Microfinance: The Effectiveness of Microfinance in Reducing

Microfinance: The Effectiveness of Microfinance in Reducing Poverty in Post-War Sierra Leone A decade and a half into the 21st century, issues of poor growth, poverty and civil war still continue to afflict masses and inhibit sustainable growth in countries across the world, particularly in the African Continent.

The bottom ten spots in the UNDP 2014 ranking of countries in terms of human development, for instance, were all taken up by African countries -- Niger, Congo, the Central African Republic, Chad, Sierra Leone, Eritrea, Burkina Faso, Burundi, Guinea, and Mozambique (UNDP Human Development Report, 2014). Of these, Sierra Leone presents the most dramatic case of development failure given its richness in marine resource endowment, tourist attractions, fertile agricultural land, and natural resources.

The country has reported a slow annual growth rate averaging 6.8%, which is a mere shadow of its growth rate in the late 1980s prior to the outbreak of the 1991 civil war that lasted for just over a decade.

The country is still in the process of recovery, but for one with its kind of resource endowment, the poverty situation is devastating -- a massive 70% of the population lives on less than a dollar a day, and with a Gini coefficient of 0.63, it stands as one of the most skewed economies in the world in terms of income distribution (Philpott and Powers, 2010). The proposed study is intent on examining how microfinance could be used to improve the country's post-war poverty situation.

Purpose of the Study A country such as Sierra Leone, so richly-endowed is, in the researcher's view, not supposed to be languishing in poverty as it currently is. The fact that the bulk of the population continues to live on half a dollar a day ten years since the completion of the civil war only implies that the anti-poverty policies and strategies initiated by the government in 2001 have not been effective in realizing their intended objectives.

There is need, therefore, to adjust the same accordingly to enable the country to fully recover from the effects of the civil war. Alleviating poverty and making the necessities of life more accessible to citizens is the first step towards recovery. The purpose of this proposal is to examine some of the key strategies and policies that have already been implemented, and to establish how (based on what has been experienced in other war-torn situations) microfinance facilities could be used to help the country's poverty situation.

The proposal is guided by the following research questions: The remainder of the proposal is structured as follows: The Research Background section presents a brief overview of the steps taken by the Sierra Leonean government to correct the poverty situation in the country, and the possible reasons why these may not have been successful in realizing their intended objectives.

The researcher builds on this background to establish a rationale for the proposal by showing why there is need for more research to be conducted in this area of study, and particularly in the Sierra Leonean context. The aim and objectives section, which is also the final section in chapter one, presents the research questions guiding the study, as well as the specific and general objectives that the researcher expects to have achieved at the end of the proposed study.

Chapter 2 reviews the various studies that have already been conducted in this particular focus area. The first section reviews information presented in government and organizational reports to provide insight into some of the anti-poverty strategies that have already been implemented, and the strides that have been made. The second section focuses specifically on microfinance programs, and how they could be of help in this case. It explains the conceptual link between microfinance and poverty-reduction, and presents empirical evidence of cases where the same has worked effectively.

The final chapter presents the methodologies that will be used to help the study realize its objectives. It compares and contrasts different approaches, and explains why some were preferred over others. Policymakers in Sierra Leone have initiated various strategies geared at addressing the exceedingly high rates of poverty among the populace.

Most of these are covered under the Interim Poverty Reduction Strategy (I-PRSP), which was adopted by the World Bank and the IMF in 2001, and in which the government outlines how it plans to implement its pro-poor poverty-reduction plan (the specific strategies are outlined in the literature review section below). What is worrying, however, is that almost a decade and a half since the adoption of the I-PRSP, the majority of the population, particularly in the country's rural areas, still continues to live in abject poverty.

The IMF attributes this failure to misguided policy and inefficient intervention by the central government. This is perhaps because policymakers lack effective sources from which to draw insight, given that very few studies have been conducted on the poverty situation in Sierra Leone, and even fewer studies have focused specifically on how microfinance programs could be used to address the same.

