Size Matters: Macro vs Micro Finance in Africa

Tale of Two TED Talks

First by young entrepreneur Sangu Delle on how large-scale finance would lead to large-scale impact across the African continent. Second one by Joy Sun, who advocates for microfinancing as a means of allocating funds efficiently.

Going Big

Think the Marshall Plan … for Africa. After the devastation following World War II, Europe was not rebuilt using small microloans. Delle discusses this by first dispelling the misconception that every African is an entrepreneur – or at least a subsistence farmer.

This is a powerful idea, one I’ve discussed with friends at length; that most people in fact just want jobs. They become entrepreneurs in the absence of industries which could provide decent work.

So why wasn’t there a Marshall Plan in Africa?

I’m not going to get into the nuances of our complicated relationship as a continent with the West ; See The Internet for More. However one thing that made the difference between the success or failure of the Marshall Plan was the presence of strong institutions.

The Marshall Plan saw the formation of the Organisation for European Economic Co-operation, which was the predecessor to the OECD and the European Union. This body allocated financial aid from the United States to countries across the region. Loans were made to private businesses and the repayments were used by governments to in turn fund infrastructure projects.

A favourite factoid in the area of development is how the economies of South Korea and Ghana were roughly the same size in the 70s, but the Korean economy powered ahead while Ghana faltered. Korea had the Marshall Plan-type aid programme, Ghana did not. If you need to grow quickly, you need to think a bit bigger than giving every household just enough money to buy a goat. You need to build industries and nurture the industrial titans that come with them.

Something for Everyone

Microfinance is about financial inclusion. Many people in developing countries who would otherwise not have access to financing are now able to gain access to financial services. Microloans have been a powerful tool in alleviating poverty across the developing world.Like macro-finance, the success of micro itself lies within disproving another popular fallacy; “Poor people are poor because they can’t make good decisions”

In this talk Joy Sun goes out to dispel the myth, with some interesting insights.

She explains that empirical evidence shows that in many cases, individuals had repurposed aid given to them; that is, sold donated goods for cash. This cash was used to actually improve their lives. It’s sometimes a cruel thing we do by taking away the autonomy of those we seek to help.

Sun showed that people who received cash were able to work harder while the costs of cash transfers were much lower than regular aid.

The success of microfinance in Africa, and the perhaps the failure of macro, could be attributable again to state of institutions on the continent. It is in a way going around many governments who have been known to misappropriate foreign financial aid. It this achieves a significant degree of efficiency in the developing world. Mobile technology on the continent has also made it a lot cheaper and easier make funds available to individuals.

Sangu Delle and Joy Sun weigh in on how to best provide financial assistance in Africa
Sangu Delle and Joy Sun weigh in on how to best provide financial assistance in Africa

I saY we go big

I am one for the grandiose. I’m an idealist who believes we could clean up our act and push towards macro-finance as Delle suggests. I think that small transfers are only palliative, and a reaction to a failed system. We need a Samsung, VW or Airbus. We need a Marshall Plan for Africa.

I cannot discount the good microfinance has done across the world. What’s your take on the issue?

2 thoughts on “Size Matters: Macro vs Micro Finance in Africa

  1. Very interesting article and especially interesting topic. As I am working in microfinance (focussed on empowering women) I obviously have a stand on that. I think the issue with macro is that firstly there is no infrastructure to rebuild because there hasn’t been any before and secondly that governments are unstable and corrupt in most African countries. Now one example that shows the inappropriateness that macrofinance can result in is the fact that almost all Africans have smart phones these days (because of international investment) but tremendous amounts of people still don’t have access to water/housing or food. Macrofinance can certainly boost an economy but a country (or a continent) also needs to build something itself and needs to have its own economy, create its own jobs that do not depend on international investment.
    There’s a woman my organisation helped that started a food business and is now employing 5 people in her village. It’s a small start but a sustainable start and jobs that were created in the country itself by the people of that country. If foreign investments leaves – those jobs stay. That’s my take on that topic 🙂

    Nevertheless, it is not all black and white and there are also good points about having access to e.g. mobile phones like mobile banking!
    I am planning on writing an article about this topic soon as well. I’m interested in your response!

    1. I’m sorry for the delayed response.

      You’re work is quite encouraging, and I think a testament of African ingenuity.

      I’ve conceded to the corruption issue within my article; I totally agree that large swathes of aid hasn’t worked in Africa before.

      I mentioned that microfinance was palliative. So it became important not through its own merits, but as a targeted response to institutional inefficiencies in developing economies. Microfinance is like medicine. You take when you’re sick. I think macro, is taking steps improve ones health – to become stronger.

      Institutions in Africa are not perfect but they have become better. The conversation is shifting from “helping” Africa to “partnering” with Africa

      I’ve recently learnt about how foreign companies and venture capital funds are looking to invest in Africa in search of excess returns, their biggest problem is that the size of the investment opportunities leave them wanting.

      Your business may be growing at 20% a year, but at a few thousand dollars it might struggle to find an investor (for example)

      I’m looking forward to reading your article. Thanks for engaging, and keeping me on my toes

      Feel free to suggest a topic you’d like to know more about. 🙂

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