Josephine Awuor, 34, always looks forward to her turn to receive “merry-go-round” contributions from fellow members of Msingi Bora (Good Foundation), a micro-finance group she belongs to in Kibera, Nairobi’s largest slum.
Meeting weekly, the 23 Msingi Bora members each contribute 50 shillings (60 US cents), which is pooled for members to take loans from. At each meeting, the members also contribute 20 shillings (26 US cents) each – to be given to one member in what they term their “merry-go-round” as they draw lots to determine the order of receiving the money.
“Numbers are written on small pieces of paper and folded and each member picks one; the number you get determines your position in the order of receiving the merry-go-round money,” Awuor said. “Previously, supporting myself and my four children was really difficult; things like school fees, food and rent were hard to get but since I joined Msingi Bora, things are looking up,” Josephine said.
Without a steady income – she mostly survives by doing casual labour in more affluent residential areas neighbouring Kibera – Awuor uses the merry-go-round money to buy food and other household items.
Loans from Msingi Bora, which range from 500 shillings ($6.5) upwards, have enabled Awuor, a single mother of four, to put her children in school. Her eldest child is due to sit the Kenya Certificate of Secondary Education this year and another one is in class eight, due to sit the Kenya Certificate of Primary Education at the end of the year.
With the vast majority of the hundreds of thousands of people who live in Kibera lacking any kind of formal banking facilities, micro-finance groups such as Msingi Bora fill the gap, providing members with credit they would otherwise not have access to.
While some groups are initiated and established by the slum dwellers on their own, some groups, such as Msingi Bora, have the backing of national and international organizations that provide training and psychosocial support.
CARE International, through a community-based organization known as the Kibera Slum Education Programme, supports Msingi Bora and dozens of other such groups by providing training, capacity-building, resource mobilization as well as sub-granting for projects such as the education and care of orphaned and vulnerable children.
“CARE has found that the answer is not necessarily to bring banks or microfinance institutions to the poor, but instead enable and empower poor women to set up informal saving and loan groups,” Helene Gayle, the president and chief executive officer of CARE USA, said on 10 April during a visit to Kibera.
According to CARE, members of its Village Savings and Loan Associations receive intensive money management training before their groups begin transacting loan operations. Most members of these groups are women, often earning less than $2 a day.
Gayle said the savings and loans projects give women in slums economic options they often lack and enable them to afford health care, take their children to school and put food on the table.
“Although such village savings and loan programmes help to make a difference in the lives of women and children, there is room for improvement as more and more people should have access to such programmes in order to have an even greater impact,” she said. “The projects in Kibera illustrate that we can really make a difference in peoples’ lives.”
CARE also supports economic empowerment self-help groups – comprising male and female members – such as the Haki Self Help Group that operates from the Kibera Hawkers Market, making ornaments from bones.
Turning waste into profit
“We have turned waste into profit by working with the bones discarded after meals; we work with cow, camel and goat bones to make a lot of beautiful ornaments such as necklaces and bangles,” Charles Ogutu, head of the Haki Self Help Group, told IRIN on 10 April. “Our main challenge is the market for our produce; we have contacts with traders who come and buy from us and later resell on the tourist markets, but sometimes their orders are not enough.”
Ogutu said the proceeds from the project are used for members’ economic empowerment as well as the group’s community projects, which include care-giving to orphaned and vulnerable children and a justice programme aimed at community reconciliation in the aftermath of the post-election violence that hit the slum in early 2008.
Lauren Hendricks, the executive director for CARE’s Access Africa, told IRIN that since 1991, CARE has had savings and loans programmes in 21 countries, reaching 1.6 million people.
