Africa: The Last Frontier for Microfinance?

Undoubtedly, Africa is the last frontier for microfinance. Almost all of Africa’s poor are unbanked; in Ethiopia for example, only 1% of the rural population has access to formal financial banks. Similarly, in rural Niger, there is one bank branch for every 844,000 people.

To be sure, high rates of illiteracy and HIV/AIDS coupled with dispersed rural population across a vast landscape do not always lend themselves well to the traditional Grameen- style microfinance model; the financial needs of Africa’s poor are different and delivering such services a challenge. Fortunately, CARE’s recent report on the microfinance sector in Africa reveals not only the continent’s deafening potential but that many in the microfinance field are innovating several products and programs in order to meet it.
Even though Sub-Saharan Africa is amongst the most unbanked regions in the world, the report illustrates a number of formal, collective, group-based, and the more homegrown local and informal financial services that are available to the poor. 

Here are some I found interesting:

• Since 1991, CARE has invested in 54,000 village savings and loans associations (VSLA) in 21 countries across Africa, serving over a million members. A VSLA typically consists of thirty women in a village who, together create a pool of savings and then lend portions of it out to members.
• Small Enterprise Foundation (SEF) is an MFI that serves 55,000 of South Africa’s poorest in remote, rural areas. Microfinance institutions, like SEF, have the potential to have an impact on other problems such as proper training and use of retroviral drugs for HIV/AIDS effected clients. For example, SEF has partnered with a South African NGO called the IMAGE project to offer training and counseling services related to HIV/AIDS and gender-based violence and abuse at the meetings. An evaluation showed that among SEF clients as compared to a control group, there was 24% increase in the use of condoms and 60% in voluntary testing for HIV.
• In a land devastated by civil war and famine, people had gotten used to subsisting on aid in Amhara, Ethiopia. The Amhara Credit and Savings Institution (ACSI) was established in 1995 and serves 740,000 clients today often reaching their clients on horseback and mules. In a drought prone region, ASCI clients are taught rain water harvesting as part of their pre-credit training and encouraged to invest in assets and livelihoods that are off-farm and less dependant on water.

• Venture capital or seed money to help start microfinance programs
• Value-chain analysis and help clients diversify their enterprises and livelihood activities so the market is not flooded with same types of businesses
• Technological support to increase access and improve monitoring systems
• Link microfinance and asset building to broader development issues like climate change mitigation, HIV prevention and treatment etc.

Shweta S Banerjee is a consultant with the Global Assets Project at the New America Foundation.