Microcredit in Burkina Faso

Microcredit in Burkina FasoKevin DixAnthony MichaelWhat is Microcredit?Giving small loans to impoverished borrowersLack collateral, steady employmentWhy Microcredit?Promotes productive investmentsEncourages entrepreneurs

Origins of MicrocreditCredit is a fundamental human rightFounded Grameen Bank

First modern microcredit institutionLent own money to poor basket weavers in Bangladesh (mid-1970s)Successful modelGrameen TodayCollects $1.5 million weekly97% of borrowers women97% of loans paid backHigher than any other banking system

Won Nobel Peace Prize in 2006What can Microcredit do for Africa? Despite positive economic trends, still vast povertyAddress material & non-material povertyEmpower PeopleConfidence, self-esteem, & financial means to play larger role in their developmentInvolves poor in Economic development

Material poverty:physical deprivation of goods, services, and the income to attain themNon-material poverty:social and psychological effects that prevent people from realizing their potentialCorrelated to little savings compared to other countriesreliance of public rather than private savinglack of savings leads to little money transformed into financial savingsleads to an inability of providing financial services especially for the poor

4Microcredits Role in AfricaMicrocredit can meet financial needs of households and microenterprisesEspecially poorSupply sideLoosen constraints on capitalInvestment opportunitiesConsumption smoothingEmergency liquidity needsDemand sideSupport savings of the poor Poor Historically save money, and microfinance could look after savings in a secure manner, help them accumulate interest on their deposits5UN Report Microfinance in AfricaKey Principles for an African Model:Pool resources through group organizationPool together human and material resourcesStrength in numbersPromote networking, information disseminationReduce administrative costsGroup trust, support, pressure

Grouping exists traditionally in Africa in financial schemes. Effective in rural setting (where 80% of Africa resides). Mutual approach is advantageous rather than individual

6Key Principles ContdPrioritize local knowledge (tradition) and participatory planningIncreased sustainabilityTraditional methods should NOT be replacedRather built uponAdvance African private sectorMicrocredit should lead to microenterprise developmentFormalize the informal sectorPeople feel more comfortable with their own traditionsBecome more invested in and committed to microfinance initiatives stability

7Key Principles ContdPrioritize operational efficiencyMust be efficient, financially viable institutionsKey principles that lead to efficiency:Target poorest of poorCharge interest rates that cover operational costsTarget women

Microcredit and Poverty EradicationPoverty eradication depends on the poor gaining access to economically productive & financial resourcesAllow individuals to move beyond poverty cycle

Microcredit: Burkina FasoChallenges facing Burkina Faso:44.8% on less than $1/dayDroughts, poorly diversified agricultureInadequate road networkLimited energy resourcesLandlockedHDI: 183 of 187 countries Performance of Microfinance Institutions in Burkina FasoEvaluate West African Economic and Monetary Union countries microfinance institutions (MFIs)OutreachSustainabilityAnalyzed data from a random sample of 6 MFIs in Burkina FasoFederation des Caisses Populaires (FCPB)Union des Coopratives dEpargne et de Crdit du Bam (URCBam)Promotion du Dveloppement Industriel et Agricole (PRODIA)Fonds dAppui aix Activits des Femmes (FAARF)Association pour le Dveloppement de la Rgion de Kaya (ADRK) Association Etre comme les Autres (ECLA)

-Poverty in Burkina Faso mainly hits these targeted populations, pure urban populations are slightly better offSome specifically aim for womenAverages much smaller than traditional financial institutions12

24% annual growth rate of clients497,446 clients was still only 8.3% of the target populations showing outreach was small compared to potential demandsMFIs still rather young, and some small areas are widely covered by these institutions

13Offer different types of micro creditShort term individual or group creditAverage loan amount between 7 and 500 USD6-12 monthsMedium or Long term individual creditAverage loan amount between 400-4000 USD>12 months

>70% of loans are short term (