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> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI
It has always been my unexamined belief that as economies mature the so called “informal sector” will shrink and with it the microfinance market. Sometimes unexamined beliefs based on instinct or intuition turn out to be right when subject to a fact-rich inquiry. But not this time. Upon investigating I uncovered growth trends in the informal sector and in urbanization, suggesting a refocusing for microfinance.
The informal sector is growing everywhere in the world. This segment of the economy, though its definition varies, includes activities of the working poor that are unrecognized, unrecorded, unprotected, or unregulated by public authorities. In more developed countries, also considered part of the informal economy are employment positions that have tenuous connections between the worker and formal structures and few, if any, labor rights or benefits. Globally, estimates for the total informal economy vary between 50 and 60 percent of the world’s population. According to Gallup’s 2012 World Survey, only about 40 percent of adults around the world, across all countries and income groups, have a fixed income for over 30 hours per week.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
In this decade, Africa is undergoing urbanization at a faster rate than Latin America, Asia, or anywhere else in the world. In these burgeoning areas, the majority of people are building their own housing, and doing so in an incremental fashion – adding what they can, when they can, and developing their facilities as their means allow.
There are a few big challenges to this. In Africa’s urban centers, there is a limited supply of affordable housing, and financial services to aid housing development are also scarce. Global Findex Data indicate that access to and usage of credit in sub-Saharan Africa is among the lowest in the world. Specifically looking at mortgages, a recent study from FinMark Trust revealed that across the populations of Zambia, Malawi, Botswana, and Tanzania, less than 1.5 percent of individuals utilize mortgages.
Enter microfinance. Typical mortgages don’t fit well with the financial profile of most Africans. Compared to microloans, they’re generally for longer terms, larger amounts, and they are less flexible. Most mortgages require clients to provide documentation of regular incomes. Many Africans operate in the informal sector and lack regular income streams. In Tanzania, for example, only 28 percent of the population is able to satisfy this income requirement.
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