Provincial Local Economic Development Support Programme

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Provincial Local Economic Development Support
Programme

• Locating Micro- Finance
• in Rural Livelihoods (Frame work)
• 20 Sept.2007
• Port Elizabeth

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Background

• The livelihoods framework places a lot of
  emphasis on understanding the household as unit
  of analysis.
• Examining households helps development
  practitioners to understand issues around
  well-being-ranking, levels of vulnerability and
  resilience.

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Points to note about households

• People living together, sharing resources,
  decision making and livelihood activities-
  kinship, blood relation, marriage, sense of
  belonging, dependent on a household for a
  livelihood
• Households are community specific
• They come in shapes sizes

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What is a livelihood?

• There are two broad approaches-
• Narrower economic focus on production, employment
  and household income
• Unites concepts of economic dev. reduced
  vulnerability and environmental
• sustainability while building on strengths of
• rural poor

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Cont

• Chambers and Conway 1990 say-
• A livelihood comprises the Capabilities,
  Activities and Resources required for a means of
  living A livelihood is sustainable when it can
  cope with and recover from stress and shocks,
  maintain and enhance its capabilities and
  resources, and provide livelihood

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Cont..

• opportunities for the next generation
• and which provides net benefits to other
  livelihoods at local and national level

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The livelihood triangle

• Capabilities
• Activities Resources

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Vulnerability Context

• The range of factors in the external environment
  that make people vulnerable
• A shock is a sudden unexpected event that
  undermines a households livelihood
• Stress is an ongoing pressure as a result of a
  shock

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Cont..

• Vulnerability- when a household is open to shocks
  and stresses
• Fragility- when a household cannot recover from
  shocks and stress
• Resilience- when a household is cushioned well
  enough against stress and shocks

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The Livelihoods Context

• Physical/Natural Environment
• Economic Environment
• Institutional/Political Environment
• Socio-Cultural Environment
• S A tiers of government
• Local Municipality
• District Municipality
• Provincial GVT
• National GVT____ Global trends

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How can MFIs enhance rural livelihoods

• Providing different products e.g.
• Micro finance-financial services for poor and low
  income people(What the poor need most is access
  to the financial system and not just financial
  capital)- safe place to save, conduit for
  remittances, pensions and social grants,
  education insurance, housing loan, funeral cover,
  emergency loan, micro enterprise loan
• Developmental Finance-Financial services used in
  rural areas for all purposes and from diverse
  sources tailored to the needs of poor people of
  all income levels in rural areas.
• Agricultural Finance Financing of agricultural
  related activities these loans need to be
  aligned to seasonal activities.

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Tried and tested methods

• Group Methodology-
• Savings services with strong democratic
  management, serve the poor very well
• Promoting and enforcing self management, lowers
  risk and reduces the costs of running a
  microfinance program, making it possible to reach
  the rural areas
• Self management promotes innovation in services,
  adapted by the members to suit their respective
  contexts and needs
• Self management not only builds members financial
  capital, but also develops trust and strengthens
  social relations

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Current Scenario

• Facts the majority of the Eastern Capes poorest
  live in rural areas
• They dont have full access to a range of
  financial services they need
• Available financial services are
• Located in towns and cities
• Costly or rigid
• Not well-suited to seasonal or longer-term
  agricultural activities
• Provided by institutions facing numerous
  constraints

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Constraints faced by MFIs servicing rural areas

• Dispersed demand-travel is expensive- poor public
  transport system
• High information transaction Costs
• Weak institutional capacity
• Crowded out effect- everyone wants to sell apples
• Seasonality- agriculture, dress making
• Lack of usable collateral
• Legal framework

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Some Solutions

• Build staff capacity
• Collaborate to improve the enabling environment
  e.g. policy
• Build on existing institutional infrastructure
• Determine the appropriate role for subsidies- (
  subsidies interest rates to the end users, rather
  subsidies insurance)
• Explore the possibilities of technology
• Be innovative in delivery mechanisms and products

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Points to Ponder

• Entitlements are resources which people have a
  right to access (if this is the case then- Why do
  we make access to micro finance so difficult??
• Why are our institutions located in towns??
• Why do we make them fill in forms in foreign
  language?

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Conclusion

• "Most of the people in the world are poor so if
  we knew the economics of being poor we would know
  much of the economics that really matters.
• (Theodore W. Shultz, on accepting the Nobel
  Prize, in Economics, 1979)
• If and when the wind stops continue rowing
  (Polish Proverb)
• If the cause is right the means will come

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Contact DetailsZanele ZekaAlfred Nzo Regional
Fund AdvisorTelefax039 254 5040Emailzanele_at_th
inasinako.co.za
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THANK YOU !!