UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 11 / April 2005

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By Makarimi Adechoubou, Regional Technical Manager, Unit for West and Central Africa, UNCDF

Why Are So Many Bankable People in Africa Un-banked?

In Sub-Saharan Africa, a region that accounts for 67% of the world's Least Developed Countries (LDCs), often only 5% of poor people have access to financial services.[1] There is a general consensus that "the key bottleneck is the shortage of strong institutions and managers. Microfinance is a specialized field that combines banking with social goals. Skills and systems need to be built at all levels: managers and information systems of microfinance institutions, central banks that regulate microfinance, other government agencies, and donors. Public and private investments in microfinance should focus on building this capacity, not just moving money".[2] Another major constraint is the lack of an appropriate economic, political and legal environment that allows financial services to be delivered on a sustainable basis to poor people.

To address this situation, the United Nations Capital Development Fund (UNCDF), together with the United Nations Development Programme Regional Bureau for Africa (UNDP/RBA), has launched an ambitious US$42 million, seven-year initiative, the United Nations Initiative for Financial Inclusion (UNIFI), to implement a shared vision for tackling constraints and harnessing opportunities to invigorate economies and deepen African financial sectors so that they provide a way out of poverty for those living at the bottom of the pyramid. Says Peter Kooi, Director, UNCDF Microfinance, "Microfinance will only reach large numbers of poor and low-income people if it is fully integrated into the formal financial sector. This exciting programme ushers in a new era of international cooperation, in which all parties will work together according to their respective areas of expertise to support nationally owned strategies to build an inclusive financial sector."

Implementing a Shared Vision

The UNIFI programme will contribute to the achievement of the Millennium Development Goals (MDGs), particularly the specific goal of cutting poverty in half by 2015, and will result in the development of viable microfinance sectors that are integrated into competitive and sustainable financial markets, and the promotion of best practices and the public-private partnership.

With a total budget of US$42 million for the period 2004-2010, the programme is being implemented through two regional UNCDF units: one in Senegal for West and Central Africa and the other in South Africa for Southern and Eastern Africa. Together, they cover a portfolio of 20 countries.

UNCDF, UNDP and the central bank in each country are working together to mobilize a variety of actors around a shared long-term vision to build an inclusive financial sector in which the vast majority of the population, including poor and low-income people, have access to financial services. Working together with all stakeholders, a national policy and joint action plan is designed and implemented to seize untapped opportunities, and to address the constraints that keep a financial sector exclusive.

Based on this policy and action plan, UNCDF, together with its partners, is investing in areas such as:

• The capacity and capital base of financial institutions that provide microfinance services.
• The enabling environment conducive to the development of an inclusive financial sector.
• The expansion of microfinance in scale and scope.
• The further integration of microfinance into the formal financial sector.
• The dissemination and adoption of microfinance sound practices.
• The strengthening of the central bank and the regulatory environment, coordination among donors.

Real Results

The UNIFI programme is achieving real and sustainable results for Africa, while contributing directly to the attainment of the Millennium Development Goals. Ultimately, the programme will result in:

• 3,350,000 new active clients, primarily women, directly affecting a population of 16,750,000 inhabitants (5 people per household).
• 20 financially self sufficient microfinance institutions (MFIs).
• 20 national MFIs.
• A common vision and strategy among financial service providers, donors and government policy makers as to how to achieve an inclusive financial sector.
• Strengthened local capacity and outreach of institutions that provide microfinance.
• An environment that is conducive to the growth of a sustainable and inclusive financial sector.
• Strengthened capacity among other UNDP regional initiatives with improved programme results in the area of microfinance.
• Mobilization of resources from the private sector.

Why UNCDF

UNCDF has a number of comparative advantages that strengthen its ability to facilitate this important programme: technical competence;[3] risk-taking;[4] the neutrality associated with a UN agency; and a proven track record.

Current and Future Partners of UNIFI

Current programme partners include KfW (Germany, €3 million in Sierra Leone) and Cordaid (Netherlands, €700,000 in Sierra Leone, and €500,000 in Liberia). At present, US$26.3 million is committed for a $42 million programme.