“Over this period, there has been significant improvement in household economy for those involved in the savings and loan programmes,” Hendricks said. “As you know, one of the underlying causes of poor maternal health is lack of income for many women; we can combine group savings and loan programmes with others such as education so that we use resources more efficiently.”Read Full Post | Make a Comment ( 3 so far )
Kenya’s Jamii Bora Trust has teamed up with an American nonprofit group to create Africa’s first ecologically friendly town built with microfinancing. Some 2,500 families are slated to live in Kaputei, near Kenya’s capital of Nairobi. The families, most of who are from slum areas of Nairobi, will be able to purchase these homes with micro loans.
|Africa’s first ecologically friendly town built with microfinancing|
They are building their future, one brick at a time.
Members of Jamii Bora Trust produce the bricks, tiles and other materials needed to construct what has become a first in Africa.
A town that is virtually self-sustaining, with its own water supply, primary school and other services, built by the poor for the poor.
Kaputei is a 160-hectare plot located 36 kilometers from Nairobi. It will eventually be home to 2,500 families.
By the end of May, some 300 families had already moved into the homes.
A number of families have brought their businesses with them.
The families come primarily from the Nairobi slum of Kibera, said to be Africa’s largest informal settlement. Most people there earn less than one dollar a day and do not have access to electricity and running water.
Jamii Bora member Jane Ngoiri and her family used to live in Mathare, a slum similar to Kibera.
She says living in a house with several rooms, running water and electricity is a dream come true. “We are talking about [the] kitchen and now I am in my own bedroom, my children are in their own bedroom,” she says, “this is great!”
Kaputei is the brainchild of Jamii Bora Trust, a nationwide microfinance company that gives loans to the poorest of the poor, usually for small-scale businesses.
Members purchasing Kaputei homes receive loans with up to a 10 percent interest rate and up to 15 years’ repayment time. The monthly mortgage is $36, comparable to rents in the slum.
Jamii Bora member Ngoiri says that it makes little difference if people rise out of poverty but are still living in the slum. “If you come out of your house, from your house, outside your house you get flowing sewage. So you do not have different [life] with the person who is saying he is poor and you are saying you are able now. So the first thing we see is that now we have climbed a ladder and we have to change also our living [quarters] so that we can understand how far we have gone,” Bora said.
She says she is confident that her and other children will now not be lured into lives of crime or early motherhood as they might if they continued living in the slum.
Partnering with Jamii Bora Trust is Unitus, a nonprofit microfinance organization based in Seattle, Washington. Its president, Ed Bland, explains how the project fits in with micro-finance. “It is very, very innovative and it shows another element of the rung of a ladder out of poverty. One of the last ones is housing, and really robust housing. So that is what the Kaputei project is,” he said.
Kaputei is designed to be self-sustaining, with its own water and power supply.
Elijah Biamah is an engineer at the University of Nairobi who teamed up with Jamii Bora to design water and sanitation systems.
|Waste water in Kaputei is treated and recycled|
He gives the example of how waste water in Kaputei is recycled after it has been collected and exposed to ultraviolet light.
“Then that water is now safe – safe that is can be used for flushing the toilets. It can also be recycled and used for irrigating the crops around the homestead without any harmful effects whatsoever,” Biamah said.
Meanwhile, residents such as Ngoiri are turning their houses into homes, looking forward to their new lives away from the slum.
Source: VOARead Full Post | Make a Comment ( 42 so far )
Photo: Anne Ejakait/Concern Worldwide
|Mobile phones are increasingly being used in delivering aid|
NAIROBI, 4 August 2008 (IRIN) – Hard-pressed to find efficient ways of delivering aid, humanitarian agencies are turning to new technologies.
One such innovation involves mobile phones to send cash. One such project was piloted in Baringo North and Pokot East Districts of Kenya’s Rift Valley Province during post-election violence this year.
“They [local residents] were exposed to cattle rustling after security was withdrawn to deal with the post-election violence,” said Anne O’Mahony, Kenya country director for the NGO Concern Worldwide. “There were also high levels of poverty in the area after the conflict.”
