The Future of Microfinance in Africa  Michael Mithika, SAM Course Director  

17th September, 2015

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Africa’s  Story…  hope  is  rising!  

Promise of a better tomorrow Population is young and resourceful…

Cities are booming…

Africans are embracing technology rapidly

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The  Promise  of  a  Better  Tomorrow  

The continent’s long-term growth prospects are strong, propelled by both external trends in the global economy and internal changes in the continent’s societies and economies.

Africa in 2008

$1.6 Tn

Africa’s combined consumer spending in

2008

Africa’s collective GDP in 2008, roughly equal to

Brazil’s or Russia’s

$860 Bn

316 Mn The no. of new mobile

phone subscribers signed up in Africa since

2000

52 The no. of cities with more than one million

people each

Africa in 2020

Africa’s collective GDP in 2020 $2.6 Tn

$1.4 Tn Africa’s consumer spending in 2020

1.1 Bn No. of Africans of

working age in 2040

50% The portions of people living in cities by 2030

Source: Mc Kinsey

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Role  of  Financial  Services  in  Economic  Growth  

The financial services sector is considered to be the continent’s brightest prospect – and a means to tap into Africa’s extensive and unexploited growth potential.

Expected CAGR of between 2013 and 2020

11% % of sector’s contribution to continent’s

collective GDP in 2009

19% % of sector’s contribution to continent’s

collective GDP in 2020

Source: AfDB and KPMG

Individuals

FS helps individuals: Save money

Guard against uncertainty

Build credit

Companies

FS help businesses: Start up

Expand

Increase efficiency

Compete in local and international

markets 15%

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Financial  Inclusion  

“Economic growth is the surest way to a substantial and sustained reduction in poverty in Africa; policy for long-term growth requires

focusing on the larger and more formal parts of the financial system. But while even growth-enhancing policies are beginning to have their effect, improving the access of low-income households and micro entrepreneurs to financial services should become an

additional central focus of financial sector policy”

 World  Bank  -­‐  Making  Finance  Work  for  Africa  World  Bank

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Barriers  to  Financial  Inclusion  

!  A vicious cycle of insufficient information, inappropriate products, inadequate infrastructure, and inflexible regulatory environments has limited the FS providers’ markets to clients within the top tiers of the economic pyramid.

Source: World Bank _Global Financial Inclusion Report

Self-reported barriers to use an account at a financial institution

0 10 20 30 40 50 60 70

Religious reasons

Lack of trust

Cannot get an account

Lack of necessary documentation

Financial institutions too far away

Family member already has an account

Does not need an account

Not enough money

Cited as the only reason

Cited with other reasons

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Is  MicroGinance  the  Answer?  

57% Percentage of for-profit

African MFIs

70% Proportion of total loan

portfolio accounted for by for-profit MFIs in SSA in

2009

71% Proportion of total deposits accounted for by for-profit

MFIs in SSA in 2009

16.5 million depositors

6.5 million borrowers

Shift of industry from being development-inspired to business-oriented…

African MFIs in 2008

2010

3,600 MFIs

200 Mn clients worldwide

135 Mn clients living on less than US$1.25/day

Source: Microfinance Status Report 2014

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Changing  reputation  of  microGinance  

The initial enthusiasm about microfinance has been replaced by skepticism.

“Microfinance is an idea whose time has come.” - Kofi Annan, United Nations Secretary-General 2005

“The industry seems to be pumping debt down people’s throats. It is no longer socially responsible and does not belong in developmental funds.”

- Andrew Canter, Futuregrowth Asset Management. South Africa, 2012

“…there has been surprisingly little rigorous research that attempts to isolate the impact of microfinance from other factors, or to identify how different approaches to microfinance change outcomes.”

-Center for Global Development, 2007

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The  Golden  Age  is  Over…  

“We’re competing against the whole world... I mean everybody is doing microfinance.”

- Rupert Scofield, CEO, FINCA International

Traditional microfinance banks are now considered veterans in an industry that is rapidly morphing.

New players entering the arena:

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The  Road  Ahead…  

What needs to happen for us to succeed?

REGULATE

INNOVATE

PARTNER

•  New, lower cost business models •  Simple and easily marketable products •  Client-centric financial services

•  To protect the customer i.e. responsible pricing, transparency

•  To encourage innovation

•  To leverage technology •  To scale more easily