The role of microfinance institutions in poverty alleviation in developing economies : the case of Zimbabwe

Abstract

One critical aspect faced by developing economies the world over is that of poverty and economic security. The issue is so critical to such an extent that its eradication is mentioned as the first of the United Nations initiated Millennium Development Goals. The microfinance sector is seen as one powerful tool that can be used to reduce poverty especially in developing economies. The major question at hand is whether microfinance institutions are playing their role is reducing poverty and spurring economic development. The overall aim of this research project is therefore to ascertain the role of microfinance institutions in poverty alleviation in developing economies, focusing on Zimbabwe. The research objectives and questions are guided by the research topic with specific focus on the products and services offered by MFIs, their business conditions, their impact as well as legislations that govern their conduct. Two sets of questionnaires were used to collect data from sixty randomly selected MFIs (Fifty MFIs and ten SACCOs) as well as one hundred randomly selected MFI clients. In as much as MFIs have the products and services that assist in alleviating poverty, the challenge is that the very poor people in rural and urban areas are not being reached and the products and services are too expensive to such an extend that the poor people are being sunk into more poverty. Regulatory authorities are recommended to come up with interest rate caps on all MFIs to avoid borrowers being charged unsustainable interest rates. They are also recommended to ensure MFIs adopt internationally best practices for microfinance in the conduct of their business. APEX bodies like ZAMFI are encouraged to institute capacity building programs for MFIs to strengthen and equip the institutions so that they are in compliance with Laws and Regulations governing their conduct. MFIs are also encourage to offer capacity building training sessions to their clients as well as broaden their product offerings to include micro insurance.