The target beneficiaries selected by the community from among the most vulnerable, were women who would receive fortnightly cash transfers of KSh320 (US$4.70) per household member via short message service (SMS).
The service used a mobile cash transfer service, known as M-Pesa (mobile money), which is a joint venture between multinational giant Vodafone and Kenya’s largest mobile phone company and Vodafone affiliate Safaricom, and allows cash to be sent over the Safaricom network.
Safaricom set up Concern as a corporate user to allow for bulk transfers to the targeted beneficiaries. Normally, M-Pesa is designed for one-on-one cash transfers with a maximum transfer limit of 35,000 shillings (about $583) per transaction.
However, most potential beneficiaries were illiterate or did not have the identification documents required to collect the cash. The targeted households were, therefore, clustered into groups of about 10. Members would nominate one literate person as leader to collect the money on behalf of the group, O’Mahony said.
Of the 571 targeted households, 225 (39 percent) owned a phone. Concern provided 45 handsets to enable the clusters to share one handset between them, along with 60 solar chargers.
At the same time, Safaricom organised agents from the nearest towns of Iten or Eldoret to travel to the local Kinyach police station, which was selected as the money distribution point. The Safaricom agents were available to disperse the cash on local market days.
“This system enabled the beneficiaries to get easy access to the cash and they could buy necessary food immediately,” O’Mahony said. The cash was supposed to meet at least 50 percent of household food requirements.
Photo: Anne Ejakait/Concern Worldwide
|Residents upon receipt of their money at the Kinyach Police post.|
“We thought the best way of getting effective aid to these people was cash,” she said. “If the markets work, there is no point in us buying goods, taking them to the area and distributing them – we might not get the type of goods required right and there are also issues to do with trucking food … Cash made much more sense.”
In the past, O’Mahony added, Concern had bought food in Eldoret town but found it was 18 percent cheaper to give people money to buy what they needed.
“These people are mobile so they can go wherever they can get cheap food and the mobiles reduced their isolation,” she said. “If there is money the food will come … merchants will come. People suffer because they can’t buy.”
Panuel Luker, one of the beneficiaries, said the wider availability of mobile phones had also improved communication in another way: they were useful for warnings about cattle rustling.
O’Mahony said there were plans to scale up the project to reach at least 16,200 vulnerable families, depending on funding.
In future, the ratio of mobiles to families would also be increased, along with the development of a way to deal with lost SIM cards. “We found that one mobile phone per large group of people is not enough, we will need to get more phones,” she said.
“Most of the projects that have used the mobile-phone technology have been small in scale and preliminary probably due the high costs of developing and deploying mobile technologies,” according to a 2008 report by the UN Foundation–Vodafone Group Foundation Partnership, titled ‘Wireless Technology for Social Change: Trends in NGO Mobile Use’.
An evaluation of the Concern project, however, found that M-Pesa was better than food distributions, “provided the difference between wholesale and retail prices is within a certain range, local food markets are actually functioning and that the cash transfer programme is long enough to justify the costs of the equipment (phones, chargers etc.)”.
Qualitative evidence indicated that about 70 percent of the transfer was spent on food, with the remainder going on transport and other non-food essentials.
According to the evaluation, inflation and early warning data on food prices should be considered when deciding on cash transfer values as food prices rose during the Kenya pilot programme.Read Full Post | Make a Comment ( 1 so far )
Photo: Manoocher Deghati/IRIN
|The cost of food is rising, placing a disproportionate burden on the poor who spend most of their income on consumables|
NAIROBI, 6 May 2008 (IRIN) – Small farmers and agricultural enterprises are the main beneficiaries of a financing partnership launched on 6 May to help them break out of poverty and commercialise farming.
“We must insulate our people from the indignity of hunger and starvation,” James Mwangi, the chief executive officer of Equity Bank, one of the partners in the deal, said in Nairobi at the launch of “Kilimo Biashara” (Commercialising Farming).
