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

18 Jarotschkin
happen through increased efficiency and productivity in the near future
rather than through increases in the yield to portfolio.
Improving productivity and efficiency for MFIs. MFIs in Africa need to
improve their cost structure to allocate more of their funds toward their
loan portfolio (MIX and CGAP 2009). For MFIs, due diligence means
meeting with the client; explaining the loan procedure; and following up
on, collecting, and checking the repayment. In some cases it also involves
travel time to the client. Especially in the African context, where an
abundant supply of labor is not a given, resulting staff salaries are high—
magnifying already-high operating costs. In fact, MFI staff salaries on the
African continent have been roughly three times higher than they are in
the continent’s peer regions (MIX and CGAP 2009).
If MFIs decide not to go upmarket, or if they want to sustain a large part
of their portfolio in the same market segment, their due diligence obligations
will remain the same if they are to avoid risking lower levels of loan
repayment. However, the m-banking revolution might hold some answers
for how to save on due diligence costs without compromising credit discipline.
6 Using m-banking, loan officers may save money and time because
they no longer need to collect and travel with loan repayments. Hence, the
cost per borrower can be decreased. Costs for the client will also decrease.
Customers can economize by incurring less risk, saving money and
(opportunity) time, by not having to travel with their loan repayment
either (Kumar, McKay, and Rotman 2010). Various MFIs already in place
have started making use of m-banking to secure these advantages.
After the rollout of M-Pesa, the mobile phone–based money transfer
service, various MFIs in Kenya and Tanzania have started using the service
for loan repayment. The MFI Tujijenge Tanzania, for example, has made
the repayment of individual loans via M-Pesa below the threshold of
US$1,800 mandatory. In Kenya, various MFIs offer the repayment via
M-Pesa for both individual and group loans—that is, the Small and Micro
Enterprise Programme (SMEP) and Kenya Women’s Finance Trust
(KWFT). As the SMEP, Tujijenge, and the KWFT only started using
M-Pesa in 2009 for loan repayments, it is too early to tell whether the
application of this technology and potential cost-savings will also be realized
in lower interest rates. Moreover, deposit-taking MFIs allow their
customers to save with them through M-Pesa. The most prominent
example of such an arrangement is Equity Bank’s product M-Kesho. In
this fashion, MFIs can save further on transaction costs and arguably
increase the savings propensity of most clients, because they do not have