The Constraints and Challenges Associated With Developing Sustainable Microfinance Systems in Disadvantaged Rural Areas in Africa

This document explains that the main limitation to the development of the microfinance sector is the lack of access to capital in contexts where:

• Financial markets are not well developed;
• Commercial banks are reluctant to commit themselves because of the extent of risk, and because of their lack of familiarity with the sector;
• Development projects and banks have most often failed;
• The informal sector is neither sufficiently large nor capable of responding to the challenges of development.

The document outlines the minimum conditions for intervention:

• Geographical conditions: Analysis of family budgets, local markets, and the population's experience with monetary transactions;
• Social and cultural conditions: Presence of many traditional informal organisations; habits of collaboration; experience in the management of resources; analysis of the strength of cultural values such as honour, solidarity, integrity and service to others; the history of the village and village initiatives, groups and informal organisations;
• Methodological conditions: Identify mechanisms for decentralising a considerable part of the decision-making responsibilities, and transferring aspects of management to the clients and their organisations; act as an autonomous regional enterprise; seek contractual relationships with national financial institutions (banks or mutualist networks) to meet refinancing needs.