According to the Alliance for a Green Revolution in Africa (AGRA), the partnership represents an innovative solution to the farmers’ credit crunch, with the aim of boosting food security and creating jobs in rural areas.
AGRA, with Equity Bank, the International Fund for Agricultural Development (IFAD) and the Kenyan Ministry of Agriculture, signed an agreement for a loan facility of US$50 million (Ksh3 billion) to speed up financing for at least 2.5 million farmers and 15,000 agricultural enterprises across the country.
The loan facility will operate against a “cash guarantee fund” from AGRA and IFAD to reduce part of the risk of lending by Equity Bank, AGRA said.
“Farmers are the backbone of our economy; they deserve access to affordable credit that will enable them to make a profit and continue Kenya’s trajectory of growth,” Mwangi said.
Akin Adesina, AGRA vice-president in charge of policy and partnerships, read a speech on behalf of the AGRA chairman, former UN Secretary-General Kofi Annan, in which he said the government still faced many challenges despite the formation of a new cabinet.
“There are lots of internally displaced persons. Many have lost their lands and ability to produce food,” Annan said. “Vast areas of the country now experience the challenges of getting access to affordable seeds and fertilisers. Unless urgent measures are taken, food insecurity will deepen.
“The world is in the midst of a food crisis. Kenya is not exempted. The food crisis has several causes, including high energy prices, diversion of food grains to bio-fuels, climate change, and low grain reserves on the global market – the lowest it has been in several years.
“Many go hungry. Children skip meals, malnutrition is rising and real wages are falling due to the high price of food,” he said. “There is an urgent need to mitigate these impacts. Food subsidies are justified to stem the tide, but only for the short term. We need to recognise that the real cause of the food crisis in Africa is low and declining agricultural productivity.”
For a sustainable solution, he said, medium to long-term measures were needed to raise agricultural productivity in Kenya and other African countries; “that requires a green revolution“.
|We need to recognise that the real cause of the food crisis in Africa is low and declining agricultural productivity|
“Now is the time to have bold policies that support farmers to be able to afford farm inputs and produce food to feed granaries in Africa,” Annan said. “Now is the time for governments to implement bold pro-poor policies to achieve a green revolution – one that ensures sustainable and dramatic increases in agricultural productivity by poor farmers. Now is the time.”
President Mwai Kibaki said Kilimo Biashara was one of the government’s strategies to improve the plight of poor farmers and to help eradicate poverty.
He said the government had taken measures to improve agricultural production across the country, including reviving collapsed farmers’ institutions, doubling the budgetary allocation for the ministry of agriculture, improving agricultural extension services by providing technical and personnel assistance, as well as establishing commodity-specific grants to sectors such as coffee and tea.
Prime Minister Raila Odinga said Kenya wanted to move away from dependence on outside help with regard to food production.
“A hungry person is an angry person; we want to deal with the hunger so as to be able to comprehensively deal with the anger,” he said.
Agriculture Minister William Ruto said his ministry had identified key areas to make agriculture “profitable, commercial and competitive”: access to farm inputs; doubling the ministry’s research budget; certification of seed; and increasing farmers’ access to credit.
“If you finance agriculture, you enable farmers to produce more food; if farmers produce more food, we are likely to realise lower food costs; with lower food costs, we will be able to tame inflation; and if we tame inflation then our economy will grow.”Read Full Post | Make a Comment ( None so far )
The credit crisis may be fouling up billion-dollar takeover deals, but if you’re a poor African seamstress who needs a loan for a new sewing machine, you could not ask for a better borrowing market to expand your business.
Anyone with $25 to spare and an Internet connection can now become an international microfinancier through Kiva http://www.kiva.org , an organization that matches individual lenders with impoverished entrepreneurs in the developing world.
Steve Thomas, 50, a property tax consultant in Chicago, got started by lending $50 to a man in Togo who makes a living refurbishing used sneakers for resale. The loan was repaid in full and Thomas has gone on to fund 83 other ventures ranging from a cyber cafe in Ecuador to a mushroom-growing enterprise in Moldova.
