What is MICFAC?

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DFID and World Bank are setting up a new facility, known as MICFAC, to help increase the access to microfinance services - such as loans, savings, insurance and money transfer services - for the poor of Sub-Saharan Africa.

How can we do this best? Find out more about the facility then have your say in our consultation at:
http://consultation.dfid.gov.uk/microfinance2010

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  • This presentation largely draws on a Feasibility study undertaken by Oxford Policy Management Team commissioned by DFID and the World Bank. The OPM team consisted of the UK-based OPM staff members: Sukhwinder Arora (Team Leader), Robert Stone, Abigail Carpio and Janet Hayes and the Africa-based OPM external consultants: Hugh Kweku Fraser (East Africa), Gerda Piprek and Henriqueta Hunguana (Southern Africa) and Ernest Kofi Obeng and Gabriel Nkodo (West /Central Africa).
  • The debate in the literature on financial inclusion and among key stakeholders has resulted in a broad consensus on the key areas that need to be addressed in tackling these supply side constraints and promoting pro-poor financial sector development, namely: Strengthening the regulation of financial sectors Extending the reach of microfinance, especially for women Using new technologies to extend financial access to the poor Expanding rural and agricultural finance Lending to small and medium enterprises Reducing the costs and risks of sending remittances Increasing the availability of micro-insurance to help poor people to mitigate the risks resulting from climate change Linking social cash transfer payments to the financial sector Building the capacity of regulators and financial service providers.
  • Many definitions of Capacity building exist. In the context of this presentation, we adopt the UN definition that focus on fundamental aspects of capacity: people, institutions, systems and problem solving with emphasis on sustainability.
  • A three thronged strategy in addressing MF capacity : Individuals directly or indirectly involved in MFIs (staff, Board members, Policy makers/general practitioners) MFIs and associates targeting operating systems for internal efficiency and improved performance. Institutional linkages that address outreach to the critical mass while addressing sustainability. Long term view of capacity building that focus on expanding the outreach (quantity and quality) for example through regional and umbrella institutions - Centers of Excellence and MFI APEX organizations .
  • This demonstrate that the flow of qualified individuals into the SSA labour market is substantially lower than in the other regions. One implication is that there will be relatively fewer skilled workers who can work in SSA MFIs. This constraint on the labour supply may continue to pose serious problems well into the future. Computed by aggregating total number of tertiary graduates in relevant countries, dividing by total population of relevant countries and normalising to per one million. Data available for 11 countries from Asia, 13 from Latin America, and 6 from SSA. Methodology All computations are performed using data from the 2008 World Development Indicators. When 2008 data was not available, 2007 or 2006 data was imputed where possible. Most statistics are weighted averages by population. WDI data drawn 07/2010. Definitions: from UNESCO Institute for Statistics: Tertiary Education: Programmes with an educational content more advanced than what is offered at ISCED levels 3 and 4. The first stage of tertiary education, ISCED level 5, covers level 5A, composed of largely theoretically based programmes intended to provide sufficient qualifications for gaining entry to advanced research programmes and professions with high skill requirements; and level 5B, where programmes are generally more practical, technical and/or occupationally specific. The second stage of tertiary education, ISCED level 6, comprises programmes devoted to advanced study and original research, and leading to the award of an advanced research qualification.
  • Major risks facing the microfinance industry as identified by practitioners, investors, regulators and deposit takers (2008 rankings are in parenthesis in the 2009 columns) The importance of capacity constraints for African microfinance in particular is graphically illustrated by the contrast between the 2008 and 2009 ‘Microfinance Banana Skins’ reports. The Centre for the Study of Financial Innovation (CSFI) produces these reports on the basis of surveys of stakeholders in the global microfinance industry. The 2009 report notes that as a result of the financial crisis, ‘globally, risks that were thought minor in the 2008 survey have been propelled to the top of the rankings, edging out risks that were previously seen as crucial to the prospects for microfinance.’ The risks that have been demoted globally include those that relate to management, corporate governance and staffing. The African response, however, ‘was very different from the rest, focusing strongly on institutional issues, particularly weaknesses in management, governance and staffing.’
