In South Africa, the practice of microfinance continues to evolve and is swiftly expanding in the choices of financial service providers to accommodate the poor, that cannot afford the bank interest rates on loans. This has prompted FRTC to promote the social and economic value of microfinance that offers poor or low-income people access to basic financial services, such as savings, loans, micro-insurance, and money transfer services.
There is a great need to build trust in financial institutions among South Africans, who are often denied access to credit from regular commercial banks. With 31.3 percent of the population living below the poverty line and 10 percent of South Africans holding 80 percent of the country’s wealth, those at the bottom of the economic pyramid lack meaningful access to formal banking services (Opportunity International Canada: 2020).
BENEFITS OF MICROFINANCE IN DEVELOPING COUNTRIES
The majority of the poor South Africans are forced to live on less than five dollars a day and more than 6.20 percent of the population goes hungry to bed every day, and this is where microfinance can become a solution in
improving their livelihoods (Macrotrends:2020).
According to Gaille (2017), he identifies 12 benefits of microfinance in developing countries:
1. It allows people to better provide for their families.
By offering microfinance products that can be repaid with that remaining 20%, more households could expand their current opportunities so that more income accumulation may occur.
2. It gives people access to credit.
By extending microfinance opportunities, people have access to small amounts of credit, which can then stop poverty at a rapid pace.
3. It serves those who are often overlooked in society.
Women also develop others more frequently when it comes to entrepreneurial roles, which comes from coaching, feedback, or investments. Even in the developed world, women helping women is an economic force that poverty cannot stop.
4. It offers a better overall loan repayment rate than traditional banking products.
When people are empowered, they are more likely to avoid defaulting on a loan. Women are also statistically more likely to repay a loan than men are, which is another reason why women are targeted in the microfinance
5. It provides families with an opportunity to provide an education to their children.
By receiving micro-financing products, there is less of a threat of going without funding, and that means more opportunities for children to stay in school. This is especially important for families with girls. When girls receive just 8 years of formal education, they are four times less likely to become married young. They are less likely to have a teen pregnancy. In return, this makes girls more likely to finish schooling and then either obtain a fair-paying job or go onto a further educational opportunity.
6. It creates the possibility of future investments.
Microfinance changes this by making more money available. When basic needs are met, families can then invest into better wells, better sanitation, and afford the time it may take to access the health care they need.
7. It reduces stress.
There is a valid argument to be made that some microloans go to cover household expenses instead of business needs. Some are using these loans to pay bills or purchase food. Yet without this product available, there would not be an ability to pay bills or purchase food. So even though it may not always be used for business purposes, it still serves a purpose by reducing stress.
8. It is a sustainable process.
If there is a default on that money, the interest and high repayment rates of other microloans will make up for it. Then repayments are reinvested into communities so that the benefits of microfinance can be continually enhanced. Each repayment becomes the foundation of another potential loan.
9. It can create real jobs.
It is not just the entrepreneurial level that benefits from job creation through microfinance. Grameen Bank in Bangladesh employs over 21,000 people and their primary financial products are related to microfinance. Tens of thousands of jobs are created by that industry with the sole purpose of being able to drag people up and out of poverty.
10. It encourages people to save.
Some microfinance institutions have seen an extraordinary number of savings occur when products are extended. The Unit Desai of Bank Rakyat Indonesia counts 28 million savers to just 3 million microloan borrowers.
11. It allows people to feel like they matter.
With credit, there is hope that anything can be possible.
12. It offers significant economic gains even if income levels remain the same.
The gains from participation in a microfinance program including access to better nutrition, higher levels of consumption, and consumption smoothing. There is also an unmeasurable effect which occurs when women are empowered to do something in their society when they might not normally be allowed to do so. As spending occurs, these benefits also extend outward to those who may not be participating in the program so that the entire community benefits.
BUILDING PERMANENT LOCAL MICROFINANCE INSTITUTIONS
Success in the microfinance sector depends on the ability of development partners to agree to a code of conduct, develop a common vision with a shared commitment to avoid the promotion of monopolies, negative competition, and market distortion. Fortunately South Africa is serious about using micro finance to fight poverty and involve the poor to be part of a progressive economy, therefore the principles and technical aspects of micro finance has been formalised and included in our education and curriculums such as the National
Certificate and Further Education and Training Certificate in Micro Finance.
FRTC’s Micro Finance qualification is popular amongst the micro lending institutions in South Africa. Challenor Finance was granted learnership funding by BANKSETA providing them with the means to introduce the National Certificate: Micro Finance Level 3, learnership to fifty (50) unemployed learners in KZN. The qualification was conducted as monthly face-to-face sessions which then migrated to online sessions (due to the Covid-19 pandemic). The learners were required to attend all facilitated sessions throughout the learnership. These sessions were presented by an expert facilitator and focussed on the transmission of theory as well as allowing opportunity for interactive group activities and discussion. The main purpose of the interactive facilitated sessions was to explain the content of the learning material to the candidates, further building the foundation of their experience. Remediation and final sign-off sessions were held after all the theoretical training was completed.
The learners were required to complete and submit assessment guides monthly after each contact session, related to the unit standards as part of the qualification. Assessment of these modules included written assignments, the submission of product samples and the completion of a workplace logbook (where required). All assessments were linked to the outcomes of each unit
The programme took 12 months to complete, and FRTC had a 95 % pass rate of successful completion. The primary objective of the qualification was to ensure that every learner achieved a nationally recognised qualification – a National Certificate: Micro Finance Level 3. The qualification gave learners, (regardless of their previous education and work experience), an equal opportunity to further their studies and ultimately obtain a nationally recognised qualification, which if not for this opportunity might not have been possible for many of the learners. Challenor Finance, in partnership with BANKSETA, continues to upskill and uplift youth in KZN by providing work opportunities.
Furthermore, Micro Finance South Africa (MFSA) represents more than 1100 Microfinance Credit Providers offices registered with the National Credit Regulator and the majority of significant Service Providers in the Sector. The Service Providers services range from Loan Administration to payment systems to Credit Life to Legal Services and Credit Bureau’s and are legally binding, to follow a code of conduct to protect their economically vulnerable clients. This provides evidence on the fertile opportunities school leavers, professionals and the unemployed must invest in, for a profitable career in the sector.
1. Gaille, L. (2017). Vittana Personal Finance Blog: 12 benefits of microfinance in developing countries (Online). Available: https://vittana.org/12-benefits-of-microfinance-in-developing-countries (Accessed 4 June 2020).
2. Macrotrends. (2020). South Africa poverty rate 1993-2020 & South Africa hunger statistics 2000-2020 (Online). Available: https://www.macrotrends.net/countries/ZAF/south-africa/hunger-statistics (Accessed 4 June 2020).
3. Micro Finance South Africa (MFSA). (2020). Who we are (Online)
https://www.mfsa.net/whoweare (Accessed 4 June 2020).
4. Opportunity International Canada. (2020). South Africa (Online)
https://opportunityinternational.ca/what-we-do/where-we-work/south-africa-facts-about-poverty (Accessed 4 June 2020).