Microlending has been in use for decades.Muhammad Yunus http://en.wikipedia.org/wiki/Muhammad_Yunus shared the 2006 Nobel Peace Prize with Grameen Bank, the lender he founded in the early 1980s to help empower Bangladesh’s rural poor. Several other institutions have developed since then, but Kiva is the first to open direct microlending opportunities to the general public with an online platform.
Kiva hit the publicity jackpot in September when Oprah Winfrey featured the organization on her daytime television program, attracting a tidal wave of interest from Middle America…Read Full Post | Make a Comment ( None so far )
|Mamamike’s web site|
NAIROBI, 5 January 2008 (IRIN) – The crisis prompted by Kenya’s 27 December elections has left large numbers of people stranded in various parts of the country due to insecurity on the roads and general uncertainty. Many Nairobi residents and migrant workers travelled “up-country” to spend holidays with family or to vote in their rural constituency.
Returning to the capital Nairobi has been impossible for many. They are now stranded without paychecks in places where shops and banks have only been open intermittently and are running low on stocks. Access to cash and mobile phone credit cards has become difficult and prices for basics have risen.
Keeping in touch with family and friends, and exchanging updates on the situation are a priority for many.
Kenyans in the US and Europe are thronging websites that sell Kenyan phone credit to send to family and friends back home. “The volumes are unprecedented” Segeni Ngethe, founder of leading Kenyan e-commerce site MamaMike’s told IRIN.
He said, his operation was selling “easily ten times” more orders for mobile phone credit than usual and that mobile phone credit had overtaken his usual top seller, shopping vouchers. Customers abroad were especially buying for those “who are stuck in bad places”, and can be “very desperate”, he said. Almost all the orders are marked as “emergency” he added.
Ngethe said he was processing orders worth 30,000 Kenya Shillings (US$500) every hour today [5 January] to fulfill a backlog of orders.
Low liquidity in mobile cash transfer services
Kenya’s two mobile phone operators, Safaricom and Celtel, both have e-money transfer services but volumes seem not to have taken off during the crisis, according to a source close to the industry. For the very poor, there is no money to transfer, let alone a mobile phone to transfer it with, a vendor in Nairobi said. The industry source said most shops and kiosks that usually turn e-cash sent by text message into hard currency had closed because of the crisis. The source added, however, that the sector could well pick up over the weekend and Monday (7 January) would be “very, very busy.”
Christmas holidays are a busy period for Safaricom’s M-Pesa service which was used to transfer some 1.7 billion Kenya shillings (US$2.5 million) in December, the source said.
Ruth Wangechi, an M-Pesa agent in Nairobi told IRIN that she was serving about 30 customers a day in the run-up to Christmas, but very few today. “I think guys are broke” she said.
No bank and no phone either
According to a survey conducted by FinAccess in 2006, the formal banking sector is underdeveloped in Kenya with only about 450 bank branches in the country. Only 27 percent of the adult population participate in the formal banking system, 35 percent are members of informal credit associations and 38 percent are excluded from financial services. The latter group indicated that the most important reason for not having a bank account was the lack of regular income or savings.
Some 17 percent of respondents in the survey had sent or received money within Kenya. The most popular means of transferring money within the country is via family members or friends or bus companies. Formal channels were mostly used in international money transfers. In 2006, fewer than 1 in 5 of the people that are unbanked owned a mobile telephone. Since the survey, uptake of banking and mobile usage has increased, however.
Jecinta Kinyanjui, a shopowner in Mathare, a slum area of the Kenyan capital, Nairobi, who also sells phone credit scratch cards explained why M-Pesa had not taken root in this part of town.