  • VSLAs: Village Savings and Loan Associations; ROSCAs: Rotating Savings and Credit Associations;
  • This analysis refers to formal providers of microfinance in Africa
  • Capacity building is a dynamic process and closely connected with processes at work within an organisation and its interaction with external stakeholders. For example Many MFIs do not have clear ownership and governance structures, which accentuates and perpetuates a number of other weaknesses such as lack of a clear strategic plan setting out organisational priorities; inability to review progress, and make strategic choices; inability to enforce follow up actions; Policy makers, regulators, investors, and service providers need capacity development support for their own efforts, which means that their own capacity is limited, but it is they who create the triggers and the mechanisms for enhancing capacity of MF providers they are also affected by the capability of the microfinance providers: for example: successful, well informed MF practitioners can advocate for better policy framework and implementation In addition, capacity building organisations and other support organisations together with policy making and regulatory bodies draw from largely the same pool of talent and face similar issues of human resource development.
  • The focus is to address MF capacity constraints (supply and demand side of the MF sector) A fresh and long term view of developing institutional capacity for scale/reach
  • International microfinance service providers (e.g. Opportunity, ACCION WOCCU, DID, Freedom from Hunger, CRS, Oxfam, CARE, etc.; Successful/ promising MFIs going to scale in Africa (e.g. Equity, KREP, LAPO, BRAC, ProCredit, etc.); DFI Investors (e.g. KfW, IFC, UNCDF, Aureos); National Microfinance Networks/ Apex Cooperative organisations; Commercial Banks downscaling – directly or moving into neighbouring countries; Partnerships and linkage banking (e.g. CRDB and SACCOs/MFIs; Afribank and MC2s; BNDR); New models of delivery (branchless banking/ partnerships between banks, telecom companies)
  • What is MICFAC?

    1. 1. Microfinance Capacity Building Facility for Sub Saharan Africa (“MICFAC”) A Regional Approach to Expanding Access to Finance for the Poor by DFID & World Bank
    2. 2. Paradigm Shifts in the Microfinance Sector <ul><li>Poor people demand and are willing to pay for deposit, credit, transaction banking, insurance, money transfer and other financial services; </li></ul><ul><li>Ongoing access to (and usage of) affordable and appropriate financial services helps poor families to: </li></ul><ul><ul><li>deal with shocks (internal and external); </li></ul></ul><ul><ul><li>wide variations in cash in-flows and out-flows; and </li></ul></ul><ul><ul><li>opportunities to increase income and assets; </li></ul></ul><ul><li>The development sector has made a fundamental contribution in demonstrating poor people’s demand for financial services and how these can be addressed; </li></ul><ul><li>Huge opportunities for leveraging technology, scale and efficiency; </li></ul><ul><li>Large scale delivery of financial services needs mainstream human resources and capital and most of this can be attracted only on commercial terms; </li></ul><ul><li>Policy makers, central bankers can greatly facilitate the development of microfinance as a vibrant part of the mainstream financial sector. </li></ul>“ Access to financial services can mean the difference between surviving or thriving” (G20 Leaders Statement, 2010)
    3. 3. Limited Access to Financial Services in Sub Saharan Africa <ul><li>An average of only 20% of the population of Sub Saharan Africa has access to formal financial services; </li></ul><ul><li>Less than 10% have access in some of the poorest countries; </li></ul><ul><li>Banks are inaccessible to the majority; </li></ul><ul><li>Microfinance can help to bridge this access gap; </li></ul><ul><li>Demand for microfinance is high and remains largely unmet; </li></ul><ul><li>Penetration rates of Microfinance are very low in most countries. </li></ul>
    4. 4. Access Strand in Selected Countries Source: Data extracted from FinMark Trust and Finscope www.finscope.co.za
    5. 5. Low Outreach of Deposit and Loan Accounts from Commercial Banks in SSA Source: Financial Access 2010, CGAP and the World Bank Group
    6. 6. Multiple Constraints to Improving Access to Financial Services Source: OPM 2010
    7. 7. Amongst the Biggest Challenges facing Microfinance in Africa are Capacity Constraints. Despite facing such challenges, some microfinance providers have shown dramatic growth in Sub Saharan Africa.
