Opportunities for microfinance in sub-Saharan Africa
A flourishing market for microfinance institutions (MFIs) is poised to take hold. Sub-Saharan Africa’s low-income market will skyrocket 25 percent in 2015. Currently, 863 million people live in 47 countries. The total gross domestic product (GDP) is one billion dollars. It grew at an average of 5.4 percent each year from 2009 to 2015. Today it has the potential for microfinance institutions to generate deposits of $59 billion from those earning less than $10 a day.
The challenge of bringing affordable financial services to low-income markets in sub-Saharan Africa is urgent.
extended range
It starts with local financial institutions bridging geographic, cultural, and administrative constraints through innovative distribution models.
While Roland Berger’s strategy consultants study the provision of financial services
in sub-Saharan Africa the City Town Vehicle (CTV model) already exists and is a conceptual framework, existing infrastructure that takes into account distances, population densities and economic potential, there is a third element that can facilitate even greater outreach .
The model combines different channels to handle a variety of products across geographic areas. It enables banks to keep their operations simple while reaching large scale for low-income customers. The key is cooperation between financial service providers, mobile network operators and retailers. By building on top of the existing multiplayer framework, it helps keep costs down and convenience up.
beyond mobile
In the Think:act Study, the concept of roving agents equipped with Point of Sale (POS) devices was investigated. The agent would be sent to places where villagers rarely leave their communities but still operate small businesses and can benefit from banking transactions. The agents would visit poorer neighborhoods and remote markets, distant towns (to increase the mobilization of deposits), and towns of 2,000 inhabitants and less.
Travel agents would handle customer registration and account activation, as well as being able to offer the full suite of transaction services and support loan application, payment and collection of refunds and interest. Roaming agents travel back and forth between the (several) villages they serve and the city where they rebalance the accounts at the super agent or mini branch when cash limits are reached.
underserved markets
The study found that MFIs in sub-Saharan Africa have an average client base of 31,000 people. It cannot keep up with the rapid growth of the low-income adult population. Until now, they have only been able to provide financial services to a few in local municipalities.
Many MFIs avoid rural areas and agriculture, which remains the main focus of economic life for most Africans. They seem to prefer serving small businesses in more accessible urban and peri-urban settings with higher average loan sizes.
In sub-Saharan Africa, some 80 percent of the 498 million adults are still unbanked, which is the highest rate of financial exclusion in the world, according to the study. Savings account penetration in Africa is less than a third of the average level of other developing markets, with 202 business bank accounts per 1,000 adults, compared with 661 in other developing countries.