Making profits or changing lives: The Dilemma of commercializing Microfinance Services
International NetworkOf AlternativeFinancial InstitutionsA dilemma for Africa’s microfinanceindustry—changing lives bycommercializing servicesBackground paper to INAFI Africa’s workshop atthe Meridien President Hotel, Dakar, Senegal,19-21 May 2003PREPARED BYHENRY OLOO OKETCHINAFI AFRICA SECRETARIAT CONSULTANTBRIGHTWOODS APARTMENTSP.O. BOX 4844 - 00200NAIROBI, KENYAEmail: INAFI@AFRICAONLINE.CO.KE
INAFI Africa, May 20032ContentsI. Introduction & Background.....................................................................................................................3II. Purpose of paper and key concepts......................................................................................................4III. Context of transformation..................................................................................................................10IV. The opportunities to commercialize ..................................................................................................12V. The challenges and dangers to commercialization ............................................................................15VI. Overall assessment ............................................................................................................................22VII. Annex of potential investors..............................................................................................................26
INAFI Africa, May 20033I. Introduction & Backgroundhis paper begins by quoting Marguerite Robinson, a leadingauthority in microfinance, whose seminal book entitled “The MicrofinanceRevolution—sustainable finance for the poor” is presently a majorreference in the field:… “The only way to close the absurd gap between demand and supply in microfinance is forinstitutions to mobilise savings, to raise capital commercially, and to service clients throughextensive branch networks”…1A large part of Marguerite’s book explains how the Bank Rakyat Indonesia (BRI)transformed itself from a loss-making government bank into a very profitable commercialenterprise, currently one of the few organisations in the field able to reach millions of poorpeople with affordable and convenient financial services.What the commercialisation of microfinance visionaries do not tell us, however, isthe basic level of investment, both intellectual and financial, that is necessary to grow ayoung and fledging microfinance institution to a point where they can attract risk-capital orcommercial debt from the private sector. How much investment, for example, did it takedonors and the Indonesian government to transform the BRI from a loss-making enterpriseinto a world leading commercial success story? If the BRI were not a government-ownedbank, would it have established its presence in nearly 4,000 outlets throughout Indonesia bynow? Again, how much time and resources did it take ACCION International Ltd. and othershareholders to transform part of PRODEM into BancoSol, or part of K-Rep based inKenya into a specialised bank for the poor? Lastly, how many of Africa’s estimated 4,5002microfinance institutions have developed to the point where they could be commercialisedas visioned by Marguerite and others concerned about making financial services widelyaccessible to the poor? Isn’t the greatest lesson from BRI the fact that the government ofIndonesia played a leading role in its transformation into a sustainable microfinanceinstitution between 1983 and 1986? And isn’t the outstanding significance of the BRItransformation that, if properly structured and managed, public institutions can become self-1 The demand for credit in the micro-enterprise sector is estimated at US$ 100 billion.2Estimates by MicroRate Africa, 2000 Business Plan.T
INAFI Africa, May 20034reliant? Indeed, the role of the state in the transformation of BRI into a sustainable financialinstitution with a countrywide network to serve the rural poor is one of the remarkableachievements of microfinance in any developing country.As the starting point for this discourse on commercialisation of microfinance withinAfrica, we must begin by looking at the level of investments that went into these successstories up to the point where they became commercially profitable, and hence attractive toprivate investors. Looking at the state of microfinance in Africa as it is today, how manyinstitutions can attract private capital, and have successfully built a wide branch network ableto mobilise local liquidity to finance own growth and expansion? Does thecommercialisation of microfinance in itself translate into a wider (space) and deeper (depthof poverty) outreach of the economically poor with financial services as assumed in the driveto commercialise by transforming basically NGOs into regulated, profit-driven financialinstitutions? Does transforming into a regulated, profit-driven institution by itselfautomatically translate into better governance and greater efficiency for previously NGOsspecialised in providing microfinance to the poor as promised3? Can serious NGOsspecialised in providing financial services to the poor become efficient and financiallysustainable institutions, able to reach vast numbers of the poor without being profit-driven;given the appropriate policy environment and support by governments and donors? Lastly,what can Africa learn from Ethiopia and the Central and Eastern European experience inAlbania, Bosnia, Georgia, and Kosovo4where completely new set of commercially-orientedinstitutions have been established from scratch and have once again proven that the poor arebankable? Is transformation therefore the only route to commercialise, attract private capitaland local deposits, and reach vast numbers of the poor with financial services, or there couldbe more effective, cheaper, and more realistic routes to achieve the same goals?II. Purpose of paper and key conceptsThis INAFI’s conference on the commercialisation of microfinance provides aunique opportunity to both donors, governments, and microfinance practitioners within theregion to re-examine the vision of commercialisation of microfinance as the only truly viablestrategy towards bridging the huge gap in demand and supply in microfinance. The very3 The collapse of FinaSol in Colombia, for example, is an empirical example that even a commercialisedmicrofinance institution could still face leadership and governance challenges.
INAFI Africa, May 20035theme of this conference: Changing lives or making profits reveals both the dilemma andtensions as INAFI member organisations, donors, and other stakeholders seek for workableand acceptable strategies of making financial services efficiently and readily available to thepoor people in Africa on a massive scale. It is not an ideological journey, but a practicalconcern for a network presently serving nearly two million clients with a presence in 21African countries! This paper provides background information to help focus the debate onthe real issues and challenges of changing lives through microfinance.The term microfinance as used in this paper refers to different proven methods forgiving poor people access to financial services, both appropriate and affordable on asustainable basis. Experiences around the world show that poor people with little educationare reliable borrowers who invest wisely and are willing to save if given the chance.According to Marguerite, “in regulated commercial microfinance, financial services (credit,voluntary savings, and other financial services) are delivered” to such people “on a largescale by competing, financially self-sufficient institutions”. Such regulated institutions includecommercial banks (both state-owned and private), specialised banks, regulated non-bankfinancial institutions, credit unions, transforming NGOs, village banking systems, andothers”5.In this paper, we adopt the definition of outreach developed by Sergio et al, asfollows:…Outreach is the social value of the output of a microfinance organisation in terms ofdepth, worth to users, cost to users, breadth, length and scope. Output is commonly proxiedby the sex or poverty of borrowers, the size or the terms of loan contracts, the price andtransaction costs borne by users, the number of users, the financial and organisationalstrength of the provider, and the number of products offered, including deposits”.The dimensions of transformation are many6, but in some cases include changes inorganisational goals and priorities, ways of doing business and management culture, and—4 Reinhard, H. Schmidt and Claus-Peter Zeitinger, forthcoming. Microfinance Banks—building newinstitutions instead of remodelling existing ones in Entwicklung und Zusammenarbeit, Vol. 41, No. 11.5Marguerite Robinson6 Robert Christen and Deborah Drake comments that by becoming commercialised, “…not only are traditionalnon-government organisations (NGOs) dedicated to microfinance transforming into licenses banks and non-bank financial intermediaries in order to access public funds or small savings deposits, but some banks andfinance companies are noticing the potential of microcredit to enhance their product mix and bottom line. Atthe same time, credit unions are reviving themselves and seeking to regain their leading role as suppliers of afull range of financial services to the poor.” Meanwhile, …central bankers and finance ministries are examiningwhether microfinance represents a viable option for rescuing troubled state-owned development, agricultural,
INAFI Africa, May 20036more importantly—in the ownership and governance. It might involve significant changes inmanagement systems and methods, and even a shift in market segments or clientele,accompanied by change in service delivery methodology, product offerings, etc. Atransformed institution is concerned with its own survival in a new market and policyenvironment. How transformation manifests itself is the core matter of this paper and ispresented in later sections, but some insight into this can be found on the background to thecampaign for commercialisation of microfinance.The global campaign to commercialise microfinance by transforming basicallyNGOs specialised in providing financial services to the poor into regulated financialinstitutions, or traditional banks downscaling their operations to serve poor clients isinspired by the faith that it will facilitate the supply of capital for investments into the sector.That profitable, commercially oriented microfinance institutions will encourage theestablishment of commercial debt and risk capital that will supply even more microfinancecompanies with credits for investments7. Indeed, several private and socially responsibleinvestors have established funds focusing specifically on microfinance institutions in Africain response to this campaign.Of the 44 potential investors listed at a CGAP Website, only AfriCap based in Dakaris the first to set up operations within the continent in October 2001, essentially to provideventure capital funds and expertise to microfinance institutions in the region. All this is verywell, except that at the moment we cannot tell whether the profit motive on which investorsand commercially oriented organisations thrive will motivate these transformed organisationsto scale up their outreach, or to continue seeking new frontiers and more efficient ways toserve the poor.From a wide range of literature on recent developments in microfinance, this paperexplores the questions of how microfinance institutions can continue serving theeconomically active poor while operating as profit-driven institutions, as advocated by thecommercialisation visionaries. Regrettably, it argues that the transformation of mission-driven organisations into for-profit-first entities per se is not enough in addressing thedaunting task of reaching vast numbers of poor people with appropriate and competitivelysavings, postal, and commercial banks”. See Robert Christen and Deborah Drake, 2001. Commercialisation ofmicrofinance. Microenterprise Best Practices, October.7Marc de Sousa-Shields in Financing Microfinance Solutions to Poverty has challenged this argument empirically. Sheargues that one needs only to look at Mexico, with both the greatest number of billionaires per capita and oneof the greatest disparities between rich and poor, to understand that the presence of capital within an economydoes not necessarily guarantee general prosperity.
