The Impact of Microfinance on Poverty Alleviation: A Case Study of FINCA Zambia and Unity Finance

Odensa Chitambala

Bachelor's thesis

Abstract:

With over half of the population living in extreme poverty, there has been a sense of urgency from policymakers to eradicate the epidemic to improve the country’s economy through the creation of a productive workforce. The last two decades have seen an influx of microfinance institutions into the country’s market, assuring poverty alleviation. The aim of this case study was to examine the effectiveness of microfinance in poverty alleviation. A sample of 52 microfinance clients was asked to fill out a questionnaire. Most of the beneficiaries were informal traders, as such, interviewer assistance was employed. The findings revealed that the main purpose for acquiring loans was business expansion. This was further examined, and the findings were compared to the reported rate of expansion by FINCA. The outcome indicated that there is a difference between the reported proportion of expansion and the actual. Further, it was found that FINCA was more profit-oriented than client-oriented. The study also revealed that the poorest of the poor were not reached as over half of the clients were not among the extremely poor. Concerning women empowerment, it was discovered that the majority of FINCA clients were women, however, it was difficult to ascertain whether a large proportion proportionately entailed women empowerment. Most developing countries around the world are languishing in poverty. Poverty is a human condition wherein people live in a situation of hunger, without proper shelter, with poor or no education, poor health, and poor living standards. Poverty is mainly of two types. Namely, monetary and non-monetary poverty. Monetary poverty is the shortage of income from the poverty line as determined by the World Bank. It entails low incomes which are inadequate for acquiring basic goods and services necessary for survival with dignity. Non-monetary or multi-dimensional poverty, on the other hand, is where the poor may face several other issues along with a shortage of income, such as poor health, lack of or low levels of education or skilled training, and poor access to clean water and sanitation. Poverty also encompasses inadequate physical security, lack of voice, and insufficient capacity and opportunity to better one’s life. Due to high levels of poverty as well as the financial exclusion of the poor by banks, microfinance has been viewed as the most effective tool in the fight against poverty. This has led to the mushrooming of Microfinance Institutions (MFIs) in most developing countries, Zambia is no exception. Aims of the study: • Ascertain whether increasing income levels by microfinance institutions has an impact on poverty alleviation. • Assess whether there are any mediating factors between microfinance and poverty. • Assess the practices of microfinance in Zambia, especially in Lusaka. • Assess whether the destitute (the poorest of the poor) are reached. • Assess the impact of microfinance on women empowerment. Vital to the development of any project is impact assessment. Impact assessment helps in considering the implications of any subject of interest. Thus, can be used for improvements and advancements. The recipients of MFIs’ services were the main focus of this study, making it the most effective assessment in measuring the success or failure of microfinance projects with regard to poverty alleviation. The findings of this study will act as a basis for policymakers in the fight against poverty by drawing their focus to the real problems surrounding the phenomenon of poverty in Zambia. Further, it will help MFIs to direct much of their focus on effective methods of poverty alleviation. Microfinance has the potential to serve as a tool for poverty alleviation. However, due to the current practices of MFIs that focus only on one aspect of their services, its efforts are being rendered futile. MFIs are diverting from the sole purpose of their existence, poverty alleviation. The client

Abstract:

is no longer the point of interest. Clients are not empowered with non-financial resources and skills that would equip them to be self-sustainable. Without self-sustainability, poverty alleviation will remain but a dream.

Keywords

Zambia, Microfinance, Poverty Alleviation, Economic Development

Language used: English

Date on which the thesis was submitted / produced: 19. 3. 2023

Thesis defence

• Date of defence: 22. 5. 2023
• Supervisor: Ing. Frédéric Adossou, Ph.D.
• Reader: Vladimír Krepl, CSc.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Bachelor programme:
Economics and Management