairdresser buy the materials or pay the rent to start their business. One of the major benefits of microfinance is its role in promoting gender equality. A woman who wants to access finance faces several issues. Chief among them is that the assets of the family are held in their husband’s name. Women are unable to access loans because they cannot guarantee them with assets.

Women are 70 percent of the recipients of microfinance worldwide. In some African countries, greater financial independence and success can lead to an improved role and image of women in their societies.

Though it has its challenges, microfinance has helped people all over the continent to improve their economic life. The results so far have been the ability to buy better food for their children, send them to school. Improved health is also a direct result of microfinance. The loans have provided medical care and clean drinking water and sanitary facilities for their homes. Overall, the dignity and prospects for many have improved and microfinance can be a way toward a better, more financially abundant life.

Drawbacks of microfinance – is it the answer?

Though the United Nations approves of microfinance in general, it has also raised questions about viewing it as a panacea. One major drawback in Africa is a lack of strong microfinance institutions and people to manage them. A structurally weak institution cannot be sustainable. There is also a lack of support services for these bodies.

One way forward could be the development by governments of regulatory and legal frameworks for these bodies. Though microfinance can be a tool, African economies need policies that transform their overall structure. For the present though, microfinance continues to provide much-needed access to financial services for the poorest people on the continent.

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