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May07

Micro-Finance

HOW MICRO-FINANCE CAN BE BENEFICIAL IN EAST AFRICA
One of the biggest problems facing people who dwell in rural areas in East Africa is the sheer lack of financial services. These individuals and the areas they live in continue to lag behind in terms of development because they have no access to credit facilities. In Tanzania for instance, only about 6% of the population has access to adequate financial services. This is where micro financing comes in and attempts to help the poor in the East African region.

Micro-financing is aimed at providing a variety of financial services to low income earners especially in the rural areas. These financial services include loans and savings and are provided by several financial intermediaries such as donor governments and non-governmental organizations. The small loans provided by the micro financial institutions are usually short term loans. In addition to this, the proceeds from the loan are usually meant to be invested in productive capital such as purchasing fertilizer.
There are several benefits that micro financing has to offer to the poor in East Africa and to the region as a whole. The main benefit and driving force of micro-finance is to reduce poverty in the region. This is achieved by providing cheap access to funding. There is hardly any conventional forms of collateral required by these institutions when providing funds to the under privileged. With easy access to funds, more people are able to start small businesses and manage the start up costs. This will have a positive impact on the economic development of the region.
Another important benefit of micro-finance is the empowerment of women. Most of the beneficiaries of the loans offered by the MFIs are women because they tend to repay their loans on time as compared to men. By securing these loans, women are able to be independent and financially stable because of the businesses they set up. These businesses will assist in providing them with sustainable income for them and their families.
Micro-finance can also assist in significant job creation in the region. This is because micro-financing encourages people to be self employed in order to create their own wealth. It does this by providing funds to individuals in order to manage the start up costs of the business. As more entrepreneurs come up as a result of the easily accessible funds, more jobs are created especially for the women and the youth. With an increase in job creation, productivity increases in the region and this has far reaching positive effects on the economic outlook of the area.
Micro finance is not only about lending money to the poor but also allowing the poor to save money. This will guarantee that more people become financially secure. Saving in a micro financial institution is also a form of insurance cover for many poor people. This ensures that more low income earners can effectively manage the risks involved in day to day life such as illnesses and any sudden monetary difficulties.
The borrowers who pay back the loan on time also benefit from getting high credit scores. This will assist them in getting more financial aid when they need it in the future for expanding their businesses.

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