This chapter examines the performance of microfinance institutions in Sub-Saharan Africa through observations from different perspectives. It examined the effects of microfinance institutions in Sub-Saharan Africa. Relevant literature on the sustainability and outreach of microfinance institutions are also analysed in this chapter. Sub-Saharan Africa's future achievement of necessary economic growth is very likely to depend partly on its ability to develop its economic and financial sectors to be more inclusive of small and medium enterprises in a more comprehensive way. Currently, microfinance directly promotes the development of the intermediate financial sector in Africa, which is positively correlated with economic growth. Despite the worsening of the current industrial crisis, microfinance is seen as an essential developmental tool and continues to grow in Sub-Saharan Africa.
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Microfinance refers to mid-term, emergency, and individual loan products designed to meet the low-income group’s very diverse personal needs, such as fixed loans and group guarantees (Saba, 2021). MFIs are, as their name suggests, bankers and financial institutions that provide microfinance services to the poor. Microfinance was founded in 1970 by the Bangladeshi economist Muhammad Yunus, who is often referred to as the ‘poor banker’. Yunus established the Grameen Bank in Bangladesh in 1976 to provide ‘microloans’ (Engler, 2009). At the time, microfinance was about expanding loan services to small business owners. Beforehand, banks generally only made loans to middle-class, high-net-worth clients. Yunus’s concept of microfinance quickly spread in the microcredit sector in Bangladesh. It became very popular, leading to the establishment of similar microfinance organisations around the world, and it eventually became what is today’s microfinance (Yunus, 2008). Yunus won the 2006 Nobel Peace Prize for his efforts. Indeed, while jointly granting Yunus and his bank the prize, the Nobel Committee also paid tribute to Yunus and his bank for their ‘bottom-up efforts to create socio-economic development’ – fast. In other words, the committee saluted Yunus’s philosophy of creating financial opportunities for people in need.
According to Neumann (2012), microfinance enhances the capabilities of the poor by providing funds to entrepreneurs and small businesses who cannot otherwise obtain traditional business financing due to their limited financial resources, financial status, or credit history. It refers to the credit practice of doing so. Small traditional or professional credit provided by banks and cooperatives is an alternative to other informal sources of credit, such as loans provided by community members or small business owners.