I propose to title my thesis The World Bank on financing development through microfinance, in contemporary Congo (DRC).
Research ProblemThe most recent data collected in 2013 and 2016 on poverty and shared prosperity, reveals that more than 10% of the world's population lives with less than US$ 1 a day. Putting these percentage in numbers, that makes 1.3 billion people who live in extreme poverty and 3 billion live on less than US$ 2.50 a day. In the Democratic Republic of Congo, the population is estimated at 77 million, and 65% of the population live below the poverty line. Ranked 176 out of 187 countries on the latest United Nations Human Development, the DRC is a paradoxically developing country. The paradox that remains in numerous natural resources but an index of development that sets her among the poorest countries in the world.
Created in 1945 after the World War II, the World Bank had for mission to help rebuild a Europe severely destroyed by years of intense conflicts and damages. Since then, the "Bank" had redefined her priority and stated her mission as said in her slogan: "Working for a world free of poverty." But the "Bank" also kept her focus on being a major actor and partner for development around the globe. The DRC officially became a member of the Bank on September 28, 1963, and has since, benefited from many projects of development. This research will aim to find how the World Bank is financing development in the DRC. The questions to be explored are: How does the World Bank proceed to achieve development's goals? How are the processes implemented? And if there are applied, which instruments are used?
This research will look particularly on microfinance as an instrument of development. I hypothesize that among many other programs led and financed by the World Bank in DRC, microfinance is the one that suits the best for a country that still has a high rate of poverty. This statement is not undermining the impact of other factors of development. However, it is pointing out the status quo observed in some branches of the economy and others, the slowness of their evolution. For instance, the energy sector as a contributor to development has not seen increases for decades. And sectors like transportation and sanitation have been improving very shyly. On another hand, microfinance can respond to the need of an impoverished population, and deliver financial services that can actually and directly, support sectors like energy and sanitation at a microeconomic level. To test my hypothesis, I will analyze the current situation of the Congolese microfinance industry. And connect the facts to any advancement (previous, mature or not) resulting from the practice of microfinance, as a tool for growth in a developing country like the DRC.
I intend to back my hypothesis with measurable, assessable, and quantitative arguments. I will collect and use data provided by diverse, select, and reputable sources; including the World Bank herself and similar entities addressing the topic. I will also use books, peer review articles, newspapers, country assessments and reports.
Since 1976 when Muhammad Yunus created the concept of microfinance, to date, many types of research have engaged the debate around its role in general and in the DRC in particular. But few have expanded the discussion on its direct influence on development. This thesis will serve as a benchmark to pursue the discussion where many had left it. Furthermore, it will help to enlighten about actions that can be taken or simulated for better implementation. The factual arguments I will support can be used to test theories and be involved in practices.
Definition of Terms
Microfinance: Is a mechanism that provides microloans to entrepreneurs, small businesses and individuals, joint or not in groups or communities. The particularity of the system and its difference to the traditional banking industry is the size and the nature of its provision of loans that are relatively small. Also known as microcredit, this can be defined as a second option (for many the only one) to enter the financial system and improve quality of life through services accessible to the poorest.
DRC: Stands for the Democratic Republic of Congo. The region that was previously Kingdom of Kongo between the 14th and 19th centuries became Leopoldville, Congo Free State, Belgian Congo, Zaire and finally Democratic Republic of Congo in 1997.
Bank: Used to mention the World Bank. I.e., IMF (International Monetary Fund) is called by people within the sphere as the "Fund."
"Poverty line": This is an estimative scale of poverty indicators and a drawing of a boundary between poor and non-poor. The expression determines the level of poverty of a population or where its stands in term of development. The numbers are primarily evaluated based on human development.
United Nations Human Development index: Commonly known as HDI (Human Development Index), this directory is used to rank countries by combining statistics collected from life expectancy, education and per capita income indicators in a specific region; and establish the comparison with other countries along.
Index of development: This is the HDI in a simplified way.
CGAP: The Consultative Group to Assist the Poorest is a global partnership created in 1995 by the World Bank as an initiative to increase the quality of life in regions targeted, known and proven to be the most deprived countries of the globe. Since then, the group has expanded its goal and is considered nowadays as one of the major partners of the Bank in the fight against poverty through microfinance.
