Greenfield MFIs in Sub-Saharan Africa
Sub-Saharan Africa (SSA) has the lowest level of access to finance of any region in the world, with an average banked population of only 24 percent (Findex 2012). The region’s banking systems are small in both absolute and relative size, and the microfinance sector has been relatively slow to expand in SSA compared to other regions in the world. There is a range of strategies for extending the reach of microfinance, including the transformation of existing institutions, the creation of stand-alone greenfield microfinance institutions (MFIs) with and without a centralized management or holding structure, bank downscaling, and others.
This Forum explores the contribution of greenfield MFIs to access to finance in the region. The greenfield business model is focused on expanding financial services through two main elements: (i) the creation of a group of “greenfield MFIs” defined as institutions that are newly created without pre-existing infrastructure, staff, clients, or portfolios, and (ii) the central organizing bodies—often holding companies—that create these MFIs through common ownership and management. The holding company usually also plays a strong role in backstopping operations, providing standard policies and procedures, and co-branding subsidiaries in the network.
The greenfield model has come a long way in a short time in SSA from seven greenfield MFIs in 2006 to 31 by 2012. These are spread over 12 SSA countries, including post-conflict markets such as the Democratic Republic of Congo (DRC), Cote d’Ivoire, and Liberia. While there is a range of microfinance providers in SSA, the proliferation of greenfield MFIs expands the commercial end of the spectrum with regulated, mostly deposit-taking institutions focused on microenterprises and small businesses. At the end of 2012, the 31 greenfield MFIs in SSA had more than 700,000 loan accounts, an aggregate loan portfolio of $527 million, and close to 2 million deposit accounts with an aggregate balance of $445 million. While many greenfield MFIs are still young, there are signs of solid institution building for the longer term. At the end of 2012, they already employed more than 11,000 staff and had 700 branches. The greenfield MFIs are becoming noteworthy collectively and, in some cases, individually in their markets.
The time is right to look more closely at how these MFIs and their holding companies build retail capacity, promote market development, and ultimately advance access to finance in SSA. A good number of greenfield MFIs now have a sufficient track record to enable an analysis of their performance and role in the market. This publication includes some references to other types of financial service providers in SSA in a limited way and only to provide an overview of the spectrum of providers, not to give a quantitative comparison between different models. This stocktaking of the greenfield experience should help inform decisions for various stakeholders. Specifically the paper will inform the coming generation of investment in microfinance, including how much and what kind of funding is necessary to support capacity building in new institutions as well as those ready to scale up. The paper may also help to promote regulatory consistency for institutions providing a full menu of micro, small, and medium enterprise services.