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AFRICA MICRO Number of financial services providers by institutional type, by sub region (2009)

MICROFINANCE SECTOR

CURRENT TRENDS IN THE MICROFINANCE SECTOR MFI’s are now deepening and improving the range of products. This has included the use of new and better technologies such as national payment and transfer systems, ATM / credit and debit cards as well as mobile banking. Housing microfinance, for example, is a micro financial tool aimed at supporting investment in the components of housing, including land purchase or access, provision of or improvement to services, full or incremental house construction, reJoab’s Technologies and Research.tion or maintenance. Housing micro loans are generally unsecured loans granted to individual borrowers (size may range from USD 100 – USD 5,000) for longer duration (1-5 years). The microloans are specifically for building (step-by-step or room-by-room) or for improvements.

Source: Microfinance Information Exchange (MIX) A move into Micro financing by traditional banks is a clear testimony of the vast opportunities. We opine that microfinancing is indeed one of the most promising in terms of growth in Africa. This is evidenced by a move by traditional banks into this space. In South Africa, for example banks such as ABSA are also focusing on micro financing and retail banking. According to consultants Bain & Company, Africa's financial services industry may continue to grow at a CAGR of 15% to 2020, outpacing gross domestic product growth. Retail banking is expected to grow faster than corporate banking, and is likely to make up nearly 40% of banking revenue by 2020. Financial institutions are now employing diverse business models to respond to the pressing market demand for microcredit services. Savings banks such as Tanzania Postal Bank, National Savings and Credit Bank (Zambia) have also introduced a microcredit schemes in their product line. Others, such as the National Bank for Development (Egypt) have opened a specialized window for a direct participation while savings banks such as Post Bank (Uganda) and the People’s Own Savings Bank (Zimbabwe) have opted for an indirect participation through linkages with sustainable and promising microfinance institutions (e.g. refinancing with wholesale loans for on-lending to retail microfinance clients). It appears that well established banks in Africa are now downscaling into lower income markets. While, in some cases they have been nudged to do so by governments, we believe the motivation is mainly commercial given that their core businesses are also becoming increasingly mature. A good example of one bank that has been successful in micro-lending in Kenya is Equity Bank, which has over 5.0m accountholders, and serves more than half of the banked population in the country. The bank whose strategies are specifically geared towards a lower income customer base, has achieved great success pioneering inJoab’s Technologies and Research.tions such as opening branches in poorer neighbourhoods. Joab’s Technologies and Research, Natu Court Flat B.

Regulations also intensifying. Another key trend is that central bank supervision and regulation has also increased. Regulations also restrict MFIs from mobilizing savings and prevent them from achieving financial self-sufficiency due to controls such as interest rate ceilings. It is also worth highlighting that political influence in this space is also growing, given that micro financing is viewed as a way of eradicating poverty. Moving from micro-credit to consumer credit: Banks shifting their focus to Small to Medium Enterprises (SMEs). An analysis across the African continent clearly shows that bank financing to SMEs in Africa is less significant and more short-term than in other developing countries. Generally, in other developing countries, bank loans devoted to financing small firms average 13.1%, while only 5.4 % of loans are allocated to such firms by banks in Africa. Similarly, bank approvals for loan applications by small firms in non-African developing countries average 81.4% whereas only 68.7% of such applications are approved by banks in Africa. It is our view that SME access to financing remains more limited in Africa than elsewhere in the world. As highlighted in the map below, there are considerable differences between African countries, but financing constraints still remain a major stumbling block across Africa. Traditional banks have largely been avoiding providing finance and other banking services to Africa’s SME markets because of the perceived high risks. According the World Bank (see chart on page 71), there are many SMEs in Kenya which, despite their high potential, have been unable to access financing from existing institutions in the financial sector. Such situations may be due to the inability of the SME to offer sufficient loan collateral or to operational issues within the SME requiring more hands-on assistance than commercial banks and leasing companies, for example, are normally able to provide. However, we are seeing more financial institutions (mostly banks) being involved in the SME

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Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

Equity Research in Africa, Like an Electric Train Africa is picking up, a True Emerging Market  

Economic analysis of Africa as a whole, as well as of particular countries and sectors, with special regard to their potential as investment...

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