INAFI Africa, May 20037priced financial services8. Instead, it suggests that the prophets of a financial systemsapproach to microfinance, first among them like Elizabeth Ryhne9, formerly of USAID,need to recognise the lack of efficient capital markets in countries where the gap between thedemand and supply of microfinance is greatest, like Africa10.While supporting the commercialisation of microfinance visionaries about the absurdgap between demand and supply of microfinance, the paper contends that limited access tocommercial capital and the very high cost of building institutions is likely to thwart efforts toreach vast numbers of the poor through this route alone. It argues that governments’ anddonors’ support will continue to play a far more important role in building financiallysustainable microfinance institutions in Africa, able to attract additional risk capital andcommercial debt from the private sector. Hence, from the experience to be shared at thisworkshop, microfinance institutions, donors, and other stakeholders interested in itsdevelopment should become more realistic, better prepared, and resist being carried away bythe market rhetoric of the commercialisation of microfinance vision11. The relevance ofNEPAD for this conference is that it places Africa’s ambitious recovery plan on tangibleaction—specifically, opening poor people’s access to affordable credit on large numbers12.The relevance of this conference and the presence of NEPAD’s greatest campaigners fromSouth Africa and Senegal underscore the strong links that commercialisation of microfinancehave with Africa’s new partnership for development in an ideologically and politicallydivided world.As presently conceived, commercialisation of microfinance envisions a market wherethe demand for loan capital and institutional development is led mainly by privately availableequity capital and commercial debt. This debt will be readily available to well managed andprofitable, or near-profitable microfinance institutions, able to prove their worth through8 Africa’s working population is about 250 million people, 75% of them self-employed. Only one per cent ofthis population presently has access to financial services.9 The financial systems approach to microfinance appeared for the first time in a 1993 publication edited byMaria Otero and Elizabeth Ryhne.10 Alarmingly, there is already discussions of mainstreaming microfinance into the national financial systems,but are we not forgetting that after more than a decade of World-Bank sponsored financial sector reforms andrestructuring in the late 1980s, the financial systems of many African countries are still fragile and inefficient?What does mainstreaming microfinance in this kind of situation imply?11 The most realistic position on this matter is very well captured in CGAP’s Donor Brief No. 3 of May 2002(Helping to improve donor effectiveness in microfinance), and is shared practically on every recommendation by INAFIAfrica.12 New Partnership for Africa’s Development (NEPAD), October 2001. It argues that Africa’s only hope forrecovery relies on moving billions of dollars into annual investments to revive dormant economies andalleviating poverty. See The Economist, 22-28 June 2002, pp. 46.
INAFI Africa, May 20038detached, and professionally managed rating companies13. These best-run institutions willhave access to affordable, professionally developed tools and books published with heavygrant funding, but only available on order from commercially-oriented publishers. As fordeveloping appropriate human resources, these best-run institutions will be able to accessuniversity level degrees for their staff from reputable faculties at such places as the NaropaUniversity; and pay five to six digit dollar-denominated fees, excluding the cost of air travel,living expenses, and accommodation! The most worrisome aspect of this movement,however, is the increasing commercialisation of the knowledge and information about theindustry. 14As mentioned earlier, there are presently up to 44 different social and for-profitprivate equity investors listed at a CGAP Website, about 27 of whom could have interest ininvesting in Africa’s microfinance sector. About 17 of the 27 are global funds, not focusedon Africa only, and 13 are covering only specific countries of the region. There are no detailson the size and focus of the investment portfolio of as many as 11 of the 27 potentialinvestors. However, nearly 52% of the US$ 281.4 million of the investment funds listed atthe Website are already committed, and the balance is available globally or accessible withinspecific countries only15.On the demand side for commercial debt and/or equity capital, the number ofpotential microfinance institutions that could attract debt and risk capital globally isestimated at 100 in one recent source. This source also estimates that the number ofpotentially viable institutions for commercialisation could grow to another 200 microbanksby the end of December 200616. It is not clear from this source, however, how many of thereported 100 microfinance institutions potentially eligible for immediate commercialisationare in Africa17, but the number is likely to be much fewer in Africa than in Asia or LatinAmerica.13 Robert C. Peck reports that nearly a third (29%) of funds to microenterprises in Latin America is nowprovided by commercial banks, and 45% by NGOs transformed into commercial financial services companies.14 A new market-based knowledge brokerage firm known as Mix (Microfinance Information exchange) Market,formerly known as The Virtual Microfinance Market, provides some market information on microfinanceinstitutions worldwide: to investors, rating firms, advisory firms, governments and regulatory authorities at nocost. But the kind of technical information needed to build capacity once available at several Websites likeCGAP are no longer available unless on order to private, profit-driven publishers.15 A survey of 27 MFI-focused wholesale funds, for example, discovered that only a handful provide whatcould be considered high-risk, equity capital. All totaled, an estimated $50 million of the $250 million controlledby these funds were either held in or available for equity investments.16 Pancho Otero, 2001. UNCTAD expert meeting on e-finance, Geneva, October.17 According to the UNCTAD expert conference report (Pancho Otero, 2001), only about 2% of the totalmicrofinance institutions globally are financially self-sustaining.
INAFI Africa, May 20039Within the INAFI network of 36 member organisations as at end of April 2003,about 12 are seriously thinking of or actually preparing to transform into regulated financialinstitutions to access savings and private capital as promised by the commercialisationvisionaries. One of the members in Uganda is at a very advanced stage of transforming withthe support of ACCION International. It is an important objective of this INAFIconference that the rest of the microfinance community in Africa should learn about thecosts and benefits this organisation and a few others that have already transformed, like K-Rep, have experienced before and during their preparation towards commercialising theiroperations. This should provide a useful reference for others who might also soon considerfollowing the same path.In Kenya, K-Rep18became a bank on 23 December 1999, and has performed verywell financially. In less than three years, the K-Rep Bank has mobilised nearly a billion indeposits and disbursed slightly more than that amount in loans, a phenomenal growth thathas also been achieved by Equity Building Society—another Kenyan institution that hastransformed itself. Equity has attracted slightly more than 200,000 customers in less thanthree years since February 2000 when it seriously downscaled into microfinance, and hadmobilised over Kshs 3 billion in savings from poor customers as at the end of 2003. These,indeed, are real tangible results from transformation. However, we would like to learn fromthis experience how this success in attracting private capital has helped these institutions toscale up their operations, especially to improve their outreach to the poor clients with loans.Has the number of their loan clients increased as phenomenally as the deposits? Do theseorganisations offer more efficient and more competitively priced services than their yet un-transformed NGO peers? Section 3 below provides us with the background to assess thepotential to reach vast numbers of the poor with financial services throughcommercialisation of microfinance, while still managing to achieve our original mission touproot poverty.18 K-Rep was a member of the INAFI network until its transformation into three separate but linkedsubsidiaries in December 1999. It is represented at this conference by the subsidiary (KDA) that continues tooperate as an NGO, the only one among a few in Africa specialised in pilot testing new innovations inmicrofinance.
