Microfinance in Asia and Africa

Microfinance is a term for the practice of providing financial services, such as microcredit, microsavings or microinsurance to poor people. By helping them to accumulate usably large sums of money, this expands their choices and reduces the risks they face. As suggested by the name, most transactions involve small amounts of money, frequently less than US$100.

A few key principles of Microfinance are:

1. The poor need a variety of financial services, not just loans.
   • Just like everyone else, poor people need a wide range of financial services that are convenient, flexible, and reasonably priced. Depending on their circumstances, poor people need not only credit, but also savings, cash transfers, and insurance.
2. Microfinance is a powerful instrument against poverty.
   • Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce their vulnerability to external shocks. Microfinance allows poor households to move from everyday survival to planning for the future, investing in better nutrition, improved living conditions, and children’s health and education.
3. Microfinance means building financial systems that serve the poor.
   • Poor people constitute the vast majority of the population in most developing countries. Yet, an overwhelming number of the poor continue to lack access to basic financial services. In many countries, microfinance continues to be seen as a marginal sector and primarily a development concern for donors, governments, and socially-responsible investors. In order to achieve its full potential of reaching a large number of the poor, microfinance should become an integral part of the financial sector.

More key principles of microfinance can be found at CGAP Ayuktakh 13:02, 17 November 2007 (EST)

'=History='

    Microfinance did not magically appear within the last 20 years, the concept has existed since the 1700s.  The "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" in Sri Lanka, "tontines" in West Africa, and "pasanaku" in Bolivia, are a few examples of saving and credit groups that have been in operation for centuries. These organizations provided customers who were traditionally neglected by larger banks an opportunity to use financial institutions to better their lives. 
    One of the earliest and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Funds system. Jonathan Swift, author and nationalist, began it in the early 1720s. He used capital from donated resources and allowed the Irish access to interest-free loans. The organization witnessed very rapid growth due to a special law in 1823, which turned the charities into financial intermediaries thus creating the Loan Funds Board in 1836. This board regulated and supervised the acquisition of resources and capital.  At their peak, the Irish Loan Funds systems were making loans to 20% of all Irish households annually. Unfortunately commercial banks used their power and influence to stop the funds by getting the government to put a cap on the interest in 1843. The funds finally disappeared in the 1950s. Hamburg established a similar community owned financial system in 1778 but unfortunately this also ended due to outside intervention.
   From the 1880s-1950s, microfinance institutions began spreading to different parts of the world such as Latin American and Indonesia (Indonesian People's Credit Banks). The new institutions focused mostly on rural areas. The goal of the more rural finance interventions was modernization for the agricultural sector, increasing commercialization of the rural sector, as well as eliminating oppressive feudal systems that reinforced indebtedness. One of the main problems facing the new rural microfinance institutions was the fact that most of these banks for the poor were not owned by the poor, as they had been in 18th and 19th century Europe. The banks were controlled by government agencies or private banks that did not always the welfare of the people in mind. Over time, these institutions became inefficient and at times, abusive. They lost the trust of the people and had to close down the banks.
   In the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of micro-enterprise credit was based on group lending; meaning every member of the group guaranteed the repayment of all members. These "microenterprise lending" programs focused on credit for income generating activities and targeted very poor (often women) borrowers. This type of lending guaranteed accountability, which was a key missing factor in other microfinance enterprises.  Because each member of the local group assured the repayment of all other participants in the loan, if an individual was unable to repay their own loan, the group would support the member financially and emotionally thus encouraging a better business results. 
  Formal credit and savings institutions for the poor have been around for centuries, they provided customers who were traditionally overlooked by commercial banks a method of obtaining financial services through cooperatives and innovative finance institutions.

Zimbabwe

General Economic analysis of Zimbabwe:

▪ Zimbabwe is one of the most economically developed country on the African continent.

▪ Zimbabwe has only enjoyed recognized autonomy since 1980, so it is a fairly young political entity.

▪ Zimbabwe's economic system is one indicative of a transitional country, a country making the transition from dependency underdevelopment to self-reliant industrialization.

▪ The dynamics of underdevelopment to development in Zimbabwe are readily apparent.

Geography

▪ Zimbabwe is a landlocked country in the southern, sub-Saharan area of the African continent.

▪ Harare is Zimbabwe's capital and largest city with a population of 1,100,000.

People

▪ Zimbabweans are comprised of two primary ethnic groups, the Shona, comprising 74% of the population and the Ndebele comprising 20%.

▪ Other ethnic black groups and Asians make up 4% of the population while whites make up just over 1% of the population.

▪ Zimbabwe has a population of 10.35 million people with a population density of 24 persons per km2.

▪ Annual growth rate is declining with -15%.