P. O. Box 3243, Addis Ababa, ETHIOPIA Tel.: 00251-11-5517700, ADDIS ABABA Website: www.africa-union.org
H.E. DR. MAXWELL M. MKWEZALAMBA
COMMISSIONER FOR ECONOMIC AFFAIRS
ON THE OCCASION OF THE PAN-AFRICAN CONFERENCE ON: “MICROFINANCE: AN INNOVATIVE STRATEGY FOR THE ATTAINMENT OF THE MILLENNIUM
ADDIS ABABA, 13 SEPTEMBER 2008
Director of Ceremonies
Members of the Clergy
Ladies and Gentlemen
(All Protocols Observed)
I would like to begin by welcoming all the delegations to this Pan-African Forum on micro-finance to the African Union Commission Headquarters. Please allow me, on behalf of the African Union Commission and indeed on my own behalf, to express sincere gratitude to the Ethiopian Catholic Secretariat (ECS) and to “Caritas Africa”, for having selected the African Union Commission to host this important Forum and I say a warm welcome to all of you. Allow me also to thank the Ethiopian Catholic Secretariat for having invited the African Union Commission to take part in the deliberations of this very important Forum.
It is very encouraging to see the Catholic Church organizing such an important Forum. The convening of this Forum is a clear indication of your commitment towards the acceleration of the attainment of the MDGs and poverty reduction in Africa. Let me commend the organizers of this Forum for the choice of the theme: “Micro-Finance: An Innovative Strategy for the Attainment of the Millennium Development Goals (MDGs)”.
This choice of the theme is very pertinent indeed in view of the important role played by micro-finance in the accelerating the attainment of the MDGs, in particularly Goal 1-eradicating extreme poverty and hunger. It is also pertinent in view of the need to develop concrete actions and recommendations to ensure that Africa attains the MDGs by the target date of 2015. We are encouraged to see your church going beyond its mandate of giving spiritual needs to people and also focus more on the well being of its people. We would like to encourage other churches to do the same.
Ladies and Gentlemen
The 2000 United Nations Millennium Summit defined eight goals to be achieved, aimed at eradicating extreme poverty by 2015. However, assessments of the progress towards meeting the MDG including those undertaken by the MDG Africa Steering Group and the African Union Commission and the Economic Commission for Africa indicate that a number of African countries are off-track. This is in spite of the recent improved economic performance of many African countries that have registered GDP growth rates of 5 percent and above in the past few years.
According to the Joint publication by the African Union and the ECA, “Assessing Progress Towards Attaining-the Millennium Development Goals In Africa 2008”, progress is being made in a number of areas such as primary enrolment, gender parity in primary education, malaria deaths, and representation of women in parliaments. It is envisaged that if this rate of progress continues, the continent will be on course to meet a significant number of the MDGs by the target date but not all.
Relating to goal 1, the report indicates that over 62 per cent of African countries recorded an improvement in hunger conditions between 1991 and 2002. However, this significant improvement has been challenged by the recent threats to food security, such as climate change and rising food and oil prices which impacted heavily on the levels of incomes for many poor people.
Under Goal 2-attainment of universal enrolment in primary education by 2015, many African countries have also scored highly particularly in the area of net primary enrolment where many counties have registered a significant improvement. In general, aggregate enrolment rate for African countries increased by 6 per cent between 2004 and 2005.
The report indicate that many African countries are most likely to miss goal 3, which aims at promoting gender equality and empowering women, particularly in primary education, despite 13 African countries already having scaled-up their rate of progress towards gender parity in primary education. Although this is the case in primary education, the status of representation of women in national parliaments has improved. According to figures, Africa has the highest reported rate of progress compared to the 10 per cent achieved world-wide over the period 1990 to 2007.
The report also indicates that African countries are on track in attaining goal 4 which calls for a reduction by two-thirds, between 1990 and 2015, of the under-five mortality rate. Significant improvement has been recorded in treatment of diseases which are more likely to cause death for children under 5 years of age, including measles.
Data on goal 5- maternal mortality health is not readily available in a number of countries. However, estimated data for 2005 from WHO, UNICEF, UNFPA and the World Bank indicate that the vast majority of African countries experienced a slight improvement in maternal mortality rate (MMR) of 1.8 per cent between 1990 and 2005.
Targets for goal 6, Combat HIV and AIDS, malaria and other diseases, remain at the bottom by many African countries. Statistics indicate that almost 68 per cent of the 33.2 million people are living with HIV and AIDS. However, this varies from region to region. The adult HIV prevalence rate varies from well below 1 per cent in all North African countries to above 15 per cent in many of the countries in Southern Africa (UNAIDS, 2007) and women continue to be heavily infected by HIV. As of December 2007, women constituted 61 per cent of infected people in Africa except North Africa. On the other hand, the rate of TB deaths excluding HIV in North Africa was 3 in 100,000 while in other regions was about 55 in 100,000.
