Regional Workshop on Microfinance and Poverty Eradication in Southern Africa

Keynote Address by Macleod Nyirongo UN Resident Coordinator

Protea Hotel, Lusaka, Zambia
13^th May 2009

• Mr Chairman
• Representatives of the Southern Africa Trust
• Distinguished Guests
• Ladies and Gentlemen

It is an honour for me to represent the United Nations in Zambia in the opening of this important workshop.

Ladies and Gentlemen, the United Nations shares the vision of the Southern Africa Trust, which is to see a southern Africa region without poverty, hunger and deprivation. We are also committed to the development of the microfinance sector as part of a broader, multi-dimensional and long term strategic framework to eradicate poverty in the region. Whilst we recognize that microfinance is not necessarily a panacea to poverty eradication, our experience in supporting the sector over the years, has convinced us that, within the context of an appropriate institutional, policy and strategic framework, microfinance indeed has a potential to make a positive and significant impact on poverty eradication.

"Microfinance and Poverty Eradication in Southern Africa", is a timely theme for this workshop for two reasons. Firstly, Southern Africa continues to suffer from poverty for millions of its inhabitants. According to estimates by the United Nations Development Programme Human Development Index (2007/2008), a majority of countries in the region fall under the Low Human Development (LHD) group of countries. These countries also have relatively higher levels of human poverty as measured by the Human Poverty Index (HPI). Even those that are in the Medium Human Development (MHD) category, like Botswana, Namibia and South Africa, poverty and unemployment afflict the majority of their population.

Secondly, poverty in the region is very likely to be exacerbated by the current global economic and financial crisis which is already having a negative impact not only in developed nations, but also across the African continent. In Southern Africa, key industries such as mining, manufacturing and tourism, are already affected, with thousands of people losing their jobs and incomes. Government revenues, export earnings and financial inflows, are all predicted to decline. All these developments are likely to worsen poverty levels in the region unless drastic and effective measures are taken. Southern Africa is a very rich region in terms of natural resources, especially minerals. It also has large tracts of arable land. With such a rich resource base, no person in the region should be living in poverty. This challenge faces all sectors of society, also microfinancing. How to tap on the rich resource base in the region and use it to eradicate poverty?

United Nations believes that microfinance has the potential to fight poverty. To a large extent, institutions that provide microfinance services can play an effective role in addressing material poverty, the physical deprivation of goods, services, and the income to attain them. Microfinance institutions can help people become more economically secure. This, in turn, has a multiplier effect on people's standard of living, enhancing basic household welfare, such as food security, nutrition, shelter, sanitation, health and education services.

In Zambia, UN system through United Nations Development Programme, has supported a very successful microfinance pilot project to introduce the Grameen Bank methodology in Zambia. Since the project started in 2004, it has been able to adapt the Grameen Bank approach to the Zambian urban and rural context with tremendous success and the positive change in the lives of the beneficiaries is very apparent. This project has demonstrated that indeed, microfinance is an effective mechanism to eradicate poverty and Grameen Bank methodology, originally developed in Bangladesh, can also be adjusted to work in a Zambian context.

We have realized that although the banking and financial systems and capital markets in Southern Africa are relatively developed compared to other parts of Africa, regrettably, they tend to exclude and marginalize the millions of people who are living in poverty.

Mr Chairman, although we believe in the potential of this sector in poverty eradication, we are very much concerned that, with the exception of a few microfinance institutions, the impact of the sector remains limited. Most of the institutions face serious constraints in terms of access to capital which could enable them to expand outreach. They are largely dependent on external donor finance which tends to be volatile, much more so in times of crises such as we face under the current global economic crisis. The product range of most microfinance institutions is limited and this means that they cannot offer a diversified range of products in order to meet the needs of people living in poverty. A major hurdle relates to the absence of a harmonized policy and regulatory framework which should act as a guide to governments, central banks, social and other funding partners, on how to provide assistance to the sector. Consequently, the sector is marked by often contradictory approaches, such as state subsidization of credit, with resulting distortions which undermine the development of a vibrant, competitive and sustainable microfinance industry. Regulatory frameworks have also tended to exclude the microfinance sector from the formal or mainstream financial system, thus limiting access to public deposits by the sector and this could reduce the dependency of the sector on external and often volatile sources of capitalization. In some of the countries, microfinance growth has been retarded by a highly unstable macroeconomic and political environment.

Mr Chairman, you have two long and fruitful days ahead of you. Allow me to highlight some of the issues that you have planned to discuss.

1. Primary focus of microfinance is on people living in poverty. The mandate of microfinance sector is to serve those who are excluded and marginalized from formal financial systems in a sustainable way.
2. Regional context: What is the role of SADC Protocol on Finance and Investment? What are the best practises in southern Africa and how to share them? Further, how will governments, donors, private sector and other social investors benefit from harmonized policies to assist them in adopting common approaches to interest rate policies and funding?
3. What is the role of stable macroeconomic environment for the microfinance sector?
4. Identifying critical actors in this sector and bring them together to foster dialogue and promote consultation on how to achieve the goal of eradicating poverty through microfinance.

SADC already has a Draft Protocol on Finance and Investment. It is also very encouraging to note that at the SADC Conference on Poverty and Development which was held in Mauritius in 2007, the Heads of State adopted microfinance in their final declaration. This offers an opportunity for civil society, microfinance industry and related role players, policy makers and others, to engage the SADC further in terms of providing more comprehensive policy and strategic proposals which can ensure that microfinance issues are integrated into the SADC Finance and Investment Protocol.

Ladies and Gentlemen, I hope that this workshop lays a firm foundation for a microfinance sector that will contribute to the overall goal of poverty eradication in southern Africa region.

Thank you.