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Savings approach to microfinance effective means of reaching poor in Africa: Report
Submitted by admin on Fri, 07/01/2011 - 17:05
in
Microfinance Focus July 1, 2011: Saving-led approaches to microfinance are now recognized as one of the most effective means of reaching poor, rural households in Africa, says a recent report by humanitarian organization, CARE International.
CARE’s report explains how community-based savings groups, known as Village Savings & Loan Associations (VSLAs), offer a sustainable way to meet the enormous unmet demand for financial services in Africa’s poorest communities.
“VSLAs offer millions of participants the financial know-how they need to begin seeking vital financial services from formal financial institutions. Nearly half of sub-Saharan Africa’s 800 million people live on less than $1 per day. 80 percent have no access to financial services,” says the report.
CARE VSLAs are open to all, but focus on women because their success creates lasting, beneficial change for entire families and communities. The report ‘Closing the gap’ urges governments to adopt policies promoting financial inclusion for women, and to target such efforts at countries and communities where poverty and discrimination have created the greatest need.
CARE offers savings-led microfinance to women as a way of initiating permanent, beneficial social change in Africa. Women are the cornerstone of African economic development, producing the vast majority of Africa’s food despite owning less than two percent of the continent’s land. Because women invest their earnings in their families, programs that promote women’s economic development often yield significant benefits for a family’s overall well-being.
CARE’s VSLAs are typically built by women living on less that $2 per day who collectively save pennies each week, then make small loans to each other to help finance small businesses. CARE offers VSLA members one year of intensive training in managing money, but no direct capital investment. Because VSLAs are self-contained and operated by their own members, they are sustainable and replicable in communities where traditional financial institutions cannot operate.
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Micro credit- the villain of the peace in MF game
Microfinance represents a package of pro poor financial services such as micro savings, micro credit, micro insurance , transfer of money ( more particularly for migrant poor) and it works well towards sustainable impact on poverty when all these MF services, integrated with nonfinancial services, are provided holistically to the target group. However except ‘Micro credit’, all other MF services can work well independently with the given system. But Micro credit ‘alone’ in MF platform when indiscriminately lent and borrowed in poverty sector, it cannot work in vacuum and it requires integration with non financial support and local economy (potential) for its productivity as well for bringing in a desired impact. Unfortunately, ‘solo micro credit’ has been allowed to gain monopoly position like money lending business in the anti poverty derive and eventually MF industry witnessed ‘ crisis’ in many parts of the world including the worst one in AP –India with reported suicides. This event has eroded the ethical values of Microfinance in the battle against poverty and has demoralized all the players in this arena.. We had enough lessons with micro credit and enough is enough. This is the area precisely where anti poverty practitioners worry and debate on the functioning of ‘micro credit alone approach’ without proper adequate integration of the same with other factors and certainly not on Microfinance as such.. One should make subtle difference between ‘Microfinance’ and ‘Micro credit’ and probe the realities in this field for better appreciation and perception.
Thanks
Rengarajan
Only when becoming integrated, recognised, protected
Helping poor, marginalised, women to manage the little money they have does of course help the survival of their households.
But as CARE admits and advocates, these women and their money need to be integrated in the formal economy so that the ladies and their money are better safeguarded and the women have effective access to efficient legal protection.
Poor women knowing how to manage their money better on a day-to-day basis is important but one phase. Poor women live in unstable insecure environments without any individual or group rights. That means that the little money their families depend on for survival and advancement is at risk, daily.
And in supporting its "clients" in their integration into the local formal financial sector as a foreign charity brings many tough challenges.
Respectfully, Peter
Peter van Dijk
BSD City, Indonesia
Microfinance Works!
Here is a typical impact of microfinance intervention. I wonder why anti-poverty practitioners are debating over the effectiveness of microfinance to truly help solve the problem of poverty.
If microfinance does not work, can someone tell me what works?
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