Eric Thurman is a professional advisor to donors and consultant for international NGOs. He has supervised grants in more than half of the nations of the world. He also has directed microlending programs in 30 countries when he was CEO of Opportunity International and later Hope International. In 2007, he and a client, Philip B. Smith, co-authored the book A Billion Bootstraps, a popular introduction to the microfinance movement.
A man makes footwear from tires at an open-air market in Ngara, Kenya. This man is one of many that has benefited from a recent explosion of microfinance operations in Africa. Photo courtesy of REUTERS/Anthony Njuguna.
The government of Nigeria apparently agrees with that assessment and is taking steps to assure that financial services extend to the masses. President Alhaji Musa Yar’Adua regards this as essential for reducing the rate of poverty in his country. One practical step recently taken finds the Central Bank of Nigeria (CBN) embracing microlending programs and bringing them into the official banking system. By early 2008, CBN licensed 716 microfinance banks throughout the country. While their combined deposits are tiny compared to commercial banks, the microfinance institutions are reaching a completely different segment of the population and show the greatest potential for moving poor families above the poverty line.
The situation is the same all across Africa. The Democratic Republic of Congo (DRC) is home for 65 million people, yet there are only 70,000 bank accounts in the entire nation. That means roughly only one out of every 1,000 individuals has access to reliable savings or credit. It is no wonder that an average person finds it so difficult to rise from poverty. In 2004 I was in Kinshasa evaluating potential grantees for clean water and HIV/AIDS projects and also advising Hope International as it started a new program for microloans in the DRC. That fall, it became the first legally registered microcredit program in the country. It is notable that, in spite of Congo’s massive size and natural resources, microfinance is such a recent development. Hope International’s microfinance program in Congo continues to be one of the country’s largest, adding about 1,000 new participants each month.
Microfinance as an Alternative
Traditional thinking about economics puts little value on self-employment. Yet in Africa, earning a living in the informal economy is how most people survive. The Economist reported that 67 percent of non-agricultural employment in Africa is in the informal sector. Progress will come for Africa as financial services including credit, insurance, and reliable transaction mechanisms enable ordinary people to improve their livelihoods.
Late last year I advised journalist Matthew Swibel as he compiled the first-ever Forbes list of the world’s “50 Top Microfinance Institutions.” None of the institutions he cited as leaders was in sub-Saharan Africa. Giant securities firm Morgan Stanley recently formed a new Microfinance Institutions Group (MFIG) which is packaging and selling collateralized loan obligations (CLOs) for microcredit. Only about 5 percent of microfinance institutions worldwide meet Morgan Stanley’s strict investment criteria. All but two of their investments so far have been outside of Africa. Shawn Murphy of Morgan Stanley explained, “Africa has been a less developed market from a microfinance perspective.” Currency fluctuation risk and the greater dispersion of population are among factors holding back growth of microfinance in Africa.
But serious moves toward microfinance expansion are underway. AfriCap Microfinance Fund, based in Johannesburg, is a private equity fund dedicated to the microfinance industry. It closed a second round of investments last October adding US$50 million in capital. As Juliette Rose of Morgan Stanley puts it, “The landscape is changing very rapidly in Africa.” Africa’s special challenges are driving innovation. Dispersed population led to cell phone banking at Wizzit Bank in South Africa, where transactions are conducted using a secure form of text messaging. For new customers, the bank specifically targets people who have never had bank accounts, but do own cell phones. Sales agents are formerly unemployed and disadvantaged youth called WIZZkids working under a franchise model to set up the new accounts. The idea is catching on. More than half a million South Africans now use their cell phones to pay for goods and send money to relatives.
Most success stories of microfinance raising the poor from poverty generally come from Bangladesh, India, the Philippines, or parts of Latin America. Until now, Africa has lagged behind the rest of the world in microfinance growth, but that is changing. Thousands of programs are already operating effectively on the continent, although many are young and most are relatively small compared to those elsewhere.
Financial services at a micro level are only now coming of age in Africa. As this occurs, expect to see meaningful progress on poverty in Africa.
