Abstract
M.Comm.
Microfinance refers to the provision of financial services, in particular small loans
in the context of South Africa, to poor people with very small businesses.
Commercial banks have largely considered poor people in remote areas unbankable,
because they lack collateral and have no credit histories. Microfinance
institutions emerged as unconventional institutions with innovative techniques,
mechanisms and instruments to advance financial services to this segmented
part of the population. This has, however, not been without challenges.
Microfinance institutions face a number of challenges such as lack of competent
human capital, unfavourable regulatory environment, and insufficient financing.
The study examines if these challenges are applicable in the South African
context and whether financial and operational inefficiency has hindered
microfinance institutions in South Africa from sustainably increasing their
outreach through the provision of microcredit. It surveys two microfinance
institutions, characterised as non-governmental organisations using the group
lending methodology to offer microloans to the very poor.
The results indicate that microfinance institutions are not on a sound fiscal
footing, and large operating expenses have resulted in some form of inefficiency.
This has, however, not hindered the microfinance institutions from reaching a
greater number of borrowers. The witnessed increased outreach in number of
clients reached is considered unsustainable given the existence of inefficiency
and financial weakness.
The results suggest a number of policy options on the side of government and
the institutions concerned. Increasing the funding sources available to
microfinance institutions should be considered by both government and private
institutions. This policy would succeed if microfinance institutions work at reducing their operational costs and become both efficient and sustainable so as
to be seen as viable investment options.