“Africa Microfinance Analysis and Benchmarking Report, 2008,” written by Jennifer Isern and Estelle Lahaye of the Consultative Group to Assist the Poor (CGAP), and Audrey Linthorst of the Microfinance Information Exchange (MIX), analyzes the development of the microfinance industry in Africa with a focus on key growth trends, the regulatory environments, funding flows and structure, and performance of microfinance institutions (MFIs). The report is based on data submitted from 160 African MFIs. In 2008, the 160 MFIs collectively reached 5.2 million borrowers with a total credit line of USD 2.5 billion, and 9 million savers with gross savings of USD 2.1 billion (p1). Full text of the article is 20 pages and is available here.
General Growth Trends
The report utilizes information from 111 MFIs to develop growth trend data. The data revealed that in 2007, the African microfinance industry experienced growth in microfinance borrowers of 25 percent (p1) over the previous year (5 percent higher than the global average of 20 percent); a 31 percent growth (p2) in savers; and a 69 percent growth in total loan portfolio, with an increase of nearly USD 1 billion (p2).
However, the growth was uneven among the West, East, Southern, and Central sub-regions. The top 10 countries (p2) for penetration of borrowers and savers were the same (Kenya, Togo, Senegal, Mali, Ghana, Burkina Faso, Cameroon, South Africa, Uganda, and Ethiopia).
Five of the countries were from West Africa (p2), which have a relatively low growth rate, indicating that its market was nearer saturation than the other regions. The region also had the most clients served by deposit taking institutions and twice as many savers as borrowers.
East Africa (p3) exhibited the highest numbers across all volume figures, including the largest absolute growth, which indicates that the market was not yet saturated. Of the nine sampled MFIs with over 100 thousand borrowers, six were from East Africa.
The Southern region (p3) exhibited the largest percentage growth of the sub-regions, with a 48 percent increase in borrowers from the previous year. Banks served 81 percent of the clients in the South, which meant that the region had the largest loans sizes.
The Central Region (p3) experienced a 3 percent decrease in the number of borrowers as MFIs worked to clear their books of loans with long-term delinquencies. The Central region has the smallest market and the lowest penetration rate.
Regulatory Environments
African Governments have increased their focus on regulating microfinance (p3), either under banking legislation, broader non-banking financial institution (NBFI) legislation, or microfinance specific legislation. Thirty-one countries have passed new or revised legislation since 2002, and 24 have adopted national microfinance strategies. Legislation generally differentiated between tiers of MFIs such as credit-only institutions, institutions that take savings from members only, and institutions that take deposits from the public. The latter is subject to more prudential regulatory requirements. Supervision of the microfinance industry has usually fallen under the banking supervisory authority (p5), indicating that the industry is becoming more integrated into the formal financial system.
One obstacle in the regulatory environment is the implementation of anti-money laundering (AML) laws and combating the financing of terrorism (CFT) laws (p5), which can inhibit low-value transactions and require proof of residence. The challenge is to implement these laws with exemptions made for MFIs. Furthermore, consumer protection (p5) measures, such as the provision of an ombudsman for dealing with complaints against financial institutions, are rare on the continent.
Funding Flows and Structures
Non-commercial funding decreased by 12 percent in 2007 with a total commitment of USD 1.76 billion (p7). However, the total number of projects funded increased by 61 percent to 716 projects (p7) covering all 48 countries. Microfinance Investment Vehicles, private funds with a commercial orientation, invested USD 69 million (p7) in Sub-Saharan Africa. Decreased external funding has meant that MFIs that are able to mobilize savings were able to continue growth, while others remained on par with their 2006 volume figures. Funding was more heavily concentrated in Eastern and Western Africa than the other two sub-regions. Fifty percent (p7) of the total funding went to only seven countries (Ghana, Uganda, Kenya, Tanzania, Ethiopia, Mali, and Mozambique), while the 20 least-funded countries attracted only 3 percent (p7). Funding instruments included grants (34 percent); loans (32 percent); in-kind funding, forms of assistance other than money (9 percent); equity funding (5 percent); and loan guarantees (3 percent) (p8).
Performance of Microfinance Institutions
In 2007, for the first time, all African sub-regions achieved operational self-sufficiency (p10), meaning they met all expenses out of revenues before adjustments for subsidies. However, African MFIs continued to struggle to achieve profits, and had significantly higher operation costs than other parts of the world.
Prior to 2007, the Central region (p10) was the only one not to have achieved operational self-sufficiency. Overall, MFIs increased this figure by 8 percent to achieve 100 percent operational self-sufficiency. Profitable MFIs served 44 percent of borrowers, up from 24 percent in 2006. Persistent delinquency problems continued to present an obstacle to profitability. West Africa (p10-11) is the only sub-region where the median MFI reached profitability. Operating expenses decreased as the average number of borrowers served by loan officers increased from 209 to 251. In the Southern region (p12), increased loan sizes from Commercial Banks and an improved portfolio at risk led to lower expenses and increased profitability by 6 percent, 5 percent away from breaking even. The Eastern region (p12) experienced a decrease in financial self-sufficiency, as expenses increased bringing the regions profit margin down 2 percent to negative 15 percent.
Conclusion
African MFIs continue to be challenged by low penetration rates and high operating costs. However, the report concludes (p12), “With the increasingly integrated financial systems, emphasis on savings mobilization and the promise in growth of start-up MFIs, Africa is striving towards increased outreach and sustainability.”
By Ryan Hogarth, Research Assistant
Addition Resources:
“Africa Microfinance Analysis and Benchmarking Report, 2008,” by Jennifer Isern, Estelle Lahaye, and Audrey Linthorst, published by CGAP and MIX: December 2008.
Consultative Group to Assist the Poor (CGAP): Home
Microfinance Information Exchange (MIX): Home
Similar Posts:
- MICROFINANCE PAPER WRAP-UP: “Driving Digital Financial Services in Africa Through Merchant Acceptance of Digital Payments,” published by Alliance for Financial Inclusion (AFI)
- MICROFINANCE PAPER WRAP-UP: “The Impact of Microfinance Institutions on Poverty Alleviation,” by Collin Chikwira et al, Published by Journal of Risk and Financial Management
- MICROCAPITAL BRIEF: AfDB Seeking $1b for African Climate Risk Insurance Facility (ACRIFA) to Boost Microinsurance for Farms, Livestock Against Drought, Floods
- MICROCAPITAL BRIEF: Non-performing Loan (NPL) Ratios Up Among Microfinance Providers in Bangladesh
- MICROCAPITAL BRIEF: Baobab+, TradeLenda Partner on Solar Energy Solutions for SMEs in Nigeria
