African Microfinance Conference to Focus on Market Integration

If Africa wants to move forward with economic development and poverty alleviation, it must progress quickly with the process of integration and transformation of its microfinance industry. This process is evident in some countries, but in most African countries microfinance is still seen and handled as separate to the formal financial sector.

“Because until an energetic and determined effort is made to integrate microfinance into the formal banking systems, we’ll always be playing catch-up,” says Rashid Ahmed from the Micro Finance Regulatory Council (MFRC). Ahmed is also co-chair of the conference.

A start to this and other pressing microfinance issues will come under intense discussion at the 2nd African Microfinance Conference in Cape Town from 29 August to 01 September this year. It is being organised by a partnership of institutions, including the MFRC, the University of Pretoria Centre for Microfinance, the Ugandan Micro Finance Network and the Central Bank of Uganda as well as the FSD project in Uganda supported by GTZ and SIDA.

“This conference follows on the first, highly successful conference held in 2003 attended by over 250 delegates from 30 countries,” reports Professor Gerhard Coetzee, co-chairman of the conference organising committee, “and comes at an opportune time with regard to the challenges faced by both the poverty focused SMME finance organisations and the signatories to the Financial Charter. It is also a highlight of the United Nations Year of Microcredit.”

“The trend globally is on integrating the microfinance industry with formal financial markets,” notes Ahmed. “First world markets have developed a seamless progression from microfinance to formal banking services that brings everyone into a multipurpose banking environment. And so must we.”

“The theme of the conference is ‘Integrating microfinance into formal financial markets’,” reports Ahmed. “That reconstruction of the industry is based on the acceptance that microcredit is no longer a charity for the poor. Hard lessons have taught us that handouts are non-sustainable. They don?t grow the economy much and do not help the needy. The switch to microfinance is proving a better way for people to help themselves, and grow their economy in real terms locally and regionally.”

The focus on integrating the microfinance industry with formal financial markets is also closely aligned with strategic objectives of the South African government and NEPAD.

“Among the principles of NEPAD is cooperation between African nations in building infrastructure, promoting local economies and improving the quality of life,” says Coetzee. “The microfinance industry has contributed significantly to helping those generally excluded from the mainstream economy to create business, finance housing and education and fulfil their potential.”

“Financial institutions have always been regarded as a vital tool in broad and sustained economic growth and job creation,” Ahmed maintains. “It’s not only about stability, but of the increasing role of the financial system in managing money flows throughout the economy.”

Microfinance has evolved to the point where it is better accepted as a tool to build up a more inclusive financial sector. The process is complicated and develops in the local context, which means that each country has its own methods. To deal with this, the conference applies six sub-themes through experts on the subject. Most are from Africa, but include those with international expertise on this particular theme, leading to invaluable information and experience exchange. The themes covered are regulation and supervision, rural finance, housing finance, transformation of microfinance institutions, member based financial services and indeed very important, poverty and microfinance.

“Thirteen per cent of people in the lowest income areas borrow money to buy food. Medical costs are the biggest drain on their resources because they live in an unhealthy environment. Incremental housing presents a problem ? graduating from a cardboard roof to aluminium takes money. They need more cash than wealthier people, and they need to set that aside. But distance, transport and other costs contribute to the challenges they face and it?s virtually impossible for them to access a formal commercial banking service in most of the countries in Africa. Besides, many banks don?t want them as clients as they do not focus on retail services for the real poor. So savings and other financial transaction services are important for the poorest,” says Coetzee.

There are promising signposts emerging in Africa, pointing to the way forward for microfinance institutions (niche banks, NGOs and others) to cross the great divide and join the formalised financial sector, while still providing financial services to the poor. In this process they often transform into new institutions by obtaining a licence to mobilise deposits. However, many challenge the transformation emphasis, and strive to retain a more flexible approach. This promises to be good material for good discussions and learning at the conference.

“The conference is basically an exchange of Africa-wide experience with input per sub-theme of selected international experts,” says Coetzee. “It is indeed an important event in Africa in 2005 in the financial services field, and something not to be missed by all those focusing on the development aspects in financial markets.”