A Closer Look at the Microfinance Sector in Sub-Saharan Africa

May 13, 2010    

Over the past decade, the microfinance sector in Sub-Saharan Africa has benefited from positive developments including strong growth in outreach and improved performance of microfinance institutions (MFIs), according to a new report jointly produced by CGAP and MIX. The 2009 Sub-Saharan Africa Microfinance Analysis & Benchmarking report analyzes in detail the state of microfinance in 2008 throughout the region, focusing on key growth trends, major legal and regulatory changes, funding for microfinance, and performance of MFIs.

This report is one in a series of three joint CGAP/MIX regional Microfinance Analysis and Benchmarking reports. Other regions covered include Eastern Europe and Central Asia (ECA) and the Middle East and North Africa (MENA) (to be released soon). “By joining forces, MIX and CGAP combine the depth of MIX’s data on MFI outreach, products, funding and financial performance with broader CGAP intelligence on market developments, policy issues, and funding for microfinance,” says Blaine Stephens, COO and director of analysis for MIX. “The result of this partnership is a comprehensive analysis on the microfinance sector in these regions.”

In 2008, Sub-Saharan Africa faced serious challenges, especially food and fuel price hikes, and a severe financial and global economic contraction. “This region experienced a dramatically slowed growth in borrowers in 2008, in line with the global trend,” says report co-author Audrey Linthorst, Africa analyst at MIX. “MFIs did not expand their client base, instead concentrating on trusted, known borrowers. We also found that for 2008, there was an overall decrease in deposit size, despite an increase in the number of depositors.”

One positive outcome from the economic crisis is the heightened interest of governments in the region to increase access to financial services, especially to the most vulnerable segments of the population. According to Alexia Latortue, CGAP’s deputy CEO and co-author of the report, “We are seeing a greater push toward transparency and more rigorous standards, as well as the adoption of important reforms on the regulation front.” New initiatives, such as branchless banking, are also taking off in Sub-Saharan Africa. “The lack of specific guidelines for m-banking is clearly not stifling innovation and this presents an opportunity for increased access to financial services to those who did not have them before,” adds Latortue.

Donors and investors increased their support to microfinance in Sub-Saharan Africa. “They are standing by microfinance in the region with committed amounts increasing by 13% in 2008,” says report co-author Estelle Lahaye, microfinance analyst at CGAP. “This is encouraging in this economic context as deposits are the main source of funding for Sub-Saharan MFIs.”

“Microfinance in Africa is certainly not out of the woods yet,” said Latortue. "MFIs shared stable performance and maintained portfolio quality in this period, but sound management and good governance will be necessary to firm up any progress and make sure the region doesn’t fall back.”