Microfinance Development: Can Impact on Poverty and Food Insecurity Be Improved Upon?

Development strategies aimed at eradicating poverty now invariably incorporate microfinance as one of the key elements. Thanks to this increased attention and the quantity of resources being devoted to it, the outreach of microfinance is expanding very rapidly, despite the fact that the services are still largely using a one-fits-all modality across all areas and economic situations. Experience strongly suggests that microfinance indeed has the potential to be one of the key instruments to fight poverty by positively affecting the house-hold economic portfolio. It can expand opportunities for enhancing income, improve capabilities in terms of human capital, improve the copping mechanism against vulnerability in its various features, as well as empower the disadvantaged; and the impact can occur at enterprise, individual, household and even community level, largely as a result of enterprise profitability.

Yet, the available evidence in Ethiopia suggests little progress has been made. According to the author microfinance is still largely financing agricultural activities, little served with modern technology, and very few non-agricultural activities apart from trading. Individual enterprises are expanding very slowly, if at all. After being long time clients of the MFI, and after taking 8-9 consecutive loan cycles, the absorptive capacity and the loan size taken by an individual enterprise is hardly different from what it was when the clients joined the MFI afresh eight-nine years back. Micro-saving, which is proving elsewhere to be as important, if not more important, than microcredit services in terms of guarding the poor against vulnerability, seems to be given little accord, even by the microfinance service providers themselves. The number of voluntary savers in the Amhara region is quoted as being 80,000 which is a very small proportion of the rural population of 3 million households.

The author believes that women are not enjoying the full benefit of microfinance services although they primarily target them. The programmes are implicitly or explicitly based on the assumption that rural women are conversant with non-farm income-generating activities and have sufficient time to expand traditional or start new ones, which is clearly often not the case. Many loans given to women are actually utilized by men. The author concludes that microfinance is not a sufficient instrument for reducing poverty in areas like that of the Amhara region. For it to be effective, the marketing situation, the infrastructure, particularly the road net-work, the skill and risk aversion behaviour, particularly that of women, and integration of the whole service with other sectors requires immediate attention.

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