Microfinance Institutions in South Africa

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Table of Contents

Abstract
Significance
Methodology
Literature Review
Data Collection and Analysis
References

Abstract

The current research project focuses on the consumer perception of microfinance institutions in South African rural areas. The study investigates whether rural and poor South African people know about microfinance and if they use it successfully. The study’s objective is to discuss behavioral characteristics associated with using microfinance, such as human awareness of microfinance and their willingness to use this instrument. The research question and literature framework appeal to the notions of financial sustainability, leverage, inclusion, and economic growth. The qualitative data is obtained from the survey in the rural areas, including Northern Cape and Kwazulu Natal provinces. The study’s questionnaire aims to assess people’s awareness of the discussed financial instrument, knowledge, and willingness to use microfinance loans. The survey results will be analyzed and evaluated to articulate the financial initiative for improving economic sustainability. Therefore, understanding the financial decisions consumers make concerning microfinance allows economists to elaborate solutions that will include these people in the economy, leading to the ultimate growth of the economy.

Significance

The scope of the research is microfinance, which refers to the service financial institutions offer low-income individuals who do not meet the threshold for traditional banking services. It allows poor people from rural areas to access banking services customized to their needs to facilitate their self-sufficiency (Chomen, 2021). The reason for the research is the low awareness level of microfinance services among the rural population in South Africa, which prevents this population from taking loans for individual needs or small businesses at the affordable interest rate (Abrar, 2019; Al-Azzam & Parmeter, 2021; Sangwan et al., 2022). The research question reflects the basic principles of financial theory, including financial leverage and the economic sustainability of low-income households. Financial leverage is an aspect that requires institutions to remain vigilant to avoid loss of investment (Cathcart et al., 2020). On the other hand, the idea’s financial sustainability offers many upsides and makes it an attractive venture in developing nations (Adetiloye, 2020; Hussain et al., 2020; Memon et al., 2021). Despite having the necessary support through government policy and favorable business environments, the benefits of MFI are controversial.

The rationale for the study is connected with the importance of MFI in poor and rural areas in developing countries. When people with low income get affordable loans from these institutions, their potential consumer increases, which is positive for the country’s economy, and their financial stability gives them more autonomy, which is the improvement of their quality of life (Zeb et al., 2021; Fadikpe et al., 2022). People living in poverty consider bank loans dangerous and prefer borrowing from friends. Changing this view requires improving public financial awareness, which justifies the need for in-depth research about the perception of MFI in rural and poor areas (Uddin & Sohrab Uddin, 2021). The research objective is to gather information concerning behavioral finance in rural areas and poor households in South Africa, using the qualitative data survey about people’s awareness and willingness to take microfinance. It is possible to state that the research objective aligns with the study’s aim, which makes the discussion rational and justified from a practical point of view.

Methodology

The current quantitative research relies on data from a cross-sectional survey to yield primary data using face-to-face interviews from a set of survey questions. The data collection will be obtained from visiting the rural areas of Northern Cape and KwaZulu Natal provinces to ask the residents of these areas about their perspective on microfinance institutions in the region. The relevant questions would focus on MFIs, the services offered, the benefits, the shortcomings, and possible recommendations. The population featured would entail households in the two provinces with a sample size of between two hundred and three hundred people allowing for a margin of error. The microfinance services offered are the independent variable, while the people’s perceptions, attitudes, knowledge, and awareness are the dependent variables. The measurement instruments for analyzing the data would include statistical analysis. It is possible to justify it because statistical analysis allows a direct comparison between the two regions with clear-cut differences that may emerge. No significant ethical risks are connected with conducting the survey and further evaluation of its results.

Literature Review

The main objective of MFIs is to be an economic outreach for disadvantaged people to achieve financial emancipation. A study examining the impact of MFI financial and nonfinancial services across seventy-seven nations found that social services offered improved the depth of outreach (Lensink et al., 2017). The better the outreach depth a microfinance institution has, the better is its operational self-sufficiency and financial leveraging (Bibi et al., 2019; Kosgei, 2019; Wondirad, 2020). Existing research provides further insight into the boons already realized by developing nations that have embraced this banking aspect (Bondinuba et al., 2020; Remer & Kattilakoski, 2021; Miled et al., 2022). Studies that ventured into entrepreneurial finance found much success in microfinance promoting economic and social development (Jha, 2019; Nogueira et al., 2020). The main limitation of this research is it is not sufficient to show how the same policies fostered financial inclusion and entrepreneurship in improving the financial awareness of the population about microfinancing.

The perception of microfinance as an adequate financial instrument is a controversial question because most people in rural areas have a low level of financial awareness. An analysis of a rural setting in a developing country reveals that microfinance offers new opportunities for the poor to begin entrepreneurship ventures (Fokapu, 2017). Nevertheless, the foundation of financial sustainability remains key to elevating the masses from poverty, and the country’s context becomes essential. Focusing on determinants such as the attributes of the microfinance institution, the funding sources, and the region’s governance makes it impossible to make generalizations on the topic (Hermes & Hudon, 2018). Applying social performance measures or defining proxies, including rural measures and gender, becomes necessary. The gender aspect features in a study by Carlo Milana and Arvind Ashta, who discover that among the shortcomings of microfinance, whos that the perception of the same issue can have demographic-related differences (Carlo &Ashta, 2020). Studies highlight MFIs’ inability to integrate women in working activities socially, thus, less financial inclusion (Singh, 2018). In a contrasting paper, cross-sectional research involving a survey of female clients served by MFI revealed that they are central to women’s empowerment (Asad et al., 2020; Khursheed et al., 2021). The underrepresented disputable question is a reflection on the other proxy, rural areas, and how MFI works there.

