Is Microfinance the Solution to African Poverty?


The Ghanaian based EB-Accion Savings Loans and Co. Ltd. rebranded to Pan-African Savings and Loans earlier this year. The decision to rebrand was informed by the company’s strategic goal of becoming “the leader in the microfinance sector in Africa,” said Emilia Atta-Fynn, the managing director. “Pan-African Savings and Loans will continue to make savings and access to finance much more relevant to the unbanked, low-income earners, micro, small, and medium businesses, facilitating the creation of wealth and employment for our target market using credit and savings in a more convenient manner,” she added.

United Nations, Microfinance, and the Millennium Summit

Reducing poverty has been a global imperative since 2000 and many non-governmental organizations (NGOs), donor agencies, and the United Nations (UN) have highlighted microfinance as an essential part of poverty-reduction efforts. In fact, the UN cited poverty alleviation as one of eight international development goals during the Millennium Summit. According to the World Bank, “microfinance initiatives can effectively address material poverty, the physical deprivation of goods, services, and the income to attain them.” When properly operationalized, the benefits of micro-financing can also extend beyond the family and into the community. In 2005, the UN declared that microfinance offered roughly 2.5 billion people an opportunity to “grow thriving businesses and, in turn, provide for their families, leading to strong and flourishing local economies.”

Structural Challenges

However, structural weaknesses in the microfinance sector have often been identified as impeding the full potential of microfinance institutions (MFIs) and leaving the poor susceptible to abuse. In South Africa, for example, the poor cannot repay acquired loans. An estimated 40% of the South African workforce’s income is spent on repaying debt and South Africa’s poor are now caught in a debt cycle of “unimaginable proportions,” according to the UN. Experts argue that the microfinance sector has become nothing more than a precarious and costly micro-credit system that is used to support the immediate needs of the poor.

To ensure greater effectiveness and efficacy, the UN urges African governments, in cooperation with external banks and development partners, to play a formative role in consolidating, regulating and sustaining the microfinance sector by providing appropriate legal frameworks that protect the poor and promote effectiveness.

Solution: Federal Regulations?

The Ghanaian government is already working through some of these challenges and may serve as a working best-practice model for other African nations to follow. For example, the microfinance sector is Ghana is federally regulated by the Ministry of Finance and Economic Planning and the Bank of Ghana. “Legislation and regulations government rural and microfinance institutions (RMFIs) in Ghana have evolved with the market, both opening up possibilities for new types of institutions and tightening up to restrain excessive entry and weak performance in the face of inadequate supervision capacity,” according to the UN.  

The success of Pan-African Savings and Loans stems from the fact that it is a tightly regulated collaborative initiative of Ecobank Transnational Incorporated (ETI), ACCION Investments and the International Finance Corporation (IFC), and Ecobank Ghana. As a part of the collaborative, ACCION provides technical knowledge in the microfinance sector, while Ecobank offers opportunities to leverage its infrastructure and network of banks to help standardize and deliver high-quality financial services. As of 2015, the company has 11,298 active borrowers, 103,325 active savers, and a saving balance of $7,324,000(US).

Jared Brown currently coordinates a $25 million initiative at the United Negro College Fund (UNCF) designed to cultivate the next generation of African American innovators and entrepreneurs. He awards scholarships and administers an online entrepreneurship curriculum to more than 150 undergraduate scholars representing more than 40 colleges and universities. He also serves as operations director at Black upStart, an early stage social enterprise that supports entrepreneurs through the ideation and customer validation processes. He is a leading voice in the field of black entrepreneurship with publications appearing in Black Enterprise, Generation Progress at the Center for American Progress, and the Congressional Black Caucus Foundation.


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