|
|
|
|
 |
|
UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 11 / April 2005 |
|
Voices of Microfinance
According to the Report of the Commission for Africa, "MFIs alone are not the answer. Banks and other financial institutions, domestic and international, have far greater resources to take up the challenge of enterprise financing and come up with innovative financing schemes." Q. Do you agree? If not, why? If so, what concrete steps can be taken to generate greater involvement by banks and other financial institutions in responding to the financial needs of poor people in sub-Saharan Africa? Editor's Note: The answer to this question was a resounding "yes, but..." While the majority of respondents agreed with the Commission for Africa that microfinance institutions (MFIs) cannot face the challenge of enterprise financing alone, they expressed concerns that commercial banks "can't or won't" leverage their greater resources because they lack the will, infrastructure, knowledge and "inspiration" to extend financial services to poor people. Respondents also felt that the role of MFIs as such is to demonstrate to the commercial banks and others that poor people are, indeed, "bankable;" and that MFIs represent an "innovation" in trying to understand the lives and needs of poor people. Respondents who disagreed did so based on many of the same concerns. This small group pointed out that MFIs, unlike banks, have the "passion" and "commitment" to reach poor people. One respondent emphasized the diversity of approaches that are necessary to reach the target population, and proposed that upscaling MFIs would better achieve this than downscaling commercial financial institutions. To generate greater involvement by banks, suggestions included that banks form partnerships with MFIs to address capital constraints, or create small enterprise financing departments; that new ways to share operational and credit risks with banks be designed; that credit guarantee schemes be established; that multi-lateral donor institutions support bank involvement; and that government policy require a percentage of banks' portfolios be committed to the microenterprise sector. One respondent pointed out that "only efforts of the whole spectrum of players in the broader financial sector will impact enterprise financing in a meaningful way." Yet, because banks exist solely to make money, perhaps the question should not be what banks should do or how they should change to meet the challenge of enterprise financing, but, as one participant suggested, how to make enterprise financing a profitable business that is attractive to banks in the first place. It should be noted that this query drew answers from all over the world - including, I am pleased to announce, from our first ever entrepreneur. That a large number of responses did not speak specifically to Africa only underscores the global nature of the challenges faced by poor and low income entrepreneurs in countries at all stages of development. *Thank you to all those who contributed their expertise to provide valuable insight into this question. To view the Featured Opinion - click here Banks and other financial institutions need to help to reach the objective of inclusive financial services. MFIs are also valuable to reach the real poor people because financial institutions need a return on equity, so enough scale. To increase competition, financial institutions are really essential; this will increase availability and lower the interes trates.
Diederik Laman Trip
The first statement is true. MFIs alone cannot do all that it takes to eradicate poverty: we all know how high the demand is for financial services to the poor, and in particular in sub-Saharan Africa. While the second statement is true - banks and other domestic and international financial institutions are better places to take up the challenge of enterprise financing and come up with innovative finance schemes - it is also quite simplistic in approach. Banks have always been there, and the poor have always been there, but why microfinance? I would dare say microfinance is an attempt and innovation by the NGO sector to try to understand the lives of the poor and to address some of the pertinent issues threatening livelihoods. Microfinance is an alternative financial system created by the NGOs. Alternatives are sought when the normal methods have failed or do not work. In this case, banks always considered the poor "un-bankable" until the NGOs showed and proved that they are. Steps that can be taken to generate more involvement by banks and other financial institutions in responding to financial needs of the poor in sub-Saharan Africa are for banks to understand the plight of the poor better and make their products more pro poor.
Esther Yamat
I agree and disagree. For financial institutions, whether banks or development finance institutions, while they may posses the financial resources, they may not have the skills and organizational infrastructure to meet the needs of the poor. For while the poor need money, they also need the required knowledge to identify the income generating activities that the banks or such financial institutions may find bankable. There is need therefore to add enterprise support institutions so that value adding and related activities provide the basis of lending rather than supplying the cash to the poor who will thence find the activity as the end. Money indeed should never be seen as an end, it should be used to facilitate an income generating activity.
Kiringai Kamau
I agree in part with the Commission. Indeed microfinance is not a panacea for poverty and related development challenges, but the potential of MFIs far exceeds the micro-level. While microfinance alone does not improve roads, housing, water supply, education and health services, when properly harnessed and supported, it has made these and other sustainable contributions to the community. Perhaps the greatest contribution of microfinance is that it empowers people, providing them with confidence, self-esteem, and financial means to play a larger role in their development.
Ruth Bamela Engo
The Report of the Commission for Africa is correct; banks and other financial institutions do have far greater resources than microfinance institutions to bring to bear on this challenge. It must be recognised however these institutions have little or no inducement to do so. Certainly the poor will never be as profitable a market sector in aggregate (viz the gross profit will be less than retail banking for example), although many banks need to appreciate that returns (RoA & RoE etc) in providing services to this sector can be commercially acceptable. Furthermore a range of barriers are in place that negate such entry: from being unaware of the needs of this end of the market, to regulatory and statutory factors (such as the calculation of performing assets in the CAR calculation when loans are uncollateralized), to bigotry, with many banking professionals simply not wanting to work with poor or illiterate clients. For me public-private partnerships (probably government-banks-MFIs) have not been used as much as they could, and this should be explored.
Guy Winship
I agree perfectly with the assertion that MFIs alone cannot champion enterprise financing. Even though MFIs have the technical expertise in credit delivery to microentrepreneurs they are constrained by lack of loanable funds. The seemingly high credit risk of microfinance deters most commercial banks from extending credit to this sector. Despite barriers, commercial banks have several advantages over MFIs which can be harnessed to expand lending to the microfinance sector. Some these advantages are: physical and human infrastructure; market presence and brand recognition; access to plentiful and low-cost funds; and low cost structure. I would suggest to ensure greater involvement of banks and other financial institutions in responding to the financial needs of poor people in sub-Saharan Africa that The World Bank, International Finance Corporation, United Nations Capital Development Fund and other Multilateral Donor Organizations could assist the participation of commercial banks in microfinance by setting up microfinance units within banks; setting up microfinance subsidiaries; forming strategic alliances with specialized microfinance institutions; and adopting the Service Company Model being implemented by ACCION International in partnership with other MFIs.
Patrick Awuku Dogbe
I agree. The participation of banks and other private-sector financial intermediaries is critical to establishing the creditworthiness of borrowers and the development of commercial markets for microfinance. In Latin America (the only region I can speak to), this seems to be happening. In sub-Saharan Africa, the challenges to engaging the private sector seem great. Perhaps in those markets and sectors where multinational corporations are active and employing local labor, they could initiate lending programs to local workers.
Cate Ambrose
Yes, I do agree to the statement. I believe credit guarantee schemes should be put in place to enable the banks to be comfortable extending more credit facilities to the poor in sub-Saharan Africa. The poor can be organised into groups with executive members who will ensure that credit provided by such banks is not diverted but utilised for the intended purpose. Group pressure from each member will further reduce the risk of default.
