MICROFINANCE PAPER WRAP-UP: “Microfinance in Africa: Opportunities for Social Entrepreneurs;” by Daniel Schriber; Published by The African Business Review

“Microfinance in Africa: Opportunities for Social Entrepreneurs,” by Daniel Schriber, Published by The African Business Review, May-June 2013, http://theafricanbusinessreview.com/wp-content/uploads/2013/06/TABR_May-June2013_55-57.pdf

In this paper, Daniel Schriber, the director of the research and advisory arm of Switzerland-based Symbiotics, argues that although economic growth in Africa has been lagging for years, it finally surged due to factors including the expansion of the commodities sector. Africa has experienced stronger growth than any other continent over the last ten years, buttressed by movements towards democracy, a lower incidence of conflict and improving infrastructure and education systems.

Mr Schriber states that the most advanced economies in Africa also have higher growth in their microfinance sectors compared with less-developed countries. However, he argues that despite the widespread appeal of increasing financial inclusion, most microfinance activity is still confined to urban areas. The benefits that microfinance can bring to rural areas are thus still latent, and even urban microfinance is not operating optimally for reasons including over-indebtedness.

While Mr Schriber does not view microfinance as a “panacea” for fighting poverty, he claims that it does spur economic development in both urban and rural areas, providing financial inclusion for the owners of small and medium-sized enterprises (SMEs), helping them grow their businesses and contribute socioeconomically to their communities. Interestingly, Sub-Saharan Africa is the only major region in the world to have more savers than borrowers. Still, there are risks involved in Africa’s “unbalanced growth,” exacerbating the gap between rich and poor and between cities and rural areas.

Other risks cited by Mr Schriber include inefficient handling of credit histories. He advocates for the mandatory use of credit bureaus to evaluate the repayment capacity of microentrepreneurs. A lack of checks and balances, particularly the weak governance structure of microlenders, creates problems for regulators. Among other factors, meager transportation infrastructure leads to high operating costs, making it difficult to expand microfinance lending services in rural areas. Due to such limitations in institutional infrastructure, microfinance in Africa still lags in profitability. Mr Schriber cites profitability rates ranging from 22 percent yearly loan portfolio yield in Senegal to 80 percent in Zambia. Such variations may be attributed to different levels of market maturity and country-specific business models.

Mr Schriber believes microbusinesses are “the best option” for many individuals and families seeking to improve the quality of their lives. He further argues that the growth of SMEs is vital to creating jobs and strengthening local economies. Currently, only a few banks are offering loans to SMEs. Nevertheless, he is optimistic about the slow trend of microfinance institutions up-scaling their products to serve SMEs and believes this niche offers unique opportunities for socially responsible investors.

By Anesa Kratovac, Research Associate

Additional Sources and Resources:

MicroCapital Article, August 26, 2013, “MICROCAPITAL BRIEF: Zimbabwe Microfinance Bill to Benefit Small and Medium-Sized Enterprises (SMEs),” https://www.microcapital.org/microcapital-brief-zimbabwe-microfinance-bill-to-benefit-small-and-medium-sized-enterprises-smes/

MicroCapital Article, August 22, 2013, “MICROCAPITAL BRIEF: Thirty Microfinance Institutions (MFIs) Close in Ghana,”https://www.microcapital.org/microcapital-brief-thirty-microfinance-institutions-mfis-close-in-ghana/

MicroCapital Article, August 12, 2013, “MICROCAPITAL BRIEF: Middle East and North Africa (MENA) Transition Fund Grants $11m to Moroccan Youth Microentrepreneurship Projects,” https://www.microcapital.org/microcapital-brief-middle-east-and-north-africa-mena-transition-fund-grants-11m-to-moroccan-youth-microentrepreneurship-projects/

MicroCapital Article, July 26, 2013, “MICROCAPITAL BRIEF: European Investment Bank (EIB) Loans $92m to National Microfinance Bank (NMB) of Tanzania for Micro-, Small, Medium-sized Enterprises,” https://www.microcapital.org/microcapital-brief-european-investment-bank-eib-loans-92m-to-national-microfinance-bank-nmb-of-tanzania-for-micro-small-medium-sized-enterprises/

MicroCapital Article, July 9, 2013, “MICROCAPITAL BRIEF: Creditinfo Group’s Credit Reference Bureau Licensed in Tanzania,”https://www.microcapital.org/microcapital-brief-creditinfo-groups-credit-reference-bureau-licensed-in-tanzania/

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