For most of us outside of our home continent Africa, we still remember the experience of going food shopping. Contrary to what we have here, food shopping meant walking on soiled ground (sand/mud and water), squeezing your way through a multitude of fellow shoppers while staying clear of those super muscular men carrying ultra heavy bags of various food stuff.
Over here in the United States, some grocery stores actually provide vans to transport customers and their groceries home. Try buying more than you can carry back home and either you will be left to straggle your bags until a child offers to help – at a token cost – or you may leave your purchases at a familiar seller’s stall while you look for a taxi.
Whether shopping in an open space turned into a stall sectioned marketplace or in an air-conditioned building with the food items carefully stowed in shelves, the traders need capital in order to get their stock.
In the United States, a grocery store owner can access financing depending on his/ her credit. Also, grocery stores are usually owned by one entity and carry a variety of goods, thereby making their profit potential much larger. The marketplace back home, with the exception of new entrants like Shop Rite and Walmart, is not owned by one entity and independent traders sell the goods. This results in near meager earnings and almost impossible chances of accessing capital for their business- hence the need for micro financing.
According to the Consultative Group to Assist the Poor (CGAP), “Microfinance offers poor people access to basic financial services such as loans, savings, money transfer services and microinsurance”. As opposed to established businesses with good credit that take loans from the big banks, these market sellers, jewelry makers, road side mechanics, provision store owners, etc, usually have no credit history and insufficient profit prospects to get loans or capital needed for their businesses.
Microfinance Institutions (MFIs) bridge the gap between poor people and financial services. Such services are available in Africa, Asia, and even the United States.
Microfinance works as follows: MFIs get funding from individual donors (people like you and me), private organizations or other non-profit organizations, use the funding to grant micro loans at a minimal interest rate, receive repayment of the loan within an agreed upon time frame and grant more loans as a result of interest charged and more funding from other sources. The loans are usually small and short lived- an initial loan could be in the amount of $50 for 6 to 12months (World Vision).
Usually, the micro borrowers form groups that serve as accountability partners. In the case that an individual is not able to re-pay their loan, this group becomes responsible for re-paying the loan – similar to the idea behind co-signing a loan in the United States.
Microfinancing serves a critical function in that it not only helps the poor but also the community. By making it possible for low-income earners to access capital for their businesses and teaching them how to save their money, MFIs help families improve their financial wellbeing. This improved financial state results in better chances of access to good quality education, healthcare, and could be the difference between having or not having food for dinner.
Another blessing that Microfinance brings is that it provides various ways for anyone to help fight poverty. These ways include online donation, micro lending directly to the borrowers (for instance, I can go to Kiva.org right this minute and loan $25 to a shoe seller in Kenya), investment and volunteer opportunities.
Emmanuela Anyanwu holds a degree in Economics from the City College of New York. She currently works in the financial services industry and has substantial experience coaching on career related topics. She is very passionate about Africa – and wants to propagate positive change. Lifestyle writing is more than a craft to her- it's a medium through which she expresses and explores the multi facets of life.