Joseph Adjei
Although the financial strength of traditional banks is definitely larger than that of MFIs, banks have overlooked the micro and small sector of the economy and have concentrated instead on medium size enterprises located in urban areas. In essence, these institutions have been slow to react and respond to the needs of the segment that drives the nation's economy. Traditional banking institutions have not been able to create an urban-rural social inclusion mechanism to reach thousands of low income clients. Hence a large segment of the micro, small, and informal economy, encompassing agriculture, trade, transportation, and services is left unattended. Lack of inclusion of these actors has prevented significant improvements in the standard of living of thousands of men, women, and children. In the case of Bolivia, the legislation permitted to invest in regulated microfinancial entities, so all services could be given to the microentrepreneurs. Today there are more than five regulated MFIs in the country, with more than 210 branches, 440 million in portfolio, 350,000 savers, 150,000 credit clients, and over 75% of their funding in from saving and time deposit. The impact of microfinance in all the urban and especially rural areas is overwhelming. We are proving that full financial services to the majorities can be profitable.
Eduardo Bazoberry
I do agree with the statement. As former manager of Cordaid's Finance Business unit, with USD 40 million one of the biggest suppliers of Microfinance funding in Netherlands, we tried to involve local banks and especially generate local funding through savings. Especially assuring local savings accumulation from small households could be much more productive than expensive international funding. I do not believe however that local banks will be capable of doing this in the short run. First because they are trapped in domestic regulation of supervision and secondly because they lack systems and knowledge and inspiration (as they are usually representing specific interests from local business) to serve smallhold clients. It seems that upscaling (so enabling MFIs to accede local savings through legal frameworks) is a much better route. They will compete with local banks and this will create more tailor made products for poor clients.
Jos van der Sterren
I have to agree with the report. MFIs cannot on their own address poverty eradication effectively. MFIs can only show in a small way that "poor people", when given the opportunity, can measure up. It will be encouraging for the banks and financial Institutions to work in collaboration with MFIs, by taking on customers who indicate willingness to work with good results. It is also strongly recommended that, as a long-term investment, Banks and Financial Institutions should bear some costs of MFIs that have the potential to draw them customers.
Ben Agerenga
I think that the main and basic aim must be to train and sensitize poor people and to allow them to get credit easily.
Cisse Abdoulaye
I work with a rural MFI that has grown from 25 members in 2001 to about 5000 end of 2004 (200% growth in 4 years). There are no banks or financial institutions that records such client growths. Banks and other financial institutions are mostly urban based, they do not consider the poor 'rich' enough to extend their services to them. Government remains the biggest clients of these banks and institutions and yet does not provide the enabling environment to promote these institutions to provide specific and affordable services to the poor in rural Nigeria.
John Dada
I quite agree that banks and other financial institutions should be more involved. In order to protect their business interest and avoid bad debts, they have been lukewarm and evasive in this important aspect. I know this is a result of bad past experiences, shoddy management and unfavourable business climate. However, I believe that each financial institution should create or improve on its SME department, to be more involved in regular and continual monitoring, co-coordinating, training, supervisory and cooperative roles in SME's where it has vested interest, so that immediate encouragement, support, remedies or even reproof can be made when due. In the end, the economy will be the better for it.
Oluwasanmi Longe
MFIs are good in MICRO-finance and should limit itself to this section. But to be effective they must do it more or less on normal banking terms. The tendency seems to be now that even normal banks and financial institutions find MFI-investments interesting and even profitable. This is good news since MICROfinance needs MACRO investments in order to reach all the needy.
Flemming Kramp
In an ideal world, yes! However, I think that with the reluctance to take risks, even with entrepreneurs and small companies in the Western World, banks and financial institutions will never be able or willing to take any responsibility, especially not in Africa.
Claus Frimand
While microfinance institutions and banks struggle to reach marginalised communities in urban and rural settings, the evidence of change in the lives of beneficiaries has been taken for granted on the basis that they give testimonies of making an additional shilling. Microfinance works where it is the only livelihood strategy for comparatively more enterprising people in the community. We remain romantic about microfinance to prophecy social responsibility of organisations and banks, while in fact these interventions are full of impositions that ignore strengths for saving and credit already imbedded in the community. I tend to believe that microfinance institutions and banks should look for innovative ways of investing in interventions that could promote opportunities for the poor people on "where they are" basis.
Donald Kasongi
I agree. The steps that can be taken to generate greater involvement by banks and other financial institutions depend on the way they want to be involved. There are several ways to take up the challenge of enterprise financing:
1. Banks must learn the special methodology required by microcredit.
Leonor Melo de Velasco
Whilst banks and other financial institutions undoubtedly have the resources to implement innovative financing schemes, they are less likely to take the risk of lending to the very poor, who offer a low rate of return. Furthermore, the transaction costs of reaching the poorest (who tend to be in hard to reach rural areas) are likely to be a further impediment to greater involvement of the wider financial sector. MFIs alone are not the answer, but they do have comparative advantage in providing small-scale financial services to the very poor. Perhaps the banks and other financial institutions have a greater role in supporting the MFIs to capitalise on their position.
John-Paul Fanning
I do agree that banks and financial institutions should take up this challenge. Concrete steps to be taken should involve creating a viable financial and economic climate in sub-Saharan Africa. This includes the development of a financial infrastructure, tax policies and maximizing free trade. Development roles are to be played by both the GATT and World Bank to insure stability of this infrastructure. The next step will be a cooperation between domestic and international financial institutions in which the internationals act as knowledge or expert centers in the development of innovations in financing, and domestics take on the role of operational financier. In this way both will benefit and the ultimate goal, responding to the financial needs of poor people in sub-Saharan Africa, can be achieved. On a policy level financial institutions should be made aware of their role in this process of relief. Here relief is a function of capacity building by way of a greater economic independence. The UN, in good cooperation with the World Bank, could and should play a vital role in this process.
Joost (J.M.) van der Voort
It is true that MFIs alone are not the answer. And at the same time there very few experiences that have shown that they have come up with innovative financing schemes. Usually Banks / financial institutions (Fis) due to their large size and reach tend to be bureaucratic and are stuck in a top-down approach not quite conducive to innovation. This is particularly true of the Public Sector Banks especially developing countries. One of the characteristics of sub-Saharan Africa is a diversity of communities and biogeography; it needs a great deal of diversity of approaches and therefore innovations. This requires a bottom to top, need based understanding. This can only be identified and piloted at a smaller scale and can be brought out by MFIs. Upscaling then would be easier. This requires a very positive partnership between MFIs and Banks / FIs, and learning transferred to build the perspectives and develop strategies and for appropriate development processes to succeed.
