1. African Union Policy Validation Workshop

2. African Microfinance Policy
Convergence
This policy paper demonstrates the
capabilities of Microfinance as a
potential source of balanced economic
growth for Africa, as well as a source of
investment opportunity that could
lead to poverty reduction. These slides
are designed to show exactly how
microfinance is rapidly changing and
offering hope for uplifting millions of
Africa’s vulnerable and low-income
population from poverty, especially
the principles, strategies, and action
that if taken could make it possible to
change lives.

3. Importance of Microfinance
 Less than 4% of African population have
access to finance
 Only through Microfinance is it possible for
the poor and low income households to save,
invest and cope with various shocks.
 Until recently it was not possible for the poor
and low income households to safeguard
their families against death, disability, or
other risks e.g. theft, fire but this is now
possible through microinsurance

4. Cont.../1
 Low and irregular incomes has for years
prevented the poor and low income families
from accumulating useful assets, thereby
perpetuating vulnerability.
 However, thanks to Microfinance, it is now
possible for this group to accumulate valuable
assets e.g. through micro leasing,
 Inventory credit makes it possible for farmers
to get optimum value for their output by
reducing their vulnerability

5. Cont…/2
 Microfinance enables poor and low income
farmers to take advantage of their grit and
ingenuity to increase their output to a higher
level of production for example, by adopting
new seed varieties and modern techniques
 Through microfinance the poor and low
income population can be able to provide the
best education for their children on the basis
of their future income

6. Cont…/3
 Microfinance is going to help Africa expand
its private sector by boosting the level of
confidence and productivity of the micro and
small scale entrepreneurs, and by providing
the capital needed for growth e.g. through
SME loans
 Where access to Microfinance is wide scale
and well sustained, e.g. in Bangladesh, there
is evidence that it can lift many families out of
poverty, and even readdress entrenched
gender biases

7. Does Africa have a well established
Microfinance system
Modern Microfinance is well rooted in
the region, but it is at different stages
of development in different countries
e.g. in some countries it is just
germinating (Sierra Leone, Liberia,
DRC, etc), while in others it is just
about to blossom (Senegal, Nigeria,
Cameroon, etc).
In others (South Africa, Botswana,
Eritrea, Zambia) it is difficult to tell
what is going on, yet in others (Benin,
Uganda etc) there seems to be some
reversals despite recent positive
developments.

8. Stage and Level of Development
across the Region
 Countries where the system is at advanced stages of
development (as judged by):
 Institutional diversity
 Scale of outreach
 No. of providers that are institutionally and
financially self sustainable
 Product base
 Closeness or distance to international bets practices
and benchmarks
 Affordability of services
 Competitiveness

9. Cont…/1
 Countries where the system is at advanced stages of
development (as judged by):
 Degree of integration of microfinance into the
overall financial system of the country
 Integration of microfinance in overall national
macroeconomic policy framework
 Level of cooperation and coordination among
providers and the government
 Quantity and quality of resources dedicated to
Microfinance development
 Talent and human resource base
 Speed and direction of growth

10. Does the system advance the
interests of the country
In countries where the system
is well advanced, it directly
facilitates the achievement of
a nation’s and peoples’
aspirations

11. Country groupings…
5 Scenarios Different levels of development
Advanced Stage
Intermediate Stage
Take-off Stage
Nascent Stage
Limbo

13. What is the scale of Africa’s
Microfinance System
4 Scenarios

14. Sub No. of Current Mean No. of No. of Pop. W/h Pop. W/h Loan Active Loan
Region Countries Pop. Poverty Retail MFIs Bank MFIs Clients Portfolio
(Millions) Rate Banks Account (mean %) (000’s) (USD,
(mean %) Millions)
Northern 6 161.8 20.4 120 357 25.0 4.9 3113.8 539.3
Arica
West 15 275.8 61.5 172 3946 12.4 3.8 9270.5 1,132.1
Africa
Central 9 110.8 522.3 46 1164 76.3 13.6 1043.3 348.2
Africa
East 13 278.0 46.2 145 1932 7.4 3.2 8947.4 2,013.7
Africa
Southern 10 130.28 56.4 122 3249 16.8 3.3 6650.3 5,863.8
Africa
Sum/Avg. 53 955.3 56.8 587 10,648 12.7 3.4 27225 9,897