    8. 8. UNDP defines ‘capacity’ as “ the ability of individuals, institutions and societies to perform functions, solve problems, and set and achieve objectives in a sustainable manner”. Building capacity therefore covers a broad range of initiatives at different levels of intervention: human capacity; organisational capacity; institutional capacity. Source: //uk.oneworld.net/guides/capacitybuilding
    9. 9. Capacity Building in the Microfinance Sector <ul><li>Developing human capacity or the capacity of individuals: developing skills in individuals to enable them to carry out/improve certain functions in the microfinance field; </li></ul><ul><li>Developing organisational capacity: improve the operating systems of microfinance providers (e.g. products, delivery channels, internal structures, processes) and its ability to successfully deal with challenges emerging from changes in scale of operations and the operating environment; </li></ul><ul><li>Developing institutional capacity: improve the broader set of formal rules and informal norms that provide the framework of incentives within which microfinance providers operate. </li></ul>
    10. 10. Which level of intervention should MICFAC focus on? <ul><li>DFID and the World Bank recognise that there are significant </li></ul><ul><li>capacity constraints at each level. </li></ul><ul><li>The challenges of tackling capacity constraints at each level </li></ul><ul><li>differs. </li></ul><ul><li>It is proposed that MICFAC should FOCUS on </li></ul><ul><li>building human and organisational capacity. </li></ul>
    11. 11. Missing Graduates in Africa Source: World Development Indicators
    12. 12. 3 out of 5 Top Risks in African Microfinance are Capacity Related Note: Major risks facing the microfinance industry as identified by practitioners, investors, regulators and deposit takers (2008 rankings are in parenthesis in the 2009 columns); Source CSFI Macro-economic trends (-) Inappropriate regulation Refinancing (27) Staffing 5 Credit risk (3) Managing technology Management quality (1) Cost control 4 Corporate Governance (6) Credit risk Macro-economic trends (24) Inappropriate regulation 3 Staffing (7) Management quality Liquidity (20) Corporate Governance 2 Management quality (2) Too little funding Credit risk (10) Management quality 1 2009 2008 2009 2008   Africa Global response Rank
    13. 13. Diverse Providers of Microfinance in SSA <ul><li>Typology of Providers reporting to MIX Market: </li></ul><ul><li>Bank; </li></ul><ul><li>Rural Bank; </li></ul><ul><li>Non-bank financial institution; </li></ul><ul><li>Non-Governmental Organisation; </li></ul><ul><li>Cooperative/credit union. </li></ul><ul><li>In addition, Microfinance is provided by: </li></ul><ul><li>Community based groups (e.g. VSLAs/ ROSCAs); </li></ul><ul><li>Integrated programmes supported by Government and/ or development agencies. </li></ul>
    14. 14. The Microfinance Providers in SSA are Facing Many Challenges <ul><li>Portfolio quality, profitability and productivity lag behind global averages; </li></ul><ul><li>Difficult to attract and retain managers and skilled personnel; </li></ul><ul><li>MIS systems and internal controls are underdeveloped; </li></ul><ul><li>Financial Products don’t fully reflect user’s priorities; </li></ul><ul><li>Large number of small, inefficient and poorly performing organisations; </li></ul><ul><li>Evolving legal and regulatory frameworks require adaptation by microfinance providers; </li></ul><ul><li>Few mature microfinance providers consolidating and expanding to new markets within the region. </li></ul><ul><li>MFIs recognise that strengthening their human and organisational capacity is crucial to their sustainability and growth. </li></ul>
    15. 15. Diverse Suppliers of Capacity Building Services <ul><li>Academic institutions; </li></ul><ul><li>Specialist training programmes; </li></ul><ul><li>Specialist service providers; </li></ul><ul><li>Embedded services (e.g. investment and TA); </li></ul><ul><li>International networks; </li></ul><ul><li>Donor projects; </li></ul><ul><li>Government initiatives; </li></ul><ul><li>Solo consultants/trainers; </li></ul><ul><li>In-house provision. </li></ul>