Mohan Krishna
At the moment, MFIs alone can't answer to the financing needs of poor people in sub-Saharan Africa. MFI resources are limited in amount and time (short terms). Linkages should be established between MFIs, banks and other financials institutions. Here are some ways to meet poor people's financial needs: promote banks ands MFIs' collaboration; promote linkage between banks and MFIs; and encourage banks to refinance the MFIs that finance poor people.
Daouda Sawadogo
This observation is not unique to microfinance institutions (MFIs) in Africa. Commercial banks continue to stay away from lending to the poor because they see MFIs as high risk borrowers that are engaged in subsidy dependent social activities, not sustainable business. A noncommercial approach to lending to the poor has created this perception. This perception, however, is undergoing a slow overhaul due to the emergence of specialized microfinance banks (MFBs) in several countries. These MFBs, regulated as commercial banks, mobilize deposits to independently fund their growth, have demonstrated rapid, high quality, portfolios growths together with very attractive financial returns for the investors. To generate commercial banks' interest in MF requires, in the first phase, the creation of many more profitable MFBs to further demonstrate the commercial viability of the MF business. Governments can hasten this process by making it easier for private investors to establish MFBs. In the second phase, as the commercial viability of the MF business model is fully established, MF will evolve into a financial product offered by all financial sector institutions: the distinction between specialized MF banks and conventional commercial banks would fade away. For this to happen, the first phase MFBs have to be licensed and regulated as deposit taking financial institutions.
Syed Aftab Ahmed
Anywhere MFIs operate properly and on a sustained basis, they are soon overwhelmed, unable to satisfy the financial needs and evolving aspiration of their clients' fight to get out of poverty. On the other hand, banks with mere resources are not convinced of the efficacy, sturdiness and viability of the market MFIs are serving. They are not therefore prepared to take the risks. Perhaps it can be suggested that funds like the Millennium Development Fund be established and funded by say 1% of profits of multinational corporations. These funds can then be made available to banks and other financial institutions to cover the risks in setting up and operating their own microfinance institutions, adopting existing microfinance institutions, and buying into / expanding / facilitating the setting up of new independent microfinance institutions.
Momodu L. Kargbo
One of the biggest challenges facing developing countries and their governments in sub-Saharan Africa is the financing of micro and small enterprises. The limited resources and the general rising cost of capital incapacitates and disables microfinance institutions from realizing their full potential. It must be recognized that only the concerted and well coordinated efforts of the whole spectrum of players in the broader financial sector will impact enterprise financing in a meaningful way. Increasing the availability and quantum will not be sufficient. Everybody must of necessity examine their modus operandi vis a vis the new realities on the lending landscape. Innovative financing schemes that take cognizance of new circumstances on the global scene, that seek to not only circumvent but remove age old industry conventions and paradigms must be conceived and nurtured. Governments too must make conscious effort to assist this vital sector by setting aside affordable funds for the capitalization of entities that decide to work in the sector.
Reuben Muchada
I agree, MFIs alone are not the answer. Banks and other financial institutions do have far greater resources (or at least the ability to mobilise the needed resources) to take up the challenge. However, we must remember that these financial institutions exist to make money and are accountable to their shareholders. The question then is how can we make enterprise financing a profitable business that is attractive to these institutions. On the demand side, concrete steps are needed to develop an entrepreneurial culture which is lacking in most sub-Saharan African countries and is only starting to materialise. Secondly, an environment in which enterprising activities are likely to succeed must be fostered, which includes but is not limited to macroeconomic stability, the provision of infrastructure (roads, telecommunications and consistent, reliable supply of power) and government policies vis-à-vis enterprise development initiatives and the facilitation of linkages between producers/suppliers and markets. On the supply side, again the provision of infrastructure is of paramount importance to reduce the costs of service delivery by banks and other financial institutions which wish to take up the challenge. In addition, even if demand does exist for enterprise financing, it may not be sufficient to generate the volumes of transactions needed to make the provision of financial services to the poor a viable business venture for banks and other financial institutions.
Chiara Chiumya
I do not agree because MFIs have a strong commitment to reach the target group, they are innovative and have the passion in achieving their vision and mission. They take tailor made products to the people. The collateral for their lending is basically trust and integrity. Their services are almost delivered at the doorsteps of the people and their approach is participatory in nature. They are doing mass banking. On the other hand if we look at banks and other financial institutions, they are doing class banking. The banking system involves lot of procedures and static requirements. They have a security-oriented approach. These are highly regulated. There is no motivation to reach the poor with financial services. These institutions do not have infrastructure to reach the target group. For more than a decade the Government of India encouraged nationalized banks to lend to the poor through Self Help Groups directly. During the current year budget (2005-2006) it has passed a bill directing national banks to lend to Self Help Groups through MFIs. This clearly indicates that banks and other FIs independently cannot reach the target group effectively. They should join hands with MFIs to reach out effectively.
J Milton Devadosan
In order to create sufficient employment opportunities for the poor through income generating activities, MFIs need to have the support of local banks and other financial institutions. Donor capital is neither sufficient nor sustainable in the long run. However, in many countries regular commercial banks do not have knowledge of the SMME sector, nor the appropriate (administrative) infrastructure or the corporate interest to engage in financing SMMEs. For many commercial banks, it is the profit bottom line that counts. Social involvement is a welcome bonus, but without the required profit, they will not engage in development activities. At the same time, in a number of countries (e.g., Republic of Congo), banks seem to be in a situation of having too much liquidity without good (local) investment opportunities. If Microfinance Institutes are run on a commercial and professional basis (i.e. with near-commercial interest rates) and show sufficient stability, they could offer an interesting (local) investment opportunity for commercial banks.
Micha van Lin
Yes, MFIs alone are not the answer. In fact, nothing alone is ever the answer to social questions, particularly to such a complex one as poverty. There is no contesting the fact that banks and other financial institutions like the World Bank, the African development Bank etc. have far more resources and can apparently be effective in enterprise financing in poor economies, which can contribute to poverty alleviation in an indirect way. But the question is do they have the experience, will and the diligence for such intensive activity as microfinance work among the poor requires? The idea superficially looks attractive but is highly flawed. The hardcore poor who live on less than a dollar a day and are usually devoid of such important social capital as literacy are not reachable by top-heavy formal institutions as the typical banks and the MFIs. The poor simply cannot cross the gap that exists between them and these institutions. The classical bank and the global MFIs to the poor are like the mirage to the thirsty in the desert. So for the indigent poor of the world, in Africa or whereever, the answer still remains microfinance.
M. Abdul Mannan
MFI alone are not the answer. Banks and other financial institutions, domestic and international, have far greater resources to take up the challenge of enterprise financing and come up with innovative financing schemes". A growing economy needs, besides legal requisitions, a reliable banking system in place and entrepreneurship. It is very important that the financial institutions start to co-operating more closely with national universities. There is an urgent need in developing economies to establish SME-Centres, where students and business coaches are trained, research works with the special focus on SMEs and microfinance can be conducted, microfinance instruments can be developed and adapted to national economic specialties and finally where microfinance-know-how can be disseminated to all disciplines and sectors.