Despite the fact that Africa has the highest poverty rates in the world, most of the existing studies have focused their attention on war-torn countries in Asia and Latin America. Rationale By studying how microcredit programs can be used to reduce poverty in the Sierra Leonean context, therefore, the proposed study bridges the gaps inherent in the existing body of literature and stands as a crucial guidance and reference tool for the country's policymakers.

The researcher hypothesizes that if microcredit facilities are made more accessible to the poor, the levels of poverty will be reduced. Studies have, however, yielded conflicting results on the effectiveness of microcredit programs as a poverty-reduction strategy in post-war situations. Owing to this uncertainty, the researcher will need to make use of the relevant quantitative tools to first establish whether such programs would be effective in the case of Sierra Leone.

Aims and Objectives The proposed study is thus guided by the following research questions: RQ1: What impact do microfinance operations have on poverty levels in post-conflict Sierra Leone? RQ2: What are the experiences of poor Sierra Leoneans who have been severely affected by poverty? RQ3: What strategies and policies have been undertaken this far to address the poverty situation? The corresponding objectives are as follows: Primary Objective To help reduce the level of poverty in Sierra Leone Secondary Objectives To assess the extent to which microfinance operations in post-conflict situations contribute to poverty-reduction To understand the experiences of poor people who have been severely affected by poverty To understand the policies and strategies that have been undertaken this far to address the poverty situation Chapter Two: Literature Review Overview of Poverty in Sierra Leone Sierra Leon's economy is supported mainly by agriculture.

Most of the country's agricultural activities are based in the rural areas, and are conducted for subsistence purposes. Despite witnessing high rates of rural-urban migration in recent years, a bulk of the population still lives in the rural areas, and this rural population makes up almost 80% of the country's poor. In 2009, USAID gave Sierra Leon an inequality index of 8.2 out of 10 owing to the income disparities between the rural and urban populations (USAID, 2009).

The high inequality score was attributed to the government's inability to provide basic human services to a majority of the population, particularly in the rural areas (USAID, 2009). In 2004, for instance, the latest year for which statistics are available, only 57% of the country's rural population had access to clean drinking water, and only 39% had access to proper sanitation (USAID, 2009).

It is estimated that by 2007 (almost 8 years since the initiation of the country's poverty reduction), approximately 70% of the population was living below the national poverty line, with 57% of this proportion living on less than a dollar per day (USAID, 2009). The country's GDP per capita in that year stood at a low $693, causing it to rank last -- 177th out of 177 countries in the UNDP Human Development rankings (USAID, 2009).

Most of the poor are landless persons, small-scale female farmers who lost their husbands during the war and were left to head their rural homesteads and refugees who were displaced from their homes and families in the aftermath of the war.

These figures are at the least devastating for a country that is so richly endowed; nonetheless, they prompt one question -- what is the government doing to correct the situation? Anti-Poverty Strategies and Policies in Sierra Leone The country's anti-poverty strategies are documented in the Government's Poverty Reduction Strategy Policy Document, in which the government outlines its framework for reducing poverty through four fundamental strategies (IMF, 2005): Increasing employment opportunities Improving food security Increasing economic growth Improving access to basic human services, and providing proper social safety nets for vulnerable and poor people The four are geared at addressing three primary development priorities: Human development through microfinance Pro-poor sustainable growth to create jobs and promote food security Peace-building, security, and good governance An IMF report assessing the country's progress in addressing the three development priorities above found that significant improvements had been realized in the area of food security, with the government implementing some key strategies - among them rehabilitating rural infrastructure to ease the shipment of food products, restocking the livestock population, and expanding the land under rice production (IMF, 2005).

However, no strong evidence was found to support the government's commitment to support and grow the microfinance sector (the National Commission for Social Action, 2008).

Although promising strategies have been put in place in regard to the same, growth has been hampered by (the National Commission for Social Action, 2008): i) lack of government funding for both loan portfolios and capacity-building ii) lack of stakeholder agreement on financial issues affecting the industry iii) Weak network support organizations at the national level iv) Low levels of financial services awareness and business aptitude among Sierra Leoneans, particularly in the rural areas v) Limited financial product diversity and geographical coverage, which limits growth vi) Ineffective legislation vii) The lack of a lasting and institutionalized capacity-building framework As a result, the country's microfinance sector has remained dormant, weak, and dilapidated, playing a very minimal role to the national poverty-reduction strategy (the National Commission for Social Action, 2008).

