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Micro-finance in rural communities in Southern Africa

Country and pilot site case studies, policy issues and recommendations
[table of contents]



The Integrated Rural Development Programme (IRDP) is a core initiative in the W.K. Kellogg Foundation Africa (WKKF Africa) portfolio of programmes, which aims to reduce poverty and improve the quality of life of rural communities. The patterns of poverty in rural areas in Southern Africa can only be broken if communities create among themselves a new vision for the future and work together towards achieving that future. The IRDP therefore aims to build the capacities of rural communities to drive their own development in an integrated and sustained manner.

In April 2001, the IRDP was launched in nine sites in six Southern African countries. The programme strives to:

  • mobilize rural communities to work together, maximizing their institutional capacities to support sustainable development;
  • increase community capacity towards sustainable economic development, especially among economically marginalized groups;
  • increase the capacities of individuals, families and communities to follow healthy and defensive lifestyles; and
  • develop community capacity, especially among women and the youth, in life skills, family and community values, and sensitive and responsible leadership.
A pilot phase of the IRDP, called the IDDP (Initiative for Integrated District Development Programme), has been ongoing since 1998 at three selected sites: the Chimanimani district in Manicaland, Zimbabwe; the Nyandeni district in Western Pondoland in the Eastern Cape; and the Masalale area (programme named Mohlanatsi) in the Northern Province, South Africa. More recently, an additional site at Chimoio in Manica province, Mozambique, was selected as part of the ongoing IRDP second phase.

Programme processes at each site were facilitated by an intermediary contracted as a “District Facilitating Agency” (DFA), working in conjunction with the WKKF Africa programme director(s) responsible for the IDDP and other project grants at a particular site.


The W.K. Kellogg Foundation’s IRDP is committed to assisting economic and social development in Southern Africa. One component of its programme is to contain the spread and ameliorate the impact of HIV/AIDS in rural communities.

A further component is to help capitalize locally based enterprise development initiatives by stimulating the provision of – and access to – micro-finance in rural areas. Three sites have been selected to pilot the introduction of this and other IRDP activities. These are: Chimanimani (Zimbabwe), Chimoio (Mozambique) and Nyandeni (South Africa).

In addition, the Foundation plans shortly to launch a Public Policy Promotion Programme (PPPP) as part of the IRDP. The essential objectives of the PPPP will be:

  • to capture the lessons from on-the-ground experience with the IRDP’s projects and translate them into concrete recommendations that will improve rural development policy and practice in the region;
  • to achieve the effective inclusion of rural communities in the formulation and implementation of policy by ensuring that policy makers are informed of and responsive to communities’ needs and day-to-day experience of policy implementation;
  • to build the capacity of communities, research institutions and delivery agencies to contribute to rural development;
  • to produce and convey findings to related initiatives that assist the creation and sustainability of rural livelihoods, such as early childhood, health and local government programmes and partnerships.
The initial focus of the PPPP is on containing the spread of HIV/AIDS in rural communities, and ameliorating its impact, as well as the promotion of micro-finance.

1.1.1 Objectives

While micro-finance in its various forms has helped to make loan capital more accessible to low-income rural communities, much remains to be done to increase its outreach, impact and sustainability. The essential objective of this study is to make wellresearched recommendations for IRDP policy and strategy to enable the micro-finance agents that it will shortly be appointing to maximize improvements in these key indicators in the three pilot sites.

In keeping with the overall goals of the IRDP and in order to co-ordinate most effectively with other existing or planned initiatives of the programme, the study should place special emphasis on:

  • micro-lending to fulfil the respective communities’ capital needs as opposed to their consumption needs;
  • micro-finance rather than on alternative sources of capital, such as venture capital or conventional commercial bank loans;
  • non-agricultural income earning activities;
  • women and youth and, to the extent that data makes it possible, HIV/AIDS-affected households.
Specific objectives for each of the three sites are:

  • to identify and profile the main drivers of economic activity, actual and potential facilitators and current constraints on these drivers;
  • to assess the impact these drivers and current constraints have on key development indicators, such as income and employment, and the impact that improved access to micro-finance could be expected to have (a) on its own and (b) in conjunction with the reduction of other important constraints;
  • to profile the current state of micro-finance and the context within which it operates in the respective countries and sites, noting especially factors facilitating or constraining the expansion of micro-finance services in rural areas;
  • to assess the degree to which the need for access to adequate and appropriate financial services – in particular micro-lending – is being met in the three sites;
  • to review international experience in respect of rural micro-credit, highlighting key policy and strategy issues and performance indicators, extracting the most important lessons for Southern Africa and drawing attention to models that appear to hold greatest promise for the region and the three sites; and
  • to deduce the policy and strategy implications for maximizing the outreach, impact and sustainability of the micro-finance programmes to be mounted by the IRDP’s agents and to make recommendations accordingly.

The time frame for compiling this report was short – about 14 weeks at initial conception in early July 2001. Discussion about the terms of reference continued for some weeks after this, and final agreement about the terms of reference was reached only on the conclusion of the IRDP micro-finance workshop held in Pretoria on 11–12 September, at which point the contract for the research was also signed. Although secondary research had commenced in July and a key sub-contract had been set up – though not activated – this left only about six weeks for completion of the project.

Initially, a limited programme of field research, involving interviews of households, micro-entrepreneurs, social groups and key figures in the three pilot sites had been planned. After discussion with the IRDP programme manager, it was decided that this would be premature, given the overall stage of implementation of the programme and the comparative “newness” of the district facilitators in the pilot sites. Consequently, only the most cursory field investigations, in no case lasting more than a few days, were undertaken by locally based agents – who responded positively and generally competently at very short notice – to try to fill the most important secondary information gaps.

While this in no way invalidates the findings and recommendations that follow, they can clearly be regarded only as preliminary. Regardless of whether the key decision about micro-finance delivery strategy – i.e. whether to go to the “external downscaling” route (see chapter 5) – is made primarily on the basis of predetermined policy or not, it will be essential for thorough field research to be undertaken in the respective pilot sites to maximize the likelihood of success. This is akin to the thorough market research that one would expect a competent commercial enterprise to conduct before deciding whether and how to enter any particular market.

A great deal was nevertheless learned about the three pilot sites from the preliminary and secondary research that it was possible to conduct. This was certainly sufficient to provide a good initial “feel” and consequently a reasonably well-founded set of preliminary conclusions and recommendations. The following two chapters document what was learned, in the first instance, about the demand – existing and expected – for micro-finance and, in the second, about the current nature and level of access to financial services – in particular micro-finance – in each of the sites.

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