INAFI Africa, May 200310III. Context of transformationn just about a decade, microfinance has evolved from makeshift temporarymeasures to encourage self-employment in poor rural and urban communitiesinto a dynamic and potentially large commercial market for small loans anddeposits. The provision of financial services to poor people effectively and sustainably onlarge scale is now a prominent area of policy in nearly every African nation, valued most bythe host governments as a strategy for creating employment, improving incomes, andgenerally reducing the incidence of poverty. These groups, accounting for nearly 80% of thecontinents outputs, do not have access to the kind of financial services that could enablethem fully exploit the available economic opportunities or manage risks and emergenciesthat frequently threaten their livelihoods. This is worrisome in the context of comments likethe following: … “investment capital is the grease of modern economies and has been a vitalelement for economic growth and innovation in industrialised countries”19…According to one Microcredit Summit progress monitoring report, 613 of theAfrican microfinance organisations participating in its worldwide campaign to reach 100million of the poorest families with financial services by 2005 were serving 2.4 million clientsas at the end of December 2001. Their total outstanding portfolio then was reportedly US$800 million20. Much is not known presently about the size and characteristics of the Africanmicrofinance sector. However, the following facts are widely known to be true21: The national economies are still dominated by poor farming communities, artisans,and self-employed men and women operating informally, unacknowledged andunprotected by the governments. Outreach remains very small compared with the demand; less than two per cent ofthe potential poor clients had access to microfinance services by December 199722. Most MFIs are simply too young or too small to make a difference in ensuring thatpoor people have access to financial services. In West Africa, for example, only 4%19 Marc de Sousa-Shields, ibid.20 To serve the demand for basic microfinance credit products in Latin America, MFIs will require over $35billion in equity, or an estimated ten times the capital currently in the system – an amount simply not availablein current development capital markets.21 INAFI Africa and the CGAP are each separately planning a mapping of the African microfinance sector inthe second half of 2003 period. Hopefully, the two surveys will give a better picture of the market in the region,and hence a better sense of the requirements for growth and expansion. Because of UMOA, the situation ofmicrofinance in West Africa is better known than in the rest of the region.22 Panos Media Briefing No. 21/January 1997.I
INAFI Africa, May 200311of the existing MFIs were created before 1980, whereas 72% have been created since1990. A total of 174 microfinance institutions existed in 1995, up from 107 in 199323. Very few institutions involved in microfinance are adequately capitalized to meet therapidly growing demand for services, or profitable: less than two per cent wereprofitable globally as at the end of 2001, but even much fewer than this werefinancially self-sufficient in Africa. Although rapidly evolving and maturing into strong and sustainable organisations,the absolute number of service providers in the region is still very small compared tothe population of poor people who can effectively use financial resources to improvetheir lives. Microfinance institutions have a relatively low presence in rural areas, even thoughAfrica’s population is predominantly rural. Service delivery costs are typically high,averaging above 67% of their loan portfolios24. In many countries, financial services are still limited to credit only among the manypossible services, yet it is widely recognized that most poor people in the continenthave a greater need to save than to borrow. There is evidence that many (potential)clients need more financial services besides savings or loans. Most organizations continue to evolve rapidly and need to build capacity as theygrow, besides becoming more efficient in delivering services. Traditional savings and credit cooperative societies are learning and adapting fromthe innovations in microfinance, and a few are already providing financial services,both loans and savings deposits, to non-members in their areas of operation.According to a recent research by MicroSave Africa25, SACCOs presently controlabout 84% of the rural finance market in Kenya. As at end of December 2001,Kenya alone was home to 3,210 financial cooperatives with a total membership ofnearly 1.7 million people, a share capital base of KShs.54.2 billion (or US$774.3million), and loan portfolio of KShs.37.8 billion (or US$539.4 million)26. In the five-year WOCCU (World Council of Credit Unions) Kenya microfinance expansion23 West African Monetary Union (UMOA), 1996.24 MicroBanking Bulletin25 MicroSave Africa, 2002 Understanding the rebirth of Equity Building Society in Kenya. Nairobi: MicroSaveAfrica
INAFI Africa, May 200312programme involving 16 SACCOs, for example, these time-honoured institutionswere already serving 46,980 pure microfinance clients, and the total loan portfoliowas KShs.2.1 billion (US$28.6 million)27. In West Africa under UMOA, it is thefinancial cooperatives leading in providing financial services. As microfinance institutions move from grants to commercial funding, the pressureto formalise has intensified, yet little corresponding attention is being paid to theirlack of capacity and absence of appropriate policy and regulatory environments. Donors are increasingly more inclined towards supporting commercial banks willingto downscale into microfinance than to support the more experienced mission-driven microfinance organizations to expand their outreach. This unexplained andunconvincing shift in donor focus, together with the fast proliferation of all mannerof providers of microfinance, is encouraging unfair business practices as competitionfor customers intensifies due to the very unequal distribution of resources28. The explosion in the number of people infected or affected by HIV/AIDS isincreasingly eroding the gains made by microfinance organizations in the globaleffort to halve poverty by 2015.There are both opportunities and threats to commercialization of microfinanceunder these circumstances, and this conference should discuss how this could best beachieved in Africa under the prevailing circumstances.IV. The opportunities to commercializes for the opportunities to commercialize microfinance, a growing sector isemerging in many African countries, hence, there is huge potential for profitableinvestments in the region29. With a few exceptions, current market penetrationrates averages 15% to 25%. As mentioned earlier, less than five per cent of the potentialclients have been reached with financial services, and the sector is growing rapidly30. As early26 See Henry Oloo Oketch, 2002. Kenyan Banks in rural microfinance. Nairobi: International Fund forAgricultural Development (IFAD); August/September.27 World Council of Credit Unions, Inc., 2001. “Microfinance expansion programme, 4th Quarter 2001 report– PEARLS Report for 1st July 2001 through 30th September 2001”. Nairobi: WOCCU/Kenya.28 In Latin America, this unfair competition proved disastrous to the microfinance sector—with the clientsgetting over-indebted and portfolio quality sharply deteriorating.29 MicroRate Africa estimates the total number of microfinance institutions at around 4,500 institutions as atthe end of December 1999 and total clients at 5 million people.30 IFPRI, June 2002.A
INAFI Africa, May 200313as 1997, the Microcredit Summit had estimated that US$ 21.6 billion is needed to providemicrofinance to 100 million of the world’s poorest families.Globally, the annual growth in microfinance business over the last three years hasaveraged 37 per cent31. But this growth has been especially fast in Africa, where pioneeringorganisations such as the K-Rep Bank32and Equity building Society are doubling both theirdeposits and loan portfolios every 12 months33. This rapid growth and financial success hasfuelled a huge demand for loan capital and funds for capacity building well beyond thefinancial and organisational capacity of donors on their own without the involvement ofgovernments and the private sector.Estimates of capital requirements for portfolio growth in Uganda, Nigeria, and therest of West Africa in 1999, for example, was placed around US$ 350 million, US$ 420million, and US$ 208 million34. Dramatic growth rates suggest the presence of a strongmarket demand for financial services by the poor. The overall growth in portfolio in theregion is so rapid that the reportedly available private and donor capital of about US$ 281million between 2001 and 2003 is hardly enough35.The total cash turnover of microfinance institutions worldwide is estimated at US$2.5 billion36and the potential for new growth is huge. These commercialised microfinanceinstitutions are also profitable: it is reported in one of the quarterly MicroBanking Bulletinthat 63 of the world’s top microfinance organisations generated an adjusted 2.5% averagereturn on total assets. Most Latin American MFIs are reportedly more profitable thancommercial banks, and double-digit returns on equity are common. Among the 16 bestperformers in Latin America discussed in MicroRate’s Putting Finance into Microfinance37, theadjusted return on equity as at December 1999 ranged from 14% to 34%, hencedemonstrating the commercial potential of microfinance institutions. The following tableshows the typical estimated demand for commercial debt and equity capital in LatinAmerica.31 Microcredit Summit’s Progress Report of October 2001.32 K-Rep Bank portfolio increased by 101 per cent from Kshs 359.7 million as at end of December 2000 toKshs 723 million as of end of December 2001.33 Micro-enterprise banks (MEBs) established from scratch in 2001 by a consortium of investors lead by IMI(Internationale Micro Investitionen Aktiengesellschaft) in Central and Eastern Europe have grown at 55%annually. See Schmidt and Zeitinger.34 MicroRate Africa business plan 200035 In Latin America with a total regional loan portfolio of US$ 1.4 billion by end of 2000, it is estimated thatcapital to just keep pace with the 25 per cent annual growth in portfolio in the next three years is nearly a halfof this figure.36 Panos Media Briefing No. 21/January 1997. The future for microfinance—banking the un-bankable.
INAFI Africa, May 200314Secondly, the success of the sector over thelast decade has forced nearly every government inAfrica to develop appropriate financial policy andregulation in support of the sector. Until five yearsago, only Ethiopia had a legal framework formicrofinance institutions39. The establishment of anappropriate policy in West Africa by the MonetaryUnion of the West African states (UMOA) through its Central Bank (BCEAO) in 1993 hasfuelled and supported the growth of the sector in this region. Between 1993 and 2001, wheninstructions for monitoring the decentralised financial system was established, the number ofinstitutions is reportedly close to 400 offering services at 3,000 service points. Theseinstitutions were already serving 2.9 million clients amongst who 90,000 are organisedgroups—themselves comprising 1.6 million members. The total loans outstanding during theperiod rose from CFAF 17.9 billion to CFAF 115 billion40. The following comments on thesector by BCEAO is of great significance to NEPAD and this conference especially:…”Over the period 1993 to 2001, microfinance in Western Africa proved to be a dynamicsector, reflecting the relevance of its approach and the confidence placed in it by people withno access to banking services or financial institutions… Due to the number of actorsinvolved (over 4.4 million clients), this performance calls for further action not only bypublic authorities, but also by other stakeholders. It is expected that they will undertake anumber of convergent actions to consolidate the results recorded here, thereby boosting notonly the tool of microfinance itself, but also its use by a larger number of actors inconditions in which the security of transactions has been strengthened”In section V below, we look at some of these difficulties and challengesacknowledged by BCEAO against which we need to realistically assess the vision tocommercialise microfinance.37 MicroRate, 2000.38 Cited from Marc de Sousa-Shields, ibid.39 Incidentally, Ethiopia is also the first country in Africa where the government is selectively providing somefunding only to professionally run, commercially oriented rural financial intermediaries—known popularly inthe country as saving and credit share companies.40 As noted in the conference invitation note on the theme, 90% of the savings and loan operations areaccounted for by just 40% of the institutions.MFI Equity Requirements (micro credit only)38Select markets ($US)Demand Required equityWorld $500 billion $40 billionLatin America $44 billion $3.6 billionMexico $12 billion $960 millionArgentina $10 billion $800 millionChile $1 billion $80 millionExchange Rate = US$ 1 = $9.2 pesos
