Measurement of economic and social impact of short term loans in Sub Saharan countries.docx
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This document examines the economic and social impact of microfinance loans in Sub-Saharan Africa, highlighting the rising poverty levels despite global reductions. It describes different microfinance systems in West Africa, such as credit unions and village banks, which aim to provide financial access to the poor. The paper emphasizes the importance of both qualitative and quantitative methods in assessing the benefits of short-term microfinance loans on various aspects of beneficiaries' lives.
Measurement of economic and social impact of short term loans in Sub Saharan countries.docx
- 1. Measurement of economic and social impact of short term loans in Sub Saharan countries By Stephane Soami Sub-Saharan Africa is the one region of the world where the number of people living in absolute poverty continues to grow. From 1981 to 2001 in this region, the number people living with less than $1 a day rose from 42% to 47%1 while absolute poverty dropped from 40% to 21% in the world as a whole.2 As an attempt to alleviate poverty in the region, many countries have developed some microcredit structures to help finance projects (in agriculture, trading, crafts, or processing industries rather than consumption) at a smaller scale in communities. The microcredit operation in these countries is directly conducted through a specialized financial institution also called the Microfinance Institutes (MFIs). It operates as a commercial bank with the exception that the lending and the borrowing are conducted with the sole objective of facilitating access to credit to the poor who cannot obtain a loan from a conventional financial institute or a bank because of their inability to provide a collateral.3 We will investigate the social and economic impact of microfinance loans in the West African region through the evidence of microfinance in Africa and its perception, then how is measured the social and economic impact of short terms loans. Evidence of Microfinance in Africa and perceptions Three major types of microfinance systems characterize the Western African sub-region: Credit Unions (“Systèmes Mutualistes”); solidarity group systems (based on the replication of the Grameen model4 , where what we call a Self Help Group or SHG is financed after identifying certain activities which can generate a profit), and; village-bank type systems (“Réseaux de Caisses Villageoises”).5 The credit unions have been operating since the1960s but its expansion was only visible from the 1980s after most of the rural development banks started collapsing in the sub-region. Normally, those systems have proved to be efficient with respect to their saving mobilization strategies and the high level of repayments.6 However, some of the policies applied by those systems have been criticized in recent years (i.e. some low-income groups have been marginalized because of their lack of initial savings). Besides, these systems are facing government issues and other administrative inefficiencies which result in too much centralization of decision-making. 1 Wali, I., 2009. Poverty Alleviation & Microcredit In Sub-Saharan Africa. International Business and Economics Research Journal. 8(1), pp. 1-2. 2 Ibid. 3 Ibid. 4 Shereif, S.R. and Sharief, S.M., 2005. Scaling up Microfinance in Eastern and Western Africa with Lessons from India. Africa Economic Analysis. Magnus School of Business. Chennai. http://www.africaeconomicanalysis.org/articles/pdf/microfinance.pdf 5 Ibid. 6 Ibid.
- 2. Microfinance in the form of a “solidarity group” system is the second type of Microfinance which provides small, non-targeted credit with repayments through weekly instalments during meetings with the group members. Simplified loan applications have resulted in reduced transaction costs. The third type of Microfinance is a “village-bank”-type institutions which combine certain characteristics of both previous models.7 The village banking approach relies on the social cohesion and community solidarity at the village level. This local financial institute is usually managed by their people themselves according to a set of rules they have established. Village banking systems have been successful in reaching the poorest, and have often been developed in remote and challenging rural areas. Microfinance Institutions (MFIs) have increasingly become a tool to provide financial services to SMEs that focus on poverty reduction and the improvement of the social and economic welfare of the poorest. There is an increasing literature on how to improve financial service delivery to the poor, hence it is important to understand to what extent these credit interventions impact the beneficiaries. It is just fair to apply a qualitative and quantitative approach in measuring the benefits of the short term micro-finance loans at this stage. Measuring the benefits of short term microfinance loans: a quantitative and qualitative approach The first part of the assessment will focus on qualitative indicators, which measure social variables that are vital human development indices and also represent real improvement in the quality of life of the poorest. My opinion is that the benefits of micro-finance loans can be measured in terms of before/ after analysis. From an economic domain , the before/after analysis will give a practical valuation of (business opportunity, market opportunity, quality of business premises, household assets), access to facilities (housing condition, health condition, food and nutrition, children's education), social domain (family relations, time pressure, participation in social activities, public respect and acceptance) or a spiritual domain (participation in church activities, church attendance, prayer and devotion, and giving). Now switching our attention to quantitative variables, we will focus mainly on changes in four important indicators: business turnover, monetary value of enterprise inputs or raw materials, monetary value of machinery, and employment. Here gross monthly business turnover would represent the turnover or monthly sales. The turnover is used as a proxy for income and profit since most informal enterprise owners do not separate the two variables. By assuming here that gross sales or cash flow from the business could be used to project the business growth at least in monetary terms, we can understand how in injection of capital into the business can have an impact on the four indicators. 7 Ibid.