||Like it? PLEASE +1 it! Thanks!|
3.2 The Roles of Donors and NGOs: Microfinance in Africa Experience and Lessons from Selected African Countries
(IMF Working Paper, Prepared by Anupam Basu, Rodolphe Blavy, and Murat Yulek1, September 2004)
Donors and NGOs have generally provided support through two main channels: domestic
NGOs or donor-managed microfinance projects, and microfinance institutions that function
more or less like leasing companies (receiving wholesale external resources and lending to
clients). These are mainly “credit-only” schemes that receive wholesale funds from external
sources, often donors, instead of collecting deposits, and the lending methods (successfully
introduced by NGOs) are often based on the “group solidarity” method (Box 3). Policy
makers may be tempted to emphasize the lending function in the microfinance sector more heavily than deposit mobilization, as they may assume that increases in lending would
promote investment and hence enhance economic growth. The difficulties and costs of
achieving the geographical outreach and managing numerous small depositors also work in
favor of credit-only institutions. Deposit collection entails a different technology than
lending, and if the main social benefit from microfinance is seen as the lending function,
policy makers may be biased toward credit-only institutions.
Direct support from NGOs in lending schemes has received some criticism because of their
potential adverse effects on the operation of MFIs. NGO support could weaken financial
discipline in MFIs, and dependence on donor money rather than deposit mobilization could
constrain growth and sustainability. Donor-directed lending may also crowd out
commercially viable projects that would not qualify for donor funds. While increased lending
may take place, this may not be directed towards the needs of the economy. This does not
invalidate the benefits of donor funding of MFIs, but points to a need to weigh the options
carefully. At the same time, NGO-based MFIs are limited in their outreach by their
dependence on external sources of donor funds, and also by their need to allocate their
limited resources to a wide range of activities outside the microfinance sector. NGOs have
proven particularly efficient in working with community-based organizations, in regions where licensed MFIs are scarce8 and their reach is generally limited to specific locations.
Donor interest in supporting MFIs may partly address the resource problem, but does so only
temporarily and to a limited extent.
While donors could support MFIs’ lending operations with resources, they could also
encourage efforts to build the resource base through domestic saving mobilization.
Emphasizing full intermediation does not necessarily preclude donor involvement in assisting
the MFIs with capacity building (in both physical, and human resources), which will remain
essential. The experience of countries in SSA suggests that NGOs and donors can play an
important role in the dissemination of best practices tested internationally and regionally and
remain important in building borrowers’ entrepreneurial skills and capacity to graduate to the
formal banking sector. In some situations, NGOs have been engaged in building local
capacity through the creation of institutions specifically dedicated to training (Box 3).9
In many cases, NGOs and donors have tended to focus on social programs and services for
which they have particular expertise, including programs aimed at reducing poverty. NGOs
have in some cases also focused on providing welfare and socially-oriented microfinance,
when the push toward financial sustainability was seen to induce a reorientation of MFI focus
from the very poor to the lower-middle and middle classes. While NGOs may continue to
play an important role in providing social services to the very poor and the more remote
areas, it is debatable whether this is more efficient in promoting poverty reduction than direct
subsidization of social services (such as primary education and basic health care).
Related ArticlesIV Module I Key Principles for an African Model of Microfinance
II. How Can MicroFinance Succeed In Africa?
III. BACKGROUND - Microfinance in Africa
SME's - why is franchising not more popular in Africa
1.0 Introduction: Microfinance in Africa - Experience and Lessons from Selected African Countries
4.0 The Role of Governments: Microfinance in Africa - Experience and Lessons from Selected African Countries
SMEs - opportunities in Africa
SME's - in Africa the skills challenge grows
SME's - can entrepreneurialism survive in Africa
SMEs - surviving the recession in Africa
III. C. Commercial Policies: THE ROLE OF CHINA’S PUBLIC SECTOR
V. B. African Demand for Infrastructure: AID VS. COMMERCE: FACTORS INFLUENCING THE GROWING TIES
Citi Foundation Creates $11.2m Program with SEEP Network to Strengthen Trade Associations
SME's - WIll China be the next colonial power in Africa
New Partnership for Africa’s Development
What is a Microfinance Institution (MFI)?
4.3 Conclusion: Economic Report on Africa 2007
African Countries Focus on Microfinance: Twelve African Nations Engaged in the International Year of Microcredit to Date
The Citi Foundation Citigroups GrantMaking Arm Pledges USD 100000 to PlanetFinances Microfinance Training Programme in Middle East and North Africa
SME's - protectionism does it help?
Home > African-Accounts > International Monetary Fund > 32 The Roles of Donors and NGOs Microfinance in Africa Experience and Lessons from Selected African Countries > Google +
Free PDF Download
References: Stock Market Development in Sub-Saharan Africa
By International Monetary Fund
About the Author: International Monetary Fund
RSS for International's articles - Visit International's website
The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical assistance—have developed to meet the changing needs of its member countries in an evolving world economy.
Click here to visit International's website.
More from International Monetary Fund
Financing Corporate Growth in Ghana The Role of the Stock Market
Private Chinese Direct Investment in Africa Some Examples
References What Drives Chinas Growing Role in Africa
60 References Microfinance in Africa Experience and Lessons from Selected African Countries
References Stock Market Development in SubSaharan Africa
Related Forum PostsRe: How will an african make money truely on the net?
Re: Newbie from Africa
Re: Newbie from Africa
Re: How will an african make money truely on the net?
Re: Newbie from Africa
Share this article. Fund someone's dream.
Share this post and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.
By: Evan Carmichael
By: Evan Carmichael
||Like this page? PLEASE +1 it!|