Namono Lakeri, a widow and mother of five in Uganda, used a $125 Women’s Microfinance Initiative loan to expand her second-hand clothing business.
The business generated enough money to send her children to school and allowed her to buy things that she had considered luxuries before, like milk for tea.
In Africa, where women are sometimes subject to prejudice, microfinancing has emerged as a tool for economic empowerment.
Now lenders are finding that women are often better borrowers than men, and tend to be more fiscally responsible.
When microfinancing is introduced to a region, women turn out to be ideal candidates, says Alan McCabe, chief operating officer of Fern Software, an Ireland-based company.
“A lot of our customers are microfinance institutions who deal largely with women, and a number deal exclusively with women,” McCabe said. “Both anecdotally and statistically, females are by far the better performers as microfinance customers. Males, on average, tend to spend more of the money on themselves. Women on the other hand tend to take on more of the responsibility for household welfare, so they take the view of helping the entire family through their success, and also contribute a higher percentage on their income to the family unit than men tend to.”
Microfinancing offers small loans to individuals in poor regions of the world. Mircofinancing was first introduced to the world by Grameen Bank in Bangladesh more than 30 years ago, reports the U.N.’s Africa Renewal magazine. Grameen Bank, founded by Muhammad Yunus in 1976, lent small amounts of money to villagers organized in voluntary groups.
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Since then Yunus’s idea has spread all over the world, and has been expanded to cover a broad range of financial services for the poor, the report said. “Microfinance — rather than just microcredit — includes savings and even insurance services for poor households. By the end of 2007 more than 150 million clients worldwide had used the services of microcredit institutions. More than 100 million of them were among the poorest in their societies,” the report said.
Africa hopes to duplicate the success India had with the banking concept. But the continent has been slower to adopt it. “The microfinancing models have tended to be more successful in Asia and even the South Pacific, but with mixed success in Africa,” McCabe said.
It may be hard to convince Africans to follow the rules of microfinancing, according to Osuji Uzoma, branch manager of a microfinance bank in Nigeria. “The people still believe in the national cake idea, so they take and don’t repay.”
Money to fund the programs is also an obstacle. “I think one of the main reasons is that establishing microfinance on a large scale inevitably requires initial capital investment,” says McCabe. “Funding perhaps has been an issue for this in Africa (in parts), whereas in the Asia/Pacific region there appears to have been a more structured approach to the funding models through places like the Asian Development Bank and the Gates Foundation. The more significant political and systemic risks in Africa have made it a less attractive target for investors.”
It’s important to use microfinancing to empower women, Uzoma says. “Women are more reserved and responsible financially than men in Africa. Women have the highest percentage of unemployment in Africa but they are more enterprising/industrious than men in some cases.”
McCabe adds, “Women in Africa, as in many developing nations, are subject to oppression and prejudice. Microfinancing is important to women particularly in terms of sorely-need empowerment, plus they are often the poorest and are responsible for household welfare.”
Still microfinancing in Africa needs fine-tuning, says Uzoma. “Some microfinance institutions make compulsory savings, some do group lending, and others do individual lending. The proper lending methodology for the target client is yet to be discovered. And governments have little or no involvement in sustaining these microfinance banks financially so sustainability becomes a challenge.”
If used correctly, microfinancing is a valuable tool in Africa, Uzoma says. “African has the highest percentage of underdeveloped countries. It has a very large population of persons living below the poverty line of $2 a day.”
As in any developing region, microfinance is proving to be a powerful tool in helping communities lift themselves out of poverty, McCabe said.
“There are huge populations in need of help in Africa, and the process of encouraging micro-entrepreneurs becomes a self-feeding cycle, which can alleviate a lot of the political and systemic problems. The social improvements filter down to help entire communities, not just individuals.”