“There are not many transactions in this area. When people in Mathare send money upcountry they prefer buses. The money is sealed in a newspaper or cloth, then we put a telephone number on the package and an ID number. The package is checked in as a regular customer. Then it goes to the bus company’s office upcountry for the recipient to pick up”.
“Due to poverty there are not many mobile phones. People use public phones which are much cheaper,” she said. “In case of a disaster upcountry, the people in Mathare do not send money to the affected area. They go there themselves to help and bring money with them”.
MamaMike’s Ngethe said he was praying for peace in Kenya, but that he was doubtful the current “mindframe” in Kenya was in tune with his company’s latest tagline: “Share love. Send happiness”Read Full Post | Make a Comment ( 15 so far )
Photo: Manoocher Deghati/IRIN
|Micro-credit programmes mainly target women because they prioritise their family’s well-being|
IRIN – When Muhammad Yunus, founder of Grameen Bank, which revolutionised credit for the poor, won the 2006 Nobel Peace Prize, micro-finance became a household concept. Now, online lending sites such as Kiva and NamasteDirect, give everyone a chance to help fight global poverty and, in the words of one new investor, “teach people how to take a small investment, grow their business and eventually become self-sufficient”.
Kiva offers investment options that appear to revolutionise the interface between giver and receiver, lender and client. According to Jonathan Morduch, co-author of The Economics of Microfinance, “Kiva and the micro-finance world are set up not just as a better way to fight banking but also an important way to rethink traditional modes of giving and global social justice.”
The founders of Kiva are bullishly promoting their new approach while experienced micro-financing institutions (MFI) remain cautious in their assessment and others critical. Nevertheless Yunus’s prize and the arrival of online lending have prompted debate about the virtues of online micro-financing as well as the virtues of micro-finance per se in addressing poverty.
Kiva’s lead has been followed by others. Internet giant eBay completed a complex regulatory process to launch the online micro-finance service, MicroPlace on 24 October. MicroPlace differs from Kiva in that lenders are purchasing securities – investing in MFIs, not making loans to individuals – and are paid interest.
Attacking poverty through loans
One of the biggest challenges for the poor is gaining access to capital and formal financial institutions. According to the UN, about one billion people still live on less than a dollar a day – a poverty trap that is virtually impossible to escape. But in the past two decades, micro-credit has become accepted as a potentially successful development tool.
Now the micro-finance sector is in the middle of a boom: “Micro-finance will grow more and more,” claims Nairobi-based director of Inclusive Financial Systems, Stephan Staschen. “More commercial entities will also get involved as they realise its profitability and the result will be that many poor people will be served.”
Micro-credit programmes extend small loans to the very poor, previously viewed as bad-credit risks, through rotating savings and credit circles, which take deposits and give loans at certain intervals and in strict amounts.
Such loans allow people to invest in the material, livestock, skills or machinery they need to generate income as well as pay for emergency needs such as medical expenses or death and marriage costs. “One of the great aspects of micro-finance is that it smoothes the financial lives of the poor when they face sudden outgoings as a result of some catastrophe, disaster or just an expensive wedding,” says Staschen. Although the definition of small loans varies, most are less than $200.
Photo: Manoocher Deghati/IRIN
|Small businesses are one of the main means of survival in Dhaka, Bangladesh|
Most micro-loan programmes focus on women. Experience has shown that women are a good credit risk and invest their income in the wellbeing of their families. “Now 96 percent of our four million borrowers in Grameen Bank are women,” said Yunus in 2004. Grameen was founded in 1976; by 2005, it had the equivalent of $678.28 million in total assets with 5.05 million active borrowers.
The Consultative Group to Assist the Poor(CGAP) is a consortium of 31 public and private development agencies working to expand access to micro-finance. In June 2004 they agreed 10 key guiding principles emphasising that MFI’s core aim is to fight poverty by creating transparent, sustainable and lasting private financial services that should be rolled out to the largest number of low-income clients.