17. Industry’s SWOT Analysis
STRENGTHS WEAKNESSES
So far, 23 countries have created a conducive enabling Most MFIs are not liquid enough to meet demand
environment for microfinance and another 31 have enacted High operational costs
regulation for microfinance
Huge losses; few MFIs are financially self-sustaining
There is high demand for savings facilities and micro credit
High client dropouts
Microfinance is a virgin market: just about 4 percent of the
Low penetration rates in most of the countries, especially
market has been captured
limited outreach to rural areas. In 2005, for instance, the
MFIs have found the secret to deliver a wide range of Nigerian microfinance sector held just 0.9 percent of total
financial services to the poor and low-income groups on credit to the private sector and 0.2 percent of the GDP.
sustainable terms.
Inadequate staffing/ training
Rapid accumulation of best practice knowledge, which is
Interest rate ceiling in several countries hinder outreach
readily available through the internet
Low capital base
Absence of support institutions
Up to 24 percent of the MFIs are dependent on donor support
Lack of adequate capacity to supervise and regulate MFIs’
operations
High concentration of the market and not enough competition
that could encourage efficiency and innovation
Low population density in most parts of Africa
Poor roads and lack of adequate infrastructure

18. Cont…/
OPPORTUNITIES THREATS
Microfinance is taking shape as an asset class for investors, Client dropouts is too high
so raising capital in future would be easier
Many MFIs lack strong management and leadership
Improved macro-economic environment, e.g., steady and
moderate growth averaging 5 percent in the last 5 years, Minimum capital requirements are too high
stable and single digit inflation, and greater awareness and There is likely to emerge competition from banks as the
better appreciation of the role of microfinance among African
sector proves to be profitable
governments
Consumer backlash due to high interest rates
The market is hardly satisfied
Rapid growth without commensurate investment in people
There is increasing linkages between mainstream financial and management system can result into declining portfolio
institutions and MFIs quality and high loan losses
New information technology that can help drive down costs
and enable greater outreach
There is room for new institutions that can focus on different
market niches that are hardly touched yet, i.e., focus on the
poorest of the poor, agriculture, and slightly bigger small-
scale enterprises, which are currently not being served by
MFIs
There are huge opportunities to introduce or offer new
products and services
There is plenty of investment opportunities for private sector
There is space for new institutions with quick appraisal and
disbursement to prosper

19. Strategies and action plan
1) How to expand outreach to low-income populations with basic
savings, payments, insurance, and credit services through
improved efficiency, more innovative use of existing networks, the
establishment of more service providers, and development of a
more inclusive financial system.
2) Building a well-coordinated and diversified microfinance sector in
which strong and healthy financial institutions can thrive.
(Institutions are systems that have an explicit goal of generating
meaning in the society in which they exist. In the case of
microfinance in the 53 African states, this consists in enabling the
low-income populations to also have access to suitable and
affordable financial services, in the first instance. Secondly, they
should enable the economy of member states to mobilize vast but
untapped savings and transform these into investment and
production).

20. Cont…/1
3) Improving the performance of microfinance institutions and
enhancing their capacity to deliver appropriate financial services
to low-income populations through increased capacity building,
promotion of good practices, development of better
management systems, increased training of the work force and
management, and the development of infrastructure.
4) How to improve the quality of microfinance services and impact
and, particularly, enhance the empowerment of marginalized
groups through increased competition, consumer education and
awareness, and improved transparency.
5) Creating a dynamic and stable macroeconomic environment for
micro- and small-scale enterprises to flourish and become more
competitive regionally and globally through the provision of
microfinance, thereby supporting more investment and trade.

21. Cont…/2
6) Enacting suitable laws, regulation, and operational standards as
well as systems of accountability, audit, reporting, and
supervision to encourage and facilitate the emergence and
growth of a strong, dynamic, and profitable microfinance sector
by engendering greater transparency and confidence in the
system.
7) How to increase public awareness and knowledge of the
microfinance industry, thereby creating interest and attracting
more investors by conducting continuous research of the sector,
innovation, and dissemination of information.
8) How to establish strong, well managed, and respected industry
support organizations, for example, practitioner member
networks capable of enforcing discipline among members and
leading in the development of basic industry standards and
benchmarks, rating agencies, credit registries, and specialized
audit services.

22. Cont…/3
9) How to increase the availability of and lower the cost of
investment capital for microfinance development through
improvements to the domestic capital markets,
establishment of wholesale funds, guarantee schemes, and
the publication and diffusion of valuable sector information.
10) Encourage and increase more linkages between banks and
various categories of microfinance institutions that serve
different segments of the market through suitable public
policy, incentives, and regulations.
11) Promotion of effective and healthy public sector participation
in the development of microfinance through investment in
the building of strong industry infrastructure and
development of customized national and regional
microfinance policies and strategies.

23. Cont…/4
12) How to encourage increased national and, especially,
regional cooperation among AU member states in furthering
the development of microfinance in Africa in addition to
encouraging and supporting regional trade and investment.
13) Promoting and introducing consumer education and
protection through increased public and/or consumer
awareness about financial products and the enforcement of
suitable consumer rights, microfinance charters, and
obligations.
14) Reducing the long-term cost of financial services to low-
income populations, especially small enterprises, through
improved competition and access to capital, enforcement of
suitable service charters, better market regulation and
supervision, and increased consumer education.