Microfinance: The Effectiveness of Microfinance in Reducing Research Proposal

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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).

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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.....

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