Paris Microfinance Network

Accion & EcoBank launch Microfinance Bank in Ghana

EB-ACCION Savings & Loans, a microfinance bank formed through a partnership between ACCION International and ECOBANK, the leading pan-African bank, has received its license to begin microfinance operations in Ghana.

EB-ACCION opened it's doors April 1st, delivering microcredit, savings and micro-insurance products to the Ghanaian market, thus helping small entrepreneurs to expand their businesses and improve their standard of living. EB-ACCION clients will be served by two branches in Accra, located in the marketplace neighborhoods of Tudu and Lapaz. Two more branches are scheduled to open in Accra this year. EB-ACCION expects to be the market leader serving microentrepreneurs in Ghana by 2010.

Over the next few years, the 2 partners, Accion and Ecobank, plan to open microfinance banks in at least 20 countries across Africa, thereby creating the largest regional platform for offering comprehensive financial services to the vast population of informal sector players that have been largely unbanked and underbanked. A statement by Ecobank said, when fully implemented, the plan has the potential of becoming one of the largest bank downscaling efforts in the world.

Microfinance in Sudan

The recognition of microfinance as one of the priority sectors for Sudan started only in the mid-1990s. The financing regulations of the Bank of Sudan are still being revised, and lack proper identification of microfinance activities.

In microfinance, traditional Islamic financial products, such as the murabaha,
the salam, the musharaka and the mudaraba play an important role in Sudan. For example, the murabaha is a buy and resell contract, under which the bank purchases the goods ordered from the client and resells it to the customer at a marked-up price, usually on a deferred payment basis. This is the preferred product and is also the closest to standard interest-bearing financial contracts. The salam is also a buy and resell contract, but here the bank purchases the goods from the client, who then delivers the goods in the future. Mainly used for agriculture, the bank pays the farmer on the day the contract is signed and the farmer delivers the crop to the bank after harvest.

A number of banks, NGOs and social funds have been involved with microfinance in the Sudan, and more MFIs are slowly being launched. Over 100 local and foreign NGOs, in direct coordination with gov’t authorities, are active in providing microcredit, emergency loans, medical care and educational services to poor people in the Sudan. In addition, many rural development projects include components of microfinance support.

Microfinance NGOs have been much closer to grassroots operations than have the formal lending institutions. The main NGOs active in microcredit have between 15-20,000 clients and registered repayment rates on average of 85 percent. Their success is often due to being community-based; often having simpler procedures; adopting flexible collateral terms; and sometimes creatively partnering with the formal banking system; they finance a variety of activities, i.e. they are not confined to "productive activities"; and they adopt different microfinance mechanisms and approaches. NGO microfinance institutions face problems, however, in shifting from providing grants to providing credit, when credit is newly introduced to customers after a period of charity-based operations. They also face sustainability problems when moving from donors to commercial sources of funding.

Some of the MFIs making a difference in Sudan include SUMI, the Sudan Microfinance Institution, Aljawda Microfinance Bank launched in December 2007 and Five Talents International, whom have recently launched a program in Sudan. SUMI is an innovative and high-risk microfinance institution based in southern Sudan helping small borrowers eager to grow their fledging businesses. Isaac Sadik, a used clothes dealer and tailor, started his business in 2001 with $40 he had raised by selling a bicycle. “I joined SUMI in November 2003 with a loan of Ush200,000,” says Sadik. “My stock has increased to Ush350,000. In fact, my stall is now too small so I am looking for space to construct another stall.”

Working with a consortium of partners including the Episcopal Church of Sudan, Five Talents will be assisting a village banking project in Wau Diocese, which was started in September 2005, and currently has 270 members. This is one of the first projects of this type in southern Sudan.

MicroInsurance On The Rise

Microfinance Institutions (MFIs) provide credit and savings products that help low income households earn income or build savings that in turn can help reduce the risk of natural or medical catastrophes. However, many catastrophes can cause significant hardship and deplete any economic gains made thru Microfinance programs - furthering the poverty cycle.

