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Issues Paper 7 ENHANCING MICRO FINANCE FOR AFRICAS DEVELOPMENT

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Issues Paper 7 ENHANCING MICRO FINANCE FOR AFRICAS DEVELOPMENT

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    1. Issues Paper 7 ENHANCING MICRO FINANCE FOR AFRICA'S DEVELOPMENT Issues Paper 7 Presenter: JJ Oosthuysen, Consultant, South Africa 1

    2. Outline of Presentation Background on Microfinance The Challenges of Microfinance in Africa Enhancing Microfinance for Africa’s Development Practical approach based on experience 2

    3. “The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector… Together, we can and must build inclusive financial sectors that help people improve their lives.” Former UN Secretary-General Kofi Annan, 29/12/2003, following the adoption of 2005 as the International Year of Microcredit 3

    4. Microfinance: Background Started by Prof Mohammed Yunus and others in 1970’s and 1980’s Consists of the following four financial service elements: Micro Credit Micro Savings Micro Insurance Money transfers Favoured micro credit and savings Become an important international development policy intervention in the area of poverty alleviation and specifically small enterprise development. 4

    5. Aims and Objectives of Microfinance Microfinance, in the context of Africa, aims to achieve amongst others, the following: Wealth creation for poor households Reduce the severity of poverty Mobilise and encourage people towards savings in financial assets Reduce risks and potential losses Reduce distress selling of assets Reduce impact of external shocks 5

    6. Initialized by governments in the absence of private sector participation in this sector. Over time, microfinance has been penetrated by profit hunting businesses, some seeking to do good, some seeking only profits from the poor. Questions are being asked by leading economists such as Malcolm Harper and activists such as Milford Bateman as to the sustainability of microfinance and the impact it has on poor people. Microfinance in Africa 6

    7. Where are we now with Microfinance in Africa? Sub-Saharan Africa 2009 Microfinance Analysis and benchmarking report, Africa only reached the following through microfinance: 6,5 million borrowers (3% market penetration) 16,5 million savers (5% market penetration) 7

    8. Operational & Policy Challenges of Microfinance in Africa Donor Driven Microfinance Weak Monitoring & Supervision Duplication Consumer Protection Insufficient Technical Skills and Competencies High Operational Costs Weak Borrower Capacity Underperformance of APEX Funds Limited Donor Funding Inadequate MFI Networks MFI’s not Reaching Scale – Inadequate Strategy Inadequate Talent Management Inadequate Distribution Methodologies Over and Under Regulation Inadequate Loan Management Systems Inadequate Understanding of Insurance Lack of Human Resources 8

    9. Microfinance in Africa needs new thinking in all aspects to overcome these contextual, regulatory, institutional and systemic challenges Traditional thinking has to be challenged. A sound financial sector is a function of an integrated and efficient financial system that caters for all financial institutions within the sector. 9

    10. How do we Enhance Microfinance for Africa’s Development? Retail Intermediaries (Retail Shops) Banks to Scale Down Regulatory Environment Credit Information and Credit Risk Management Define Boundaries for Role Players Accounting, Transparency and Disclosure Education and Training Ownership and Governance Managerial Competence Non-traditional Models for Micro & Small Enterprise Finance Explored Private Sector Involvement to Increase 10

    11. Enhancing Microfinance for Africa’s Development Branchless Product Distribution Models Mobile Banking & ATM’s Development of MFI’s Provision of Adequate Technical Assistance Reduce Cost to Client Upscale Micro Insurance Distribution Local Economic Development and Microfinance Product and Delivery Methodology Designs Business Linkages 11

    12. Conclusion & Final Remarks Social investment or subsidies by governments to MFI’s that have routinely demonstrated their willingness to be successful and reach scale, Use of sector specific targeting of both lending methodologies and value propositions (construction, retail, transport etc) Longer term loan maturities Business linkages drives to connect small and micro enterprises into supply chains of larger businesses Public and community ownership of financial institutions MSE development to become part of local economic development initiatives of municipalities or local governments Encouraging insurance companies to distribute small premium/benefit funeral policies Retail shops to become involved in money transfers Leveraging off private sector infrastructure Appropriate regulations promulgated by country governments 12

    13. Thank you. 13

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