“Loans that change lives”
Kiva.org was co-founded in 2005 by Matt and Jessica Flannery as the “world’s first and only online micro-lending opportunity”, teaming up with international organisations working in low-income communities. It lists 61 partners in 37 countries that are responsible for deciding which borrowers will be posted on the website. The loans are disbursed to the partners – local MFIs – for ultimate disbursement to the borrowers.
|Muhammad Yunus, founder of the Grameen Bank|
While browsing through the site, a potential lender sees brief descriptions of the borrowers, making it easier to create a connection with one or more entrepreneurs. By using the internet, Kiva claims to have reduced costs.
It appears that many “ordinary” people are choosing this route, perhaps over more traditional methods of donating money. As of 13 November 2007, Kiva.org had raised $14 million from 142,000 people to fund 20,769 loans – and the count changes daily. That represents a sizeable amount of cash from a large number of people who, more likely than not, did not previously know about micro-finance or MFIs.
But with the support that Kiva.org has received from high-profile supporters such as former President Bill Clinton – who featured it in his new book, Giving, How Each of Us Can Change the World – Kiva will continue to serve as a conduit for those wanting to reach the poor.
“Our biggest challenge has been keeping up with our growth,” says Fiona Ramsey, Kiva’s public relations director. “To date, our biggest growth restriction has been partnering fast enough to keep up with the growing demand by lenders to place more loans. We have been managing this challenge by expanding our partnerships team and bringing on micro-finance experts.”
Can micro-finance deliver?
The sector has its share of critics, who think institutions charge interest rates that are too high and the loans do not reach the poorest. Some say the exaggerated focus on micro-credit has led to neglect by state and public institutions in addressing the employment and livelihood needs of the poor.
|In Bangladesh, 30 years after Yunus’s invention, poverty statistics are worse than ever|
According to research by CGAP in 2003, evidence of the effectiveness of micro-finance as a tool for development remains slim, partly because of the difficulty in monitoring and measuring impact. Questions have arisen about whether micro-finance can ever be as important a tool for poverty alleviation as its proponents and practitioners suggest. “It’s an important contribution but only one of many interventions,” admits Staschen.
Thomas Dichter of the Cato Institute, the Washington DC-based think-tank, calls the potential of micro-finance “grossly overestimated”.
Dichter claims: “In Bangladesh, 30 years after Yunus’s invention, poverty statistics are worse than they’ve ever been, so something else is the source of the problem and micro-credit is not helping.” Economics journalist Gina Neff has also written that “after eight years of borrowing, 55 percent of Grameen households still aren’t able to meet their basic nutritional needs – so many women are using their loans to buy food rather than invest in business.”
Photo: Manoocher Deghati/IRIN
|Market vendors in Merkato, Addis Ababa. Ethiopia’s agricultural production is low and poverty levels are high|
According to the Institute for Food and Development Policy, this brings into question the social mobility of loan recipients, especially the poorest of the poor. Scholars argue that micro-credit is more often used as a form of disposable income, rather than being reinvested.
Dichter also criticises the influx of micro-finance institutions, claiming that agencies are “jumping into this field” under the assumption they can alleviate poverty without actually looking at the different causes of poverty in different regions. In recent writings he argues that micro-finance could be doing more harm than good.
Micro-finance may not be a panacea for poverty but as Kiva has shown, technology-based financing methods could provide a solution to future pro-poor funding issues for organisations keen to remain at the forefront of technological opportunities. Despite the concerns of conventional MFI practitioners, it may be too early to judge whether the Kiva model is just a clever mechanism to attract resources or a genuine revolution in individual funding to the aid and development sector. In the meantime, thousands of low-income individuals and families are gaining new hope as they try their hand at small enterprises that were previously outside their reach.Read Full Post | Make a Comment ( 2 so far )
The rural economy comprises of farm and non-farm activities. Agricultural activities dominate the rural economies of African countries. Demand for land has forced many African states to embark on massive land and agrarian reforms even though in some cases they have been controversial. The Zimbabwean land reform program is a classic example of one that attracted worldwide attention. South Africa, Kenya, Namibia and Zambia, to mention a few, embarked on land redistribution programs that were aimed at pushing the frontiers of poverty through availing land to the landless poor.