Prof. Dr. Margareth Gfrerer
I agree that banks and other financial institutions have far greater resources than microfinance institutions in the extension of microcredit. In the Philippines, the Bangko Sentral ng Pilipinas, our Central Bank has initiated programs that will encourage commercial banks to devote a bigger part of their loan portfolio to micro loans. Citibank has actively pursued training of microcredit officers. Non governmental agencies have likewise taken a more active role in microfinance activities. If a developing country like the Philippines can utilize its banking system and NGOs to help the poor obtain credit that is not easily available to them, so can other countries.
Associate Professor Rosemary P. Dinio
I don't agree. Microfinance has evolved to include credit, savings, insurance, money transfer, education (business and health), cultural and spiritual transformation. Money changes the lives of poor people from a negative state to a positive state. However there is a greater challenge for MFIs to innovate financial schemes to greatly respond after the poor have graduated to the next level of enterprise.
Magdaleno Bargamento
Local banks in Africa are not an adequate solution because of the heavy guarantees they require. Africa is still a virgin continent with much potential, but the microentrepreneurs are not likely to evolve for lack of financial assistance. In the case of Cameroon, the international banks are not ready to finance projects, and even to assist potential customers if they cannot provide them a reliable guarantee. And even if there are guarantees it will still be necessary to have particular relations with the manager to have access to credit. Cameroonians have many income-generating initiatives that can fight against poverty, but they do not have the financial support to allow them to change their situation.
Kamgaing Emmanuel
I think that the normal banking system as well as the institutions are not appropriate to start small scale businesses, the kind that is really necessary to start the economy from the bottom. There are always people defending the banking system and the institutions, but they are not structured to answer the true challenges of deep poverty. Microfinancing is a big hope and is already successful, mainly because there is involvement not only of the people who receive the starting money, but also because many other people around them are involved in providing the warranty that everything will be done to make the project a success.
René Winand
I think if MFIs could create a credit data base of all their clients good or bad the banks and other financial institutions willing to go into microlending could use this information as part of their credit analyses.
Noah Halwiindi
First and foremost, the people who run the enterprises need to be trained by the MFIs in basic business management methods before they are advanced any funds. They should continue to be trained on the job as their projects are monitored by the MFIs. Successful trainees are likely to become good customers to Banks and other financial institutions, domestic and/or international. Barclays Bank is an example of an international financial institution that has in place excellent programs that specifically cater for SMEs in sub-Saharan Africa.
Gordian Kankiko
I believe MFIs alone are not the answer. From my experience with local MFIs, most of them are constrained by their inability to provide enough finance to sponsor their activities. It is in this light that it will be helpful to have access to both domestic and international financial institutions to gain more funds. Secondly, some MFIs are also constrained by lacking the expertise banks and other financial institutions have. It will again be helpful to form partnerships with banks and other financial institutions with the sole aim of helping shape the financial activities and structuring of MFIs. Thirdly, MFIs can negotiate with banks so the banks can give some of their low level customers to the MFIs. But this proposal means MFIs should be willing to pay a fee to the banks if they are to have access to the banks' customers.
Yaw Frempong
The Development Workshop microfinance team agrees with this proposition, and we also realize that banks have the culture of making profit that ensures sustained quality financial services. But we have to ask why so few banks are targeting the microenterprise sector? We think it's a question of corporate social responsibility. It's high time for banks to take responsibility in providing access to the financial needs of poor people in sub-Saharan Africa. We feel that banks should target a certain percentage of microenterprise clients in their total portfolio or alternatively partner with MFIs as a means of investing a proportion of their capital. As a policy recommendation that could reinforce corporate responsibility, Governments could require all banks to commit a minimum percentage of their portfolio to the microenterprise sector or provide tax incentives to this end. This scheme would contribute to the downscaling of the commercial banking sector.
Allan Cain
I agree. In Perú in the 1980's, the Agrarian Bank, a public institution, adopted several decisions, with the help of the Central Bank, that involved the participation of private banks and other local and foreign institutions, in order not only to aid financially the poor local farmers and small agro-industry, but to give them technical supervised assistance to be sure they invested and had a return on the investment. The governments of tropical countries have to consider that a great percentage of poor families are involved in agricultural activities that are of high risk because of insects and the weather, and somehow must contribute to help this small farmers and cattle breeders and their families in their desire to get out of poverty and contribute to the nation economy.
Ing. Teodoro Boza Wagner
As a practitioner of microfinance I agree; I believe that opening more financial doors to the poor makes them reliable and productive, but is not more effective in terms of the social aspects of health, sanitation and the environment, capability building, values etc. I recommend a support service or network to address the poor's problems. Banks and other institutions engaging in microfinance must prepare social funds for the poor and give them a chance to participate in a way that their skills can be used in the development of the community. Let's ask them what they want and what we can do for them.
Edward Ello
Banks and other lending institutions have far greater resources and potentially can provide a broader range of services than traditionally financed MFIs. The MFIs that are well established with stable structures and local banks can partner with large institutions to ensure the money flows to the new, small, community-based entrepreneurs. The use of local currency is key. Our caution is that the large financial institutions state financial AND social criteria for placing money with the MFIs and local banks. We believe, strongly, that there must be a commitment to evaluate the impact of the lending.
Valerie Heinonen, o.s.u.
The conventional banks are a major source of financial resources. They can provide services to the poor community through MFIs by providing soft loans. This provision can be a certain range of the total loan portfolio. The linkage between Banks and MFIs can be developed as the relationship between ICICI Bank (of India) and Cashpor (an MFI of India).
Dipendra Raj Sharma
The answer to you question is no. Since the banks and other financial agencies were already there, why did MFIs begin to operate for the development of poor people? The following points may be considered: the high cost factor at banks and international agencies; the mindset of the officials and staff at these agencies to work in a professional and commercial way rather than serving poor people; the difficulty poor people have accessing banks; the lack of human touch. The solution is that bank and other financial agencies should operate through the MFIs by supporting them.
K.C.Malick
Banks and financial institutions will respond to the financial needs of poor people in sub-Saharan Africa if the host government can provide the necessary impetus to MFIs such as tax incentives, market integration and liberal government policy.
Tomas Rances
The fact that large international and domestic banks and financial institutions have great resources is obvious. The problem is to convince them to participate in activities that fall outside the traditional business models that they operate under. From a purely economic standpoint, microfinance needs to provide a win\win economic benefit for all parties involved, and economically, these initiatives may not make sense to large private banking institutions. Microfinance is not purely economic. It is an integral tool for addressing the most important global issues we face today. Poverty, education, healthcare, AIDS, sustainability and violence can all be addressed through the promotion of microcredit programs and the vast capital, managerial and human resources that these large institutions can bring to the table are crucial. If these institutions can begin to see that microfinance activities can constitute a long term investment in regional and global stability as well as their personal economics, I believe they would be more apt to participate.
