Citation:

Daniel Rince George. "The Contribution of Microfinance Institutions to Poverty Reduction in Rural Districts of Sierra Leone" International Research Journal of Economics and Management Studies, Vol. 5, No. 1, pp. 79-87, 2026. Crossref. http://doi.org/10.56472/25835238/IRJEMS-V5I2P110

Abstract:

Microfinance Institutions (MFIs) are frequently championed as pivotal tools for poverty reduction and financial inclusion, especially in low-income and post-conflict settings. In Sierra Leone, where rural livelihoods depend chiefly on agriculture and formal financial access is limited, MFIs are positioned as key agents in improving household welfare and supporting micro-enterprise development. This study directly investigates the extent to which MFIs reduce poverty in selected rural districts of Sierra Leone, focusing on their effectiveness in generating household income, altering savings habits, structuring loans, and overcoming institutional barriers. The study adopted a descriptive, exploratory research design that combined quantitative and qualitative approaches. Questionnaires, semi-structured interviews, and observation were the sources of primary data from 45 rural microfinance clients as well as five operation staff of one selected microfinance institution whereas institutional reports and policy documents provided secondary data. Descriptive statistics and cross-tabulations of quantitative data were analysed in SPSS (V24), with thematic analysis also conducted on qualitative findings. The results suggest that involvement in microfinance has contributed to higher household savings, better financial discipline, and greater participation in income-generating activities. However, poverty reduction is not vast as the grace periods are too short; entry-level loan sizes are very low; high interest rates are charged (20%); and terms of payment are unyielding, together with low support for business growth. Other institutional constraints, such as poor rural infrastructure and high transaction costs, make it even more difficult to reach out. However, despite these problems, microfinance schemes continue to be successful operations with comparatively high rates of repayment based on joint liability group mechanisms. The study finds that MFIs modestly reduce poverty in rural Sierra Leone by facilitating the smoothing of income and survival of enterprises rather than by promoting “escape” from poverty. Policy and operational changes, such as flexibility in loan products, affordability, client protection, and improved rural infrastructure, are required to enhance microfinance's developmental role.

References:

