Microcredit in Sub-Saharan Africa
by Terry F. Buss

The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit, or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. The International Year of Microcredit offers a pivotal opportunity for the international community to engage in a shared commitment to meet this challenge. Together, we can and must build inclusive financial sectors that help people improve their lives.

Informal Finance for Private Sector Development in Sub-Saharan Africa
by Ernest Aryeetey

What can be done to make informal finance and microfinance suitable for financing growing small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of informal finance, focusing on size, structure, and scope of activities. Informal finance has not been very attractive for the private sector. Indeed, the informal sector has considerable experience and knowledge about dealing with small borrowers, but there are significant limitations to what it can lend to growing microbusinesses. Second, I discuss some recent trends in microfinance. While externally driven microfinance projects have surfaced in Africa, their performance relative to small business finance has not been as positive as in Asia and Latin America. Third, I introduce some possible steps toward a new reform agenda that will make informal and microfinance relevant to private sector development, including focusing on links among formal, semi-formal and informal finance and how these links can be developed.

An Assessment of the Impact of Microfinance: A Case Study from Uganda
by Gayle Morris and Carolyn Barnes

This paper reports the results of an impact study of three microfinance programs in Uganda—FINCA, FOCCAS, and PRIDE. Program clients and nonclient groups in three places—rural Mbole district, Kampala, and Masaha town—were studied in an initial survey and a follow-up two years later. The study found numerous positive impacts on program clients: addition of new products and services, improved or expanded enterprise sites and markets, reduced costs of inventory purchases, and increases in sales volume. Household-level impacts included new enterprises begun, increased amount spent on durable assets and agricultural inputs, increased amount of cultivated agricultural land, and increased amount of household income from crops. Microfinance programs help client households reduce financial vulnerability through diversification of income sources and accumulation of assets.

Microcredit and Households Coping with HIV/AIDS: A Case Study from Zimbabwe
by Carolyn Barnes

This study seeks to better understand the ways chronic illness and death, possibly associated with HIV/AIDS, negatively affect households and the impact microcredit has had in helping affected households. This is achieved through analyzing data from clients of Zambuko Trust and from nonclient microentrepreneurs, using proxy indicators of HIV/AIDS affected households. It also investigates the vetting of members by loan guarantee groups and the ways these groups deal with individuals affected by illness and death. Since members of loan groups serve as gatekeepers to loans, the internal dynamics of these groups as well as the MFI’s policies and loan terms and conditions are important to understanding any push factors that might exclude HIV/AIDS-infected and -affected individuals. Suggestions are provided from clients and other key stakeholders about changes that might assist microfinance institutions and their clients address the negative effects of HIV/AIDS.

Outcomes of an Ethiopian Microfinance Program and Management Actions to Improve Services
by Shannon Doocy, Dan Norell, Shimeles Teffera, and Gilbert Burnham

Management decision making in MFIs is becoming increasingly tied to collecting information about social performance. This paper examines the impact of participation in an Ethiopian microfinance program on indicators of socioeconomic status including wealth, income, and home or land ownership. A survey assessing these outcomes was conducted in May 2003 in two predominantly rural sites in Southern Ethiopia and included 819 households. The article discusses management decisions made as the result of survey findings about socioeconomic status and food security to increase retention rates and to facilitate client savings. Additionally, the management was prompted to increase the number of female clients and raise the proportion of female loan officers. This paper illustrates how data from routine monitoring and evaluation can be linked to MFI management decision making, which ultimately results in providing better microfinance services.

Pro-poor Microcredit in South Africa: Cost-efficiency and Productivity of South African Pro-poor Microfinance Institutions
by Ted Baumann

This article compares the performance of selected South African microcredit nongovernmental organizations (NGOs) that have a poverty-alleviation focus against various benchmarks drawn from the MicroBanking Bulletin. Donors, governments, and many analysts regard sustainability as the benchmark of microfinance institutions’ (MFIs) performance. However, the most relevant question is whether microcredit NGOs are doing as well as they can in their context. Of particular contextual importance is income inequality in a society. South Africa has the world’s second worst income inequality, after neighbouring Botswana. This creates a situation in which microcredit NGOs must recover “First World” costs, particularly salaries, from revenues based on clients who can only afford loans on a par with Third World countries. Compounding this situation are structural obstacles to microenterprise in South Africa, as well as obstacles to productivity in microcredit NGOs. Taken together, this creates a “salary burden” for South African microcredit NGOs, which is the highest in the world according to relevant benchmarks. South African MFI managers face significant obstacles to improving productivity to compensate for the divergence between staff and client living levels. These include an inadequate skills base, the small scale of the market, rapid labor turnover, and limited resources for capacity development. South African MFIs face the options of moving upmarket (which many have done), adopting methodological innovation or new product development, or closing. Of these, there is a strong argument to be made for supported savings and credit approaches as an alternative to NGO-based microcredit. Such an approach has the advantages of greater voluntary input and social capital formation.

Microcredit, Social Capital, and Politics: The Case of a Small Rural Town—Gossas, Senegal
by Jainabah M. L. Kah, Dana L. Olds, and Muhammadou M. O. Kah

Through an exploratory approach, we studied the evolution, sustainability, and management of ten microcredit institutions located in Gossas, a small town in Senegal, Sub-Saharan Africa. Prevailing ideas about social capital, in the form of social relationships within and between microcredit institutions and financing NGOs, donors, and governments, are examined using both rational choice and Marxist social capital theories to highlight the social struggles in social capital. This study goes beyond a microcredit impact analysis by including an exploratory institutional study to examine broader social and economic changes, including the new institutional changes brought about by neoliberal reforms, the emerging roles of women in rural and urban Senegal, and their increased political savoir faire. This study concludes with recommendations on how to better leverage microcredit and social capital to fill the vacuum left by restructuring of the welfare state through structural adjustment programs and neoliberal reforms.