    16. 16. The Capacity Building Providers in SSA are also Facing Many Challenges <ul><li>Users of capacity building demonstrate variable ability and willingness to pay; </li></ul><ul><li>Insufficient service providers of capacity building (single serious provider in some countries); </li></ul><ul><li>Multiple weaknesses in microfinance providers (e.g. weak ownership/ governance impacts on articulation of strategic capacity building priorities and its links to the business plans of microfinance providers); </li></ul><ul><li>Impact of capacity building inputs are not always clear in the short term; </li></ul><ul><li>Variable ability of service providers to specifically respond to the context of microfinance providers and provide tailor made solutions (in terms of relevance, location, language and prices); </li></ul><ul><li>Weak institutional framework for capacity building provision (lack of standardisation, certification and market clearing i.e. linking demand and supply for capacity building); </li></ul><ul><li>Microfinance draws from a number of related markets to reduce its skills deficit (e.g. auditing, information technology, market research) but many of these markets are also very shallow. </li></ul>
    17. 17. Capacity Building Demand Exceeds Supply <ul><li>The overall level of skills gap in SSA is high and the demand for capacity building services to build skills is high; </li></ul><ul><li>Some examples of fully commercial capacity building transactions; </li></ul><ul><li>Many microfinance providers seek to deliver commercial and profitable microfinance but have not as yet achieved this; </li></ul><ul><li>Microfinance providers under-invest in staff capacity (as high skills deficit and staff retention a problem); </li></ul><ul><li>History of extensive subsidies has increased the gap between demand and supply of capacity building services (if the price is zero, demand tends towards infinite); </li></ul><ul><li>Many large donor capacity building initiatives have been completed, although there is increasing demand (new microfinance providers are emerging and existing providers are expanding); </li></ul><ul><li>There are a number of existing donor funded capacity building initiatives, which either focus exclusively, or in part, on the institutional level or support to specific models and providers; </li></ul><ul><li>Few existing capacity building initiatives focus systematically at human and organisational capacity with a long term, market development perspective. </li></ul>
    18. 18. Capacity Building is a Dynamic and Interconnected Process
    19. 19. Capacity Building is Much More Than Training <ul><li>Individual Level </li></ul><ul><li>Self study/ learning; </li></ul><ul><li>Learning on the job; </li></ul><ul><li>Mentoring </li></ul><ul><li>Exposure Visits; </li></ul><ul><li>Workshops; </li></ul><ul><li>Organisation Level </li></ul><ul><li>Interaction with peers, customers, investors, regulators, auditors etc; </li></ul><ul><li>Dedicated task teams; </li></ul><ul><li>Action Research/ market Research; </li></ul><ul><li>Technical Assistance. </li></ul>
    20. 20. Examples of Management and Technical Competencies Needed <ul><li>Management </li></ul><ul><li>Strategic thinking; </li></ul><ul><li>Promoting vision and values; </li></ul><ul><li>Good governance practices; </li></ul><ul><li>Product development and operations; </li></ul><ul><li>Managing people, activities projects/resources, quality and information; </li></ul><ul><li>Industry and Technical </li></ul><ul><li>Industry/ Product knowledge; </li></ul><ul><li>Understanding customer needs; </li></ul><ul><li>Technical and operational knowledge; </li></ul><ul><li>IT systems and applications; </li></ul><ul><li>Management of customer and business relationships; </li></ul><ul><li>Administrative processes; </li></ul><ul><li>Contracts and negotiations; </li></ul><ul><li>Risk management; </li></ul><ul><li>Audit. </li></ul>