INAFI Africa, May 200315V. The challenges and dangers to commercializationhile there is much to cheer about this possibility of commercialisingmicrofinance in Africa, empirical evidence seems to challenge one ofits strongest appeal as a vision for reaching vast numbers of the poorwith services. In Latin America where microfinance is most commercialised, much of thegrowth in the number of clients reached has been horizontal rather than vertical, meaningthat the growth has resulted from several new small institutions spread around thecontinent41. This is also the case in Asia, where the six giants –each reaching more than amillion clients like BRAC42, ASA, Proshika, etc., continue operating as unregulated missionsrather than profit-driven entities. Under the circumstances, there is value for this conferenceto re-examine the World Bank Vice-President’s position shared with the Microcredit Summitin 2000. According to the then Vice-President, Ismael Seregaldin, … “The success of theBank in supporting microfinance will be judged by the additional number of successful newreplications of best-practice institutions that emerge inspired by the success of the BRIs,Grameen Banks, K-Reps, and BancoSols”Similarly, donor’s efforts to grow microfinance within established commercial Bankshave not helped increase the scale of outreach. Valenzuela, as cited in Anita and Dunn,demonstrate how so far the large banks have encountered difficulties in expanding theirmicroenterprise clientele due to the challenge of assimilating a microfinance product into acorporate bank structure43.Donors and investors are now awakening to the reality that for commercial banks toeffectively downscale and serve poor clients in large numbers: The bank must have a clear objective and the motivation to downscale is a coreelement of successful microfinance programs. Management must have a carefully selected and trained experienced staff frommainstream banking operations to carry out the program and establish a clear careerdevelopment path.41 As at the end of 2000, none of the 11 best performing commercialised microfinance institutions in LatinAmerica reported in MicroRate was reaching more than 70,000 clients, with more than two thirds actuallyreaching less than 30,000 clients each.42 Although BRAC has established a bank, it targets a completely different clientele from its microfinancedivision, which has nearly 4.5 million clients.43 See Anita Champion and Elizabeth Dunn, (ibid.).W
INAFI Africa, May 200316 Deposit products must be designed to conform to income and employmentcharacteristics of the rural villages served. The transfer price mechanism used for "purchasing" excess deposits from satelliteunits is the same as that used for regular branches. Institutional commitment, operating autonomy and a management environmentconducive to responsive business decisions is needed to enhance programsustainability.BancoSol in Bolivia had merely 73,073 customers as at December 1999, nearly adecade after commercialising compared to INAFI’s FCPB in Burkina Faso with 297,500,DECSI in Ethiopia with 210,00, or the Kenya Women Finance Trust. The experience of arural and agriculturally oriented Bank in Kenya that has received substantial residenttechnical and financial support from two of the biggest donors in the East Africa region isalso illustrative. After more than three years of support to this bank since 1998, it still hadless than 2,000 customers as at end of September 200244. In contrast, at least five of thefinancial NGOs operating in Kenya without any special donor effort each had more than15,000 customers as at the end of December 2002. It is worth noting that, with theexception of BancoSol and Compartamos as at the end of December 1999, none of theother 16 high-return performers discussed in MicroRate’s report have more than 40,000clients. As observed by one economist, “the law of competition does not obligate eachinstitution to increase its volume of business to survive in the market”. In Latin America,commercialised institutions have increased their average loan sizes as a competitive strategy,adopted individual lending methodology, and have ensured higher staff productivity bypaying higher salaries45. Hence, the argument that commercialisation leads to a highercapacity for outreach must be re-examined based on this real-life organisational behaviour46.Lack of retailing capacity alone is blamed for Africa’s MFIs failure to accesscommercial funding, but the cost and structure of such funds is not discussed in most of thecommercialisation of microfinance literature. Although lack of retailing capacity is aproblem, it is not the only constraint to reaching the vast numbers of the poor with financialservices in the region. There is hardly any private or socially responsible investor listed at the44 Oketch Henry, 2002. Commercial Banks in microfinance in Kenya, prepared for the International Fund forAgricultural Development (IFAD).45 See Anita Champion and Elizabeth Dunn, (ibid.)46 The total combined outreach of transformed microfinance organisations in Latin America where ProFundhas equity interest in each country range from 6, 314 in Venezuela to 144,991 in Mexico.
INAFI Africa, May 200317CGAP Website that has a parallel corresponding strategy to build this missing retail capacity.The only exception to this general situation is AfriCap, but even with AfriCap this lack ofcapacity is addressed only after a potential candidate for investment has passed the credittest. How will the commercialised microfinance institutions build this retail capacity that isobviously lacking in order to attract private capital?Partly because the industry is still very young, and partly because the cost andconditions set by investors are too difficult for most microfinance institutions to meet, therehave been extremely few deals, the campaign for commercialisation not withstanding.Triodos, one of the pioneers in providing social capital in Africa estimates that a typicaltransaction averages 60 days47to negotiate and sign, and costs between five to 10 per cent ona US$ 250,000 deal. For equity investments, Triodos experience is that the costs can be ashigh as US$ 50,000 per deal over a three-year period.Capital financing costs was also found to be a major constraint by Blue OrchardFinance, an equity fund based in Geneva, Switzerland. The firm made 40 contacts withleading microfinance institutions in Asia (nine), Africa (three), Eastern Europe (six), andLatin America (22) but got only 10 positive replies, nine of the 10 being from Latin America.The cost of its funds (at a dollar-denominated Libor +5.25 interest) was mentioned 38% ofthe time among the three main reasons for rejection of their offer, followed by lack of needsfor funds (27%), and general lack of interest (16%). The challenge, therefore, is to theinvestors to become more creative and demand-driven to meet this huge demand for capital.There is also an ideological challenge to the idea of commercialising microfinance,which has been argued very well by Sergio Navajas et al48. According to Sergio et al:…. The professed goal of public support for microcredit is to improve the welfare of poorhouseholds through better access to small loans. Often public funds for microfinanceorganisations carry a mandate to serve the poorest (cf. The Consultative Group to Assist thePoorest, 1995). Thus outreach stands for the social value of loans from a microfinanceorganisation, and its financial success helps to maximise social value minus social costsdiscounted through time, including the net gain of users from loans and deposits, the profitsor losses of the microfinance organisation, and the social opportunity cost of the resources47 AfriCap made its first 10-year venture capital investment in April 2003 in Equity Building Society, a mortgagefinance company that recently turned its vision into microfinance, after more than 18 months of existence.Note that this investment in Equity by AfriCap was possible after recent significant investments in Equity by aplethora of donors, including the European Union, UNDP’s MicroStart, MicroSave Africa, and theSwisscontact.
INAFI Africa, May 200318used. [Profits or financial success] affects outreach because permanency tends to lead tostructures of incentives and constraints that prompt all the groups of stakeholders in amicrofinance institution to act in ways that increase the difference between social value andsocial cost.Their research in Bolivia in 2000 found that the microfinance institutions usinggroup-lending technology reached the poorest better than those using individual lendingtechnology did. However, when microfinance institutions commercialise, as has happened inLatin America, often they adopt traditional banking technology to serve clients, and may endup serving a completely different market segment. With increased competition for clientsfollowing the entry of commercial banks and consumer lending companies in the Bolivianmicrofinance market, these organisations ended up with relatively better off clients, therebyeffectively crowding out the poor from their portfolios. He also argues that “penetration inthe market as a whole matters less for profit – driven organizations than penetration in thatpart of the market with demand and creditworthiness”, and noted how this had actuallyhappened for BancoSol, Caja Los Andes, and FIE. The only exception in the sample wasSartawi, where 49% of the clients in the sample were moderately poor and 36% were amongthe poorest.For many financial NGOs in Africa, the transformation and commercialisation oftheir donor and government funded operations ideologically represents a transfer of publicresources into private hands, whether this is through share ownership in the newly createdinstitutions, debt payments, or dividends.The following comments on commercialisation of microfinance as a possiblesolution to reaching vast numbers of the poor help highlight the inherent challenges: Most MFIs are simply too young or too small to attract private capital. The danger ofgrowing assets with commercial debt or equity from the private sector withoutappropriate levels of institutional capacity is myriad.49A few of the microfinanceinstitutions already using commercial debt to finance their equity have experiencedbetween 9% to 15% increase in their financial costs, which they must pass on to theclients, thereby making credit expensive.48 Sergio Navajas et al. Microcredit and the poorest of the poor—theory and evidence from Bolivia, Centre forSocial Development, Washington University in St. Louis: http: www.microfinance.com49 Caja Popular Mexicana, Finamerica, and FA$$IL provide examples of how overly rapid asset growth withoutsufficient equity investments can contribute to profound operating difficulties (Poyo and Young, 1999 - B).