The poverty levels on the African continent are part of multiple documentation, and mitigating the challenge continues to face a myriad of issues. Nevertheless, the change in perspective from a warring continent to land on the rise has led to the growth of opportunities such as the set-up of MFI (Chikalipah, 2017). They provide cushioning for them by boosting their income, allowing them to build viable businesses, and reducing external shocks from severely impacting them. It is evident in the results seen in the impact of financial sustainability, financial leverage, financial inclusion, and economic growth in countries like Ethiopia and Nigeria as well as advanced economies such as China (Nwude & Anyalechi, 2018; Abera & Asfaw, 2019; Zheng & Xie, 2020). With a limited number of studies focusing on South Africa, this research demands a rudimentary analysis of South Africa with two standout regions allowing a direct comparison that could yield results that showcase the impact of MFI and a foundation for future studies.

Data Collection and Analysis

The survey using the questionnaire is the principal instrument of data collection. This scenario supposes that the researcher has to connect the desired outcome with the questionnaire preparation and choosing the respondents. In this case, the questions are the following:

What is the most critical data to inform poor rural households’ perceptions of microfinance?
Which insights from the interviewees offer the best sense?
What is the best way to determine that the sample used was the best?

The relevant survey questions yield the correct data and guarantee objective results based on accurate analysis.

The Questionnaire

Questionnaire: Knowledge	Responses
Are you aware of any microfinance institutions in your neighborhood?	YES NO NOT SURE
It is impossible to open an account with an MFI to begin banking with them.	TRUE FALSE NOT SURE
There is no difference between MFI and typical banks.	TRUE FALSE NOT SURE
MFIs offer people living below the poverty line a chance at financial inclusion.	TRUE FALSE NOT SURE
Services offered by MFI help households who need credit without collateral.	TRUE FALSE NOT SURE
MFIs do not offer loans to small businesses and individuals, only wealthy people.	TRUE FALSE NOT SURE
MFIs offer favorable interest rates than established banks.	TRUE FALSE NOT SURE
Questionnaire: Awareness
MFIs are a new form of banking that cannot be trusted yet.	TRUE FALSE NOT SURE
MFI banking has worked in other countries to help low-income households gain more financial freedom.	TRUE FALSE NOT SURE
MFIs have many financial and nonfinancial services ready to offer to the public.	TRUE FALSE NOT SURE
Questionnaire: Attitude
Do you agree that MFIs are part of the solution to low-income households’ demand for financial support?	YES NO NOT SURE
Are you confident in MFI’s ability to offer services without collapsing?	YES NO NOT SURE
Are MFIs helping the economy the same way banks do?	YES NO NOT SURE
If you do not have one yet, do you see yourself opening an account with an MFI soon?	YES NO NOT SURE

With the multiple-choice questions in the closed survey, it is easy to quantify the data from the two South African provinces and make an objective comparison. The comparative data reveals that once the responses for each option are added, the preferences of the sample size are more evident, and a trend emerges in the various aspects. For this questionnaire, the revelation aligns with the majority’s knowledge, awareness, and attitude toward microfinancing institutions. With further tabulation and evaluation of what this data provides, it is possible to derive graphs and charts for a better display. Percentages could also influence the results and assessments, which helps calculate the analysis of the data’s mean and mode for each of the two regions. Any incomplete or unreliable data should not feature in the final tabulations since this may negatively impact the final findings and statistics. Accurate conclusions guarantee an objective comparison of the people’s perception of MFI in the Northern Cape and KwaZulu Natal provinces in South Africa.

References

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Abrar, A. (2019). The impact of financial and social performance of microfinance institutions on lending interest rate: A cross-country evidence. Cogent Business & Management, 6(1). Web.

Adetiloye, K. A. (2020). Sustainable financial access for female entrepreneurs in the micro, small and medium enterprises sector in Nigeria. Cogent Social Sciences 6(1), 1-13. Web.

Al-Azzam, M., & Parmeter, C. (2021). Competition and microcredit interest rates: International evidence. Empirical Economics, 60(2), 829-868. Web.

Asad, A., Hameed, W. U., Irfan, M., Jiang, J., & Naveed, R. T. (2020). The contribution of microfinance institutes in women-empowerment and role of vulnerability. Revista Argentina de Clínica Psicológica, 24(3), 223-238. Web.

Bibi, U., Balli, H. O., Matthews, C. D., & Tripe, D. W. (2018). New approaches to measure the social performance of microfinance institutions (MFIs). International Review of Economics & Finance, 53, 88-97. Web.

Bondinuba, F., Stephens, M., Jones, C., & Buckley, R. (2020). The motivations of microfinance institutions to enter the housing market in a developing country. International Journal Of Housing Policy, 20(4), 534-554. Web.

Cathcart, L., Dufour, A., Rossi, L., & Varotto, S. (2020). The differential impact of leverage on the default risk of small and large firms. SSRN Electronic Journal, 60. Web.

Chikalipah, S. (2017). Financial sustainability of microfinance institutions in sub-Saharan Africa: Evidence from GMM estimates. Enterprise Development and Microfinance, 28(3), 182–199. Web.

Chomen, D. A. (2021). The role of microfinance institutions on poverty reduction in Ethiopia: The case of Oromia credit and saving share company at Welmera district. Future Business Journal, 7(1). Web.

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