One area of growth that we are seeing right now in developing nations, is in microfinance! Poorer areas have trouble kickstarting growth because they lack the capital to finance their growth. With institutions willing to loan to lower income households, these people can afford to actually take a step and move beyond subsistence. Microcredit creates opportunities for small businesses to emerge, and thrive, in their own communities. In “Social Transformation – Role of Microfinance” by Kavita Kulkarni, Kavita goes through the basics of microcredit and how it can be utilized, but also the shortcomings. Microfinance does provide access to finance to portion of the population that previously wouldn’t have had it, but these households are not traditional clients and lack stable cash flows. These loans are best utilized when the recipients have a project ready to go, so there is no time for the money to be lost. The importance of starting these businesses is that they need to be sustainable and scalable, to create manageable growth. Banerjee and Duflo have to say, “Microcredit and other ways to help tiny businesses still have an important role to play in the lives of the poor, because these tiny businesses will remain, perhaps for the foreseeable future, the only way many of the poor can manage to survive. But we are kidding ourselves if we think that they can pave the way for a mass exit from poverty.”
In Swaziland, the banking system is under very strict control of the government. The CGAP Microfinance Gateway profile on Swaziland does mention non-bank financial services. “Microlenders” Unregulated industry with little avaiolable information on the size and nature of operations.” Other organizations such as Imbita and Lulote work to provide financing and educate the people about their loans. It also goes on to give several reasons for stagnant financing, attributing problems to three causes. “Low economic growth is hampering the development of formal financial sector; Large rural population is involved in subsistence farming which restricts the development of farming operations; Banks are unwilling to serve the lower income market.” I do agree that microfinancing has its limits, but it is a good tool in developing countries that can at least assist the people without giving too much pure aid. In Swaziland, the Swaziland Stock Exhange is “still struggling to build up sufficient market capitalization, and is highly illiquid.” So as far as alternative banking solutions, alternative solutions are not very widespread. Banerjee and Duflo talked about the use of ROSCAs, rotating savings clubs, and I would like to see if such methods could be successful in Swaziland as well.
As far as digital technology, it is definitely making a difference. Cell phones and mobile technology are allowing people to forward funds to each other and make their money more liquid. Technology also has a greater effect economically when the people can afford to implement it, so I would argue that after procuring some funds these tech advances would serve the people’s interests more efficiently. But to be sure, services like Kickstarter and GoFundMe here in the states have had success, would they be viable oversees? I think these are important questions, can crowdsourcing work in lower income, developing countries? It may take longer with smaller donations, but I think there could still be success there, as long as people have internet access.
Every plan and method has pros and cons, but with where some of these nations are, any opportunity for growth can’t be passed up. I think that alternative saving plans and ways to conglomerate are going to help these people succeed, and break that poverty trap. It’s just a matter of implementing resources efficiently, and encouraging some discipline and responsibility towards borrowed money. This is definitely one way that sustainable growth can be created!