    21. 21. MICFAC Vision <ul><li>Accelerated access to financial services in Sub Saharan Africa </li></ul><ul><li>Take microfinance to scale in Sub Saharan Africa on a sustainable basis; </li></ul><ul><li>Address binding constraints in human and organisation capacity to enhance quality and quantity of financial services available; </li></ul><ul><li>Leverage opportunities to create livelihoods in Sub Saharan Africa, especially in post conflict environments; </li></ul><ul><li>Reach rural, poor and unreached clients; </li></ul><ul><li>Enhance opportunities to address practical and strategic needs of women (in their various roles as customers, staff of microfinance providers, managers and owners); </li></ul><ul><li>Use smart subsidies to seek higher leverage, efficiency and value for money; </li></ul><ul><li>Make capacity building and financial services markets work better. </li></ul>
    22. 22. MICFAC Strategy <ul><li>Strengthening the organisational and human capacity of existing banks, MFIs and other providers (e.g. SACCOs/ VSLAs) to sustainably serve poorer/ unbanked clients; </li></ul><ul><li>Increase the supply of microfinance providers to serve new clients and new markets; </li></ul><ul><li>Increase the quality and supply of capacity builders. </li></ul>
    23. 23. How will MICFAC Work? - Approach <ul><li>Take a long-term, market development approach to capacity development </li></ul><ul><li>Avoid supply-led provision/market distortion </li></ul><ul><li>Identify and leverage internal / external incentives for organisations to improve capacity (e.g. work with regulators and investors). </li></ul><ul><li>Respond to demand driven funding requests demonstrating: </li></ul><ul><ul><li>Ownership/ governance; </li></ul></ul><ul><ul><li>Proposals’ fit with strategic organisational priorities e.g. links between product features, distribution and training; </li></ul></ul><ul><ul><li>Post project sustainability plans; </li></ul></ul><ul><ul><li>Regional perspective; </li></ul></ul><ul><ul><li>Cost sharing; </li></ul></ul><ul><ul><li>Likely impact on: </li></ul></ul><ul><ul><ul><li>market actors not supported (does it crowd in or crowd out the private sector?); </li></ul></ul></ul><ul><ul><ul><li>social performance; </li></ul></ul></ul><ul><ul><li>Mechanisms for monitoring/performance assessment. </li></ul></ul>
    24. 24. Benefits of MICFAC ’s Regional Approach <ul><li>Enable small financial markets to access scale economies e.g. rating agencies, specialist training programmes and payment systems; </li></ul><ul><li>Increase efficiency and competition by increasing the number and types of financial organisations leading to greater choice and lower prices for microfinance clients; </li></ul><ul><li>Expand the scale and opportunities for intermediation between savers and investors; </li></ul><ul><li>Support moves towards regional economic integration and promote harmonization of business practices, laws and institutions/ policies; </li></ul><ul><li>Facilitate greater diversification of assets and markets to diversify risks for microfinance providers. </li></ul>
    25. 25. Examples of MICFAC’s Regional Approach <ul><li>Microfinance providers leverage regional economic integration to expand operations within the region; </li></ul><ul><li>Microfinance providers respond to regional migration and offer regional remittances products either directly or in partnership with other providers; </li></ul><ul><li>An academic centre/ training programme offers courses for middle and senior managers on a regional basis; </li></ul><ul><li>Market analysis and knowledge sharing on a regional basis. </li></ul>
    26. 26. Regional Approach of MICFAC: How? <ul><li>Offer MICFAC resources to several countries from the same economic region; </li></ul><ul><li>Allocate MICFAC resources to its most promising use in the region (funds not restricted to a single country); </li></ul><ul><li>Work through relevant regional bodies (e.g. central banks, training centres, Regional Economic Commissions); </li></ul><ul><li>Ensure that the economic and social benefits of the MICFAC investment “spill over” national boundaries; </li></ul><ul><li>Structure/ locate MICFAC team(s) on regional basis; </li></ul><ul><li>Facilitate cross-border learning. </li></ul>
