Microfinance: An Analysis of Success and Challenges in West Africa

Abstract

In the past three decades microfinance has gained publicity for being an effective tool for poverty alleviation. However, despite its success in some regions, microfinance has struggled in many poverty stricken countries. This paper examines the puzzle of differential success and the factors that contribute to and diminish microfinance success. In order to examine this question, a case study analysis of four MFIs in West Africa was conducted. Success is defined through an operational model, designed to examine three primary categories: financial stability, institutional viability, and outreach. Two alternative hypotheses were investigated: the role of program design and the impact of country conditions on MFI success. Analysis of a wide range of empirical data including the type of MFI, repayment rates, percentage of female clients, and the education and training services provided were used to evaluate program design. Data including internal infrastructure, literacy rate, and population density were analyzed to assess country conditions. Additionally, the role of colonial heritage was investigated, specifically the role of British colonialism and French colonialism. The findings from this research seek to provide the international development field with the information necessary to develop more effective poverty alleviation projects.