T he majority of poor people in sub-Saharan Africa are to be found in deprived rural areas. Consequently, in order to make a significant contribution to the alleviation of poverty, microfinance must necessarily take root in those areas, as close as possible to its customers. Is microfinance an effective means of combating poverty in rural Africa? "The Answer is, categorically yes". Widespread experience has shown that it has made a distinct impact in terms of risk reduction, diversification of income-generating activities and accumulation of "capital stock" for individuals and families taking part. In addition, the latest research on the subject shows that all financial services have a contribution to make: not only credit, but also savings and such facilities as health insurance and housing finance.

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But can microfinance targeting the poor be profitable and sustainable? A recent report, commissioned by theUnited Nations Capital Development Fund (UNCDF), investigating the requirements for the viability of microfinance in deprived rural areas in Africa, sets out four principles to be applied in pursuit of that aim:

• a microfinance scheme should be merged into the local financial landscape, seeking or complementing financial services offered by informal systems, so that the whole weight of demand does not fall on the scheme;

• customers should be actively involved in the scheme so that costs are kept to the minimum and they come to look on the scheme as belonging to them, which is a key factor in securing their loyalty;

• the scheme should innovate in all areas: management, organization, structures and above all financial products, which should be designed in consultation with customers and tailored to their particular economic strategies;

• operations and decision-making should be decentralized to maximize flexibility and speed, contain costs and build local capacity for assuming responsibility.

Microfinance can be a powerful and effective means of combating poverty in deprived rural areas in Africa as long as it is run professionally and keeps to certain tried and tested rules of good practice.”

By Renee, Chao Beroff, Centre International de Development et Recherche, France