The World Bank (2012) have provided data indicating, globally, 75% of the world’s poor are ‘unbanked’ - meaning 75% of the world’s poor do not have access to a bank account. In Sub-Saharan Africa the figure is 76% of adults (CARE, 2014). The focus on banking has taken two key directions. On the one hand, a focus has been placed on understanding the geography of the unbanked - who is unbanked, where, and why. The multiple factors affecting access to banking have been identified. For example, barriers identified by the World Bank include poverty, inaccessibility to banks, and a banking supply issue. On another hand, concern with a lack of banking has focused on the opportunities that being ‘banked’ creates. Whether the concern is on land, empowerment, and entrepreneurialism, banking has been identified as a means for poverty alleviation. Although the evidence remains open to debate.
Microfinance is one model used to enable the unbanked to access financial services - referring to the provision of money, credit, insurance, and savings. Microfinance is structured around the community and providing an alternative system to distribute loans. The social policy model is based on the idea that access to small loans funding will make a difference to the everyday lives of the poor. Small loans should be provided into the community, which is able to organise and distribute loans, and through trust ensure flexible repayment schemes. The model is argued to be responsive to the needs of women.
Microfinance schemes have been rolled out across Africa - integrating informal, traditional finance groups with modern updates. However, this debate looks at the evidence of whether microfinance schemes in Africa are beneficial. How has the geography of money - in terms of savings, spending and future investment - changed through microfinance? What opportunities are emerging for those given access to microfinance? Is the organisation of microfinance working in the African context? Fundamentally, is providing finance to the ‘unbanked’ an effective solution to poverty?
 See further readings: Bruhn and Love, 2009.
 Microfinance schemes dates back to Dr Muhammad Yunus’ establishment of the Grameen Bank in Bangladesh.
The livelihoods approach provides a useful model to understand how poor people live; and remains important to recognising the benefits of microfinance.
The provision of microfinance reduces vulnerability to shocks and changes such as losing a job; enhances people’s access to assets that they use and need (such as finance, friend networks, and land); and this fundamentally acts to change the lives of the poor. Microfinance provides social protection through tapping into social capital. Further, microfinance means aid is not simply provided, but the individual is taught valuable financial skills and given the means to sustain themselves for their lifetime.
 See further readings: IFAD, 2013.
The provision of microfinance within livelihoods is based on a positive view of social capital and cohesion. The idea relies upon a perception whereby social networks within the community are able to positively organise funds and remain democratic in how they manage poverty. It fails to acknowledge negative aspects of social capital - such as how networks can act to exclude and restrict who becomes a part of the scheme. Civil society is not without internal politics, with competing interests, and can be uncooperative.
 Social capital represents the relationships and linkages between people and/or groups, of which are formulated with rules and norms. See further readings:
Microfinance is empowering the communities that are using it - showing in development, small is beautiful. Communities are empowered to change their conditions. For example taking the case of savings - microfinance allows for savings. Half of the adults that saved in Sub-Saharan Africa, during 2013, used an informal, community-based approach (CARE, 2014). First, having savings reduces household risk. CARE is one of many organisations working in innovations for microfinance. At CARE savings have been mobilised across Africa by working with Village Savings and Loans Associations. Overtime, CARE has targeted over 30,000,000 poor people in Africa, to provide necessary finance. Savings ensures households have financial capital, can invest resources in education, health, and the future. Savings is security in livelihoods.
Second, microfinance is providing key skills. Oxfam’s Savings for Change Initiative provides training on savings, and lending, to women in communities in Senegal and Mali. Evidence from Mali indicates startup capital provided has ensured better food security, women’s empowerment in the financial decision-making of households, and crucially, a sense of community bond among the women (Oxfam, 2013). Gender based violence within households may also be reduced.
 See further readings: Kim et al, 2007.
One of the key benefits highlighted about Oxfam’s Saving for Change Initiative is the empowerment provided for women. Women are argued to be more independent, able to organise within communities, and provided with a voice of power. However, are women empowered?
In the cases of microfinance in Cameroon, Mayoux (2001) highlights the inequalities operating within community groups. The message is we cannot rely on communities, and social capital, for empowerment as women within such communities have different relations to power. The ability for women to use savings and credit for self-empowerment is limited by wider, traditional, gender inequalities. Microfinance may act to reinforce unequal power relations and positions within society.
Furthermore, women’s empowerment needs to be understood as complex. Real, and strategic, empowerment for women goes beyond increased access to economic resources. So how can microfinance ensure true empowerment?
