Malawi is known as one of the worlds’ poorest countries, with up to 85% of the population living in rural areas and on, or just below, the breadline. While foreign aid for Africa is a necessity for the ultimate alleviation of poverty across the globe, micro-loans provide a more sustainable alternative to aid packages. The MicroLoan Foundation operates in a number of African countries and provides a mechanism that grows and expands the economy from the bottom up. This CAI brief focuses on the nature of micro-loans and the benefits that Malawians have reaped from them.
Micro-financing the roots
Micro-loan schemes operate from the basic premise that economic growth begins at the roots of society. Rather than expecting state-orchestrated schemes to improve dire poverty, small sums of money are made available to individuals as capital for their business ventures. These businesses need not be (and seldom are) anything larger than corner shops, but the required capital would have been beyond the reach of those who benefit from micro-loans. Micro-loans are generally accompanied by the provision of basic skills workshops, in order to add to recipients’ developmental aspirations and financial security. The workshops focus on various aspects of business, including basic accounting and financial advice, and even extend to agricultural guidance for loans in that sector.
Given the impasse that the lack of capital or collateral holds for applicants, micro-lenders focus on two broad concerns. First, the size of the loan, which can be as little as 150.50 Malawian Kwacha (US$ 5). These loans are intended to fertilise small sustainable enterprises.(2) Second, the schemes focus on the provision of enveloping assistance to ensure the adequate and prosperous growth of the capital loan. This provides a safety net for the lender because it better ensures the ultimate return of the funds with interest. It also distributes the benefits widely, giving valuable skills to people who would otherwise never have had access to any form of business (or other) education.(3)
The MicroLoan Foundation, which began operating in Malawi in 2002, focuses its provision of micro-financing there according to three general principles. They first accompany the provision of the loan with the offer of business training, accounting lessons and other life-skills courses. This is in line with the general philosophy of micro-financing the continent over.(4) Since its inception in Malawi, the MicroLoan Foundation has opened 20 branches and provided micro-finance to over 20,000 women.(5)
The loans are exclusively for women, who represent the primary financial administrators of the family unit and are often overlooked for jobs dominated by men.(6) Women are usually the primary caregivers of the family and often the most burdened by poverty. Thus micro-loans provided exclusively to women serve to address the problem of financial dependence on bread-winning men, and also ensure that the financial gains will be used for sustainable upkeep of the family. The loans are provided according to a peer-lending strategy, which creates a group of inter-dependent, inter-responsible ambitious women.(7) Such a structure not only provides support mechanisms for these women, but also encourages a culture of communal effort for individual and collective benefit. Since all 15 – 20 women in the group are equally responsible for the repayment of loans, they become enthusiastically engaged in the success of every venture, not only their own.
With the business training, accounting lessons and life skills courses which have accompanied these loans, the foundation of the Malawian economy is slowly beginning to expand. The finance is generally used to start small enterprises such as vegetable farms, fish selling, knitting and sewing clothes, and street cafes.(8) Though the expansion of such enterprises are far from the requirements necessary to stabilise the national economy, they are invaluable to the self-sufficiency of the borrowers and have imparted invaluable and lasting skills to numerous African people.
This and similar micro-lending schemes benefit more than just the individuals responsible for the loan. Their dependents and communities benefit, too. The greatest benefit is, however, the one that reaches furthest into communities. As small enterprises begin to succeed, the profits are first used for self and family sustenance. This ensures that more and more families are able to maintain sound health, and live above the breadline. A further increase in profit inevitably gets funnelled into secondary education, which is currently beyond the financial reach of most Malawians.(9)
Although the aid donations to Africa are crucial to the survival of the continent, the focus must remain on the ultimate self-sufficiency of Africans. Roughly 20,000 Malawians have benefited from small loan amounts, adequate training and financial advice, and now find themselves independently able to support basic personal and family necessities. They are also paving the way for a better-educated future generation – one that will mature to a wider range of opportunities. For a loan as small as US$ 5, an entire heritage of financial stability and ongoing education can lift one family from poverty. Instead of hand-outs, let us focus on how we can enable individuals to overcome challenges and prosper.
(1) Contact Benjamin Saccaggi through Consultancy Africa Intelligence’s Eyes on Africa Unit (email@example.com).
(2) ‘Microloan Foundation spreads the wealth in rural Africa’, The MicroLoan Foundation WordPress, 16 August 2010, http://themicroloanfoundation.wordpress.com.
(3) Larson, J. 2010 ‘Micro Loans; a solution to the plight of Africa’s impoverished.’ in Journal of Academic and Business Ethics.
(4) ‘Microloan Foundation spreads the wealth in rural Africa’, The MicroLoan Foundation WordPress, 16 August 2010, http://themicroloanfoundation.wordpress.com.
Image via ArtAfrica