Regarding goal 7 on ensuring environmental sustainability, the report indicates that between 1990 and 2005, land covered by forest decreased in Africa, except North Africa by 3 per cent. The report indicates that deforestation continues to contribute to the increase in agricultural land. Under the same goal, the report also indicates that there has been some improvement in provision of safe drinking water from 1990 to 2006. For example, about 602 million Africans had access to improved drinking water in 2006, representing a coverage increase from 56 per cent in 1990 to 64 per cent in 2006.
Efforts have been made in attaining goal 8, Develop a global partnership for development. For example, 26 African countries had reached the decision point under the Enhanced Highly Indebted Poor Countries (HIPC) initiative as of February 2008 with 19 of them sailing through to the completion point. Some of the commitments made by the development partners have been met. However, progress in fulfilling these commitments has been slow. It is also observed that African countries have recently benefited from the growing importance of non-DAC donors, particularly China and India. China, for instance, has written-off around US $1.47 billion of debt to Africa. In addition, it committed to double ODA to Africa. However, challenges remain, including non-delivery of commitments b y development partners and trade negotiations under World Trade Organization are yet to be concluded.
Ladies and Gentlemen
This Pan-African Forum on Micro-finance has come at the right time, at a time when we are preparing to go to New York to participate in two major high-level events: The High Level Event on Africa’s Development Needs and The High Level Forum on Millennium Development Goals (MDGs). Thus, the outcome of this Conference should assist those that will represent Africa articulate better the role of micro-finance in the attainment of the MDGs.
As so aptly indicated in the theme of this Forum, micro-finance is an innovative strategy for the achievement of the Millennium Development Goals; at least for the first six goals, which are to: (i) Eradicate extreme poverty and hunger, (ii) Achieve universal primary education, (iii) Promote gender equality and empower women, (iv) Reduce child mortality, (v) Improve maternal health and (vi) Combat HIV/AIDS, malaria and other diseases.
You may all agree with me that micro-finance is one of the development tools for fighting against poverty. It is globally accepted that globalization has become a key tool for breaking poverty trap, particularly for women, who are mostly involved in small and medium-scale enterprises. Studies have shown that people with access to financial services are able to improve their standard of living and are more likely to send their children to school and keep them there longer. In addition to financial services, some micro-finance institutions provide other useful services to their clients, such as offering health insurance, and promoting health insurance.
More than 75 per cent of the poorest people of the world live in remote, rural areas. Ensuring that rural poor people have access to the tools they need to build better lives for themselves and their children is a crucial first step towards the target of halving the proportion of people living in extreme poverty by 2015. Micro-finance allows poor people to have sustained access to things like employment, health, and education, among others.
Indeed, access to financial services through micro-finance strengthens the capacities of the poor to achieve the MDGs by their own means and in a lasting manner. Thus, the poor can increase and diversify theirs incomes, procure human, social and economic goods, and improve their existence in a manner that reflects the multidimensional aspects of poverty. Further, micro-finance can help the poor, through small loans, to break the circle of extreme poverty if this amount is invested in viable economic activities. Similarly, the possibility of investing their savings in a safe place allows the poor to protect themselves against unforeseen mishaps such as illness or crop failure, which could easily plunge them into misery.
Ladies and Gentlemen
The place and importance of micro-finance within the framework of poverty reduction and therefore the achievement of the MDGs in Africa are obvious. The rapid development of micro-finance in the Continent has had a significant impact on African populations, particularly the poor, a large majority of whom are women. For example, Global Development Research indicates that micro-credit loan in Bolivia nearly doubled the incomes of small business in nearly two years; and according to world Bank Report, in Bangladesh, 48 per cent of the poorest households which had access to micro-credit loans moved above the poverty line. However, in spite of this rapid growth of micro-finance institutions in Africa, access to financial services is still limited and concentrated in urban areas. Only one out of five households in Africa has access to financial services; less than 4 percent of Africa’s population has access to micro-finance; and only 1 percent has access to commercial finance. In addition, the cost of access to finance provided by micro-finance institutions is still extremely high for an African population, the majority of which is poor.
