Poverty is a big problem in developing countries and the eradication of poverty continues to be a key political agenda in most developing countries. Despite serious efforts by local governments as well as bilateral and multilateral donor communities over the past few decades, many people still suffer from poverty (Kono and Takahashi, 2010, p. 15).
Estimates by the World Bank in 1998 showed that over 1.2 billion people continue to live in extreme poverty, living on less than US$1 a day (World Bank, 2000). In the Millennium Development Goals, the United Nations intends to tackle poverty by halving the proportion of people suffering from extreme poverty by 2015 and calls for commitment from all nations (World Bank, 2000).
Africa is the poorest continent in the world with most countries in the Sub-Saharan region being classified as poor (UNDP, 2010). To improve the livelihood of poor households would require that they get some access to financial services to engage in entrepreneurial activities (Kono and Takahashi 2010). But such groups are considered as high-risk clients and are denied financial services by formal financial institutions (Kono and Takahashi, 2010; Khavul, 2010). Campbell (2010) defines microfinance as the provision of loans to a group of poor individuals without collateral, for the purpose of income generation. Microfinance is now promoted as a means to solve poverty that faces the world’s population by stimulating growth through entrepreneurial initiatives and spans a range of financial instruments including credit, savings, insurance, mortgages, and retirement plans (Morduch, 1999; Khavul, 2010).
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The microfinance industry (MFIN) in Africa is dynamic and increasingly growing. It has expanded in activities and is thought to be among the most productive globally in terms of its acceptance or patronage (Lafourcade et al., 2005). Microfinance in poor economies has received a lot of research attention because of the potential benefits that it is expected to yield. The microfinance institutions (MFIs) cover diverse programs, but all concentrate on providing financial services to the poor (Morduch, 2000).
Some of the activities that MFIs are engaged in include providing credit or loans, savings, insurance and money transfers (Lafourcade et al., 2005, p. 2). Microfinance as any other financial instrument needs to offer attractive products or services to meet customers need (Woller, 2002, p. 320). But the credit structure of some of the MFIs has led to some people refraining from their services. In fact, research has shown that there are potential clients who decline microfinance programs even though the products offered were supposedly designed for them (Meryer, 2002). This is corroborated by Woller (2002, p. 306) who is of the opinion that `for too long MFIs have focused on the products or services they could offer rather than the products or services customers want´ (that is on institutional needs rather than customer needs). But this picture is beginning to change. According to Lafourcade et al. (2005), there has been an increase in MFIs in Sub-Saharan Africa over the past eight years which has led to competition for clients and therefore the need for innovation and provision of high-quality services in order to retain clients and remain competitive. This, therefore, calls for an effective and efficient management system to help MFIs deliver convincing products which can provide both providers and clients with the benefits needed while remaining sustainable.