Most of the existing institutions in the country offer only financial services as they lack the means and know-how to offer a diversified product range. The Theoretical Link between Microfinance and Poverty-Reduction in Post-War Environments Whilst there is no doubt that microfinance is an effective policy tool in addressing issues of underdevelopment and poverty under normal situations, its effectiveness in post-war situations remains a subject of controversy (Durrani et al., 2011; Ahmeti, 2014).

Although studies have been able to prove its effectiveness in such situations, the specific mode of action is still largely unclear. In their study seeking to assess the effectiveness of microfinance programs in poverty-reduction in Pakistan, for instance, Durrani and his colleagues found that the program raised the living standards of 80.8% of the participants under assessment (Durrani et al., 2011). A similar view is held by Mazumder and Wencong (2013), whose cross-sectional study on Bangladeshi subjects showed a 40% decrease in participants' poverty levels following the administration of a common microcredit program.

Ahmeti's (2014) study in Kosovo also found microfinance to have a positive effect on poverty levels. He posits that in post-conflict situations, microfinance works by "managing the transition from humanitarian seeds and relief, which is considered as crucial for…economic reestablishment and sustainable development (Ahmeti, 2014, p. 275). Evidently, there are huge knowledge gaps in regard to the effectiveness of microfinance in post-conflict situations. Moreover, very few studies have focused on studying the effect of the same in war-torn African countries. These two factors give strong credence to the proposed study.

Chapter Three: Methodological Framework Research is conducted with the aim of uncovering trends and ideas that have not yet been unearthed. It is geared at establishing a principle or theory in the particular area of interest. How effective it is at realizing this depends on, among other things, the appropriateness of the data and the strategies and methods chosen. The proposed study purposes to show how microfinance could be used to stimulate the economy and reduce the level of poverty in Sierra Leone's post-war situation.

In order to achieve this purpose, the researcher needs to develop a clear framework for how data will be conducted, the particular strategies that will be used, and the specific type of data that will be collected. Primary vs. Secondary Research Primary research is research that involves collecting first-hand data through observing the phenomenon of interest, or interacting directly with participants through interviews or questionnaires (Gratton and Jones, 2010).

Secondary research, on the other hand, makes use of data and information that has already been documented in existing sources (Gratton & Jones, 2010). Each one has its share of advantages and disadvantages. Primary research, for instance, may be preferred because it allows the researcher to collect their own data and interpret the same in their own way. This, as Gratton and Jones (2010) points out, opens up opportunities for the emergence of new and original perspectives.

Secondary data, on the other hand, will often be preferred because it is cheaper to conduct, is less time-consuming, and is not subject to the ethical regulations that govern the conduction of research on human subjects. The proposed study will make use of both primary and secondary data to realize its objectives. Primary data will be collected through the questionnaire technique and will be particularly crucial in assessing the extent to which microcredit affects participants' lifestyles and living standards.

Participants will all be microcredit beneficiaries, and their lifestyles, as shown through such welfare indicators as electricity consumption, expenditure on clothing, the degree of hygiene and sanitation in the surroundings and so on, will be assessed prior to, and 6 months after the administration of the microcredit program. The researcher deemed it necessary to use primary research because secondary data in this area of study, particularly in the case of Sierra Leone is severely limited.

In order to minimize the overall cost of conducting the study, secondary research will be used to realize the second and third objectives. This decision is driven by the fact that i) plenty of data on the same is readily available on government and organizational reports; and ii) such a move would accord the researcher more time to carry out analysis, and consequently to ensure the validity of results. Qualitative vs.

Quantitative Techniques In order to provide an insightful analysis of the research phenomenon, the proposed study will make use of both qualitative and quantitative data -- a technique referred to as methods triangulation. The mixed-methods approach was selected because it adds credibility to the study, and prevents too much.