Microfinance as a Sustainable Solution for Alleviating Poverty: Why Sometimes it Does Not Work and Implications for Sub-Saharan Africa

Open Access
Author:
Rockey, Rebecca Sarah
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Dr Andres Rodriguez Clare, Thesis Supervisor
  • David Shapiro, Honors Advisor
Keywords:
  • Sustainabilty
  • Sub-Saharan Africa
  • Poverty
  • Microfinance
  • Impact
Abstract:
This paper presents the hot topic of microfinance, comparing the success of microfinance institutions across two geographic regions: Africa and Asia (specifically sub-Saharan Africa [SSA] and south Asia). The success of a microfinance institution is defined by its outreach and sustainabilty, which indicate social and economic performance as well as impact. Looking more closely at poverty issues, poverty in sub-Saharan Africa has essentialy doubled to 380 million (more than the U.S. population) over the last 20 years despite many political and economic attempts to restore economic growth. Comparing reforms taken by China and Vietnam that resulted in large and sustainable reductions in poverty, this paper argues that sub-Saharan Africa has much larger issues outside of access to credit by the poor that hinder economic development. While microfinance shows to have played a role in smoothing consumption, it has not shown increased entrepreneurship or self-sufficiency and has not affected aggregate poverty levels at all. This paper is organized as follows: the first section is an introduction to the theory of microcredit and microfinance; the second section presents a clearer defintion of microfinance goals and measures; the third section presents a brief history of microfinance (where it originated in Bangladesh); the fourth section discusses developmental policy and the role of finance in alleviating poverty (with a case study of China); and the fifth section analyzes the effectiveness of microfinance in alleviating povery in sub-Saharan Africa and combines my findings in a positive synthesis of the information offered.