Microfinance in Maseru, Lesotho: challenges and prospects for poverty reduction

Abstract

This study assesses the challenges of microfinance and its prospects for poverty reduction in Maseru, the capital of Lesotho. It further assesses the challenges faced by the regulators of microfinance in this economy. In doing so, the study informs the policy makers in Lesotho about strategies that could be adopted to improve the microfinance industry in the country for the benefit of a large sector of the population that does not have access to formal lending channels. The study examined ten informal and formal microfinance groups, five representatives of the formal institutions and two from the Government: the Central Bank of Lesotho (CBL) and the Ministry of Finance and Social Development. The results of the study reveal some fundamental lessons for microfinance industry in Maseru, Lesotho, which could be applicable to other developing countries as well. First, microfinance in Maseru has had a positive change on the lives of its participants as articulated by the interviewees in this study. Second, it has promoted entrepreneurship and enabled its participants to open small and medium enterprises. The results of which has been a shift in consumption patterns of participants and poverty reduction. Despite the positive impacts, microfinance in Maseru has had challenges. These challenges include unlawful practices undertaken by the informal microfinance institutions such as seizure of the assets from those who default on their loans. The lending risks faced by formal institutions as well as regulation challenges by the CBL. The policy implication of this study is that the CBL and the Ministry of Finance need to require informal groups to register for licences to eliminate the level of corruption and unlawful practices experienced in the informal microfinance industry.