As microfinancing is generally provided for low-to-no income clients, Africa would appear to be a prime target for such loans to help small businesses in their start-up ventures. A prime example can be seen in start-up renewable energy companies trying to promote sustainability to developing countries.
One India-based bank, Self-Employed Women’s Association (SEWA) Bank, has seen an increase in microloans for such things as solar lamps. In India, solar power projects, often funded by microcredit institutions, are helping the country reduce carbon emissions and achieve its goal to double the contribution of renewable energy to 6%, or 25,000 MW, within the next four years. SEWA is a leader in the microfinance sector, providing loans to supply affordable renewable energy sources to poor people.
This banking segment is increasing as the need for microloans also grows. India’s largest microfinance institution, SKS Microfinance, helps fund solar lamps to its five million customers while Grameen Surya Bijlee (Rural Solar Electricity) Foundation helps fund lamps, home, and street lighting systems for villagers in India, Nepal, and Bangladesh.
Coordinator of the Renewable Energy and Energy Efficiency Partnership (REEEP) in South Asia Shirish Garud said, "In many cases, the end-user has no access to conventional banking and financial services, which is why we need MFIs."
Yet can the models that appear to bring success to RE in South Asia be applicable to Africa? New York Times blogger Nicholas Kristof posed the question: “Why hasn’t it been as successful in Africa as in Asia?” He went on to speculate that the lower population density means higher operating costs and lower economic growth rates, translating into fewer opportunities to invest successfully.
Microloans are becoming a trend in Africa; but is it successful? It has been met with mixed results, unlike that of India. One user comment from Kristof’s blog suggested that it was due to political and other systemic risks, but “microfinance model(s) and the quality of microfinance institutions (MFIs) in Africa are not inherently inhibited just because they are African.” The user went on to say that, “Part of the problem is that everyone tries to measure microfinance with a macroeconomic stick. Microfinance has a microeconomic impact on the people who receive the services. To base success of microfinance on the macroeconomic health of a country or a continent is like trying to value Google stock using US gross domestic product.”
However, there is a positive amid the obstacles: African microfinance gives more opportunities to the retail industry with institutional investors of the past taking a more cautious approach and investing capital in more established microfinance regions. The user also said, “When retail microfinance investment comes of age, microfinance in Africa will begin to mature as well.”