Enter Microinsurance. Microinsurers are providing different forms of insurance for life, health, property, disability, agriculture, etc. Traditionally, poor households couldn't afford standard insurance programs - even if they actually had local access to this service. But with microinsurance products, they can pay a small premium for limited coverage in the event of losses and better manage their risk. There are many players offering microinsurance such as MFIs, NGOs, local community organisations, mutuals (all linked to regulated insurance companies) and increasing activity from large commercial providers. Swiss Re just announced an initiative to offer African farmers coverage against droughts ruining their crop harvests. The program aims to provide protection against adverse weather conditions for up to 400,000 people in Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Rwanda, Senegal, Tanzania and Uganda.

GIMI, the Global Information on MicroInsurance organisation recently published an interesting report outlining how microinsurance works entitled "The Landscape of Microinsurance in the World's 100 Poorest Countries." Some good news that emerges from the landscape survey is that microinsurance for the world's poor is growing fast, with most of its recent growth coming from the private sector. The microinsurers surveyed predicted at least 10% growth over the following year and 100% growth over five years. The report is also for download at the MicroInsurance Centre website - they provide an interesting synopsis of findings.

ICT needs for Africa

Although Africa has realized tremendous growth in mobile phone use, e-banking services and e-commerce there remains significant ICT challenges. 'The Herald' in Zimbabwe recently published an article highlighting the African stats of a recent World Economic Forum ICT report describing the bleak performance of ICT in Africa. Sub-Saharan African countries rank very low on the top 120 country ranking in the report.

The WEF report was first launched in 2001 and has become a valuable and unique benchmarking tool to determine national ICT strengths and weaknesses, and to evaluate progress. It also highlights the continuing importance of ICT application and development for economic growth.

The WEF Report uses three component indexes which assess:
- environment for ICT offered by a country or community
- readiness of the community's key stakeholders (individuals, business and governments)
- usage of ICT among these stakeholders

Some of the challenges identified by African ICT experts include:
- Inadequate communications infrastructure;
- Lack of ICT facilities;
- Lack of ICT skills;
- Inadequate financial resources;
- Limited public-private sector partnerships;
- Lack of political commitment; and
- Lack of school ICT development programmes.

Microfinance for Ugandan Children

The Commercial Microfinance Bank of Uganda has just announced it is offering savings accounts for children. This type of program is a good incentive to learn about savings benefits at an early age. Children can start saving with only Sh1,000 (US$0.60) through the Commercial Micro Finance Bank's junior savings account. The account earns a 5% interest per annum, incurrs no transaction charges and money can be withdrawn at any time.

The program was launched at the Lungujja Playgrounds in Kampala - an obvious location to attract parents and children in an increasingly competitive banking environment.

Microfinance in Madagascar

The 'Free Press of Namibia' posted an article on the early stage effects commercial microfinance is having in Madagascar. In the capital city of Antananarivo there are several foreign commercial microfinance instiutions such as AccesBanque (funded by Access Holding in Germany), french based MicroCred (see previous article)and the Agh Khan Foundation.

It certainly is an interesting investment to set up shop offering microfinance services in Madagascar because the traditional banks usually do not demand higher interest rates than microfinance institutions. The main difference lies in the amount of the loan.

Microcred clients can take out as little US$50 at a time while the minimum loan in mainstream banks is generally 20 times that amount. Petty entrepreneurs who are not considered "bankable" due to a lack of steady income or collateral have pounced on such microloans, in spite of interest rates fetching around 24 per cent over a year.

In barely six months, some 2,000 people have taken out loans with Microcred and around the same number with AccesBanque.

The African Enterprise Challenge Fund Launches

The 17th World Economic Forum (WEF) on Africa kicked off Wednesday with the leader of the House of Lords in the United Kingdom announcing one of the first donations to a new fund aimed at supporting businesses in Africa.

