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

28 Jarotschkin
Figure 1.11 Funding Structure of MFIs in Africa, 2005–10
Percent
100
90
80
70
60
50
40
30
20
10
0
2005
2006
2007
2008
2009
2010
Year
Equity Borrowings Deposits Deposits/Assets
Source: MIX Market database 2012, http://www.themix.org/publications/mix-microfinance-world.
compared to 14 percent. Non-deposit-taking institutions drop out of the
picture if they rely heavily on grants, as they can charge comparably lower
interest rates because of their external funding.
Understandably, the industry’s drive to become deposit-taking has
been strong throughout the continent. According to Ehrbeck (2011),
CGAP’s new CEO, regulators should also have an interest in creating
frameworks that endorse deposit-taking MFIs, as these are “inherently
more attuned to their customers and thus likely to be more stable.” It is
good from an outreach perspective for the industry; it is also good from
a stability point of view. Yet, what is witnessed on the continent is either
the absence of clear regulation or what MIX and CGAP (2009) call a
“worrisome gap between the adoption and enforcement of new
regulation.”
Twenty nine countries already have specialized microfinance laws in
place and another five are drafting them (CGAP 2009). In some of these
countries, MFIs—deposit- and non-deposit-taking—are supervised by the
central bank fully, or responsibilities are shared with the ministry of
finance. It is important to ensure that these bodies are not overburdened
so that the scarce resources they do have can be allocated “risk efficiently.”
Three countries in Africa (Eritrea, the Seychelles, and Swaziland) have no
form of legislation or framework for microfinance. 19 Another 15 countries
have no specialized microfinance laws. 20 In these countries, MFIs fall