Microfinance is the provision of savings accounts, loans, insurance, money transfers and other banking services to customers that lack access to traditional financial services, usually because of poverty. Microfinance initially had a limited definition – the provision of microloans to poor entrepreneurs and small businesses lacking access to banking and related services. The two main mechanisms for the delivery of financial services to such clients were:
- Relationship-based banking for individual entrepreneurs and small businesses
- Group-based models, where several entrepreneurs come together to apply for loans and other services as a group.
Over time, microfinance has emerged as a larger movement whose object is a world in which as everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high quality financial products and services, including not just credit but also savings, insurance, payment services, and fund transfers. Many of those who promote microfinance generally believe that such access will help poor people out of poverty, including participants in the Microcredit Summit Campaign.
For many, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses; for others it is a way for poor to manage their finances more effectively and take advantage of economic opportunities while managing the risks. The terms have evolved – from micro-credit to micro-finance, and now ‘financial inclusion’. Microfinance is a broad category of services, which includes microcredit.
Microcredit is only about provision of credit services to poor clients; only one of the aspects of microfinance, and the two are often confused. Critics often point to some of the ills of micro-credit that can create indebtedness. Due to diverse contexts in which microfinance operates, and the broad range of microfinance services, it is neither possible nor wise to have a generalized view of impacts microfinance may create.
In 2006, the Nobel Peace Award went to Muhammad Yunus. Since he founded the Grameen Bank in Bangladesh in the late 1970s, microfinance has experienced very impressive growth. This is largely due to the many positive effects attributed to its programmes which have a strong agenda on providing financial products and services to the economically disadvantaged populace. Regrettably, most of the financial services offered by commercial banks have been out of reach of the majority poor since they are highly priced and in some cases geographically out of reach for many poor people.
According to the World Bank (2014), financial inclusion remains low in Sub Saharan Africa: only 34.2% of the adult population has an account at a formal financial institution compared to developed economies like Germany (98.7%) and US (93.6%). Financial inclusion can be defined as a state in which people who can use financial services have access to a quality full suite of the same, at affordable prices and in a convenient manner. It remains undoubted that financial inclusion is rooted on the tenet of financial access to services such as credit, payment, insurance deposit and investment both physically and legal facilitation.
Financial deepening as another way of explaining inclusion can be understood as a process of increasing the efficiency, depth ( for instance, credit intermediation and market turnover), breadth ( for instance, range of markets and instruments); and reach ( for instance access) of financial systems. As such, deepening can confer important benefits for macro-stability and sustained growth. In Cameroon, there exist over 500 Microfinance Companies with just about 412 duly authorized by the government to operate in Cameroon.
It should be noted that for a nation like Cameroon to emerge by 2035, different sectors of the economy needs to be developed; currently the agricultural sector of Cameroon is one which needs to be encouraged more. Hence, to facilitate this process, the services of microfinance product and services offered to the different groups in this sector needs to be easily understood and accessed, and further sustainable.
Author: Ayuketa Amadou (Intern and Contributor)