 See further readings: Sutton-Brown, 2013.
Introducing finance provides communities with access to startup capital. Access to financial capital is vital in several respects for initiating capitalism. Firstly, access to capital enables entrepreneurialism. The poor have business ideas that would benefit both themselves and their community they just require access to capital to invest in such ideas. The Initiative ‘Lend with Care’ is providing access to capital to empower entrepreneurs.
Secondly, the cumulative effect of small-scale savings and borrowing, enabled through microfinance enables individuals, families and communities, to enter markets - of land and property. Being able to buy property and land can enable personal security, dignity, and increasing returns.
 See further readings: Lend with Care, 2013.
Can we rely on business to solve social problems? Ultimately the model proposed through microfinance schemes is the creation of a consumer market where risks are already high. This has shown to be one of the key factors of microfinance failing in South Africa (Bateman, 2013). The microcredit provided across South Africa, post-apartheid, aimed to solve social problems - however, it has acted to support risky consumption not investment. With a lack of secure incomes, due to high levels of unemployment, underemployment, and informal employment, the rate of repayment is low. Households have been forced into severe poverty by being provided with credit which they can’t pay back. Even among those who do invest how many of their business ideas will succeed?
Africa is faced with an agrarian crisis. Microfinance is providing rural communities a chance to gain food security and reduce vulnerability to risks such as climate change, unstable demand, and political tensions. Microfinance supports small scale agriculture – which is more sustainable, effective for growth, and beneficial for communities than larger scale agriculture. In Zimbabwe, small scale farming has the capability to improve production, benefiting households, communities, and the Nation (IRIN, 2013; Morrison, 2012).
Kiva, a microfinance NGO, is providing affordable capital to remote communities. Loans have been provided to small-scale farmers and a rental system has been set-up enabling farmers to borrow tools and resources needed.
There is a need to reinvigorate Africa’s agricultural system; however, the ability for microfinance to do this is debatable. The distribution of loans is not necessarily adequate or responsive to the need. The loans provided need to be able to provide security and protection in the face of environmental crisis. There are some things microfinance can’t solve; more variable rains and desertification for example. Loans can only be provided if the risks are known and the risks are getting higher so too will be the costs of loans.
Additionally, multiple factors are responsible for Africa’s agrarian crisis. The lack of an agriculture marketing board for farmers to control price, insufficient infrastructure, and the legacies of structural adjustment, all act to constrain the agricultural system.
Access to a small loan provides benefits for the poor’s ability to access high quality health care. A lack of access to banking facilities - loans and credit - may mean the poor are left excluded from health care services as these are usually not free. Microfinance institutions accept the irregularities of the poor’s income, so enabling health care to be affordable to the poor by providing access to finance. As Ofori-Adjei (2007) shows the integration of microfinance institutions within healthcare systems in Ghana is required to resolve the issue of inaccessibility. Ill health should not put a household into a state of poverty - microfinance provides this protection.
Microfinance schemes not only provide loans to access health care but are now integrating non-financial services, such as health education, within their finance schemes.
Loans provided are embedded with conditions, which can constrain what an individual can do with the money. A microfinance loan is still a loan, it needs to be paid back, if someone is in poor health for a long period they will run into difficulty. Can saving schemes enable social protection in the long term when the amount saved is just enough to cover one sick person? We need to realistically evaluate what the loan enables, provides, and how long for. To provide real health security a much more comprehensive finance system is needed, such as insurance
There are significant barriers to introducing microfinance. Microfinance can’t reach everywhere; a lack of infrastructure, or poor infrastructure, can mean that microfinance initiatives often can’t reach where need is greatest. Those who are poorest most need money just to get buy, not to invest. They would be unable to repay even tiny loans. It returns to the question of who is the poorest, and what do we know about them - where they are, what they need, and why are they poor?
Secondly, structural constraints limit the ability for microfinance to be sustainable and provide a long term solution. Bad governance, inadequate structures to regulate microfinance, and political instability, mean the theoretical benefits of microfinance may not become a lived reality.
Thirdly, who is involved in the supply? The involvement of multiple actors - NGOs, communities, the state, and private sector, complicates how microfinance is being run and therefore the effectiveness. Tensions emerge with such partnerships as each actor has the different objectives and motivations.