Peter Stark
Yes and No! MFIs should have been the best to deal with the basic needs of the poor in the sub-Saharan Africa, but the problem is that they levy a lot of interest on poor people. Here the populace can be taught how to form associations and contribute money amongst themselves, these have no interest and no big risk, only good faith. However banks are doing well because they have the capacity to market, to convince, to sensitise, name it. They have a lot money.
Mpamire Rex
I absolutely agree, the marriage of capital (the banks) with selected expertise is a win win combination. It is a long cycle investment, in good faith, to establish basic financial services that will eventually originate customers for the mainstream bank. In the interim, MFI expertise is an alliance for the banks to deliver in ways they cannot achieve themselves. It is so obvious as to be not seen!
Jon Hartley
In response to the first statement about "MFIs alone...", I'm sure that is true. I am sure that banks and other financial institutions have far greater resources. That, however is not the issue. Why have banks and other institutions not created a highly effective program at the grassroots level with low interest and low initiation fees if they wish to be a part of the process? I think banks could take a lesson from MFIs as to process. Banks' perceived need to make more money than is necessary shows little trust in "person power;" and putting people on the ground in the smallest of villages with knowledge, care and trust would make them viable in the MFI market place.
Glenn Norris
Fifteen years in microfinance, mainly working in sixteen countries in Latin America, has proved to me that unless commercial financial institutions contribute to the resources of making microloans, it is impossible to increase outreach in a significant way. In sub-Saharan Africa, this is more accentuated because the MFIs are less efficient, receive more donations and therefore are less motivated to be sustainable and reach more clients. The problem is that financial institutions are less inclined in Africa to contribute resources to microfinance because of the basic problems of identifying who their clients are because of the lack of identification in those countries and the danger of not having a reliable mechanism to check on the risk of each client.
Miguel Ringvald
I totally agree with the statement. The concrete steps that can be taken to stimulate greater involvement by banks and other financial institutions in extending financial services to poor people are to design an innovative way to share with the banks the operational/credit risk that they face in servicing this sector for a limited period of time conditioned by a pre-approval from the bank to leverage funds made available to this sector. The innovation here is to create a direct mode of engagement with private sector technical service and guarantee service providers outside the donor assistance mode. If banks feel that there is a firm that believes in the activity to the extent of willing to share the banks' risks they would be more receptive to the idea.
Magdy M. Moussa
In global comparison, poverty levels are highest in sub-Saharan Africa with recent figures showing that over half of the population is living on less than US$1 per day and three-quarters on less than US$2 per day (Chen and Ravallion, 2000). As such, the challenges to entrepreneurial growth are even greater, and include the growing socio-economic effects of the HIV/AIDS pandemic, high illiteracy levels, inadequate vocational skills training programmes, poor telecommunication and other infrastructure. Due to the enormity of these challenges, it is a fact that MFIs alone are not the answer. As such, there is need for concerted effort among all stakeholders in order to meet the financial needs of the poor in Sub-Sahara Africa. Commercial banks have the potential to bridge the gap that leads to exclusion of the poor from the formal financial system. Commercial banks have the expertise and know-how; they have the capacity in terms of financial capital, human resources and infrastructure; they also have the technology. However, they lack the empathy and understanding of the needs of the poor due to their profit-driven culture. It is for this reason that establishing proper linkages with MFIs and other non-formal and informal financial service providers that wider outreach can be achieved in the delivery of financial services to the poor.
Kennedy Bisani Lweya
For very poor people, offering only strictly financial products/services isn't likely to make a real difference. Those products/services should be combined with a small subsidy or donation specially focused on the startup of an income-generating activity, together with basic training related to that activity and to "managerial" skills (even though we are talking about very small scale businesses). We think this should be purveyed by private institutions but with public funding.
Véronique Van Simaeys
I do not agree. The problem so far in microfinance is that most institutions look at their customers as regular people. They do not think that they are poor, that they do not have collateral for the loan and they need special interest rates. Most donors and institutions are thinking more of the business instead of about helping people. So if the banks and the other institutions get more involved this will be worse for poor people. The banks and the other institutions have to create special financial services for the poor people with different interest rates and different loan collateral schemes.
Bryan Solís
I think that there are at least two questions, first, what is the level of development of the financial market, including the types, spread and sizes of institutions active in the financial market? Depending on the answer to the first question, we can try to answer the second. In South Africa we have a well developed financial market, with more than the majority of clients served by commercial institutions (banks, retail organisation). Just by the sheer outreach and network it makes sense to focus on these institutions rather than the few NGO MFIs. In another country, where you may have a very under developed financial market, NGO MFIs may be the best bet. Thus it depends on the reality of the market.
Gerhard Coetzee
Financing is not the answer. To get into rural areas to do real lending, you need local people trained to do the lending in a trusting, affordable way. You cannot do that from Park Avenue.
Michaela Walsh
I agree with the assertion, because I believe that there are no magic solutions for all problems. It is not possible that only one type of institutions could solve the financial needs of poor people. It is not advisable to depend on a sole type; competition is necessary to create new products and solutions. It is necessary to consider the interests of the institutions in order to plan the framework to propose. Loans for poor people are small, costly and need supervision. Banks and other intermediaries prefer population strata with bigger spreads or individual and operational profits. However domestic and other banks as well as international cooperation organizations can provide resources to other smaller intermediaries to provide loans to poorer groups. To generate greater involvement by bank and other institutions, it is advisable to: revise national regulations regarding loans to small enterprise (micro) and poverty loans; develop transparency tools; develop training tools for bank analysts; prepare a "task force" to monitor and provide technical assistance to banks and intermediaries; contact other private sector organizations to get more involvement (Chambers of Commerce, trade institutions, etc.); and offer positive stimulation, such as prizes to creative analysts and creative programs each semester.
Mario Valdez S.
I agree, the challenge is to get the banks interested despite the small margins of profit available to them. Community banks, Co-operatives and specialized banks are better placed to relate at that level and be comfortable with that level of profit. In Nigeria we still have a lot to learn in managing credit. The international institutions are to assist with know how and funding.
M.O.Oyegunle
The issue stands as follows: how far can development be funded with short term funding? How many MFIs are actually provided with mid and long term funding? Justifying microfinance as poverty alleviation is a marketing trap to enable MFIs to apply whatever 'market related' interest rates they like - and those are very often close to 'loan shark' practices. How many serious impact surveys have found genuine and tangible effects on poverty alleviation? Microfinance is a tool, not an end in itself to demonstrate that the 'poor' are good at repaying loans. Of course the 'poor' pay back very well, as they must pay back so as to get the next loan. Let's demystify microfinance.
