Microfinance isn’t the panacea for ending world poverty. And as much as I believe in Karisimbi Partners, it isn’t the silver bullet either. I hope these statements are not surprising- no one approach to poverty alleviation will singlehandedly address the complex issues of development. However, the integration of economic development approaches can have a collective impact that is unparalleled in changing a nation. Nowhere is this more apparent than in Rwanda. Rwanda is a microcosm of the larger context in sub-Saharan Africa – a laboratory for development done correctly.
Rwanda has experienced significant economic growth, but organizations have emphasized the one tool in their toolbox to the exclusion of other necessary approaches. Simple savings programs, microfinance institutions and small and medium enterprise initiatives all offer a way to create a thriving middle class and provide opportunities for all to work their way out of poverty. Quick definitions of the various tools and approaches currently employed in Rwanda:
Savings and Credit Associations (SCAs)—SCAs can reach the 80% of Rwandans living on less than $2 a day. SCAs mobilize a community’s savings and helps start microenterprises, even in rural areas unreached by typical economic development. SCAs require no outside donors as SCAs are governed by local members who each bring an agreed amount weekly. From the joint fund, the members offer each other loans; thus the process is led by savings and the loans follow. When the loans are paid back with interest, the money is given to the other members. HOPE International’s work with the Anglican Church in Rwanda has seen incredible success mobilizing even rural communities to save and invest.
Microfinance Institutions (MFIs)—Because commercial banking is limited in Rwanda, MFIs—or institutions providing small business loans starting at $50—are a practical approach for people wanting to expand their businesses. By 2006, over 93% of the credit unions in Rwanda offered microfinance, signaling the incredible opportunity that exists to offer financial services to people previously thought “un-bankable.” Although MFIs do not typically reach the poorest people, they can help build the emerging middle class and help stabilize an economy. Urwego Opportunity Bank is showing that a profitable bank can meet the financial needs of the poor while keeping a focus on their Christian identity.
Small and Medium Enterprises (SMEs)—SMEs are small- to medium-sized businesses that have already become established. At this economic level, entrepreneurs have amassed the savings to provide a safety net for themselves, but commercial banks are not yet willing to offer loans to them. Therefore, there is a great need for SMEs in Rwanda. SME development is essential for a healthy middle class in developing countries. This is an area with huge potential in Rwanda and Karisimbi Partners is coming at an ideal time in Rwanda’s development to significantly expand management capacity and job opportunities available through SMEs.
Karisimbi Partners, particularly when creatively linked with like-minded MFIs and SCAs, has the potential to help transform a country. I, and many others, are waiting on the edge of my seat as this experiment unfolds.
President, HOPE International (and former managing director of Urwego Bank in Rwanda)