Don’t underestimate power of micro-finance

dollarisation of this economy a few years ago that the formal banking system has not been responsive to the needs of the economy.
An element of mistrust in the banking system has emerged resulting in the dwindling of deposits over time and the resultant high banking charges did not help matters either.
What made matters worse was the mistrust that the people now had with the banks after they lost their savings following scrapping of the Zimbabwe dollar and diminishing prospects that the economy would ever emerge from the doldrums after a decade of instability.
Building confidence from the experiences of the lost decade was never going to be an easy task and the suspicious clients were further infuriated by the high interest rates banks were charging for short-term loans. Bank charges on their accounts actually made them poorer.
The alternative, therefore, was micro-finance and this essentially was a facility to access to finance by the poor and marginalised sections of the community that would not ordinarily be able to open a bank account or access loan facilities in the mainstream banking sector because of stringent requirements. 
The concept of micro-finance can also be viewed from a community point of view whereby individuals can pool their financial resources and when a substantial base is built they start lending out the money.
Members continue contributing to the fund on either a weekly, bi-weekly or monthly basis to keep the fund growing.
Those who borrow are obliged to honour their repayments and frequent meetings are held to keep track of the investments.
Such a model has worked very well in both rural and urban communities and has seen people effectively taking part in income-generating projects that have transformed their livelihoods. Lessons can be learnt from the Grameen Bank of Bangladesh that is owned by the rural poor and prioritises communal development in all its activities.
The bank founded by Professor Muhammad Yunus in 1976 has experienced phenomenal growth that has led to its diversification into global investments. He was awarded the Nobel Peace Prize in 2006 after his efforts were recognised globally. In the 1970s, three out of four Bangladeshis lived in poverty and the country was considered a test case for development.
Rapid population growth, frequent natural disasters, and low economic growth throughout the 1980s suggested that a large number of households would remain trapped in chronic poverty. The Bangladesh economy began experiencing structural changes in the 1990s following trade liberalisation and domestic market reforms.
In urban areas, private sector growth and employment were spurred by rapid growth in garment exports while rural areas benefited from the deregulation of agriculture markets, boosting agricultural production.
At the same time, relatively higher paying rural non-farm opportunities increased and the labour force slowly began to shift away from agriculture.
Declining population growth rates, improved human capital, improved infrastructure, mainly in the form of more extensive road and communications networks, and increased foreign remittances have contributed to Bangladesh’s enhanced growth and declining poverty. It is clear that micro-finance can protect households from shocks, contribute to changing societal norms about the role of women in society and lead to some households moving out of poverty.
Overall, it has played its part in the impressive progress Bangladesh has made in poverty reduction over the past two decades. Clearly, not everyone utilises loans productively, and there is a risk of falling into over-indebtedness. So, the role of micro-finance should be strengthened through further innovations which take into account these pitfalls.
Micro-finance is not a panacea and will clearly not eliminate all poverty in any country.
Thus, the potential of micro-finance can be best exploited by recognising the lessons from careful impact evaluation studies, strengthening programmes on the basis of research and field experience, and by incorporating micro-finance programmes into the country’s overall poverty-reduction strategy.
In the Zimbabwean context, there are lessons to be learnt from the Bangladeshi experience and this can be done by strengthening the existing micro-finance framework to embrace all the stakeholders. 
This will not be done by Government alone, but it also needs to incorporate the private sector and non-governmental organisations as well. Together we can achieve much more.
As always let’s make money
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