Dominique Lesaffre
I do agree with the statement. MFIs alone are not the answer. Banks and other financial institutions have greater resources. Those formal sector financial institutions are also allowed to mobilize and intermediate savings and, as part of the (inter-)national payment system can send and receive transfers for clients. Savings and transfers are the most needed financial services for the poor. MFIs that are sustainable and have owners, management and systems that aim at integrating into the formal financial sector, can be important instruments to support further outreach of the formal financial sector, there where banks find obstacles (legal, operational, financial) going directly. The poor don't need a Bank for the Poor, they need a bank that is strongly committed to integrating them as normal clients. That raises the issue of which banks have that commitment. Only banks that have the appropriate vision, owners, finance, managers and systems can have such commitment. But, even with a strongly committed bank, the role of government is key to successfully undertake the public-private process of building up a gradually inclusive financial market.
Peter van Dijk, Policy Advisor
In a context of extreme poverty as in sub-Saharan Africa, reducing poverty in a direct manner cannot be considered as the exclusive task of microfinance institutions (MFIs). It is therefore safe to assume, as the Commission for Africa, that poverty alleviation requires building an optimal financial system which includes conventional banks and other financial institutions, domestic and international, in addition to MFIs to mobilize resources for the sake of addressing global development issues. For that to happen, these are six non exhaustive recommendations: poverty alleviation-focused programs should build a global framework in which the conventional financial system (central banks and commercial banks) is actively part of the development process; a financial deepening orientation should be adopted to strengthen the creation of new markets and new assets; monetary and public authorities should work to re-create development banks or specific financial institutions in addition to MFIs to address the specific needs of poor people; fighting poverty also requires to build and shape an optimal system where informal financial actors can find a place. More importantly, the optimal financial system in sub-Saharan Africa should establish linkages between formal financial institutions and MFIs. Finally, enhancing the credibility of both public and monetary policies helps avoid the macroeconomic uncertainty which equally affects investment, saving, growth and development. In conclusion, it appears quite obvious that addressing the financial needs of non-financial agents (poor and non poor) requires a far broader vision for reforming and enhancing the financial intermediation system in sub-Saharan Africa.
Ndzana Olomo Patrick
Microfinance offers not just the currency of the State to encourage people to achieve their potential, but the currency of community and solidarity, and empowers those who are most often viewed as victims. I believe that formal financial banks should recognize the potential of all people and give them access to credit and safe places to keep their savings. However, my personal ideal is that they should do this through microfinance organizations that have the social mission and the expertise in reaching out to the poorest. Microfinance can scale up if given sufficient support - especially in the area of operational and accounting systems. There should be a convergence of interest from banks to reach a very wide base of new customers through microfinance institutions in fulfilling their mission to empower the poor. Banks cannot afford to place branches or ATMs in every rural village, but microfinance can find creative ways to reach that population with new models of human and information based systems. In fact, we're doing it.
James Dailey
Historically, banks and traditional financial institutions have generally failed in providing microfinance and related services to the poor, especially the very poor. Their rigid collateral and other requirements and their primary raison d'etre--profit maximization for the shareholders--have automatically excluded the poor from the products and services they offer. Historically too, banks and conventional financial institutions have not been the sources of innovations that enable the poor to access financial services; these innovations, such as collateral-free lending based on solidarity groups, have come from microfinance NGOs to address the failure of the banks to serve this sector of society. This is so because NGOs, unlike banks, are primarily motivated by maximizing social returns to their investments, and only secondarily by financial returns because of the need to become financially viable institutions. But banks and traditional financial institutions can play a very important supportive role to increase the number of poor with access to financial and related services. They can help microfinance NGOs address their capital constraints that prevent them from extending their services to many more of the world's unserved or inadequately served poor entrepreneurs through innovative schemes such as guarantees, bond offerings, portfolio securitization and others. There is no reason why such initiatives cannot be undertaken in sub-Saharan Africa.
Dr. Mike Getubig, Jr
We agree with this and the key considerations are: poor households need a variety of financial services (savings, remittances, loans, insurance etc and not just credit) and the thinking of providers and promoters is evolving. Emboldened with successes of what works and new insights and technology, the scope of `what is possible' is enlarging. Enterprise financing needs are even larger and more diverse to be met solely by MFIs. One off financial service delivery is rarely enough and both the provider and the customer benefit from multiple products and transactions leading to long term relationships. This is as true for a financial institution being able to trust a client without adequate collateral as for a semi-literate client willing to trust a new deposit or remittance collector. So while MFIs and NGOs have played a useful role to test models, share insights, innovate and demonstrate what works, scaling up requires significant resources, diversity of suppliers and partnerships and long term institutional commitment. Fortunately many Banks and financial institutions have already noted these business opportunities.
Sukhwinder Singh Arora
In theory, the statement is factually correct. However in practice banks and other financial institutions don't, can't or won't leverage their greater resources to serve the customers reached by MFIs. Often, traditional financial institutions do not understand these consumers. They do not understand why these customers don't respond to the same products and services offered to the mainstream population. They don't really want lots of little accounts. And so on. Better that banks and other financial institutions provide innovative financing, services and other financial support to local MFIs that understand these unique populations and how to serve them effectively.
James R. Wells, Jr.
I do not agree. First, big banks show a lack of interest and only small expertise in the special needs of small villages and townships. The Banks and bigger financial Institutions have to define their actions and their achievements in the light of national or even global competition. Second, their business models are defined by larger volumes and less consultancy work per loan. Banks are designed as a money machines, not as development tools. Innovation is a retail and not a wholesale job. Third, there are valuable synergies where the strong network of the Banks plus their better resources help to inform customers, build mutual projects with MFIs, offer additional services and take over the customer at a later stage of the customers' development.
Hajo Streitberger
This is a very sad recommendation reflecting ignorance of what "microfinance" is. True, the banks have large amounts of surplus funds, but banks do not have the systems to serve the rural population and low-income self-employed people. Banks consider this clientele too risky and not profitable. For example, in Burkina Faso, about 10 million people (80% of the population) do not have access to financial services, although essential to living a decent life. Right now, banks are not putting up the systems to serve the rural population and the low-income self-employed people, microfinance institutions are. There is no sign that banks are interested by this market. So better to help existing MFIs put up and improve these systems by helping them define and implement information systems that are needed to serve these populations. Sure, some banks are using the term microfinance (it's popular). Some banks have even put up microfinance services, but these are not really microfinance services. For example, they require guarantees for their loans; this is not microfinance. None of their "microfinance services" are targeted to the 10 million people having no access to financial services in Burkina Faso.
Normand Arsenault
I agree, but most commercial banks have a cost structure that is too high in developing countries because of their emphasis on corporate loans and products for a small number of clients located in capital cities. A separate subsidiary with low cost outlets and desperate salary structures would facilitate low value, high volume lending characteristic of MF and SME lending and savings.