INAFI Africa, May 200319 Furthermore, drawing from theconcept of business lifecycle model,the stage at which mostmicrofinance providers havereached in Africa also suggests theneed for different combinations ofrisk equity capital and portfoliodebt capital for start-up andinstitutions that have reached thecommercialization stages ofdevelopment51. Later, as the sectormatures, MFIs should be able to tapmore sophisticated sources ofequity capital in sufficient quantity to lever their portfolio growth. It is not possibleto sustain the growth and expand the services of mature microfinance institutions onretained earnings alone52. A recent survey of members’ five major challenges by INAFI Africa53found thatlack of capital to finance growth and expansion was ranked fourth among the majorproblems. Instead, their primary challenge was how to build the capacity of theirworkforce in response to increased demand for services, followed by concern abouthow to retain clients and achieve a deeper market penetration. Most of theorganizations were more concerned about their own financial condition/health andmanagement information systems than about the lack of capital to finance growthand expansion. The significance of this observation is that the availability ofcommercial debt or equity capital for financing growth alone however widespread isunlikely to lead to better retail capacity of the commercialized intermediaries. Asimilar sentiment has been expressed by the World Bank54, which notes that: … “incontrast to recent calls to increase resources, the availability of funding for MFIsshould not be seen as the main constraint to wider use of this innovation. In fact, thecapacity to absorb large amounts of donor funding is often constrained by50 Marc de Sousa-Shields, ibid.51 See Mac de Sousa-Shields (ibid.) and CGAP’s Donor Brief No. 3 (ibid.).52 Marc de Sousa-Shields, ibid.53 INAFI Africa, July 2002. Members’ five major challenges and capacity building priority needs.54 The World Bank and Microenterprise Finance—from concept to practice, 30 June 1999.MFI LIFECYCLES AND CAPITAL NEEDS50Youth orStart-upCommercialisation/GrowthMaturityCapital Type Seed Capital Risk Capital SharesCommercial DebtCommercialDebtRetained Earnings BondsDeposits DepositsPossibleSourcesDonors Commercial CreditCommercialCreditSoft Loans Private InvestorsPrivateInvestorsDeposits Venture CapitalistsBondMarketsRetained Earnings andIncomeStockMarkets
INAFI Africa, May 200320institutional development requirements”. Why is it that the World Bank does notrecognize that these funds are also required to build the retail capacity of theseinstitutions, and that if this were possible, then would there be a serious shortage ofthe capital required in growing the industry? Instead, the concern of the Bank asexpressed in this paper is that… “A review of available ICRs [whatever these mightbe] and of the project design of ongoing microenterprise finance projects indicatesthat there is significant room to enhance the consistency of Bank practices with thecurrent Bank approach! Incredibly, the same paper recommends…“it is better todeliver subsidies as incentives to participating institutions to develop the necessaryinfrastructure to reach the targeted population. At the same time, subsidies in Bankmicrofinance projects are better targeted to microenterprise finance institutions withthe greatest potential for sustainability, in order to provide appropriate incentivesand discipline”55. Only BRI among the six giant microfinance institutions in Asia is a commercial bank.The rest are NGOs. As long as support is properly structured, as was the case withBRI and more recently in Ethiopia, it is possible for governments to successfullyintervene in providing the kind of capital required to reach vast numbers of the poorwith financial services. This Ethiopian experience is the first challenge to the notionthat transformation is the only route to closing the absurd gap between the demandand supply of microfinance, especially the notion that private capital markets holdthe key to financing growth and investments in the sector. In Bangladesh, PSKF is financing several smaller microfinance institutions, and issucceeding in helping them reach vast numbers of the poor. In Tanzania, thegovernment is successfully transforming the once National Bank of Commerce intoa professionally managed microfinance bank, able to provide financial servicesappropriately designed for the poor people at more than 93 outlets throughout thecountry. An attempt to commercialize this bank was recently scuttled by members ofTanzania’s parliament on the basis that it would not retain its vision of serving thepoor (see a copy of the news about the rejection attached as annex 1) if sold.55 David Gibbons of CASHPOR laments the paradox where potentially viable microfinance institutions aredenied funding because they are not self-sustaining, yet it is this very funding that is required in carrying on thebusiness at a volume that can permit the institutions to break-even. Currently, there is a popular donorreference to “a glass ceiling” that prevents African microfinance institutions from reaching more than 20,000clients. This should be understood in the same context of Gibbon’s complaint.
INAFI Africa, May 200321 Competition for clients in more commercialized environments like Latin America isdriving older, broad-based microfinance institutions up-market, thereby crowdingout the poorer clients56. This view has been challenged, but unconvincingly57, by twoleading researchers58of the commercialization of the microfinance phenomenon inLatin America. Dunn analyzed the clients’ data of ACP/Mibanco collected beforeand immediately after the transformation, and were persuaded that there is actuallysome shift in the client profile toward poorer clients during the transition! Markets are not especially good at delivering capital to small enterprises, particularlythose owned by low-income people or members of racial minorities. They also havedifficulty serving rural areas and inner cities. Technically, as soon as microfinance institutions are commercialized, they comeunder regulatory supervision and licensing of one sort or another. This represents anew cost to the institutions. In Latin America, the additional cost varies between oneto five per cent of the assets: in Bolivia, it costs BancoSol five per cent of itsportfolio annually to comply with the regulatory requirements. In Bolivia, the average salary per client for NGOs is US$ 378 compared to US$ 973for the commercialized microfinance institutions, thus suggesting significant overallincreases in average operating costs. A major challenge, especially, is the rapidly evolving search for more appropriatemethodologies and best practices for delivery of financial services to the poorefficiently and sustainably, with new frontiers emerging almost every two years.These systems keep changing with time in response to both internal and externalfactors. For example, as clients build confidence in using microfinance, their needsalso change forcing the institutions themselves to evolve or risk losing their clients.Once commercialized, it is likely to be more difficult for these organizations tocontinue innovating and the pressure from competition may just force them to moveto new market segments, increase their prices, or close down outlets in less profitablelocations.56 Robert Christen and Deborah Drake (ibid.) note that the average loan size of commercialized microfinanceinstitutions is significantly higher than that of non-profit MFIs that target the poorest clients.57 Joselito Gallardo, cited in a World Bank report on a Framework for regulating microfinance institutions—the experience in Ghana and Philippines in November 2001 using the definition of depth of outreach asaverage loan balance per borrower compared to the GNP per capita found banks with 62.5%, non-bankfinancial institutions with 62.4%, credit Unions with 91.6%, and NGOs 38.8%.
INAFI Africa, May 200322 Real capital for the development of the microfinance sector in Africa is availablelocally, from the poor people themselves. But most of them live in remote andisolated areas that still have only limited access to microfinance institutions of anykind. Serious institutional and product innovations are still needed to takemicrofinance to where it is needed most; in the rural areas of Africa where the bulkof the population live and micro/small-scale enterprises are based. As earlier noted,with commercialization, the preoccupation with the bottom line will not have roomfor concerns about the search for these new frontiers to reach the poor moreefficiently. The shift of focus from promoting best practices to commercialization ofmicrofinance is putting to test INAFI’s and the World Banks’ own vision fordeveloping the sector. It was once the view of the World Bank Vice-President,shared by INAFI, that its success in support of microfinance should be measured byadding to the list by supporting the next generation of MFIs that follow in thefootsteps of the Grameen Bank, BancoSol, and K-Rep Bank. For a population of nearly 811.6 million people—growing at more than three percent annually, with a half living on less than a dollar a day, Africa will continue toneed thousands of small microfinance institutions appropriately located near thepoor to ensure access to financial services. Hence, as we embrace thecommercialization of microfinance; because it supposedly promotes efficiency,encourages competition, and brings in previously unavailable resources from theprivate sector, we also must accept the reality that new credit and capital markets forinvestments in microfinance alone cannot effectively replace donors andgovernments support.VI. Overall assessmenthe supply of funds for the development of the microfinance sector inAfrica is in reality far short of the requirements, not only for investmentsin human capacity and systems development but also to finance growth.However, commercialisation of operations and institutions is not the only solution, andcould actually be dangerous.58 Anita Champion and Elizabeth Dunn, Commercialisation of Microfinance, (ibid.)T
INAFI Africa, May 200323Once mission-driven organisations had found successful ways to give small loans toself-employed men and women in poor countries without the traditional collateral, the ideaof offering such services as though they were any other commodities became attractive,especially so to development partners who had invested heavily in the experiments. Thus, inFebruary 1992, with the transformation of PRODEM into BancoSol in Bolivia, the worldawakened to the discovery that it could expand microfinance simply by tapping into localsavings and capital markets as long as the financial institutions behaved as though they werecommercial entities. This idea is so celebrated today in development circles that any differentopinion is regarded as blasphemy.However, in light of experience and evidence from the field, there should be a moreopen and honest discussion of the market for commercial debt and equity capital where theserious and commercially oriented organisations could obtain funds to finance their growthand expansion. The financial systems model does not often tackle the social and institutionalissues that may affect the ability of the poor to become economically active in order to takeadvantage of its services. African governments hence, need to identify committed partnersto adapt and support successful experiments in Eastern and Central Europe -- and evenwithin the continent in countries like Kenya where WOCCU is working with 16 financialcooperatives to enter new segments of the financial market and are providing microfinanceprofitably on a massive scale. Kenya’s 3,210 financial cooperatives, with a total capital baseof nearly US$ 800 million, could learn from successful microfinance institutions to lead theprovision of microfinance while still driven by their cooperative rather than profit motives.In Eastern and Central Europe (Albania, Bosnia, Georgia, and recently Kosovo), thesame socially responsible investors who are unable to locate suitable investmentopportunities in Africa are investing in completely new microfinance banks from scratchwith considerable success59. Why is this not an option for Africa, why is the transformationof existing institutions the only magic that can work well in the continent? As noted bySchmidt and Zeitinger: …”in the context of development finance, the creation ofmicrofinance banks from scratch instead of going through the process of transformationconstitutes an innovation”60.59 Among the investors with interest in both continents include KfW, IFC, IMI, and FMO, each with stakes ofbetween 10-28% in Bosnia, 15-45% in Albania, 15-25% in Georgia, and 17-22% in Kosovo. See Schmidt andZeitinger, pp. 860 See Reinhard H. Schmidt and Claus-Peter Zeitinger, (ibid.), pp. 4 – 5.
