Focus More On Poverty Reduction Instead of Economic Growth
By: BRIDGET DUNDEE
ACCESS to finance has been recognised as one of the priority areas to be addressed in the five-year national development plans (NDPs) and the Financial Sector Charter. The background statistics to the Financial Sector Charter show that around 50 percent of the Namibian population are excluded from the formal banking sector – the majority of whom are in rural areas.
Limited reference is made to the significant number of poor rural women entrepreneurs and community projects with no access to finance. Generally, formal financial institutions and micro-financiers are less receptive and welcoming to this group. Often cited by these institutions are collateral requirements and repayment obligations. Poor rural women entrepreneurs, on the other hand, cite bureaucratic loan applications, lengthy disbursement procedures, the time and resources needed to visit the banks and discriminatory banking culture as barriers to access micro finance.
It is widely assumed that sustainable micro-finance schemes will have a positive impact on community livelihoods in leading to higher income that will help communities, and women in particular, to better perform their role as brokers of health and improve the nutritional and educational status of their households. Women’s self-confidence and status within the family as independent producers and providers and the community’s creation of valuable cash resources for the household is advanced. The plausibility of these assumptions is largely borne out by empirical evidence. One such example is the Grameen micro-credit bank in Bangladesh, which gives small loans to poor rural women who have proven a far better repayment rate than the rich urban borrowers.
Micro-finance schemes such as these have been successful because they have groups of women who take responsibility for one another, helping one another out and ensuring that each pays what is due. Seeing them at work is an extraordinary experience: groups of women sitting in rows on the ground proudly discussing what they have done with the small loans they were given. Were it not for the Grameen Bank, the Bangladeshi farmers would have been poorer than they are now. The Grameen community was strengthened by the health, legal aid and education programmes these communities established as a result of their efforts and those of similar organisations.
There is a compelling argument for these schemes, the people in the village know better than anyone else what will make a difference in their lives; they know how the money is spent, and any corruption hurts them directly. Having invested in the planning and execution of the project, they are more likely to feel ownership, a commitment to see it through to success, and therefore more likely to see it receive the funds required to maintain it. Of course there have been failures, but the overall benefits of such sustainable micro financing schemes are well documented.
Needless to say, we have to advance a model that accelerates sustainable economic growth and development for Namibia. Rhetorical as it may sound, sustainable economic growth and development is about transforming the lives of people, not just transforming economies. It is about changing the power structure within the community by giving more economic resources to the poorest of the poor, especially women, who have for so long been treated as second-class citizens. The list of potential areas for government action is large.
For starters, sustainable micro-finance institutions are characterised by offering primarily short-term working capital loans, having a turnaround time for loan approval of less than two weeks, providing services close to the borrower’s home or work and having lower salary levels than financially less viable programmes. Financial institutions lending to communities and poor rural female entrepreneurs most often use collateral substitutes to overcome the lack of traditional collateral. In terms of ensuring repayment the best known examples are peer pressure – joint liability arrangements in lending to solidarity groups and probation (credit scoring). Both these methods have performed as well as conventional instruments and have been used over a fairly long period.
Although Namibia has embraced the idea of micro-financing, I am not too optimistic about the newly established SME Bank, nor the micro-finance policy of the Development Bank of Namibia. Both these institutions need to focus more on their role of reducing poverty and less on economic growth by placing emphasis on poverty reduction.
* Bridget Dundee currently works at the Namibian Competition Commission. Her research interests are in regional integration and economic policy.