Post 5: Microfinance, Microcredit, and Burkina Faso

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Microcredit, and microfinance in general, is a fairly impactful social machine that has been recently prevalent in communities that are poor and in poverty. It gives poor individuals an opportunity to build upon their lifestyle and make an enterprise from what they have, which is a really big positive in the grand scheme of things. However, microcredit and microfinance do have their limitations which were outlined in this week’s readings.

Banerjee and Duflo said that microfinance and microcredit, while they do tend to make the lives of recipients slightly more sustainable for a determined period of time, are not reliable forms of change for a long-run method of deconstructing poverty. Microfinance does indeed create some forms of income for those who use its services. Recipients gain a small loan, and hopefully use that loan to start up a personal economy for themselves which can help to keep their income sustainable for as long as they can. However, many recipients of the loans do not take this initiative to start up an enterprise, and the money ends there which is a setback of this form of financing. Another problem with microcredit outlined by Banerjee and Duflo was that among those who do start up a company or an enterprise, those who failed in their attempts tended to recede back into their former financial state. These loans do not accommodate failure, and many recipients to not foresee this when they get involved in microcredit and they ultimately may find themselves farther off from where they started out. Microfinance cannot sustain an individual; it is up to the recipient to use their startup funds wisely.

Microfinance also cannot distribute large quantities of money to groups in need of it, only small funds per loan. This further attributes the fact that microcredit is not a source to sustain, but to help for a new beginning for these people living in poverty. It relies on people doing the best they can to assert themselves into the economy… and oftentimes into the community itself. This is another problem foreseen by Banerjee and Duflo, in that there are many who would like to be recipients of microcredit, but are too shy or afraid to interact with groups that are also taking out and participating in this loan structure. The social aspect of it acts as a barrier for new entrants, especially mothers and women in general.  These people of less social ability are barred from the positive effects of microfinance, and are forced to experience the negative spectrum of it all.

Burkina Faso has been critically impacted by microfinance, as it currently has fifteen institutions which all include microcrediting, and supports a broad spectrum of careers including: agriculture, food processing, handicrafts, livestock and many others. According to the Hunger Project, there has been a great increase in households pursuing livelihoods other than in agriculture. The microfinance institutions in Burkina Faso are also helping to empower women and women’s education, according to The Hunger Project. For the most part, microcrediting is working in Burina Faso, but I do agree that the limitations outlined by Banerjee and Duflo do exist and are likely still at work in the country. But the faults of Microfinance are not created by the institution, but by the recipients of the loans and the users of the service.

At this point, it isn’t clear whether digital microfinance is making an impact on the institution and the society it is in concerning Burkina Faso, but what is clear is that many people have access to microfinance institutions all across the country. These people are using their funds wisely to increase their income and generate more personal wealth, taking steps toward self-sustenance, and away from poverty.

Microfinance & Economic Activity in Burkina Faso

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