Background of the Problem
Im concerned about poverty and its high strikes around the globe, the repercussion in Africa in general, the effects in central Africa especially and particularly in DRC for the course of this research. I am consequently interested in development and how it can help to tackle poverty through microfinance. With a population estimated at 77 Million, the DRC has the 4th largest in Africa. But almost 65% of that population is poor and can't decently fulfill their basics needs. The financial system is weakened by an unprecedented fragility of the economy, and political instability does not favor a restructuration of the sector. With 65% living on less than US$1, many Congolese cant afford the conventional banking system.
To date, having a bank account is still considered as a luxury for more than half of the population. The opportunities are out there and what is more or less missing, is the right approach to engage and meet these needs. Then comes microfinance and with it, another way to tackle the inability of people with a limited budget; who pain to access a banking system that can be expensive and subject to higher requirements.
In addition to its financial mission, microfinance also has social values. Communities that face the same struggle can then be offered services that meet their expectations, correspond to their need and convey social impact. The innovation centered on each group and community is the key. Microfinance institutions create and provide new instruments that fit with the profile of their customers, whether in rural or urban areas. For instance, farmers in the southern DRC, have access to mobile payments of their vendors located miles away in the neighboring village or town. Safety and transportation being an issue, customers learn how to use the products provided by the local branch of their microfinance provider, to pay invoices or the price of a new deal. The market is then more liquid, demands increase, and the supply chain is efficient.
Financial systems serve as a route for development. Without a bank, financial services companies, and other specialized corporations; it is almost impossible to inject money into the economy. Whether private investment, bilateral or multilateral contributions, the canal that links institutions to populations has to be established; and for developing countries like DRC, microfinance is a powerful tool.
The microfinance sector in DRC has been growing since 2001 but remains undeveloped. By the end of September 2013, US$222 was the size of balance sheet recording for the microfinance sector with over a million accounts opened. Loan cooperative and savings accounted for 40% of the MFIs and 60% for the accounts. Most of the loan cooperatives and primary savings together with MFIs operations were concentrated much on the eastern part of the country.
Much of the microfinance business model has put more emphasis on loan services and savings. By June 2013 from the end of 2009, the record showed a doubled trend in both deposits and loans recorded at US$144 and US$113 respectively in the banks. The two microfinance organizations had practical experience in advances in micro, small, and medium-sized enterprises (MSMEs) represent 42% of the credit and 51% of deposits and of the whole microfinance segment.
There is an excellent potential for microfinance sector to support financial inclusion but it is underperforming. The profitability in the microfinance sector is very weak whereby only two institutions by the end of June 2013 have been operationally self-sufficient accounting for 3% of the assets. The institutions with negative equity or negative profits accounted for 9% and 18% of the microfinance assets respectively.
Financial and operational constraints are affecting COOPECs linked to severe internal audit deficiencies, financial management, and governance. Also, 37 largely inactive institutions which included 34 COOPECs and 3 MFIs by the end of March 2013 were put under involuntary liquidation status and by the end of August 2013, 63 licenses had been withdrawn. By end-December 2013, 8 out of the 23 MFIs confronted challenges in raising capital levels to the base required levels. The investigation of the segment focuses on the requirement for its union and the fortifying of supervision. Additionally, the National Microfinance Fund, an administration's drive going for coordinating defenseless populace into the monetary division with a US$2.5 million spending plan, has not yet begun operations.
Present in the DRC since 1963; the World Bank is operating through other organizations, companies, the government and financing them through programs and projects only. Therefore, to reach the population and raise the challenge of economic growth, the "Bank" has to partner with actors like CGAP, FINCA, and local government. Departments and governmental agencies are beneficiaries of programs that aligned with their mission, and this is contributing to the economy in its whole. The figures below will depict the process.
Research Method(s) and Sources
I will use reports, database (statistics and assessments), evaluations and case studies, books, peer reviews, news and analytical papers. Most of them are available online and at the library. Other materials have to be purchased and delivered. As the DRC is a francophone country, some materials are written in French. Nevertheless, these sources are accessible to me and as French speaker; I do not require translation.
Nevertheless, I may encounter difficulties to gather sensitive information. Like all other financial institutions, companies operating in microfinance, are restricted by rules of confidentiality, and their data are not always accessible to the public. Also, it will be challenging to obtain information from the local government, who doesn't always ensure the quality of communication and the availability of resources to the general public or the web. And as I will mention further in the limitations, it will be difficult to collect physical evidence and interview companies or individuals in the DRC. I will not be able to travel a...
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