SEATTLE — Credit access is a key tool for improving the financial stability and well-being of developing nations. Nations with easy access to credit can self-invest by building the necessary capital to get financial ventures off the ground. Nations without this kind of access are at a distinct disadvantage in the economic world, as they have access to one less source for startup capital.
Moreover, nations with improved financial services experience higher output and growth in their medium and small business sectors. Ensuring that developing nations have access to proper financial services and credit is important to the overall goal of addressing global poverty.
Senegal, a West African nation, has a complex relationship with credit access. Many of its most viable sectors are not receiving the requisite financial support.
Women’s Participation Key to Increasing Credit Access in Senegal
According to the U.N. Capital Development Fund, less than 10 percent of women in Senegal are members of financial institutions. That being said, women do not experience direct discrimination once they are members of financial institutions, and men do not receive preferred credit access in Senegal. Firms in Senegal, regardless of the manager’s gender, experience similar rates of improved efficiency and output after receiving startup capital loans. This makes improving women’s general credit access in Senegal a priority, rather than implementing legislation that reduces gender-based discrimination in the financial world.
Women participate less in financial decision making in most Senegalese households, which is the primary contributor towards their lower rates of participation in financial institutions. Increasing their participation and funding initiatives that promote women’s entrepreneurship are key to expanding credit access in Senegal for women. For example, a three-year financial literacy and credit access initiative funded by Energia, a global women-focused renewable energy firm, saw a 72 percent increase in renewables sold by female entrepreneurs. This initiative illustrates the high potential for economic growth that women’s credit access provides. As of right now, women are a largely unsupported potential economic group in Senegal.
Agricultural Support Needed to Grow Senegal’s Economy
Agriculture is a key component of Senegal’s growing economy. While agriculture composes only 17 percent of Senegal’s GDP, it provides employment to 77 percent of Senegal’s workforce. Much like expanding credit access in Senegal for women, providing financial support to Senegal’s agriculture sector will likely confer further momentum to Senegal’s growing economy.
Unfortunately, credit access for the agricultural sector is surprisingly limited. Only 4 percent of lending and credit usage in Senegal is directed towards agriculture. Financial institutions are hesitant to invest in the agricultural sector due to the fickle nature of producing crops. Irregular weather patterns and poor crop seasons pose a huge risk to institutions considering providing credit to the agricultural sector. Additionally, many of Senegal’s banks lack the expertise or programming to properly support local farmers with credit and loans. As Senegal’s economy expands, its farmers will begin to require more support from financial institutions in the form of credit and loans. Credit can aid farmers in purchasing improved machinery, irrigation tools, and other forms of farming-related capital.
Various institutions have taken aim at Senegal’s disproportionate credit access support to its agricultural sector. In 2017, the United States Agency for International Development (USAID) signed a $7.1 million agricultural lending and credit agreement with Locafrique, a Senegalese financial group. This agreement directed funds towards providing loans and credit access for Senegal’s farmers. USAID, as a part of this cooperative effort, promised to share collateral with Locafrique to reduce the risk of providing loans and credit to farmers. The World Bank has also been operating in Senegal, pledging $20 million in 2016 to provide credit for smallholder farmers in the region.
Small Businesses Gain More Options for Loans and Microfinancing
Due to its low-risk nature, the Senegalese commerce sector controls a majority of the nation’s credit. Even so, small commerce businesses like food carts and tailors do not benefit equally from this arrangement. Due to the high entry costs and interest rates, loans can be burdensome or inaccessible for small business owners. In turn, accumulating credit and establishing credit can be just as difficult.
Various approaches have been adopted by Senegal to address the challenge of microfinance. In Senegal’s capital, Dakar, small groups of women have begun forming microfinance co-ops. These co-ops do not require credit; instead, they require their members to buy in on a semi-annual basis. This places the buyer on a rotating list to receive a “pot”, which is a portion of all the members’ contributions. This functions as a credit-free microloan, which helps female entrepreneurs sidestep the challenge of building credit.
Alongside local approaches, large-scale banking institutions have stepped in to invest in Senegal’s micro-economy. Banking group Citi and local microfinance group Microcred Senegal signed a $2.5 million contract dedicated to microfinance in 2017. These funds were tailored specifically to focus on microfinancing and small business loans, and allowed for the microfinancing of roughly 200,000 entrepreneurs in Senegal.
Above all, even as credit access in Senegal is relatively limited, there are variety of initiatives and frameworks that aim to improve this access. With their help, Senegal’s future in credit access and microfinance is bright.
– Ian Greenwood