Microfinance, as a system of delivering financial services to the poorest families, can be a game changer. However, to be truly effective, it must be cheap, sustainable and sufficiently large-scale, with continuous improvements in service quality. This paper evaluates microfinance efforts in Senegal and The Gambia, and points to policy measures that can enhance poverty reduction through microfinance.
In the absence of relevant time series data for an econometric analysis, the study uses descriptive statistics to highlight the main aspects and components of microfinance and its effect on poverty in both countries.
The findings show that in both Senegal and The Gambia, microcredit does not reduce poverty. In fact, in The Gambia, increasing microcredit to the poor seems to worsen poverty. The study recommends that the two countries should (i) improve growth-led policy environment, (ii) design and implement specific policies to reduce income distribution, and (iii) enhance the microfinance regulation and policy framework to provide sound financial services to the poor. There is also a need for capacity building in MFIs, and general development of the sector, to make microfinance an effective tool for poverty reduction.
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