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AFRICA MICRO financing activities given the opportunities in this sector. Standard Bank Group has set a target to treble its financing of SMEs in Africa over the next three years as it consolidates its support for a sector widely seen as crucial to economic development and poverty alleviation. The bank now provides unsecured micro loans of between USD 300 and USD 30,000 for periods from three to twelve months as well as other forms of finance to traders. High growth areas targeted include countries such as Ghana, Tanzania, Nigeria, Kenya, and Namibia. The International Finance Corporation (IFC) on the other hand, is working to develop solutions to close the SME financing gap, by collaborating with local financial institutions across various countries in Sub-Saharan Africa. As of June 2010, IFC committed a total of USD 705.4m to SME finance in SubSaharan Africa. By definition, a microcredit is a small credit for poor entrepreneurs to finance productive business purposes. Typically, this type of lending is not secured by collateral but based on the client’s ability to generate the necessary financial means for repayment based on his or her business activities. In contrast to microcredit, consumer credit has no defined financing purpose. Loans are approved based on the existence of collateral. Clients are typically salaried workers (such as civil servants). With this requirement met, additional information on the function of the credit has no relevance to the lender. In consequence, credit analysis is simple, fast and can be handled at low operational cost. Consumer credit portfolios are often of lower quality because in case of default, it is relatively easy for the lender to fall back on collateral for loan loss recovery, typically the borrower’s salary or in some cases the object purchased on credit. Thanks to these qualities and because it is often more flexible and dynamic than microcredits, consumer credit lending is a fast-growing market.

MICROFINANCE SECTOR This therefore means that consumers can easily “borrow or spend for consumption” using the mobile money platform. Other examples include the likes of Equity Bank (Kenya) and Capitec Bank (South Africa) whose strategies are specifically geared towards the consumer. Equity Bank was originally established as a building society that moved into microfinance and eventually converted into a bank to provide services to “the microfinance and missing middle sectors”. Capitec’s roots were in commercial micro lending before starting to take deposits. The next big thing…Micro Insurance Another interesting area is indeed Micro-insurance. Insurance penetration rates are also very low across Africa. On average, Africa’s insurance penetration rate stands at around 3.0%. Industry estimates indicate that insurance companies in most African markets have traditionally targeted only the top 5.0% of the adult population, and this, in our view creates an obvious opportunity for micro insurance. South Africa, for example has an untapped micro-insurance market which provides insurance companies vast opportunities to sell low-cost insurance products, with estimates saying less than 30% of low-income adults in South Africa have any form of insurance, while in the rest of Africa the untapped market for micro-insurance could be as much as 40% of the adult population. African insurance markets (excluding South Africa) typically contribute no more than 2.0% of GDP and serve less than 5.0% of the population. Insurance companies in these markets tend to fight for market share in an already-served market, without looking outward to grow their markets. We believe there is much value to be realized from the low-income market. Of course, to do this, companies have to realize that insurance policies cannot simply be a low-value replica of what they provide for the higherincome market. They will need to be able to address the needs of the low-income market in a unique way.

Business models more inclined to the “Consumer” We also note that most players in the sector are now focusing on “financing the consumer” as opposed to simple loan advances. A good example is African Bank Investments Limited’s (ABIL) strategy of offering credit products for the purchase of consumer items through its furniture retailing business, Ellerines Holdings Limited (EHL). In Kenya, the largest telecommunications company; Safaricom is now evolving its financial and digital inclusion agendas through the M-PESA platform. The group envisages M-Pesa accommodating the diverse needs of customers through micro insurance, micro savings, micro credit and easy payment facilities. Safaricom’s M-Pesa, in Kenya, is by far the most successful mobile money deployment anywhere. M-Pesa has transformed the financial landscape of Kenya profoundly. In May 2010, Safaricom announced that M-Pesa users in Kenya without a bank account will be able to use their mobile phones to open proper savings account (called M-Kesho) with Equity Bank through M-Pesa. Joab’s Technologies and Research, Natu Court Flat B.

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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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