Ncube who is a former Zimbabwean banker, currently lecturing at Wits University said there was need for improved access to financial services for poor people, most of whom live in rural areas. It is estimated that more than 70 percent of Africa’s population resides in the rural areas.
Ncube said that the fight against poverty would remain a pipe-dream unless micro-financing institutions develop good management systems, credit controls and corporate governance in order to ensure real access for the poor.
“Micro-finance stimulates economic growth, job creation and poverty reduction,” Ncube told participants at a micro-finance workshop in Johannesburg last week.
He cited countries such as Uganda, which has vibrant entrepreneurial activity at the micro level, as a good example of an African nation with improved poverty levels due to the role being played by micro-finance institutions. Micro-finance is one way of fighting poverty by giving poor people access to credit, savings, insurance and other basic financial services.
“Micro-financial institutions must come up with innovative packages that would improve access to finance for small borrowers,” Ncube said.
Ncube urged Non-Governmental Organisations (NGO) - most of which are major sources of funding for micro-finance institutions - to act as external guarantors to small borrowers instead of offering loans themselves.
He said providing loan guarantees would make it possible for small borrowers and businesses to borrow directly from commercial banks because they (banks) would not be over exposed to risk.
“Otherwise they (small businesses) would never get used to borrowing commercially,” he said.
He urged micro-financing institutions to move towards procurement-driven financing saying such businesses can borrow on the back of guaranteed business.
“Micro-finance can grow if small, micro and medium enterprises (SMME) have procurement contracts,” he said suggesting that micro-financiers should consider going into venture funding for SMMEs. In this case, companies can finance small businesses by buying shares into those businesses. Ncube, a Zimbabwean exile called for innovation on the part of commercial banks in order to make micro-finance available to the poor.
He wondered why banks continue to demand houses and land as collateral before extending finance to the poor when they could use the end products of their businesses as collateral.
He cited a case of a wheat farmer whom he said can forward to sell wheat to a grain board and the lender could get the payment directly from the grain board and the farmer gets the change.
“Here is a continent that needs to develop its SMME and get out of poverty but the cost is too high,” he said attacking commercial banks in Africa (excluding South Africa) for their expensive bank charges.
“The poor tend to pay but they are being over-charged,” he said. According to the International Fund for Agricultural Development (IFAD), poor people are a good risk and have higher payment rates than conventional borrowers.
“In countries as diverse as Bangladesh, Benin and Dominica, repayment rates are as high as 97 percent,” says IFAD. IFAD also says poor women have the best credit ratings than men and credit extended to them has a greater impact on household consumption and quality of life for children.