Baroness Amos told reporters at WEF-Africa that Britain would be contributing US$20 million (approx R140 million) over three years to the recently announced Africa Enterprise Development Fund, set up to encourage entrepreneurship on the continent.

The UKs contribution is a significant boost to the Africa Enterprise Challenge Fund which aims to stimulate private sector entrepreneurs in Africa. This is the right approach because encouraging small, independant businesses and entrepreneurial ideas helps developing countries reduce poverty and create sustainable business growth. The fund will look to support businesses which innovate and find profitable ways of improving access to markets and the way markets function for the poor, particularly in rural areas.

It will do this by offering grants, matched by private sector contributions, to innovative business ideas which encourage greater participation of poor people in markets – as consumers, workers or entrepreneurs. It will become operational in early 2008 and will have a minimum capitalisation of $50m when fund commences. It will be hosted in a multilateral institution or a private foundation based in Africa and operate across Africa and primarily aimed at established companies capable of implementing and co-funding relevant projects.

Microfinance and Remittances

The Philippines, often considered the birthplace of Mbanking, have several wireless services that provide much needed support to the Bottom of the Pyramid (BOP) & the microfinance sector. The general public is quite SMS savvy which lends itself well to driving mobile commerce. Smart Communications and GlobeTelecom are the leaders in providing a wide variety of convenient wireless services, many of them quite innovative. Recently, Smart announced a partnership (1 of 7 with Philippine banks) supplying it's mobile banking technology platform to LandBank of the Philippines, which has a strong rural outreach and supports many poor communities. Through this partnership LandBank can start offering a reliable and efficient system for people to send remittances to their families back home. Remittances is an important service, making up almost 20% of the GDP in the Philippines. Smart offers their own remittance service called Smart Padala allowing customers both internationally & domestically to send money.

Mobile remittances are gaining popularity due to their proven security, speed and convenience. There are a variety of programs such as UAE's Exchange Wallet running sucessfully since 2005 allowing foreigners to send money from the middle east, a common demand from Indians, Pakistanis, Mexicans, Philippinos and many others working abroad. Virtual bank WIZZIT in africa offers person-to-person payments, transfers and airtime puchases. They have a solid blend of technology expertise & customer needs recognition - a company to keep your eye on. The LA times wrote a good article in 2006 analysing some global examples of the financial importance of remittances, it's worth a read.

Smart marked its 25-million-subscriber-milestone this year & has been actively promoting mobile commerce services since 2000. For example, in 2000 Smart launched a sort-of re-loadable electronic wallet with it's ‘Smart Money’ program allowing customers to make transfers from bank accounts to SmartMoney accounts. Once 'charged 'up', a customer uses their phone like a debit card at retail outlets or to send money via SMS to pay for fast food, lottery shops or even taxis. But Smart Money was geared more towards middle/upper market customers. Hence in 2003, Smart launched a service aimed at the 'unbanked' called ‘SmartLoad’ which offers electronic airtime transfer; subscribers buy prepaid packages from resellers without a physical card or bank account and use the credit for purchases or services. Some of these local neighborhood resellers even offer customers credit to buy the telco packages - microfinance at it’s core!

Microfinance Regulation in Kenya

In Kenya there are roughly 250 'Microfinance Institutions' yet no fundamental regulatory system has existed for the country. There has been a plethora of ways to establish an MFI such as, the NGO Act, the Building Societies Act, the Co-operative Societies Act, the Banking Act, the Kenya Post Office Savings Bank Act....to name a few. Furthermore, an office, start-up capital and a licence from the city council
permitting someone to run a money-lending business was all that was needed. With these things in hand, various organisations launched under the self-proclaimed microfinance banner, but operate as banks instead, taking deposits other than those for microloan repayments. Under such a wide & loosely monitored structure, there have also been a variety of questionable, almost loan-sharking-ish, activities throughout the country that have stirred up much concern about microfinance credibility in Kenya.

