From the beginning the innovation of microfinance has permitted poor people, typically excluded from the traditional banking system, to attain credit to develop microenterprises and build personal savings. It has become a real means of lessening poverty by improving both peoples standard of living and their economic self-sufficiency. According to Kavita Kulkarni, the definition of Microfinance is financial services including credit, savings, insurance, money transfers, etc. targeted at poor and low-income people. I learned that most microfinance clients fall either right above or right below the poverty line. The clients are often self-employed, household-based entrepreneurs. Some of the micro enterprises include small retail shops, street vending, artisanal manufacture and service provision.
Banerjee and Duflo make arguments for and against micro-credits. They state that micro credits can help people living in poverty to think of the future with long-term goals and can start the process of climbing their way out of poverty. The book also talks about thinking about long-term goals and getting used to making short-term sacrifices in order to get there are the first steps toward liberation form one of the most infuriating aspects of poverty. It is hard to stay motivated when everything you want looks impossibly far away and that is the hardest part for the people living in poverty. They need to take it steps at a time. Many of the small business owners are not taking advantage of the loans. They know that starting a business comes with other costs such as employees, a pace to have the business and so on. They are afraid they will not be able to pay off the loans because they need so much therefore some are afraid to take advantage of this. I agree with Banerjee and Duflo when they say it is easy for us who have enough, living a secure life, structured by goals that we can reasonably aspire to achieve with the help of institutions designed to help get us there and people educating us on the processes. It is easy for us. When I now put myself in the shoes of someone living in those kind of conditions and poverty it has to be very scary for them to take that big of a step towards something new and so expansive.
The Micro-finance sector in Burkina Faso plays an important role in the economy. Microcredit has proven to be the most visible innovation in anti-poverty policy in the last half-century, and has continued to grow dramatically. Microcedits are entirely working in Burkina Faso. Many women in Burkina Faso are coming together to work and create sustainable microfinance institutions. These are banking systems for those excluded from traditional forms of banking because they are economically impoverished, which is the case in a lot of the country. The institutions let people obtain loans to start up businesses to produce money or create a way for them to save up money. The World Factbook states that agriculture employs 90% of labor force in the country making it a crucial area to address any issues and to work to enhance the processing and commercialization of agriculture goods along with increasing sales. Many of the microcredit programs integrate environmentally friendly practices into their operations. Through these community savings programs women are able to launch and develop income generating business activities, or deal with an emergency situation.
“Everywhere now people are building permanent houses, and buying cattle and mopeds. That’s because now, they can save and at the same time, borrow money,” said a local from Burkina Faso. Mothers talk about being able to now put their children into the school system and even give them school supplies. One particular mother thanked her flourishing vegetable business for giving her more than 20,000 francs to make schooling possible for them. She explained that before she got a 5,000-CFA loan six years ago, she was only able to save 100 or 200 francs a year. She used the first loan to buy a display table for her goods and today she is able to buy more than 30,00 CFA francs worth of vegetables that she sells for profit. Another women from the country talks about how its clear that even the poorest of the poor have access to the network and you have to be truly below the poverty line to not have enough francs to jump start a business, which is 5,000. However there are some limitations. There has been recent reduction in public investment over the past two years due to little capacity to absorb available external financing, together with reduced financial space for domestically financed investment. Authorities have pointed out recent measures to quicken the approval of foreign loans, streamline procurement procedures and allow devoted partners limited resources available, and the new investments identified, as part of the governments development plan will have to be prioritized carefully. Bankers representatives have said that access to credit, particularly to small- and medium sized enterprises is hampered because of difficulties in securing and realizing guarantees, in sufficient sources of long-term funding, and the often-poor quality of loan applications. Therefore the money market activity is very low partly because banks normally have surplus liquidity, and the treasury and bond markets are thin. I hope that these limits are taken care of and everyone in need of getting loans to start up businesses will be able to. For their sake, for their children’s sake, I believe it is only fair that everyone receive equal opportunities. The government believes that expanding the microfinance sector is crucial in the fight against poverty so I think this problem will be figured out.
Digital technology is making a difference. Mobile payment services have opened up great possibilities for people excluded from financial services. In the past many people in the country have depended on risky and expensive informal channels. But with mobile financial services, the value of money transfers directed though mobile phones are predicted to increase considerably as a result of increasing trust in these services together with the growing number of providers offering m-payment services. Today m-payments services are used in their everyday lives. Obtaining the license for providing m-payment services is easy and is common that many vendors who sell products such as fruits and crafts add this service to their already existing business. Through this service kiosks people are able to pop up their prepaid cards with airtime, transfer money and receive cash. Instead of physically transporting cash through villages people are now able to use this system to send money though a text-message that greatly reduces the risks of robbery.
Banerjee, A. V., & Duflo, E. (2011). Poor economics: a radical rethinking of the way to fight global poverty. New York: PublicAffairs.
Kulkarni, K. (n.d.). Shalmala Finance. Retrieved February 19, 2017, from https://bblearn.missouri.edu/bbcswebdav/pid-3161712-dt-content-rid-31263774_1/courses/SP2017.GERMAN.4810.01/Social%20transformation%20-%20Role%20of%20Microfinance%281%29.pdf.