Financial Sector Development in Africa: Opportunities ... - World Bank

8 Jarotschkin
The chapter starts with an examination of some key outreach indicators,
comparing across world regions and African subregions. Indicators
that provide information on outreach are (1) MFI’s financial penetration;
1 (2) the percentage of borrowers who are female; (3) average loan
balances; and (4) the percentage of rural clients, rural automated teller
machines (ATMs), and points of sale (POS). The next section will focus
on the impediments to implementing this outreach and, where possible,
some best-practice suggestions from across Africa. While impediments in
this context are numerous, this chapter chooses to focus on four prominent
ones: (1) cost constraints, (2) deficiencies in understanding clients’
needs, (3) lack of or inefficient prudential and nonprudential regulation,
and (4) the absence of financial infrastructure. In an effort to keep the
depiction of impediments and some best-practice solutions close to each
other, each obstacle description will begin with a summary recommendation,
and, where possible, provide examples of pioneering MFIs and progressive
regulation or financial infrastructure in Africa. A more detailed
illustration of the same will follow.
Microfinance Outreach
Africa’s microfinance industry has been growing. The continent’s total
asset increase over the last five years has been in line with a worldwide
trend of a growing industry. On the whole, MFIs apparently weathered
the financial crisis better than most industries until 2010, looking at asset
growth rates. Yet, in 2010 asset growth rates not only slumped but also
contracted and have yet to return to their precrisis growth levels
( figure 1.1; MIX and CGAP 2009).
Banks, such as Equity Bank in Kenya and Capitec in South Africa, have
garnered special attention over the last years, holding roughly US$1.7
billion and US$2.1 billion, respectively, in 2010. Both banks grew notably
even throughout the crisis, even though Equity Bank could not sustain
the gigantic precrisis growth rates of 190 percent per annum that it
recorded in 2007 (up from roughly 82 percent growth per annum in
2006) after listing on the Nairobi Stock Exchange.
Outreach to Clients below National Poverty Lines
While the total assets of microfinance institutions have been growing, the
overall reach of the industry has remained minor. In the overall picture of
finance, MFIs in Africa make up only a small part of total assets compared
with the MFIs in other world regions (table 1.1). In 2010 MFIs in Africa
reported reaching nearly 7 million borrowers and a significantly larger