INAFI Africa, May 200324Donor’s hope that enticing commercial banks with generous grants and free, oftenresident advisors, would make them downscale into microfinance is very well assessed by thetwo authors:…The success rate of upgrading projects is quite low… in the process of strengtheningexisting institutions, the authority and power of key individuals is often enhanced, givingthem a vested interest in maintaining the status quo, and this often impedes theimplementation of the second stage of the project. It is only natural that the manager orfounder/initiator of a credit-granting NGO that is receiving external support and is relativelysuccessful will perceive himself or herself as its “owner”. As an NGO does not have realowners in a conventional sense, the individual in question cannot be faulted for seeing his orher role in these terms; and it is only natural that people who identify with “their”institutions in this way will usually have little interest in supporting a process oftransformation in the course of which they might lose their influence and prestige…Theformalisation of institutions does nothing to solve this problem unless it is accompanied byfundamental changes in their ownership…The conclusion which emerges from theseconsiderations is that it may not always be recommendable to create a microfinance bankthrough a strategy which entails first the strengthening and then the transformation of anexisting credit-granting NGO or other similar institution.Finally, for a population of 811.6 million people (growing at more than three percent annually), with a half living on less than a dollar a day, Africa will continue to needthousands of microfinance institutions that can successfully replicate the Grameens and theK-Reps. It is very unlikely that commercial funding would replace the international supportfor microfinance in Africa any time soon. INAFI, therefore, shares the view of the WorldBank Vice President that its success in support of microfinance should be measured byadding to the list and supporting the next generation of MFIs that follow in the footsteps ofthe likes of Grameen Bank, BancoSol, and K-Rep Bank.For the first time in a long while, INAFI shares totally CGAP’s position in itsDonors Brief No.3 of May 2002 that…” both capital and capacity building are needed forthe expansion of microfinance services to the poor. The challenge for donors and [AfricanGovernments] include taking more risks, sequencing funding instruments to match thedevelopment stage of microfinance institution partners, and clarifying their roles vis-à-vis theprivate sector investors –[and rating companies, many who have used grants to establishtheir profit-driven entities].
INAFI Africa, May 200325The following real-life story of a microfinance bank at the brink of beingcommercialised dramatises the human dimension that underpins most of the innovations inmicrofinance:« MPs Stop Sale of Microfinance Bank »The East African (Nairobi)February 10, 2003posted to the web February 11, 2003By F. RwambaliNairobiTANZANIAS Parliamentary Committee on Finance and Economic Affairs last week rejectedgovernment plans to sell the National Micro-Finance Bank (NMB) to a "strategic investor" incontravention of the spirit of the formation of the "small mans bank."The chairman of the Finance Committee, Njelu Kassaka of the party Chama cha Mapinduzi, told TheEastAfrican that the Micro-Finance Bank Limited Incorporation (Repeal and Transition) Act, 2003could not be tabled in parliament on two grounds:"First, we want to establish whether after privatisation the NMB will continue with its core function ofmicro-financing and second, how Tanzanians can be involved in its running," he said.The temporary shelving of the Privatisation Bill is a relief to the over 1,000 employees of the bank whowould have lost their jobs, to pave way for the new investors to hire their own staff to run the banks104 branches.Some Members of Parliament and economic analysts have described the rejection as "a patrioticdecision" considering the controversial sale of the National Bank of Commerce (NBC) a few yearsago.However, Thomas Ngawaiya (MP Moshi Rural) said that the government was under pressure from theWorld Bank, to sell the bank. And that the World Bank wanted privatisation completed by the year2005.Immediately after the parliamentary committee rejected the Bill, the NMB board of directors issued astatement saying that the Bills proposal of two per cent shares for Tanzanians was too small. Theboard said that the chosen investor should show commitment to work with the poor and value growthwith equity.
INAFI Africa, May 200326VII. Annex of potential investors61AMINA—Microfinance Initiative for AfricaMicrofinance program run by the African Development Bank (AFDB). For partnermicrofinance institutions it promotes capacity building, information dissemination, policydialogue and donor coordination.Type: Donor with MF focused siteDevelopment Bank - InvestorRue Joseph Anoma, 01 BP 1387,Abidjan 01,Côte dIvoire - Ivory CoastTel: (225) 20.44.44Fax: (225) 21.77.53Email: firstname.lastname@example.orgCalvert Social FundA professional money management/investment fund based in Bethesda, Maryland that ismaking forays into socially responsible investing. It provides microenterprise loan fundsto entrepreneurs in developing countries. It also provides loans for communitydevelopment and affordable housing programs.Type: Socially Responsible Investor4550 Montgomery Avenue, Bethesda, Md 20814, USAT: 1-800-368-2748Email: email@example.comCentral Asian-American Enterprise FundA privately managed, profit-oriented venture capital institution. It invests in small andmedium-sized businesses in Kazakhstan and other Central Asian countries.Type: Socially Responsible Investor531, Seyfullin Street, 2nd floor480091 Almaty, Republic of KazakhstanTelephone - 7 (3272) 63-88-15; 63-16-92Fax - 7 (3272) 58-79-13Email: firstname.lastname@example.org Downloaded from CGAP Website: www.cgap.org
INAFI Africa, May 200327CRF - Community Reinvestment FundA non-profit organization with headquarters in Minneapolis, Minnesota, USA. Its coreservice is the creation of a secondary market for community development loans. It alsoprovides loan servicing and other portfolio management services to its loan sellers andsome other clients.Type: Socially Responsible InvestorCommunity Reinvestment Fund2400 Foshay Tower821 Marquette AvenueMinneapolis, MN 55402USATel.: (612) 338-3050;(800) 475-3050Fax: (612) 338-3236Email: email@example.comDEVCAP Shared Return FundA no-load index fund based in Baltimore, Maryland. It allows individuals and institutions toinvest in a portfolio of socially screened stocks and make a tax-deductible donation of aportion of their investment returns to organizations that fund microenterprises of theworking poor in developing nations.Type: Socially Responsible InvestorDEVCAP Development Capital209 W. Fayette St.Baltimore, MD 21201-3443, USA,Phone 410.468.3922800.371.2655Ford FoundationA foundation headquartered in New York that funds community development. It operatesmainly by making grants or loans to build knowledge and strengthen organizations andnetworks.Type: DonorPrivate InvestorMr Frank F. DeGiovanniDirector of Economic Development320 East 43rd StreetNew York, NY 10017 USAtel. (212) 573-5000fax (212) 351-3677Email: firstname.lastname@example.orgGood Money, Inc.A for-profit, educational and publishing company for the socially and environmentallyresponsible investing (SRI), consuming (SRC) and business practices (CSR).Type: Socially Responsible InvestorGood Money, Inc. - Attn: Peter Lowry370A Granite RoadOssipee, NH 03864, USATelephone and Fax: (603) 539-3852Email: email@example.comGOODMONEY1@aol.com
INAFI Africa, May 200328INAISE - International Association of Investors in the Social EconomyAn international network of socially responsible investors. Besides pure lending activities,network members are involved in donations, risk capital, guarantees, insurance andconsultancy.Type: Socially Responsible InvestorInternational Association of Investors in the Social EconomyRue dArlon 40, B-1000 Brussels, BelgiumTel. (32-2) 234 57 97fax (32-2) 234 57 98Email: firstname.lastname@example.orgKhula Enterprise Finance LimitedAn independent, limited liability company operating in South Africa. Capitalized by grantfunding from government, and overseas and local donors, Khula has developed a series ofproducts designed to assist retail financial intermediaries in creating sustainable small,medium and micro enterprises.Type: NGOPublic InvestorP. O Box 4197, Rivonia, Johannesburg2128, South AfricaTel: (27-11) 807-8464Fax: (27-11) 807-8471Email: email@example.comKreditanstalt fur Wiederaufbau (KfW)Germany’s promotional bank for the domestic economy and its official development bankfor countries in transition and developing countries. It finances investments in developingcountries on behalf of the German Federal GovernmentType: Development Bank - InvestorKreditanstalt für WiederaufbauPalmengartenstrasse 5-960325 Frankfurt/MainGermanyTel.: (+49-69) 74 31-0Fax: (+49-69) 74 31 29 44Email: firstname.lastname@example.orgPax World Fund FamilyA group of mutual funds investing in companies providing goods and services that“improve the quality of life” such as health care, technology, pollution control, housing,utilities, and education.Type: Socially Responsible Investor222 State StreetPortsmouth, NH 03801-3853USAEmail: email@example.com
