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

Microfinance in Africa 31
Financial infrastructure: A necessity. Concerns about credit quality
erosion have become very real for Africa, as the 2011 Banana Skins
report (CSFI 2011) illustrates. Although only at the back of the mind in
previous surveys, credit risk now ranks as the number one concern worldwide,
including in Africa. During the financial crisis, low repayment
might have been fueled mainly by the dire economic situation of borrowers,
along with unsustainable competition and the lack of credit information
(MIX and CGAP 2009). In the absence of available information
through credit bureaus and rating agencies and the “weakness of internal
controls of MFIs,” institutions oversupplied the same market segments
and gave out loans to customers who were already overindebted (CSFI
2011). Moses Ochieng, CGAP/DFID regional representative, fears that
overindebtedness might lead to the “implosion of some of the key players”
in Southern and East Africa.
Looking at write-off ratios and portfolio at risk (PAR) data (> 30 days),
this concern is justified (figure 1.12). Write-off ratios in Southern Africa
for 2010 are nearly 1.2 percent, while East Africa slightly improved in
terms of write-off ratios, PAR (> 30 days) increased sharply to 8.1 percent—
above the African median. An even more pronounced deterioration in
credit quality has been witnessed in North and Central Africa. North
Africa started out with a low write-off ratio (2008, 0.05 percent) and
ended up at 2.4 percent in 2010. Whereas Central Africa experienced a
Figure 1.12
Write-Off Ratios and Portfolio at Risk (PAR) (> 30 days)
1.20
6.00
Write-off ratio (percent)
1.00
0.80
0.60
0.40
0.20
5.00
4.00
3.00
2.00
1.00
PAR (> 30 days) (percent)
0.00
2005
2006
2007
2008
2009
2010
0.00
Year
Write-off ratio
PAR (> 30 days)
Source: MIX Market database2012, http://www.themix.org/publications/mix-microfinance-world.