1.0 Introduction: Microfinance in Africa - Experience and Lessons from Selected African Countries
1.0 Introduction: Microfinance in Africa - Experience and Lessons from Selected African Countries
Small enterprises and most of the poor population in sub-Saharan Africa have very limited
access to deposit and credit facilities and other financial services provided by formal
financial institutions. For example, in Ghana and Tanzania, only about 5–6 percent of the
population has access to the banking sector. This lack of access to financial services from the
formal financial system is quite striking, when one considers that in many African countries
the poor represent the largest share of the population and that the informal sector is an
important part of the economy.
To meet unsatisfied demand for financial services, a variety of microfinance institutions
(MFIs) has emerged over time in Africa. Some of these institutions concentrate only on
providing credit, others are engaged in providing both deposit and credit facilities, and some
are involved only in deposit collection. Throughout the paper, the term “microfinance
institutions” is used as commonly defined, that is, to designate financial institutions dedicated
to assisting small enterprises, the poor, and households who have no access to the more
institutionalized financial system, in mobilizing savings, and obtaining access to financial
services. Institutions offering microfinance services are very diverse, including commercial
banks, state-owned development banks, and postal offices.
This paper intends to identify a number of stylized facts and trends from the experience of
four selected African countries: Benin, Ghana, Guinea, and Tanzania. While quantitative data
is very limited, tentative conclusions are provided based on a qualitative assessment of recent
developments in the surveyed countries, supported by background material and studies
undertaken by the IMF and the World Bank. The main contribution of the paper is to
compare experiences across Africa, and identify patterns that may guide public policy in the
sector.
In Section II, we explore the main contributors to the expansion of MFIs in Africa. We focus
particularly on the instruments used to overcome the obstacles that have prevented banks
from expanding their outreach to the poor, the rural sector, and small and medium-sized
enterprises. In Section III, we look at the extent to which the operations of MFIs can be
viewed as complementary to those of banks, and how the existing links and the potential
synergy between their operations benefit the economy. In Section IV, we review the roles
that national governments have played in promoting microfinance and discuss policy issues
relating to the licensing and prudential regulation of MFIs. Finally, in the concluding section
we summarize the main conclusions.
10 Introduction Microfinance in Africa Experience and Lessons from Selected African Countries - To learn more about this author, visit International Monetary Fund's Website.
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(IMF Working Paper, Prepared by Anupam Basu, Rodolphe Blavy, and Murat Yulek1, September 2004)
Small enterprises and most of the poor population in sub-Saharan Africa have very limited
access to deposit and credit facilities and other financial services provided by formal
financial institutions. For example, in Ghana and Tanzania, only about 5–6 percent of the
population has access to the banking sector. This lack of access to financial services from the
formal financial system is quite striking, when one considers that in many African countries
the poor represent the largest share of the population and that the informal sector is an
important part of the economy.
To meet unsatisfied demand for financial services, a variety of microfinance institutions
(MFIs) has emerged over time in Africa. Some of these institutions concentrate only on
providing credit, others are engaged in providing both deposit and credit facilities, and some
are involved only in deposit collection. Throughout the paper, the term “microfinance
institutions” is used as commonly defined, that is, to designate financial institutions dedicated
to assisting small enterprises, the poor, and households who have no access to the more
institutionalized financial system, in mobilizing savings, and obtaining access to financial
services. Institutions offering microfinance services are very diverse, including commercial
banks, state-owned development banks, and postal offices.
This paper intends to identify a number of stylized facts and trends from the experience of
four selected African countries: Benin, Ghana, Guinea, and Tanzania. While quantitative data
is very limited, tentative conclusions are provided based on a qualitative assessment of recent
developments in the surveyed countries, supported by background material and studies
undertaken by the IMF and the World Bank. The main contribution of the paper is to
compare experiences across Africa, and identify patterns that may guide public policy in the
sector.
In Section II, we explore the main contributors to the expansion of MFIs in Africa. We focus
particularly on the instruments used to overcome the obstacles that have prevented banks
from expanding their outreach to the poor, the rural sector, and small and medium-sized
enterprises. In Section III, we look at the extent to which the operations of MFIs can be
viewed as complementary to those of banks, and how the existing links and the potential
synergy between their operations benefit the economy. In Section IV, we review the roles
that national governments have played in promoting microfinance and discuss policy issues
relating to the licensing and prudential regulation of MFIs. Finally, in the concluding section
we summarize the main conclusions.
10 Introduction Microfinance in Africa Experience and Lessons from Selected African Countries - To learn more about this author, visit International Monetary Fund's Website.
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