Micro Finance in Promoting Export and Entrepreneurship

July 18 -20, 2005 Dakar, Senegal

Topic: Micro Finance in Promoting Export and

Entrepreneurship

By Vivian H. M. Attah (Mrs.)[email protected]

Training CoordinatorGIMPA DLC

July 18, 2005 Dakar, Senegal

Introduction Micro Finance• Micro financial support refers to small financial

transactions to small and medium scale enterprises

• Micro-enterprise is also referred to as, small scale businesses that are operated by individuals and groups – Despite their size and limited market, micro-

enterprises are the fastest growing part of the private sector

– Has immense importance to the economies of Africa

Sources of Micro Finance

• Formal institutions (commercial and development banks, non-bank financial institutions, financial PLC),

• Semi-formal institutions (credit unions and NGOs) and

• Informal sources (traditional systems, moneylenders)

FOCUS

• Providing micro financial support to promising small and medium scale entrepreneurs to setup, expand and sustain micro-enterprises in Sub Sahara Africa

• Beneficiaries are individuals or groups

Strengths of Topic Is Based On Fact That:

• Micro financing enhances economic development

• Emphasizes need for financial aid to small scale entrepreneurs as well as prospective enterprises in the low income bracket

• Has real potential of improving product quality, quantity and promoting export and entrepreneurship

Strengths of Topic Is Based On Fact That: (cont.)

• Address unemployment and wealth creation• Has the potential to provide social mediation

services– Group formation– Development of self confidence– Literacy training (e.g. financial literacy and

management capabilities)– Health care– Skills training– Marketing– Etc.

• Policy implication of micro financing

Micro Finance Services Available to Entrepreneurs

• Savings• Credit • Insurance • Payments e.g. for agricultural inputs, paying

resource persons, etc• Small loans e.g. working capital• Capacity building• Repeat and larger loans, based on repayment

performance • Streamlining loan disbursement and monitoring

Challenges• Identifying businesses worth financing (to avoid

losses and ensure efficiency in the use of funds)• Production capacity (lack of volumes)• Information acquisition:

– Markets (consumer preferences, etc.)– Resources and production techniques– Micro-finance supports

• Recouping of funds• Policy implications (how do financial and non-

financial institutions make sure the right people get the needed assistance, loans are recouped, businesses are successful and sustainable)

Control Mechanisms• Integrated approaches/strategies• Informal appraisal of borrowers and

investments; • Collateral substitutes, such as group

guarantees or compulsory savings; • Peer pressure to enforce contractual

obligations (solidarity groups);

Control Mechanisms (cont.)

• Access to repeat and larger loans, based on repayment performance;

• Streamlining loan disbursement and monitoring;

• Secure savings products.

The Way forward

• Capacity building – Encouraging group formation

– Developing their entrepreneurial skills

• Making funds available to credit worthy individual and groups

• Effective monitoring and evaluation

Summary

Issues addressed so far are:• Reasons why small enterprises should be

supported• Forms of micro financing support to provide to

micro enterprises • Which entrepreneurs can benefit from the

support• Of what significance is micro-financing in

promoting export and entrepreneurship • The ultimate implications of micro financing in

poverty reduction, wealth creation and national development

Thank You For Your for Patience