    27. 27. How will MICFAC Work? - Channels <ul><li>Separate windows/ funds for working with: </li></ul><ul><ul><li>providers of financial services primarily: </li></ul></ul><ul><ul><ul><li>focused on scale and efficiency; </li></ul></ul></ul><ul><ul><ul><li>focused on sustainably serving the poorest </li></ul></ul></ul><ul><ul><li>Capacity builders </li></ul></ul><ul><li>Work with aggregators/ organisations already committed and networked to expand delivery of financial services to the poor: </li></ul><ul><ul><li>Successful/ promising microfinance providers going to scale in Africa; </li></ul></ul><ul><ul><li>International microfinance providers (including “South-South” providers); </li></ul></ul><ul><ul><li>Investors/ Development Financial Institutions; </li></ul></ul><ul><ul><li>National Microfinance Networks/ Apex Cooperative organisations; </li></ul></ul><ul><ul><li>Commercial Banks downscaling (including move into neighbouring countries); </li></ul></ul><ul><ul><li>Partnerships and linkage banking; </li></ul></ul><ul><ul><li>New models of delivery (branchless banking/ partnerships between banks, telecom companies) </li></ul></ul><ul><li>Work with capacity builders (in consultation with users of capacity building services to ensure demand focus). </li></ul>
    28. 28. How will MICFAC Work? - Implementation Arrangements I <ul><li>Independent Facility; </li></ul><ul><li>Management Firm Model, based in Africa; </li></ul><ul><li>Phased Regional implementation Approach; </li></ul><ul><li>Operate in 39 IDA countries in SSA; </li></ul><ul><li>Project Duration (at least 5 years); </li></ul><ul><li>Priority Economic Groupings (e.g. EAC, SADC, UMOA, CEMAC, etc.) to be determined; </li></ul><ul><li>Balanced regional representation (Anglophone/Francophone/ Lusophone; conflict affected countries). </li></ul>
    29. 29. How will MICFAC Work? - Implementation Arrangements II <ul><li>Funding decisions, typology and size of different funding windows informed by: </li></ul><ul><ul><li>market analysis </li></ul></ul><ul><ul><li>links between providers of financial services and capacity building services; </li></ul></ul><ul><ul><li>Micro , meso and macro context ; </li></ul></ul><ul><li>Seek out/ invite and assess proposals; </li></ul><ul><li>Fund and oversee approved projects; </li></ul><ul><li>Monitoring and Evaluation; </li></ul><ul><li>Knowledge Management; </li></ul><ul><li>Mobilise additional funds for MICFAC; </li></ul><ul><li>Linkages with other programmes. </li></ul>
    30. 30. Proposed Components and Activities of MICFAC Grants to strengthen regional Centres of Excellence to offer quality training (e.g. improve curriculum, certification, training materials, expansion to new markets and topics) 3. Strengthening supply of skilled labour and service providers Grants: Scoping for cross-border expansion; bank downscaling initiatives 2. Increasing supply of microfinance operations to serve new clients and new markets Grants: Mgt skills/governance; new products dev; MIS/risk mgt tools, IT platform improvements, regulatory compliance – seminars/workshops with regional entities 1. Strengthening capacity of microfinance providers (criteria to be established in the design) SAMPLE ACTIVITIES COMPONENTS
    31. 31. Potential Areas of Collaboration with Others <ul><li>Co-funding of MICFAC with other donors; </li></ul><ul><li>Collaboration with other initiatives to complement MICFAC activities (in particular at meso and macro levels); </li></ul><ul><li>Knowledge sharing and lessons learning with private sector, government bodies and donors. </li></ul>
    32. 32. Proposed Calendar for Next Steps <ul><li>Stakeholders’ Consultations: </li></ul><ul><ul><li>Phone Call with MFW4A A2F Group: 1 Oct 2010; </li></ul></ul><ul><ul><li>AFMIN in Accra, Ghana: 5-9 October 2010; </li></ul></ul><ul><ul><li>On Line Consultation (to “go live” in early October 2010); </li></ul></ul><ul><li>Phase 1 feasibility study to peer reviewers: October 2010; </li></ul><ul><li>Phase 2 Design Study to be finalized by December 2010; </li></ul><ul><li>MICFAC Launch: Early 2011. </li></ul>
    33. 33. Thank You For Feedback/Suggestions, please contact: Korotoumou Ouattara [email_address] Angus Kirk [email_address] Zahia Lolila [email_address]

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