Consequently, they have limited access to banking solutions, credit applications and available insurance products despite their vital role in food production, eventually stifling personal and community growth in the long run.
With evolving economies, the need for financial inclusivity in rural communities is dire.
Microfinance institutions have emerged as a powerful tool in ensuring that rural populations are geared towards financial stability by providing individuals, cooperatives and micro, small, and medium enterprises (MSMEs) with access to capital to boost businesses.
Among the most profound impacts of microfinance in rural areas is women’s empowerment. With women making up 49.6 percent of Kenya’s population, it’s indisputable that they play a major role in economic development.
As a result, any initiatives promoting financial independence among women contribute to improved living standards in communities.
Meanwhile, microfinance institutions stand as critical avenues to affordable credit. For instance, in agribusiness, they provide support through the necessary resources or capital to boost production and improve yield—ultimately alleviating poverty.
This is through the provision of financial services to buy seeds, and fertilisers, purchase or production of high-quality feeds for animals and procurement of farming equipment. Eventually, the growth in these businesses leads to employment and overall economic evolution.
Yet, despite their potential for all-round financial inclusion, microfinance institutions face challenges.
Over-indebtedness is a concern, with some borrowers taking on more debt than they can manage. Geographical isolation and lack of financial literacy have also led to mistrust in formal banking systems among far-flung rural populations in the country.
It is no surprise that some rural populations in Kenya, particularly small-scale farmers and informal traders lack avenues for growth and investment opportunities.
However, with microfinance becoming popular, many barriers to formal lending products have been broken. With the rise in flexible repayment terms, small-scale entrepreneurs can easily get microloans to boost productivity and reduce financial strain than relying on informal lenders who charge exorbitant interest rates.
As this happens, the integration of digital technology in microfinance, for instance, through mobile banking, continues to extend round-the-clock financial services to remote rural areas while offering convenience by eliminating the need for physical trips to financial institutions.
As we look into the future, it’s imperative to continue with innovative and tailored microfinance solutions to meet the unique needs of rural populations.
With commitment and partnerships from the government, microfinance institutions, local NGOs and society at large, everyone is assured of access to affordable financial services.
The writer is the Chief Executive Officer at Faulu Bank
