Financial development has gained prominence in Africa. Only with slight reservation around the regulatory environment, most country and regional studies of financial development paint a strikingly positive picture of its impact on growth, poverty and inequality. [i] This optimism with finance in Africa is corroborated with increase in financial flows, expansion of commercial bank branches, growth of regional banks, rise in microcredit institutions and success of mobile payment systems. [ii] However, poverty and inequality remain persistently high. There are more poor people in Africa today than in 1990, and 7 of the 10 most unequal countries in the world are in Africa. [iii] Hardly has any progress been made in addressing a most obstinate infrastructure gap unsettling the continent. In addition, Africa’s most recent average growth of 1.5 per cent is at its lowest in two decades. As such, the underscored belief in financial development as a driver of progress is exaggerated, since it seems to disregard the immediate needs of the people on the continent.
For these reasons, a growing body of literature now demonstrates wariness with the financial development narrative. An aspect of this literature reveals that the success story of microfinance in Africa is not quite what the proponents claim it to be. There is evidence of how the poor were plunged into a crisis of over-indebtedness in South Africa, through microfinance lending. By 2012, the country’s debt amounted to a staggering 75 per cent of disposable income. [iv] This experience contradicts the proposed poverty alleviating effects of microfinance. Like other forms of finance, its dominant motivation has been found to be profit seeking rather than poverty alleviation. Similar caution has been expressed about the celebrated rise of electronic payment systems,[v] prominent in Kenya, Nigeria and Uganda. Yet, more than just caution is needed to ensure that the proliferation of finance does not continue to wield detrimental effects on economic development in African countries.Read More »