Tony Singleton
MFIs are key actors and will continue to play a very important role in the microfinance scene. However, greater involvement of banks and other financial institutions in serving the financial needs of the poor in sub-Saharan Africa should actively be pursued given the potential of regulated financial institutions to offer a wider range of products and services and channel far larger amounts of resources. Concrete steps in this direction would be: a) promoting greater awareness on the importance, successes and feasibility of microfinance both as a promising complementary line of activity, as well as a socially responsible commitment towards the community; b) increased knowledge sharing and technical support on microfinance technologies, best practices and capacity building; and c) establishing strategic alliances and cooperation between MFIs and banks.
Guillermo Salcedo
In Africa, microfinance plays a key role in both economic and social development. This is because its main focus is on productive poor people, especially women, who cannot access financial services from banks and other big financial companies. Experience has shown us that bank and other big financial companies believe that poor people cannot pay back loans. Microfinance providers target the poor through community banking people. This is the only way to involve the poor in both social and economic development. Therefore the concrete steps to be taken by banks and other financial institutions in responding to the financial needs of poor people, especially in sub-Saharan Africa, is to recognize community banking and support them in terms of microbanking. This can be the only way to transform their life in all its fullness.
Kastory Madege
To answer your question, we need to look at the country-specific context, issues and challenges. A strong and vibrant financial sector is vital for the growth of the microfinance industry in sub-Saharan Africa. What we need is commitment from policy makers and the right regulatory enabling environment to stimulate economic development at the grassroots. Having worked in the region, my comments are aimed at: identifying ways to mainstream microfinance as a strategy for poverty alleviation; bridging the gap between demand and supply; creating linkages between banks and MFIs; and transitioning 'bank-able' clients into formal lending institutions. I suggest promoting a diversified capital structure for MFIs through statutory prudential norms; re-defininng the role of wholesale apex institutions to provide collateral/risk cover for MFIs to leverage funds from commercial banks; using national MFI networks to promote performance standards, on par with international best practices; and finally that banks should provide diversified financial products (leasing, hire purchase etc.,) to clients using MFIs' market base and experience.
Rajan Samuel
Future regional enterprise policy for sub-Saharan Africa cannot be predicated upon an existing model of MFIs alone. Nor can any single initiative be considered a panacea in the ongoing work of encouraging and facilitating regional enterprise development. The biggest single encouragement to the willing participation of domestic and international financial institutions in future enterprise financing would be an improvement in the investment climate, particularly in rural areas and agriculture, through strengthened - and effective - national regulatory frameworks.
Ross Ferguson
I agree with the finding of the report. By substance, MFI is a banking business. Then therefore, the policy makers/governments and banking businesses in Sub-Sahara Africa (or elsewhere) have to realized and understand better that there are great business opportunities that can be potentially tapped among the 'economically productive' group of societies. These kinds of people should not be seen as as poor people, but as potential bank clients. There are many best practices from many other countries, mainly Bank Rakyat Indonesia, that should be used as lessons learned in practicing profitable innovative micro banking business' without neglecting the 'pro poor' policy.
Hudi Sartono
I do agree with the above statement. Since microfinance has established that poor people are bankable, NGOs can advocate on their behalf to help them gain access to credit from formal banks. Banks have larger resources than the MFIs; the only limitation is the reluctance of the formal financial sector to provide services to the poor. If government takes initiative and the banks are convinced of the potential, this problem may be overcome. This is already happening, for instance self help group (SHG)- and bank linkages have picked up the pace in India under the initiatives of NABARD and in Pakistan under Kushhhali Bank. The problem of lack of credit for the poor in rural and urban areas could be solved by this SHG-bank linkage strategy. The existence of traditional social network systems like 'Kibati' or 'Upatu' (informal alliances between women to facilitate informal exchanges of goods, labour and information as a form of livelihood strategy) in sub-Saharan Africa could be strengthened. An appropriate role for government agencies is therefore to create an enabling environment allowing these organizations to grow and to perform their functions more effectively.
Bipul Kr. Borah
MFIs alone are not the answer. Domestic banks have roles to play. Local government should establish small scale industrial development corporations (SIDCOs) exclusively for starting cottage and small scale industries. They should develop industrial estates and rent these out to entrepreneurs. SIDCO boards consist of industrial experts and business consultants functioning as a task force providing viable project reports and imparting management skill training to the entrepreneurs. The SIDCO has the responsibility of helping the industries to market the products locally and outside the country. The SIDCO should scrutinize all loan applications for viability of projects and recommend them to the financial institutions for venture capital. The SIDCO should bring into its fold the local colleges and technical institutions for providing testing and evaluation of the products produced. The SIDCO can charge a small fee for its services.
Venugopalan
In order to improve and increase accessibility to financial services for the poor, it is mandatory that financial institutions are owned locally and aim for the development of local wealth. These institutions must be opened to the community, reaching from the poorest to the small entrepreneur; its decision must be representative of the actors in the community and, finally, the institution must reinvest in the community. Innovation comes from both the necessity and the capacity. What the extract suggests is that banks have the "capacity" and MFIs have the "necessity". MFIs know the small entrepreneur clientele and offer them more flexible conditions of access. Unfortunately, MFI product lines are usually incomplete. Banks can fill this gap until MFIs develop a full line of financial services, but do not have enough incentive to innovate on financing schemes for small enterprises. Partnership for the refinancing of MFI loan portfolios by banks should be stimulated so that MFIs can innovate and adapt to the needs of small entrepreneurs.
Développement international Desjardins
Senegal's economic fabric consists primarily of micro, small, and medium enterprises. This dynamic sector, with its capacity for creating jobs, is the primary clientele of microfinance institutions (MFIs). However, substantial and growing financial needs are generally not met by MFIs, whose funding resources derive primarily from the savings of their members. The MFIs have, furthermore, extended their clientele to individuals (salaried employees of the public and private sector) whose financing needs are significant. It is thus imperative that MFIs seek funding. Long-term financial resources are needed even more urgently to fund profitable investments, including social housing investments. MFIs are, moreover, increasingly engaged in seeking out resources with funders, particularly the banking sector, but this opening up does not at all justify the denaturation of our sector, today the only voice for the realities and concerns of the population.
M. Mamadou Touré
Instead of banks' playing a role in microfinance, why can't we have people's banks as an alternative. In India we are in the process of turning women's self help groups into federal banks to undertake financial transactions and rule among themselves.
B.Yognath Singh
Banks and other financial institutions have greater resources than MFIs but have failed to make "reaching the poorest" a priority. Many MFIs have passed this acid test and have found ways of cost effectively reaching the lower economic strata as banks have not done. In doing so, the MFIs have already understood the poor to be a good credit risk. What is needed is greater support for these institutions, from organizations like the World Bank. The clear risk of greater bank involvement, to the detriment of MFIs, is that the fad for them will pass, leaving weakened MFIs to again take up the task of providing credit and other financial services to the poorest. In my view, seed money for MFIs should in fact be increased, particularly for those that have demonstrated they reach the poorest and approach sustainability.