INAFI Africa, May 200329RAFAD - International Guarantee Fund (IGF)A non-profit international organization based in Geneva, Switzerland. It mainly issuesguarantees to grassroots associations to enable them to secure local credit facilities andstrengthen their financial autonomy.Type: Private InvestorFrançois Mercier - Fondation RAFADTel. +41-22-733.5073Fax +41-22-734.7083Rue de Varembé, 1C.P. 117CH-1211 Genčve 20SwitzerlandEmail: firstname.lastname@example.orgSAS-Shore Bank Advisory ServicesAn international economic development consulting company and the advisory andconsulting arm of Shorebank Corporation based in Chicago, USA. Its practice areasinclude Neighbourhood Market Intelligence, real estate, financial intermediary support,and fund management.Type: ConsultingPrivate InvestorShore BankAdvisory Services1950 E. 71st Street,Chicago, IL 60649USATel.: (773) 753-5694Fax: (773) 753-5880Email: SAS1SBK@aol.comSouth - North Development InitativeA non-profit organization based in New York City. It invests Local Venture Capital (LVC)Funds in Latin America and Africa. These funds are invested for profit in small andmedium size businesses in regions and among populations without access to equitycapital.Type: Socially Responsible InvestorSouth North Development Initiative,866 UN Plaza, Suite 4016New York 10017, USAEmail: email@example.comIMI- Internationale Micro Investitionen AktiengesellschaftA development oriented investment company based in Frankfurt, Germany. It acquiresequity stakes in partner commercial financial institutions that are target-group oriented. Itsaim is to strengthen them financially and support them in their development orientation.Type: Private InvestorIMI, Am Eisern Schlag 31, 60431Frankfurt, GermanyEmail: firstname.lastname@example.org
INAFI Africa, May 200330Citigroup FoundationA philanthropic arm of Citigroup companies. It aims to offer more consumers around theworld financial products and services by initiatives such as assisting start-up businessesand training young people for careers.Type: Socially Responsible InvestorCharles V. RaymondPresident and CEOCitigroup Foundation153 E. 53rd Street, 3rd FloorNew York, NY 10043(212) 559-9163Email: email@example.comDfID, Financial Deepening Challenge FundCDF is commercially managed by Enterplan Limited and its management partners Deloitteand Touche and Project Northeast. FCDF is a fund of UK pounds 15 million to bedistributed in grants over its lifetime. FCDF is available for financing a wide range ofinvestments and activities, the common theme being that the assistance is essential toovercome obstacles to the commercial provision of new financial services.Type: Donor - InvestorUK:Ms Juliet HodgeEnterplan Limited, One Northfield RoadReading, RG1 8AHUnited Kingdom+44 (0) 118 959 6066East Africa HQ:Mr Massood ShariffDeloitte and Touche, PO Box 40092Nairobi, KenyaE-mail: firstname.lastname@example.orgFax: 254 2 448966Telephone: 254 2 441305Email: email@example.comOikocredit, Ecumenical Development Cooperative Society (previously EDCS)Oikocredit, Ecumenical Development Cooperative Society (previously EDCS) is acooperative development bank that provides credit to economically disadvantaged people.Oikocredit finances cooperatives, microcredit institutions and viable enterprises with alarge number of beneficiaries in 31 countries in Asia, Eastern Europe, Latin America andAfrica. Oikocredit gained its capital by issuing shares to churches and people who believein a just distribution of wealth.Type: Socially Responsible InvestorOikocreditP.C. Hooftlaan 33818 HG AMERSFOORTThe NetherlandsTel: 31 33 4224040Fax: 31 33 4650336Email: firstname.lastname@example.org
INAFI Africa, May 200331ProFund InternacionalIn 1995, ProFund Internacional (ProFund), was incorporated as a for-profit investment fundin the city of Panama. The fund, which is managed by a professional team from itsheadquarters in San Jose, Costa Rica, seeks a high return on investment for itsshareholders while promoting the growth of regulated and efficient financialintermediaries whose main target market is the small and micro-enterprises (SMEs) ofLatin America and the Caribbean.Type: Socially Responsible InvestorAlejandro SilvaP.O. Box 769-1005San Jose, Costa RicaTel: (506) 220-4122 or (506) 290-2404Fax: (506) 290-2345Email: email@example.comUn Sol Mon FoundationUn Sol Mon Foundation has the vocation to support the existing organizations by: Offeringaccessibility to microcredit to underprivileged people and collectives; Helping theinitiatives for social-labour insertion and promotion of Social Economy; Offering theInternet gate OneWorld Spain to facilitate access to solidarity; Generating activities tosensitise on poverty and social exclusion:Type: Commercial BankSocially Responsible InvestorFundació Un Sol Món.Caixa CatalunyaFontanella 5-7 - 08010 BarcelonaSpainTel. 93 484 5900Fax. 93 484 5889Email: firstname.lastname@example.orgLatin American Challenge Investment Fund LAC-IFLA-CIF is a for-profit fund incorporated in Panama with operational offices in Lima, Peru.We expect to have US$ 11 million in financing available by September of 1999 to help linkformal capital markets with microfinance institutions.Type: Socially Responsible Investor1828 L Street, NW, Suite 1030Washington DC, USATel: (202) 785-8300Fax: (202) 785-0799Email: email@example.com
INAFI Africa, May 200332Sarona Global Investment FundThe Sarona Global Investment Fund is a social investment fund with an aggressive focuson ventures that strengthen the economic prospects of the poor in low income countries.By providing loans to local microcredit lending institutions, Sarona enables poor people tobuy new machinery, increase inventory, do advertising, market their goods, buy rawmaterials or improve their businesses in other ways. At the same time, Sarona supportsprograms, which allow clients to obtain business training in such things as marketing,bookkeeping and other business practices.Type: Socially Responsible Investor1821 Oregon Pike, Suite 20Lancaster, PA 17601USAT: 1-877-772-7662Email: firstname.lastname@example.orgSociété dInvest. et de Développement International - SIDISIDI finances small companies in deprived areas of the Third World and Europe. It doesthis by entering into partnership with entrepreneurs who have viable projects but noaccess to credit.Type: Private InvestorMr Christian Schmitz47 Quai des Grands AugustinsF-75006 Paris, FranceTel 33-1 40 46 70 00Fax 33-1 46 34 81 18Email: email@example.comUP micro-loans"UP micro-loans" is a small German foundation that grants interest-free micro-loans toNGOs in poor-developed countries, presently in South East Asia and Eastern Europe. Weare looking for reliable partner NGOs abroad, which need a donor for a micro-loan project.Type: Socially Responsible InvestorUP c/o P+PFriedrichstrasse 200D - 10117 BerlinGermanyEmail: firstname.lastname@example.org
INAFI Africa, May 200333ACCION Gateway Fund LLCThe ACCION Gateway Fund is a closed-end, Limited Liability Company that investsdirectly in microfinance institutions which are regulated financial institutions or non-profitinstitutions which are being transformed into regulated financial institutions. The Fund ismanaged by Gateway ACCIÓN International Manager, Inc. (GAIM), a wholly owned, for-profit subsidiary of ACCIÓN International.Type: Socially Responsible InvestorEnrique FerraroVice President Capital MarketsCapital MarketsACCION International56 Roland Street, Suite 300Boston, MA 02129USATel: (625)-7080Email: email@example.comCARE Capital Market FundType: Socially Responsible InvestorCalvin Miller,Director of Economic Development,CARETel: 404-979-9222Email: firstname.lastname@example.orgDexia Microcredit FundThe Dexia Micro-Credit Fund was created in September 1998 by DEXIA-BIL with a view tolead the commercial refinancing of micro-finance institutions in the world. As of today, it isstill the only fully commercial fund targeting the micro-finance industry. The fund creationwas grounded in the philosophy that development must be mutually profitable in order tobe sustainable and on the conviction that micro-finance debt represents an innovative andspecific asset class characterized by a very attractive risk-return profile suitable forinvestors looking for a combination of financial and social returns.The Dexia Micro-Credit Fund is a Luxembourg SICAV dedicated to the commercialrefinancing of micro-finance institutions in the world. Its current total net asset value isUSD 11,5 millions of which USD 8,95 millions represent micro-finance loans covering 16institutions in 9 countries with an average maturity of 12 months. Its target return for theinvestor is USD LIBOR + 150 Bp. Net performance in 2000 was 8,3%.Type: Socially Responsible InvestorBlueOrchard Finance s.a.72 Bd. de Saint Georges1205 GenevaSwitzerlandEmail: email@example.com
INAFI Africa, May 200334PlaNet Finance - Planet FundType: Socially Responsible InvestorArnaud Ventura, Managing Director,PlaNet Finance23 Boulevard des Capucines75002 Paris, FranceTel. 33 (0) 1 42 66 14 15Fax 33 (0) 1 42 66 06 70Email: firstname.lastname@example.orgTriodos BankTriodos Bank is a social bank lending only to organisations and businesses with socialand environmental objectives. Triodos Bank is well known for its innovative andtransparent approach to banking. Triodos Bank finances exclusively the development ofrenewable energy sources (solar and wind), organic agriculture, art and culture, protectionof the environment and conservation of nature. Triodos Bank also plays an active role inthe developing world (microcredit).Type: Socially Responsible InvestorTriodos Bank NVUtrechtseweg 603700 AB ZeistThe NetherlandsTelephone +31 30 693 65 00Fax +31 30 693 65 55Email: email@example.comDeutsche Bank Microcredit Development FundDer Microcredit Development Fund der Deutschen Bank Americas Foundation leistet einenwichtigen Beitrag zur Entwicklung von stabilen Wirtschaftsstrukturen inEntwicklungsländern. Dabei werden Kleinstkredite an Existenz-gründer vergeben, dieansonsten keinen Zugang zu anderen Finanz-quellen hätten. Mit den ausgereichten Mikro-krediten wird es möglich, ein kleines Gewerbe für die Existenz-sicherung aufzubauen,bessere Geräte anzuschaffen oder einen Kleinhandel zu betreiben. Deutsche BankMicrocredit Development Fund (Deutsche Bank MDF) was established in 1998 as aninnovative partnership of private banking clients, small family foundations and DeutscheBank to address poverty on a global scale. Though ambitious in its mission, DB MDF wasconceived with a very focused strategy of investing in microfinance institutions as themost promising vehicles to bring about economic opportunities for the poor.Type: Private InvestorCommercial BankAsad Mahmood,130 Liberty St,New York, N.Y.10006, USAEmail: firstname.lastname@example.org