Thus, a number of measures need to be put in place in order to reverse the trend currently prevailing in many African countries. Studies have shown that the sector of micro-finance in Africa requires huge investment in training in order to build the capacity of many people who are largely involved in SMEs. The success of micro-finance in Africa will, therefore, require joint efforts by the governments, the private sector, civil society and other stakeholders. The following are some examples in which this could be done:
i. Engagement of informal economy: Statistics show that nearly 80 per cent of people in developing countries earn their incomes from informal sector;
ii. The role of governments: African governments to define their role and strategies in micro-finance. This should include providing finance means to save, access credit, and even encouraging people to start small businesses. At the same time, government should avoid relying on state-owed banks to extend rural credit and micro-finance services which have resulted in huge losses in the past. Both governments and private sector should also consider improving access to finance, particularly in the rural areas, by establishing rural credit banks;
iii. Private sector involvement: Encourage banks and private sector to work jointly together in supporting microfinance. This would involve provision of soft loans to SMEs, training opportunities, as well as creating revolving credit funds;
iv. Encourage group formulation. Collective and cooperative support has proven to be one of the most effective ways for improving microfinance in many African countries. Traditional financial schemes have resulted in increasing access to credit by many African people. Many banks have used the group formation and meeting to reinforce group solidarity, discipline and repayments methods, mainly through peer pressure. Many microfinance institutions have benefited a lot by working through local communities grouping. Local grouping has been used a security against loans and this has improved their access to credit;
v. Target the poorest of the poor: Many micro-financial institutes give priority to the people who are able to pay back. However, this should also be extended to the poorest who are marginalized by giving them soft loans. This should also cover women who are to the larger extent, deeply involved in small businesses. In many developing countries, women constitute the majority of micro-entrepreneurs in the informal economy and many of them benefit more from micro-finance services. Women's status, both in their homes and in their communities, is elevated when they are responsible for managing loans and savings. The ability to generate and control their own income can further empower poor women. Research shows that credit extended to women has a significant impact on their families' quality of life, especially their children. Poor women also tend to have the best credit ratings. In Ghana and Gambia, women finance associations have proved to be the most successful micro-finance, particularly in repayments rate.
vi. Networks and linkages: There is need for a strong linkage among micro-finance institutions, banks, donors, NGOs, and governments. A number of donors have provided significant amount of resources in support of micro-finance without being properly coordinated with government policies and programmes which has not benefit the poor people much;
vii. Avoid micro-finance projects from politics: It ahs been proved, in most cases that micro-finance projects are linked to politics campaign. This has resulted in poor coordination and management of micro-finance. Access to credit has been given to a particular group of people based on their political affiliations;
viii. Data quality: Improve the availability of data to monitor progress of micro-finance programmes and activities. You may agree with me that data on micro-finance for many countries is not up to date, making it very difficult to monitor progress as well as identify the need for micro-finance development.
ix. Mobilizing financial resources: Developing countries should much efforts in promoting innovative financial mechanisms such micro-credit programmes in order to mobilize savings and deliver on financial services to the poor people.
I am pleased to inform you that the African Union Commission has undertaken a study to elaborate a roadmap for the development of micro-finance for the African continent. The main objective of the study is to develop micro-finance in Africa in view of its important role in reducing poverty.
In order to obtain views of micro-finance practitioners, the Commission recently held a workshop in Dakar, Senegal. The Commission is now in the process of finalizing the study, taking into account the recommendations from the workshop. Some of the key recommendations of the workshop include the following:
I call upon all to support the implementation of these recommendations once endorsed by the AU Summit.
A number of reasons have been the given to explain why Africa is lagging behind in developing its micro-finance. Two major factors attributing to this include, interest rates and unavailability of credit in most rural communities. Interest rates for many leading institutions are exceptionally higher that it is not possible for many small business to borrow money. Access to credit to many rural communities has been a big challenge, particularly due to weak institutional infrastructure connecting these areas. Many micro-finance institutions face high cost and default rates due to problems in monitoring borrowers after the loans are granted. This has resulted in a number of micro-finance institutions to provide limited resources, leaving out a large number of borrowers. For example, in Ghana and Tanzania, only about 5-6 per cent of theirs population had access to banking sector in 2004.
Let me conclude by emphasizing that both the churches and the governments have a big role to play in order to resolve this situation. In addition, people engaging in micro-financing activities have also a big role to play too. Even in the bible, it is written that “God helps those who help themselves” This should be the same message to all of all by taking advantage of the support by the governments, partners, NGOs, and churches to develop micro-finance.
Finally, I wish to reiterate the African Union Commission’s support to the outcome of this Forum and readiness to work with the Catholic Church and Caritas Africa and all in the attainment of the MDGs in Africa.
I thank you very much for your attention and wish the forum successful deliberations. May God Almighty bless you all !!