Micro Credit and Poverty Reduction in Africa

Micro Credit and Poverty Reduction in Africa 1. Microfinance introduction Microfinance refers giving low-income people or households ,who usually be excluded by customary financial institute, with small amount loans(microcredit) to help them improve their living standard and small business productivity. Microfinance has been hailed as a strategy for poverty alleviation the world over, especially through employment creation. Nowdays, microfinance institutes have developed a wide range of financial service to credit, savings, insurance, lending, pension,retirement and some business assistance including business/accounting training, education etc. Microfinance has been proved an effective method for reducing poverty. Traditional microfinance provides normal credit products. But it is important for poor people to find financial products which can bring them stable business and reduce the risk they may have. In the period of microcredit development, more and more products are adding into micro credit choices. The biggest challenge we are facing is to find the most efficient micro-finance products in poverty reduction. There are a lot of literature and research with regards to micro-finance. Up to now, majority of evidence show micro-finance is an effective way to reduce poverty. But at mean time, we also notice poor people is weak strata in the society. They don’t have the wide approach for all kind of information. Because of their low education and destitution, they can not read newspaper/magazine or watch TV. Poor people has very limited chance to get opportunity and information which can help them get rid of poverty. In order to take advantage of micro-finance, we need to build a channel between the poor and financial facility which provides micro-finance service. This paper has four main parts. The first parts: We give an overview of microfinance situation in Africa. The second part: The third part: The last part is our conclusion. 2. Microfiance situation in Africa Africa is regarded as the only continent which poverty situation will get worse in the world. This was declared by 43 African micro-finance organization according to Ernest’s research. In most area of Africa, farm resettlement and economic system is not stable, ecological environment is atrocious . Law system is under threat and political intimidation. Political situation in some countries is changing all the time. The number of refugees within Africa grew from 1 million in 1970 to nearly 16 million in 1994 as a result of internal political or ethnic conflict. Today, Africa are facing deadly threaten from HIV/AIDS. The main Africa economy is agriculture, but some areas have extremely dry climate. This condition increase agricultural variability. There is large scope of people living under poverty. Africa is facing great challenges in putting micro-finance program into effect throughout whole continent. The micro finance institution (MFI) may not cope its internal management with complex situation in Africa. “Rural Africa still has a relatively low number of clients reached, which calls for continued efforts to improve rural and agricultural finance.” This conclusion come from Cecile and Manfred, which is based on a survey conducted by the International Food Policy Research Institute (IFPRI) team on microfinance in 1999. Statistic show the country with heavy population(like Nigeria, Egypt etc) usually has lower outreach The lack of real donor commitment to funding micro fiance is also another serious problem. “Given its contextual complexities, Africa is facing daunting challenges in implementing micro finance programmes throughout the southern, eastern and western regions.”(Petronella,2001). For example, The countries which have conflicts like Algeria, Angola, Sudan and Somalia, there are no any MFI in these countries. in Namibia , only very few MFI exist to provide micro-credit services. According to the information source from Namibia Economist, there are