Investigating the impact of microfinance on communities' welfare or quality of life in sub-Saharan Africa focusing on the case of Djibouti

More than 1.3 billion people, that is, one in every five on earth, survive on less than a $1 a day (UNDP, 2004). International development institutions and government of foreign aid donors have tried ways to alleviate poverty. Despite of decades, of development aid targeted at increasing economic growth of aid beneficiary countries; the number of poor in sub-Saharan Africa has increased. With the failure of traditional form of aid and development policies, the focus is now on grassroots development targeted type. Microfinance is one of these types of development idea targeted directly at the poor. It is a small scale credit scheme targeted at the poor who have been rejected from the traditional financial institutions. This dissertation investigates the impact of microfinance on communities' welfare or quality of life in sub-Saharan Africa focusing on the case of Djibouti. The study begins by reviewing the background information on Djibouti, followed by the literature review on microfinance. A questionnaire survey of the clients of the microfinance program at the SFD agency in Djibouti has been conducted. The study found that the microfinance program has had a positive impact on its client's welfare and quality of life at both the individual and household levels. It appears that the majority for the clients experienced an income, asset and saving increases and also an improvement of their nutrition. A couple of implications follow from the results of the study. From the housing repairs indicator used for the study it appears that housing repairs are expensive and that clients wait for couple of years before they apply any repairs. Therefore, a housing scheme similar to the microfinance scheme is suggested. Also, it seems that the microfinance program benefits more the clients as the stay longer in the program because they receive incremental loan sizes. Therefore, it is suggested to increase the number of categories in the program, accompanied by an increase of the loan size for the higher categories. This will allow clients to expand faster their activities; to employ other people for their activities and pay a wage to themselves as well