According to The World Bank (2006:11), agriculture accounts for 17 percent of the African region’s GDP, 40 percent of exports and a substantial share of employment. The bank also reports that a 1 percent increase in crop production in sub-Saharan Africa translates to a 0.7 percent reduction in the number of poor people; more than the 0.5 percent reduction in East and South Asia and seven times the 0.1 percent reduction in Latin America.
African governments need to develop facilities that will connect the rural poor to the markets by developing rural roads, electrification and communication. Lack of access to financial services and other opportunities such as education, raw materials, goods and services isolate the poor and expose them to emergencies, poor harvest, health problems and economic crisis. Rural areas are poorly integrated to the markets and the people end up hostages of intermediaries who sell them provisions, agricultural inputs and domestic utensils during the planting season who then buy all their output at duplicitous prices.
The rural poor are marginalised and left with limited or no access to financial services as micro-lenders fail to fill the void that is left by formal institutions. Financial intermediation becomes difficult and costly in the rural area because of spatial dispersion and associated high information and transaction costs; a strong link of economic activities with agricultural activities that are exposed to the vagaries of the climate, pests, diseases (such as swine fever) and prices; and seasonal production that is accompanied with sharp and opposite fluctuations demand for credit and deposit services.
Access to land is essential but not a panacea for effective rural development and poverty reduction. According to Alegre Porto in FAO’s Contribution to Good Policies and Practices in Agrarian Reform and Rural Development: A Brief Overview, land is more effective when beneficiaries of land reform have had prior experience in land and agricultural enterprise management and when they have the capacity to generate sustainable income. Rural infrastructure, improved technologies and a range of responsive rural services, including training, have proved essential to effective and lasting agrarian reform.
It is imperative to approach the question of land redistribution with sustainability in mind. Access to land needs follow-ups with a wide range of services so that the land beneficiaries realize long-lasting benefits. A holistic approach is required to achieve the full benefits of land redistribution. A full package of resources that should be given to the land beneficiaries so as to be empowered in their productive efforts include human Capital (knowledge, skills, labor); Natural Capital, land, Financial Capital ( savings and credit); Social Capital (local organizations and alliances) and Physical Capital ( rural infrastructure and equipment). There is need to develop human capital so that it is capacitated to mix the other factors of production hence the need for training. Financial resources should also be availed to work, as a lubricant to production. There is need for them to be financially liquid. Microfinance advocates for training the recipients of credit so that they know how to efficiently and effectively manage the resources
The factors that affect agrarian reform and rural development are highly complex, and inter-related. Importantly, we should underline that the rural poor are particularly vulnerable to economic and political shocks as well as natural risks and disasters, and while their livelihood strategies are designed to better prepare for and cope with such shocks, their limited access to the five forms of capital described above constrains their opportunities for rapid and effective response. Access to financial services is pivotal to all the other factors that may affect land holders as they help the poor expand their economic activities; incomes and assets and self-confidence.
Some writers argue that microfinance worsens poverty by making borrowers poorer. Once a poor person borrows money, the chances of repaying are slim so he/she cannot leave the cycle of poverty .However; the advent of microfinance refutes this by introducing loans that are followed with a range of services (integrated approach) that help in empowering the poor and building confidence in them. They also assist them in wealth accumulation thereby promoting sustainability. The factors that affect rural development such as population dynamics, shocks, technology, physical resources, power differences; policies and seasonality among others) need to be addressed holistically so as to achieve a long-lasting solution to poverty reduction especially in the rural areas.
By Stephen Mago
Mago is a PHD Student at University of Fort Hare, South Africa