Microfinance and Poverty Reduction in Post-War Sierra Leone

Introduction and Background

A decade and a half into the 21st century, issues of poor growth, poverty, and civil war continue to afflict populations and inhibit sustainable development in countries across the world, particularly on the African continent. The bottom ten spots in the UNDP 2014 Human Development Index ranking were all occupied 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 resources, tourist attractions, fertile agricultural land, and natural resources.

The country has reported a slow annual growth rate averaging 6.8%, a mere shadow of its growth rate in the late 1980s prior to the outbreak of the 1991 civil war, which lasted for just over a decade. The country is still in the process of recovery, yet for a nation with its level of resource endowment, the poverty situation is devastating: approximately 70% of the population lives on less than one dollar a day, and with a Gini coefficient of 0.63, Sierra Leone stands as one of the most unequal economies in the world in terms of income distribution (Philpott and Powers, 2010). The proposed study examines how microfinance could be used to improve the country's post-war poverty situation.

Policymakers in Sierra Leone have initiated various strategies aimed at addressing the exceedingly high rates of poverty among the populace. Most of these are covered under the Interim Poverty Reduction Strategy (I-PRSP), adopted by the World Bank and the IMF in 2001, in which the government outlines its pro-poor poverty-reduction plan. What is worrying, however, is that almost a decade and a half after the adoption of the I-PRSP, the majority of the population — particularly in rural areas — still lives in abject poverty. The IMF attributes this failure to misguided policy and inefficient intervention by the central government. This may be partly because policymakers lack effective sources from which to draw insight: very few studies have been conducted on the poverty situation in Sierra Leone, and even fewer have focused specifically on how microfinance programs could be used to address it. Despite Africa having the highest poverty rates in the world, most existing studies have concentrated on war-torn countries in Asia and Latin America.

Purpose, Rationale, and Research Questions

A country as richly endowed as Sierra Leone should not, in the researcher's view, be languishing in poverty as it currently is. The fact that the bulk of the population continues to live on less than one dollar a day more than ten years after the conclusion of the civil war 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 a need, therefore, to adjust these strategies 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 experiences in other post-war situations — microfinance facilities could be used to improve the country's poverty situation. The proposal is 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 to date 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 to date to address the poverty situation.

Rationale

By studying how microcredit programs can be used to reduce poverty in the Sierra Leonean context, the proposed study bridges gaps inherent in the existing body of literature and serves 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, poverty levels 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 make use of relevant quantitative tools to first establish whether such programs would be effective in the case of Sierra Leone.

Structure of the Proposal

The Research Background section presents a brief overview of the steps taken by the Sierra Leonean government to correct the poverty situation, and the possible reasons why these may not have succeeded in realizing their intended objectives. The researcher builds on this background to establish a rationale for the proposal by demonstrating why more research is needed in this area, and particularly in the Sierra Leonean context.

Chapter Two reviews the various studies that have already been conducted in this focus area. The first section reviews information from government and organizational reports to provide insight into anti-poverty strategies that have already been implemented, and the strides that have been made. The second section focuses specifically on microfinance programs, explaining the conceptual link between microfinance and poverty reduction, and presenting empirical evidence of cases where such programs have 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.

Overview of Poverty in Sierra Leone

Sierra Leone's economy is supported mainly by agriculture. Most agricultural activities are based in rural areas and are conducted for subsistence purposes. Despite high rates of rural-urban migration in recent years, the bulk of the population still lives in rural areas, and this rural population accounts for almost 80% of the country's poor. In 2009, USAID assigned Sierra Leone an inequality index of 8.2 out of 10, owing to the income disparities between rural and urban populations (USAID, 2009). The high inequality score was attributed to the government's inability to provide basic human services to the majority of the population, particularly in rural areas (USAID, 2009). In 2004 — the latest year for which statistics were then available — only 57% of the rural population had access to clean drinking water, and only 39% had access to proper sanitation (USAID, 2009).

It is estimated that by 2007, approximately 70% of the population was living below the national poverty line, with 57% of this proportion living on less than one dollar per day (USAID, 2009). The country's GDP per capita in that year stood at a low $693, causing Sierra Leone 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 rural homesteads, and refugees displaced from their homes and families in the aftermath of the conflict. These figures are devastating for a country so richly endowed with natural resources; nonetheless, they prompt a critical question — what is the government doing to correct the situation?

References

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IMF, 2005. Sierra Leone: Poverty Reduction Strategy Paper. The IMF. Accessed April 9, 2015. https://www.imf.org/external/pubs/ft/scr/2005/cr05191.pdf

Mazumder, M.S. and Wencong, L., 2013. Microcredit and Poverty Reduction: A Case of Bangladesh. Prague Economic Papers, 3(1): 403–417.

National Commission for Social Action, 2008. Study of Microfinance Sector Capacity-Building in Sierra Leone. The National Commission for Social Action 2008 Report. Accessed April 13, 2015. http://acpbusinessclimate.org/pseef/documents/final/sierra_leone_policy_en.pdf

USAID, 2009. Sierra Leone: Economic Recovery Assessment. USAID. Accessed April 14, 2015. https://egateg.usaid.gov/sites/default/files/Sierra_Leone_Economic_Recovery_Assessment.pdf