The following is a guest post by Samantha Rayner, Executive Director of Lumana Credit
In a rush of excitement, a friend approached me the other day stating that the IMF had announced that they would provide a loan in the amount of US$600 million to the Ghanaian government in an effort "to reduce its budget deficit and support its currency" (http://news.bbc.co.uk/2/hi/business/8155374.stm). While I could see the need for funding, I didn't jump to share my friend's optimism. Whenever the IMF announces the provision of more aid to Africa, I have to ask, how is it going to help and what accountability system is in place to ensure results?
True, Ghana is experiencing a serious budget deficit mostly due to a decrease in rainfall over the past few years which caused an increase in food prices. There is clearly a need for aid but how are these funds going to get to the rural farmers who need the monetary assistance most? Driving through the neighborhoods of Accra, Ghana's capital, in August of 2008, I was amazed to see immaculate government mansions only minutes away from poor slum dwellers and beggars. It instantly became clear that funds such as those from the IMF were not going to the poorest of the poor.
Seeing the income disparity first hand and wondering where all the aid money was really going, I took action upon my return to the US and started my own organization, Lumana Credit. We are a microfinance operation that provides small loans, entrepreneurship training, and simple technology solutions to small businesses in rural Ghana. Lumana focuses on serving clients in rural areas of Africa as opposed to urban settings where the majority of microfinance institutions (MFIs) are located.
While much attention has been given to microfinance in Africa in recent years, surprisingly less that 10% of the industry financing is actually going there.India, for example, recieves around half of the capital, primarily due to the high density of clients which causes operational costs to be lower. In Africa, over 75% of those living below the poverty line are located in rural areas, a potential reason for the lack of microfinance funds going to the continent.
Referring back to the $600 million loan to Ghana this year, imagine if those funds were going into microfinance institutes? Poor people with access to savings, credit, insurance, and other financial services, are more resilient and better able to cope with the everyday crises they face. Even the most rigorous studies have proven that microfinance can smooth consumption levels and significantly reduce the need to sell assets to meet basic needs. With loans as little as $50 in some cases, people like Comfort, a Lumana client, would able to purchase clean water for the first time and improve the profits of her porridge selling business. Unfortunately, I have a hard time seeing the IMF funds going to people like Comfort.
Samantha Rayner is the Executive Director of Lumana Credit, a Seattle, Washington-based nonprofit micro-credit organization that focuses on serving rural and underserved populations in Ghana. To learn more about Lumana Credit, please visit http://www.lumana.org/.