Something decidedly new is on the horizon in Africa since the mid-1990s. Many African economies appear to have turned the corner and have moved towards a path of faster and steadier economic growth. Their performance between 1995 and 2005 has reversed the economic collapses that marked the period from 1975 to 1985, and the stagnation that was rife between 1985 and 1995. Moreover, per capita income is now also increasing in tandem with other developing countries. The ability to boldly improve governance and to support, sustain and diversify the sources of these growth indicators will be critical to the elevation of countries to middle and high income countries and to meeting the Millennium Development Goals (MDGs).

Countries such as Ghana and Uganda appear on course to meet these goals, and others including Ethiopia, The Gambia, Ghana, Mauritius, Mozambique and Rwanda have undergone important positive developments. The challenge is to facilitate such achievements in a sufficient number of African countries to decrease the number of poor on the continent; of the 937 million people living in Africa, the number of people living below their national poverty line is a staggering 411 million. Poverty remains a critical challenge for the region.

Financial services to low-income households, by increasing employment, income, consumption and the empowerment of disadvantaged groups, have proven to be vital to breaking the vicious cycle of poverty. Financial services create tools that enable low-income households to improve their living conditions if some of the multiple other challenges they are facing are also addressed through parallel initiatives in the areas of water, health and sanitation, education, market access and governance.

The objective of this diagnostic of microfinance in Africa is to develop an understanding of the major achievements, challenges and growth trends in the microfinance sector in Africa, so as to inform strategic decisions to realize the scaling up of microfinance on the continent. Microfinance holds the promise to contribute to broader fi nancial sector development as well as to more systematically contribute to acute poverty-alleviation needs, making it an especially well-timed initiative.

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