[1] African Financial Inclusion Policy Initiative. (2022). Sierra Leone’s 2022–2026 National Financial Inclusion Strategy (NFIS). AFI.
[2] Banque mondiale/World Bank. (2020). Sierra Leone Second Financial Inclusion Project (Project appraisal documents and associated implementation materials). World Bank.
[3] Bank of Sierra Leone. (2009). Financial Sector Development Plan (FSDP). Bank of Sierra Leone.
[4] Bank of Sierra Leone. (2021). National Strategy for Financial Inclusion 2022–2026 (NSFI-2). Bank of Sierra Leone.
[5] Center for Financial Inclusion. (2019). Handbook on consumer protection for inclusive finance. Center for Financial Inclusion.
[6] Chen, P. (1997). Observation methods in social research: Foundations and applications. Academic Press.
[7] Churchill, S. A. (2020). Impact of microfinance on poverty and microenterprises: A meta-analysis. In Microfinance and its impacts (pp. 1–25). Springer.
[8] Consultative Group to Assist the Poor. (2019). Financial inclusion and the poor: Evidence, practice, and implications. CGAP.
[9] Consultative Group to Assist the Poor. (2020). Microfinance and household resilience: Savings, risk management, and customer outcomes. CGAP.
[10] Creswell, J. W., & Creswell, J. D. (2018). Research design: Qualitative, quantitative, and mixed methods approaches (5th ed.). SAGE.
[11] Denise, F., Beck, C. T., & Polit, D. F. (2001). Essentials of nursing research: Methods, appraisal, and utilization (5th ed.). Lippincott Williams & Wilkins.
[12] Elsafi, M. H. (2020). The impact of microfinance programs on monetary poverty and vulnerability to poverty: Evidence from Sudan. World Journal of Entrepreneurship, Management and Sustainable Development, 16(1), 30–45.
[13] Fonseca, S. (2024). Factors influencing sustainable poverty reduction: A systematic literature review of microfinance evidence. Journal of Risk and Financial Management, 17(7), 309.
[14] International Fund for Agricultural Development. (2025). Sierra Leone Rural Finance and Community Improvement Programme Supervision Report (February 2025). IFAD.
[15] International Monetary Fund. (2021). Sierra Leone: 2021 Article IV consultation and request for an extended credit facility arrangement Staff report. IMF.
[16] International Monetary Fund. (2022). Sierra Leone: 2022 Article IV consultation and review under the extended credit facility Staff report. IMF.
[17] International Monetary Fund. (2023). Sierra Leone Country report (financial sector and stability review sections). IMF.
[18] International Monetary Fund. (2025). Financial Sector Stability Fund (FSSF): Phase I achievements report (2017–2024). IMF.
[19] Izaguirre, J. C., & other CGAP contributors. (2020). Making consumer protection regulation more customer-centric (Working paper). CGAP.
[20] Kothari, C. R. (2004). Research methodology: Methods and techniques (2nd ed.). New Age International.
[21] Lahnech, A., & colleagues. (2025). Exploring the synergy between microfinance and poverty reduction: Evidence and pathways. SAGE Open, 15(1), 1–18.
[22] Ministry of Finance, Sierra Leone. (2023). Environmental and social management framework: Sierra Leone second financial inclusion project. Government of Sierra Leone.
[23] Ministry of Planning and Economic Development, Sierra Leone. (2024). Medium-Term National Development Plan (MTNDP) 2024–2030. Government of Sierra Leone.
[24] Mukendi, S., & co-authors. (2022). Micro-financial institutions and processes of women’s (dis)empowerment in informal business settings: Evidence from Africa. World Development Perspectives, 27, 100455.
[25] Overseas Development Institute. (2021). Technical support to financial inclusion strategy development in Sierra Leone: Lessons and implementation priorities. ODI.
[26] Republic of Sierra Leone. (2019). National Policy on Gender Mainstreaming. Government of Sierra Leone.
[27] Saunders, M., Lewis, P., & Thornhill, A. (2019). Research methods for business students (8th ed.). Pearson.
[28] Sierra Leone Telegraph (Publisher of the hosted document). (2022). Sierra Leone poverty assessment (Final report). (Hosted report).
[29] Statistics Sierra Leone. (2018). Sierra Leone Integrated Household Survey 2018 (SLIHS 2018): Final report. Stats SL.
[30] Statistics Sierra Leone. (2018). SLIHS 2018: Methodology note for poverty calculations. Stats SL.
[31] Statistics Sierra Leone. (2018). SLIHS 2018: Poverty results tables and technical annex. Stats SL.
[32] United Nations Capital Development Fund. (2022). Inclusive finance and last-mile delivery in Sierra Leone: Digital pathways, rural access, and MSME finance. UNCDF.
[33] United Nations in Sierra Leone. (2022). Common country analysis: Sierra Leone (2022 update). United Nations.
[34] World Bank. (2020). Sierra Leone Financial Sector Development Plan Support Project: Project documents and implementation status reports. World Bank.
[35] World Bank. (2021). Sierra Leone's first inclusive and sustainable growth development policy operation. World Bank.
[36] World Bank. (2021). Global Findex database 2021: Financial inclusion, digital payments, and resilience. World Bank.
[37] World Bank. (2022a). Financial inclusion: Evidence, policy options, and implementation guidance. World Bank.
[38] World Bank. (2022b). Sierra Leone poverty assessment: Poverty trends, development, and drivers. World Bank.
[39] World Bank. (2022c). Global Findex indicators: Sierra Leone country tables (usage, gender gaps, rural-urban patterns). World Bank.
[40] World Bank. (2023). Sierra Leone Financial inclusion diagnostics and implementation updates (payments, consumer protection, MSME finance). World Bank.
[41] World Bank. (2024). World Bank Group gender strategy 2024–2030: Accelerating equality for shared prosperity. World Bank.
[42] Yunus, M. (2019). A world of three zeros: The new economics of zero poverty, zero unemployment, and zero net carbon emissions. Public Affairs.

Keywords:

Microfinance, Poverty Reduction, Rural Development, Financial Inclusion.