Financial inclusion – the access to basic financial services like savings accounts and credit – can be essential to individuals trying to lift themselves out of poverty. Financial inclusion provides an opportunity to invest in a business, a home or an education. Rates of financial inclusion are low throughout much of the developing world, but particularly low in Sub-Saharan Africa. A 2010 analysis by CGAP found that only 28 per 1,000 individuals in Sub-Saharan Africa had access to bank loans, compared with 245 per 1,000 in the developing world and more than 800 per 1,000 in high income countries.
OPIC has supported expanded financial inclusion in Sub-Saharan Africa by providing finance and political risk insurance for investments made by the Access Africa Fund, an investment vehicle managed by MicroVest Capital Management LLC, a Bethesda, Maryland specialized investment advisor. The Access Africa Fund has invested in debt and equity in some of the smaller microfinance institutions (MFIs) in countries like Benin, Cameroon, Ghana, Kenya, Tanzania, Zambia, and Uganda, enabling these MFIs to provide access to more micro and small entrepreneurs.
Robert Ongodia, MicroVest Investment Manager, Africa, recently spoke about the need for expanded financial inclusion in Sub-Saharan Africa, and how the Access Africa Fund managed by MicroVest Capital Management is helping.
Rates of financial inclusion are particularly low in Sub-Saharan Africa, even compared with other parts of the developing world. Why?
There are a host of reasons, which range from a weak enabling environment, corporate governance, limited access to capital, high costs of operations, limited skills to run these institutions, and limited financial literacy. Even the few institutions that are striving to serve the lowest income entrepreneurs have limited product offerings, and often operate as credit-only MFIs without savings, which is a very important piece of financial inclusion.
How is the Access Africa Fund, and OPIC’s support of it, helping?
With capital from CARE USA and debt financing from OPIC, MicroVest launched the Access Africa Fund with the aim of improving access by supporting Tier II and Tier III MFIs who may not have access to the capital markets or local banks for onward lending to low income entrepreneurs. These MFIs may be always viewed as high risk but have demonstrated capacity to become sustainable ventures and transform to the more formal sector, while continuing to promote access to finance. By supporting Access Africa Fund with a $20 million loan, OPIC has helped improve access because more MFIs across SSA will be able to benefit and consequently increase their market outreach.
In the recent past the biggest challenges to international investors in Africa has been the high volatility of the currencies, which makes hedging very restrictive. The Access Africa Fund was set up to enable lending in local currencies.
When you visit Africa, what impact do you see on the ground?
Though still limited, we see more capital being channeled to the entrepreneurial poor. We also see that some MFIs have been able to grow, become strong and sustainable, and even transform into regulated entities, enabling them to move from credit-only to providing more services such as savings/deposits and money transfers, which is important since one of the biggest hindrances to true financial inclusion is institutions’ offering limited services. We are also seeing an improvement in creating an enabling environment. A lot of governments, development partners and apex institutions are starting to pay attention to improving regulations, creating credit bureaus, investing in client education, improving infrastructure, and providing training. All this helps improve financial inclusion.
We have also seen technology as a solution to improving access, especially in rural areas where it may be difficult to provide services without the traditional banking infrastructure. The Access Africa Fund made an equity investment in Musoni Kenya, the first MFI in Africa to go 100% mobile by making all loan repayments and loan disbursements using Mobile Money Transfers (MMT). In this way it has provided not only an alternative delivery channel but a promising solution to obstacles limiting financial inclusion. Areas with segmented populations are difficult to serve because of the high costs of setting up branch operations, but mobile technology overcomes this infrastructural challenge.