Approximately about 40 % of Africa’s population still lives under the poverty line. However, despite Africa has witnessed a rise in its economic growth; the rate of poverty reduction has still remained the same. The majority of people who are living in poverty are unbanked and unemployed; and hence they do not have access to the formalized credit lines. Microfinance is an opportunity to provide the neediest people a wider access to financial services; therefore, helping them become more productive and earn a living for themselves. It is essential as banks have not historically provided financial services to low income individuals and households. Microfinance institutions (MFIs) typically deal with a large volume of small value loans compared to banks dealing with a smaller number of loans, which have higher profit margins per loan. Banks have therefore rejected providing this service for the market due to the risk and low profitability of lending to clients who normally have a very low standard of living.
Lack of efficiency in the distribution of financial resources is a temporary phenomenon in a situation when various micro-industries are entering into the competitive world market. By enabling micro-industries to have access to financial services, the microfinance industry has been seen as a tool to combat financial exclusion. One of the main aim of microfinance is to foster financial inclusion, so that working age adults have access to financial services whether for personal use or to fund small enterprises. Microfinance addresses the deprivation of goods and services, thereby boosting up the living standards of the households, as well as the communities, in the long run. Microfinance provides a more cost effective finance solution for both individuals and businesses in comparison to what the unregulated credit providers may offer. The flexibility that comes with microfinance is beneficial to households and businesses in times of emergency, especially in situations where there are few indivisible assets. Microfinance helps its clients to borrow small amounts and repay them according to their ability, rather than selling their assets, often in desperation, at an undervalued price.
Normally Microfinance starts out as a credit agreement, however clients are also offered savings products. These are a useful source of financing for any future emergency, consumption or investment needs. Apart from the credit that microfinance provides to the poor, MFIs teach clients to save. In other words, microfinance gives them access to financial services such as savings, financial education and insurance. Savings serve as insurance to families and businesses, which would otherwise not have any back-up plan in case of an emergency. By being introduced to saving, clients have access to capital as and when need arises, also reducing the cost of future borrowing due to lower borrowed amounts and interest rates. Hence, microfinance has enabled the poor to climb up the financial ladder.
The ability of microfinance as a tool to alleviate poverty has gained much praise and popularity that it has been employed in most of the African countries. Microfinance has helped a lot in enabling financial inclusion.
Partnering with NanoBNK
NanoBNK partners with MFIs on the journey to Financial Inclusion by providing Micro Finance Solutions. Our business model is unique whereby we take care of the Technology, On-boarding and Engagement of the financially excluded and the local partner assists with regulatory issues, capital provision and marketing.