Fortunately, the Nairobi-based Association for Microfinance Institutions (AMFI) has been serving as an opt-in umbrella body for microcredit groups that operate in Kenya, working on setting rules about ownership, governance and accountability. AMFI drafted a Microfinance Bill in early 2004 for the Central Bank that finally went before Parliament in September 2006. The Bill allows the Central Bank to license, regulate, and supervise any deposit-taking microfinance institutions (MFIs), and should take effect by July 2007. Therefore, Kenyan MFIs will be required to comply with the Central Bank guidelines in order to continue operating. On April 12th it was reported that the Central Bank released the draft regulation to enforce the Microfinance Bill.

The numerous set of regulations (12 in all), (such as Corporate Governance, Audit Controls, Reporting) provide information and guidance on the conditions that applicants must fulfill to obtain a licence from the bank & carry out deposit-taking business. They also define procedures that existing MFIs must follow to obtain a licence to conduct deposit-taking business in Kenya. Microfinance institutions have been given until end of June to comply with new guidelines released by the Central Bank on ownership and minimum capital before they can become licensed. Most interesting is the explicit detail regarding the required capital structure; in order for an MFI to obtain a license they must have a minimum core capital of 60 million Kenya Shillings (US $877K) to operate on a national level, and Sh 20mm (US $292K) to operate in specific districts or towns.

While enforcing sector regulations is important for investor and consumer security, hopefully these Central Bank operations will respect the fine line between regulation & entrepreneurial independance - a quality that helped the sector flourish. "An institution's minimum core capital levels will be monitored on a continuous basis by the Central Bank and may be reviewed from time to time," said the bank's statement. Several microfinance institutions, including the giant Kenya Women Finance Trust, have termed the minimum capital requirement an attempt to create a second level of commercial banks. The institutions are also required to maintain various capital ratios.

Water and Microfinance

In many developed countries, easily available items are often taken for granted, such as water. But in developing countries safe water is a rare commodity, over a billion people suffer from lack of access to safe water. Approximately 5-7 million people (primarily in Sub-Saharan Africa and countries like India & Bangladesh) are dying annually - mainly children - due to water-born diseases. Furthermore, the costs incurred for rural communities to access safe water can be 10-15 times higher than costs for urban dwellers connected to cleaner water systems. These issues affect the health & economic productivity of rural communities.

An interesting approach, applying microfinance principles, was launched by the organization 'Water Partners international' with an initiative called the WaterCredit Initiative that we believe provides a hopeful unique model. By making small loans to communities and individuals who do not have access to traditional credit markets, WaterCredit helps finance the upfront cost of water and sanitation systems. Giving people the credit tools they need and allowing them to repay the loans over time empowers them to solve their own water supply needs now instead of having to wait for years for a grant that might never come.

A working example: in India, WaterPartners provided $105K in loans for safe drinking water and household toilet facilities for urban slum residents. Loans were disbursed by WaterPartners’ local implementing partner in India, Gramalaya. Gramalaya teamed up with BASIX, a local micro-finance institution, in order to develop the infrastructure they needed to make the loan distributions. BASIX educated Gramalaya on the qualifications for loan eligibility and helped them to develop financial systems to process the loans. Check out this interesting & successful case & another in Kenya.

Another promising water initiative was announced yesterday; the U.S. Agency for International Development (USAID) & The Coca-Cola Company announced a $7 million joint investment in 9 new water projects in Africa. It's pleasing to hear this news because these much needed collaborations between private sector & NGO-development organizations, beneficially team private funding & business best practices with local developing country knowledge & expertise.

The projects will be located in Angola, Ethiopia, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Ghana/Ivory Coast. These new projects (Coca Cola & USAID have been working together since November 2005, with activities in Bolivia, Mali, Indonesia, Malawi, Egypt, Thailand, Uganda and South Africa.) provide locally-driven solutions to address the global water crisis, growing the global partnership’s investments from $3 million to $10 million.