INAFI Africa, May 200335ECOBankWest Africas financial integration and economic development. An Ecobank Foundation isbeing established to support and promote regional efforts in science, culture and thehumanities in the countries in which Ecobank operates. A regional investment bank isbeing established to attract and mobilise international and local capital for economicdevelopment. For international investors, Ecobank is increasingly perceived as a gatewayto the West African money and capital markets.Type: Private InvestorCommercial BankHead Office BranchRue Gouverneur Bayol01 B.P. 1280 RP CotonouTél: 31-40-23/31-30-69Fax: 31-33-85/31-37-18Telex: 5394 ECOBNK CTNOUEmail: email@example.comLa Fayette Participations (LFP) - Horus Banque et FinanceLactivité dHORUS-Entreprises (anciennement ICEA-Entreprises) est centrée surlesétudes et le conseil en stratégie et finance pour les entreprises industrielles, notammentagro-alimentaires.Type: Private InvestorFranceT: 33-1 53 32 75 84F: 33- 1 53 32 75 76Email: firstname.lastname@example.orgBank of Africa, MaliLédification du Groupe BANK OF AFRICA (BOA), débutée au Mali en 1982, a connu unchangement déchelle en 1989 avec la mise en place dune holding -AFRICAN FINANCIALHOLDING- et la création de la BOA-Bénin qui deviendra la premičre banque commercialedu pays dčs sa seconde année dactivité. Une expansion a été marquée par le souciconstant de consolidation interne et dinnovation permanente et une forte volontédintégration régionaleType: Development Bank - InvestorBoulevard de France, 08BP 0879Cotonou - BENINTél: (229) 31 01 74Fax: (229) 31 46 58Email: email@example.com
INAFI Africa, May 200336BOAD Banque Ouest Africaine de Developpement - West African Development BankLa Banque Ouest Africaine de Développement (BOAD) est linstitution commune definancement du développement des Etats de lUnion Economique et Monétaire OuestAfricaine (UEMOA). Elle est créée par Traité signé le 14 novembre 1973. Les Etatsmembres de la BOAD sont : le Bénin, le Burkina, la Côte dIvoire, la Guinée Bissau, leMali, le Niger, le Sénégal et le Togo.Type: Development Bank - Investor68,Avenue de la LibérationBoîte Postale: 1172LOME ~ TOGOTéléphone: (228) 21.59.06 / 21.42.44F: (228) 21.52.67 / 21.72.69Email: firstname.lastname@example.orgIDB multilateral investment fundsThe Inter-American Development Bank (IDB) administers the Multilateral Investment Fund(MIF), a US$ 1.3 billion-dollar grant and investment facility with a general mandate toimprove and accelerate the climate for private sector growth in Latin America and theCaribbean. The MIF places special emphasis on development of small enterprises thathave US$ 3-5 million in sales and fewer than 100 employees. In its first five yearsoperations, as of May 1999, MIF has approved 19 funds with total capital of US$222,579,000. Over the next five years, MIF will work towards the creation of an average of6-8 funds per year.Type: Development Bank - InvestorMultilateral Investment FundWindow III Projects, A-11031300 New York Ave, N.W.Washington, DC 20577Email: email@example.comEtimos Consortium - Consorzio EtimosThe Etimos Consortium has been among the principal promoters of the first alternativebank in Italy - the Popular Ethical Bank, with which it maintains narrow relationships ofcollaboration. Today Etimos participates in the international microcredit movement andthe program, launched by the Microcredit Summit Campaign, to reach 100 millionrecipients within 2005. The Consortium belongs to the Council of Banks and CommercialFinance.Type: Commercial BankSocially Responsible InvestorPiazza dei Signori 135139 PadovaItalytel. 049 8755116fax 049 8755714Email: firstname.lastname@example.org
INAFI Africa, May 200337CORDAID - Catholic Organisation for Relief and DevelopmentCordaid combines structural aid, emergency aid and healthcare. Cordaids integratedvision is an effort to give an adequate response to questions from developing countries,national and international politics and support from the Dutch grassroots. Withprogrammes in forty countries, by co-operating with social organisations and withthousands of local experts who implement the programmes in their countries and byutilising its international networks.Type: Socially Responsible InvestorCORDAID Finance Business UnitManager Mr. Holke WieremaTel.: 00 31 70 3136362Fax: 00 31 70 3136301P.O. Box 164402500 BK The HagueThe NetherlandsEmail: HWI@cordaid.nlKolibri KapitalKolibri Kapital ASA is a Norwegian company that raises capital on the Norwegian stockmarket in order to offer debt finance to sustainable micro finance institutions indeveloping countries. We offer loans in USD at present our lending rate is 9% annually.Type: Socially Responsible InvestorKolibri Kapital ASAFagerliveien 41,N-1820 SpydebergNorwayTelephone +4769837265Fax +4769837245Email: email@example.comBlueOrchard FinanceBlueOrchard Finance s.a. is a for-profit limited liability company created in March 2001 inGeneva, Switzerland. Its shareholders include two leading Swiss financial institutions aswell as several prominent figures of the banking sector. Our mission is to promote privateinvestments in projects and enterprises contributing to the sustainable development ofmicro- entrepreneurship in emerging economies. We strive to catalyse the flows of fundsfrom international capital markets to the world leading micro-finance institutions throughthe offering of specialised fund management services.Type: Private InvestorBlueOrchard Finances.a.72 Boulevard de Saint-Georges1205 GenevaSwitzerlandTel: +4122 781 6667fax: +41 22 781 6669Email: firstname.lastname@example.org
INAFI Africa, May 200338AlterfinAlterfin is a cooperative society based in Belgium. We mobilise capital in Europe. Thiscapital is used for financing MFIs through credit and direct investment. In 2001 we have 7years of operation, a portfolio of 3,2 million USD, 22 partners in 10 different countries.Interested? Contact us! Alterfins mission is to contribute to the development of localfinancial networks in the South, working with disadvantaged or oppressed groups insociety. Alterfins focus is providing finance - mainly through credit, but also throughtemporary share participation. In addition, Alterfin also provides and mobilises technicalsupport.Type: Donor - InvestorAlterfinVlasfabriekstraat 111060 BrusselsBELGIUMTel: +32. (0) 2.538.58.62Fax: +32.(0)2.538.37.90Email: email@example.comCredito Sud SPACredito Sud is a private limited company whose mission is to make financial resourcesavailable at affordable rates to partners in Latin America, Africa and Asia: cooperativesand networks (1st and 2nd level), microfinance institutions, fair trade producers,associations and NGOs engaged in socially committed projects. Our political target is todemonstrate the feasibility of ethical finance as a whole and to recognize the mutualdignity of partners by the economic and financial viability of their activities. We believerelations built on fair market terms to be sustainable, clear and viable on the long term.Our portfolio is currently valued US$ 1,000,000, and we are planning to double it by theend of the year.Type: Private InvestorCreditoSudAmministratore Unico: Andrea BerriniTel ++39 02 firstname.lastname@example.orgArea Progetti: Pier Carlo Bariolicreditosud@libero.itArea Amministrativa:Tel ++39 030 email@example.comEmail: firstname.lastname@example.org
INAFI Africa, May 200339Servicios Financieros Rurales - SEFIRServicios Financieros Rurales (SEFIR) es un proyecto de la Agencia para el DesarrolloInternacional del Gobierno de los Estados Unidos de América (USAID), ejecutado porDevelopment Alternatives, Inc. (DAI). Este programa inició operaciones en marzo del 2001y su duración es de tres ańos, sin embargo podría ser extendido por dos ańosadicionales. El objetivo del proyecto es expandir los servicios de microfinanzas en losmercados sub-atendidos de Bolivia. Para alcanzar esta meta DAI identifica iniciativasinnovadoras en el mercado y determina las maneras de apoyarlas. Esta actividad enfatizala innovación y el desarrollo de la industria microfinanciera, antes que los de institucionesselectas, buscando la construcción de capacidad local.Type: Donor - InvestorDonorCalle Heriberto Gutiérrez No. 2460,La Paz, Bolivia(591-2) 244-1266 y (591-2) 212-5974Email: email@example.comFinMark TrustThe mission of FinMark Trust is summarised in its slogan, “Making Financial MarketsWork for the Poor”. In pursuit of this objective, FinMark Trust aims to promote andsupport policy and institutional development towards the objective of increasing access tofinancial services by the un- and under-banked of southern Africa (South Africa and theSACU countries, Botswana, Lesotho, Swaziland and Namibia)Type: Donor - InvestorResearch Institute7th Floor, 17 Harrison Street,P O Box 61674, Marshalltown, 2107South AfricaTelephone +27 11 370 3565Facsimile +27 11 836 5509Email: firstname.lastname@example.orgFundación para el Financiamiento Rural - FundefirLa Fundación de Financiamiento Rural (Fundefir) es una fundación privada creada en1966, destinada a cumplir fines de interés público. Tiene corno objeto promover eldesarrollo económico y social de las comunidades rurales y sus habitantes, brindandoservicios de capacitación técnica financiera y organizacional a poblaciones necesitadas através de organizaciones locales de financiamiento, denominadas Bankomunales.Type: Socially Responsible InvestorLocal NetworksFundación para el FinanciamientoRural. Av. Bolívar C.C.M. Piso 1, Oficina 158.PorlamarIsla de Margarita,Estado Nueva Esparta,Venezuela.Email: email@example.com
INAFI Africa, May 200340Green microfinanceGreen Microfinance is a limited liability company, LLC. It is a majority woman-owned smallbusiness firm registered in the state of Maryland. Green Microfinances (GMf) mission is toenhance the environmental performance of microenterprise. In doing so GMf promotes theenvironmental, financial, and social sustainability of microenterprise and microfinance.Type: Private Investor711 Erie AvenueTakoma ParkMaryland, USATel./Fax:(301) 588-8655Email: firstname.lastname@example.org