All policies have barriers and potential disadvantages and for a scheme to be rolled out the advantages must outweigh the costs. In the case of microfinance advantages are higher. Microfinance has a low cost for implementation, and can therefore be distributed nationwide. Rolling out microfinance schemes means a majority of the population will become able to access vital services through a flexible loan.
Microfinance not being able to reach everyone is not a reason to enable it for those it can reach. If bad governance prevents sustainability then something needs to be done about governance – it does not invalidate microfinance as a concept. And all those involved in supply do have close enough objectives to run the scheme there simply needs to be compromises to ensure they remain the same.
Microfinance provides a quick-fix solution for the poor. The individual, or community, is provided with a loan to invest in their future. However, although access to capital is a key concern for enabling entrepreneurialism it is not the silver bullet. Microfinance schemes will fail without providing a stable political and economic environment that makes a good climate to invest in.
Microfinance is essentially short-termist. It encourages investment but only in things that will bring a quick return. With interest rates as high as 30% the person taking the loan needs to pay it back as quickly as possible. This can sometimes be against an individual’s long term interests, for example access to microfinance often reduces primary school attendance as this is a long term investment that will not pay back the loan money (IOE, 2011).
Microfinance does not have to be short term financing. Because it is a community based loan that is based on trust if those wanting the loan can explain why they want a loan over the longer term then it is possible to get longer loans. Moreover long term investment should not be something those who are struggling day to day have to think about; such investments as education should be made by the government not relying on individuals to realise their long term interests. No one would argue that microfinance is the solution to a poor education system.
Microfinance is incorporating free market ideologies and subprime (lending to those who may not be able to repay) lending at a smaller scale. Unstable crises’ form as a result, and debt is intensified for the poorest - of which are given access to credit they are not able to repay. This is a problem with all lending, microfinance is no exception.
In India the pressures of microfinance repayment has become linked to suicide and early mortality (Biswas, 2010). The stress of looking for microcredit, and then how to pay it back, has created a crisis within the microfinance industry. Regulation is required on the microfinance organisation: controlling the distribution of credit and the use of threats if the individual defaults.
Africa’s microfinance schemes can be different, and are fundamentally different. Across Africa there is a history of informal lending. Microfinance is not new, but rather embedded in traditional practices. This means communities are aware of the obligations, rules, and practice of microfinance.
Additionally, the path taken by microfinance lenders shows stricter controls are being taken to ensure that the loans are not subprime. In a bid to ensure the safety of the poor the Bank of Ghana has set up minimum capital requirements for the borrower and new regulations to ensure money-lent is repayable.
Bateman, M., ‘Microcredit Has Been a Disaster For The Poorest in South Africa’, The Guardian Professional, 2013, http://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster
Biswas, S., ‘India’s Micro-Finance Suicide Epidemic’, BBC News, 2010, http://www.bbc.co.uk/news/world-south-asia-11997571
CARE International, ‘Microfinance’, 2013, http://www.careinternational.org.uk/what-we-do/microfinance
Institute of Education, ‘Microfinance "raises hopes but makes some people poorer"’, 2011, http://www.ioe.ac.uk/49547.html
IRIN, ‘Zimbabwe: Small-Scale Farmers Seen as Backbone of Food Security’, IRIN, 2013, http://www.irinnews.org/report/78222/zimbabwe-small-scale-farmers-seen-as-backbone-of-food-security
Mayoux, L., ‘Tackling the Down Side: Social Capital, Women’s Empowerment and Micro-Finance in Cameroon’, Development and Change, 32, 3, pp 435-464, 2001, http://onlinelibrary.wiley.com/doi/10.1111/1467-7660.00212/abstract
Morrison, J., ‘Small-scale Farmers to Feed the Nation’, The Zimbabwean, 2012, http://www.thezimbabwean.co/news/zimbabwe/55848/small-scale-farmers-to-feed.html
Ofori-Adeji, B, A., ‘Microfinance: An Alternative Means of Healthcare Financing for the Poor’, Ghana Medical Journal, 41, 4, pp 193-194, 2007, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2350115/
Oxfam, ‘Saving for Change: Financial Inclusion and Resilience for the World’s Poorest People’, Saving for Change - Report Summary, 2013, http://www.oxfamamerica.org/publications/saving-for-change-financial-inclusion-and-resilience-for-the-worlds-poorest-people
World Bank, ‘Three Quarters of the World’s Poor are ‘Unbanked’’, The World Bank: Data and Research, 2012, http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/0,,contentMDK:23173842~pagePK:64165401~piPK:64165026~theSitePK:469372,00.html