Randy Rudolph
Yes, banks and other financial institutions of course have greater resources but do not have the orientation, motivation, knowledge, and capability to develop and market effective financial products to the poor. The structures of Networks and MFIs can provide the Financial Institutions the most effective infrastructure to distribute capital to microenterprises. Because of their origins in local markets, Microfinance institutions know the customer -- the market -- have experience and staff to locate the target customer, to "assess" the bankability and to monitor each client. Only an active and visible local presence can deliver the many services in addition to the loans -- training, good business practices. effective communication skills etc.-required to support an individual's ability to earn income and build an enterprise. Today the many local MFIs provide the most effective infrastructure for the distribution of capital to support the emergence of sustainable microenterprises. Financial institutions can and must be the providers of capital through the MFI system of many local operations.
Josie Sentner
Governments of African countries must develop clear cut policies on which level and to what extent the financial institutions could intervene to assist the emerging SME sector, which in turn could aid governments in developing their economies. The big question for governments in sub-Saharan Africa is how to break the barrier of "Guarantee/Security" prior to the accessing of private financial institutions' finances by SMEs.
Amaghumbo
Microfinance institutions (MFIs) alone do not satisfy the demand of microfinancing in developing countries. This can be seen in the case of Guatemala, where banks have granted 49% of microcredit, in spite of the fact that the Cooperative and Private Organizations of Financial Development (NGOs that offer the services of micro financing) can provide this service too. Nevertheless, microcredit in Guatemala corresponds to only 1.67% of all the credit granted by the banking system, which means there are many opportunities for microfinance development in our country. The market participation of banks compared to the other MFIs is the result of their capacity to obtain resources from the public with relatively low costs. Normally, the banks have a larger infrastructure, compared to MFIs. In Guatemala banks own 67% of the microcredit offices; this produces economies of scale that generate lower costs and greater efficiency.
José Luis Suárez
Microfinance activities have had sufficient success that they should be included as a component of any financial mix available in just about any society. Microfinancial arrangements are almost entirely locally based and therefore more accessible. In most instances they would also be more user friendly and often more closely monitored in both an official as well as an unofficial way by the local community. Good models should be promoted in a variety of environments with as much local input as possible. Financial advice may be more readily available from banks, but microfinance organisations will be ale to develop this over time and their advice would be more locally relevant. Obviously, a range of financial institutions should be available to the poorest communities along with relevant and appropriate advice and follow-up. Hopefully, UN agencies would have the expertise to assist in putting a good mix of financial programs in place to meet the particular needs of small business in such areas as sub-Saharan Africa.
Ron Hall
An element of answer to your question would, I believe, be to let the concerned people say what they need, and how they want to spend the capital that will be placed in their hands. Experts continually think in the place of poor people. But they are materially poor, not poor of mind. Enabling the poor to speak would in my opinion be more beneficial. Allahdoum Boulo Moulkohg By definition, microfinance is the alternative for the poor that do not have access to the classic banking system. I am not convinced by this affirmation of the report of the Commission for Africa. The conditions and guarantees required by traditional credit are out of reach for the poor. The banks could perfectly well develop a niche for microfinance, however this would essentially be focused on the less poor, and we would then leave the concept of microfinance at the service of the poorest. In my opinion, the true challenge that can be addressed by the banks and other financial institutions in financial matters would be the capacity to give the credible MFIs credit lines, at conditions that enable the MFIs to play their role of support to the least favored categories of the population.
Patrice AWESSO
Featured Opinion*By Herman Abels, Managing Consultant, Blue Rhino Consult, the Netherlands I'll start with the question: MFIs being the answer to what? To deepening financial service delivery, to poverty alleviation, to wealth creation, to off-loading donor and investor funds, to health and sanitation issues, to civil society building? I am not particularly privy to the mandate and aspirations of the Commission for Africa but it sounds as if it is just another high-level group that needs to come forward with a peppered solution to convince us that Africa should not be a lost continent and simple solutions are just around the corner if only....These statements and commissions come and go; they hit the press for a few days, stir up multilaterals with some power talk, and then continue with the business at hand, which normally does not include any genuine concern for Africa or Africans. I have been involved with African microfinance for well over a decade, and slowly but steadily the sector is growing; it is coming to some level of maturity yet in a vibrant pattern of diversity. Hundreds of NGOs and MFIs try to bring financial leverage to millions of poor people and across the board they do a fine job; it is not perfect and it surely is no solution to the root problems of Africa, but it helps smoothing incomes and - on top of that - increases them. That already should be considered an achievement in its own right. And at some parts of the spectrum the commercial banking sector now comes in, with more capital, more expertise, more back-up facilities and so on and so forth; but also with lower levels of commitment. They come in and stay aboard as long as it works for them. That is not wrong, but it is fragile. Examples of countries where the commercial banking sector has made significant inroads in microfinance recently are Kenya, Uganda and Tanzania. Partly this progress can be explained by negative factors. Treasury bills in these countries have dramatically collapsed over the last five years: from 15% and higher per annum to less than 3%. So where do these banks have to go with their mobilised savings if T-bills are not attractive any longer and if the private sector does not pose an interesting proposition: microfinance by that time was attractive enough to take a calculated risk. One could argue that these banks are now creaming off the market that was pioneered by NGOs and MFIs. Many MFIs will not be able to stand the competition, trapped as they are in old fashioned and high-cost lending methodologies; many will perish before long. Should the commercial sector be blamed for that? I don't think so. From a client perspective the new competition is welcome as it brings alternative shopping prospects into the system. But what will happen if T-bills will go up again (as they are)? What will happen if T-bills become more attractive than microfinance (as will happen)? Will these commercial banks stay put and continue to be active in microfinance? Some will, but most won't as their shareholders will demand the highest possible return for their investments. If that happens, and if in the process traditional MFIs are put out of business due to tough competition by the commercials, then what? Who will continue servicing the poor? Exposing fragile economies, societies and communities to the full impact of free enterprise and global competition is not something new. It may be considered necessary for political or ideological reasons but to date this kind of exposure hasn't been very successful. Most African countries are poorer than at the time of their independence and, more relevant, poorer than they were five to ten years ago. So those who claim to have a solution ready for any problem in Africa had better check their history books and Africa's track record before ending up at the end of the long line of broken promises and flimsy recipes. Nobody can predict what will work in Africa. The continent is far too diverse and complicated to benefit from a 'one size fits all' recipe. But we know one thing from our history books. Anything that will work will have to come from Africans themselves, not from commissions. * In the spirit of fostering discussion and debate, the Featured Opinion features a response we found to be particularly thoughtful or provocative. |