The stock market meltdown that began in the United States, and then spread to Europe and other wealthy countries, is teaching us a lot about financial disaster. It proved that extreme economic troubles call for swift and strong responses. As banks and other investment firms failed, both governments and the private sector swooped in with massive recovery programs. The crisis was taken seriously because so many people in so many countries faced personal financial catastrophe.
If this financial crisis merits a powerful response, even more, Africa deserves strong medicine for its economic ills. This is reinforced by new data from the World Bank released shortly before the stock market crash. The researchers called their new statistics a, “major overhaul to the World Bank’s past estimates of global poverty, incorporating new and better data.” The numbers reveal economic disaster that, like sub-prime lending in the West, will result in great peril for millions of people if ignored. One particularly important finding shows how much worse poverty is in Africa compared with the rest of the world. The revised data (available at http://www.bicusa.org/en/Article.3887.aspx) shows progress in all regions of the world, except Africa. In Asia, the percentage of people living on $1.25 (USD) per day or less dropped significantly during the period. Africa was the only area, worldwide, where the percentage of poor people did not decline. For 25 years that percentage has been stuck with 50 percent of the continent’s population trapped in severe poverty. Not only did the percentage for Africa fail to improve, even worse, the number of people unable to achieve a decent standard of living soared.
The total of Africans locked in poverty nearly doubled – from 200 million to 380 million – between 1981 and 2005, the cutoff date of the revised information. Further, the depth of that poverty was worse than previously realized. The average person in this group struggled to survive on just 70 cents per day. This prompted the new Chief Economist for the World Bank, Justin Lin, to conclude, “…we must redouble our efforts, especially in sub-Saharan Africa.” For those of us who care about Africans and believe in their innate resourcefulness, this situation is unacceptable.
There is a solution, perhaps not for the total economic development of all 48 sub-Saharan nations, but it is a remedy that will drastically reduce the number of Africans mired in deep poverty. The cure is microfinance. Though the cure is proven, it is woefully underutilized. Financial services, whether micro or otherwise, remain unavailable for most Africans. New programs must be launched, existing ones expanded, and regulations favorable to microfinance adopted.
The lack of even rudimentary financial services is a big factor that keeps so many Africans impoverished. Most rely on self-employment, be it farming, vending, or some other small-business activity. They have no place to turn when they need even a small amount of working capital, as little as $100, to grow their tiny enterprises and increase their incomes. In their entire lifetimes, most have never interacted with a financial institution. About five years ago, I helped establish the first legally registered microcredit NGO in the Democratic Republic of Congo [HOPE International]. At that time, only one in one thousand DRC citizens had a bank account. While Congo has faced a dreadful array of difficulties including conflict, AIDS, and natural disaster, the near total lack of financial services kept people from progressing even when they could. In the United States, if only one in one thousand people had access to banking services, half of the U.S. population would be desperately poor, too! Whether in the most developed or least developed countries, people must have reliable ways to borrow, save, and invest money. Unfortunately, those services are often missing in Africa. One study found that 65 percent of Africans had no financial services available. An upsurge in microfinance is urgently needed so Africans can work their way out of relentless poverty.
The whole world is struggling with economic troubles but, arguably, Africa is in the worst predicament. What this immense continent needs, directly parallels the emergency financial measures recently adopted for the world’s largest economies. Africa needs reliable financial services, widely available for the common people. Unless that occurs, Africa will continue being the sole region of the world where poverty keeps getting worse when the World Bank updates its statistics the next time.
Guest Post by Eric Thurman, former CEO
HOPE’s first CEO and the author of A Billion Bootstraps, Eric Thurman, has written a piece highlighting the African economic crisis and the difference that access to microfinance could make for the 380 million Africans mired in poverty. Originally published in Microfinance Insights, Nov/Dec 2008. www.microfinanceinsights.com