Micro-finance vs SMEs Financing
PLEASE allow me to air my views in your esteemed newspaper regarding the SMEs micro-finance programme for rural development currently being implemented by the Ministry of Regional and Local Government, Housing and Rural Development (MRLGHRD) in Uis and Otjimbingwe settlements (The Namibian, Tuesday, 19th June 2012, page 19 – 21)
To start with, there is a need for the technocrats to differentiate between funding of individual family SMEs and micro-finance schemes. The danger here is for a novice to confuse financing of SMEs with the broader concept of micro-finance.
While funding of SMEs in general is straight-forward, micro-finance schemes based on the Grameen Bank model, in Bangladesh, entails micro credit for group members with other support services such as medical insurances, housing, training etc.
The issue here is that the initial design of the Ministry’s micro-finance programme was based on this conventional approach of micro-financing, and entailed micro-credit, housing and sanitation for rural people, particularly for women and youth groups. The programme was therefore called “Pro-poor programme on housing, sanitation and micro-finance”.
The programme differs from existing programmes in that it targets the extremely poor (‘poorest of the poor’), and combines a social assistance package consisting of housing, sanitation, capacity building and micro-finance. It also differs from existing programmes because it proposes different housing/sanitation solutions depending on local culture, customs and local building materials.
The intention was to spread access to finance to a wider and larger spectrum of rural people to empower the beneficiaries with a range of support services through employment creation, generation of income, and reduction of the pervasive rural poverty.
Moreover, the programme was aimed at creating local institutions and financial support services and processes, based on the concept of collective responsibility and creation of strong bonds between members of the groups, which will ensure self-sustainability of the projects once support ends.
This kind of Micro-Finance programme is being implemented successfully worldwide, including in north-central part of Namibia, and are known for having changed or improved the livelihood of many families over the years.
The idea here is not to discard the funding of of SMEs per se. That can still be done by others agencies (e.g. MTI, Development bank of Namibia, SMEs Support, etc.)
It is now amazing that the MRLGHRD has made a complete u-turn on such a noble undertaking and is currently focusing and prioritising formal businesses and SMEs as the most effective tool for reducing the high rural unemployment rate, which is currently estimated at more than sixty per cent (60%).
There is therefore a dire need to revisit the programme’s initial documents, if we are to ensure rapid and more employment opportunities and multiple impacts, with forward and backward linkages in these rural communities.
Let us go back to the basics! It is one thing for the government to dish out funds to SMEs and other business enterprises, but another thing to ensure that those funds benefit more rural households and that the initiated projects/businesses do not falter or collapse after the support has ended.
Former Deputy Director - Rural Development