Bringing Prosperity to the Poor: A Systematic Review of Microfinance and Agricultural Livelihoods in Sub-Saharan Africa

Abstract

Microfinance is popularly described as small scale financial services to lower-income groups which may take the form of not only micro-savings and micro-loans but also, insurance, fund transfers and assets leasing packages. The assumption is that, access to these financial services enables poorer households to secure capital for poverty reduction. In spite of its prominence, the ability of microfinance services to contribute to these promising outcomes remains inconclusive. It is somewhat debatable that poorer farmers in Sub-Saharan Africa may commit themselves to savings or credit or insurance packages to support their livelihoods. Particularly, they earn marginal income from their farming activities and have little in reserve for immediate expenses. An equally important aspect of the contention is that most of them lack the financial knowledge to utilize microfinance services. The debate regarding the effectiveness of microfinance and its academic and policy dimensions informed this research to explore the range of microfinance services available to poor farming households in Sub-Saharan Africa and to analyze their outcomes on livelihood sustainability and poverty reduction. At present, numerous empirical methodologies have been used to assess and document the impacts of microfinance on diverse aspects of poor people’s lives. This research adopted a systematic review approach where findings from eighteen identified studies were synthesized to produce evidences for research, policy and practice. Findings from the review suggest that various forms of microfinance services are available for the poorer farmers except micro-leasing. The evidences confirm a positive effect of microfinance services on farm productivity, but mixed impact on livelihood sustainability and poverty reduction. In the end, the review presents a useful framework and provides suggestions for practitioners and policy makers to critically assess the ease of access, feasibility of use and the institutional environment of poor households when designing microfinance interventions and policies. It also calls on researchers to re-evaluate the feasibility of under-used micro-leasing services which have greater potential for the poor to accumulate assets, build security and reduce poverty.