What is MICFAC?

DFID and World Bank are setting up a new facility, known as MICFAC, to help increase the access to microfinance services - such as loans, savings, insurance and money transfer services - for the poor of Sub-Saharan Africa.

How can we do this best? Find out more about the facility then have your say in our consultation at:
http://consultation.dfid.gov.uk/microfinance2010

1. 1
Microfinance Capacity
Building Facility for Sub
Saharan Africa
(“MICFAC”)
A Regional Approach to Expanding Access to
Finance for the Poor
by DFID & World Bank

2. 2
Paradigm Shifts in the Microfinance Sector
Poor people demand and are willing to pay for deposit, credit, transaction banking,
insurance, money transfer and other financial services;
Ongoing access to (and usage of) affordable and appropriate financial services
helps poor families to:
deal with shocks (internal and external);
wide variations in cash in-flows and out-flows; and
opportunities to increase income and assets;
The development sector has made a fundamental contribution in demonstrating
poor people’s demand for financial services and how these can be addressed;
Huge opportunities for leveraging technology, scale and efficiency;
Large scale delivery of financial services needs mainstream human resources and
capital and most of this can be attracted only on commercial terms;
Policy makers, central bankers can greatly facilitate the development of
microfinance as a vibrant part of the mainstream financial sector.
2
“Access to financial services can mean the difference
between surviving or thriving” (G20 Leaders Statement, 2010)

3. 3
Limited Access to Financial Services in
Sub Saharan Africa
An average of only 20% of the population of Sub Saharan Africa has
access to formal financial services;
Less than 10% have access in some of the poorest countries;
Banks are inaccessible to the majority;
Microfinance can help to bridge this access gap;
Demand for microfinance is high and remains largely unmet;
Penetration rates of Microfinance are very low in most countries.
3

4. 4
Access Strand in Selected Countries
4
6 0
4 5
4 1
2 3
2 1
1 9
18
1 5
1 4
1 2
1 2
4
2
18
1 8
2
7
3
1 2
7
4
1
1 0
2
8
27
2 4
1 9
1 7
12
2 6
2 7
1 0
2 6
5 2
3 3
3 3
5 3
5 5
6 2
6 2
52
5 6
7 8
RSA '0 9
Nam ibia '0 7
Botsw a na '0 9
Kenya '0 9
Nige ria '0 8
Ma la w i '0 8
Uga nda '0 6
Za m bia '0 5
Rw a nda '0 8
Ta nza nia '0 9
Moz am bique '0 9
Form a l - Ba nkFor m a l - Othe rInform a lFinanc ia lly e x clude d
Source: Data extracted from FinMark Trust and Finscope www.finscope.co.za

5. 5
Low Outreach of Deposit and Loan
Accounts from Commercial Banks in SSA
163
28
317
38
818
201
737
258
2022
701
0
500
1000
1500
2000
2500
Deposit Accounts Loan Accounts
Per Thousand Adults
Sub Sahara AfricaSouth AsiaMiddle East and N AfricaDeveloping CountriesHigh Income Countries
Source: Financial Access 2010, CGAP and the World Bank Group

6. 6
Multiple Constraints to Improving Access
to Financial Services
Product constraints
- Physical accessibility
- Appropriateness
- Affordability
Contextual Constraints
-- Demographic and poverty pressures
-- Complex political organization
-- Poor level of infrastructures
-- Financial sector culture
-- Public interventionism
- Inadequate political coordination
Systemic constraints
- Skewed delivery infrastructure
- Lack of financial sector data
- Lack of credit information
- Absence of an integrated ID system
- Skills shortage
Regulatory constraints
- Mobile payment regulation
- Know Your Customer
- Interest rate caps
- Secured transaction law
- Bankruptcy laws
- MFB regulation
Source: OPM 2010

7. Amongst the Biggest Challenges facing
Microfinance in Africa
are Capacity Constraints.
Despite facing such challenges,
some microfinance providers have shown
dramatic growth in Sub Saharan Africa.

8. UNDP defines ‘capacity’ as “the ability of
individuals, institutions and societies to
perform functions, solve problems, and set
and achieve objectives in a sustainable
manner”.
Building capacity therefore covers a broad range
of initiatives at different levels of intervention:
human capacity;
organisational capacity;
institutional capacity.
Source: //uk.oneworld.net/guides/capacitybuilding

9. 9
Capacity Building in the Microfinance
Sector
Developing human capacity or the capacity of individuals:
developing skills in individuals to enable them to carry out/improve
certain functions in the microfinance field;
Developing organisational capacity: improve the operating
systems of microfinance providers (e.g. products, delivery channels,
internal structures, processes) and its ability to successfully deal
with challenges emerging from changes in scale of operations and
the operating environment;
Developing institutional capacity: improve the broader set of
formal rules and informal norms that provide the framework of
incentives within which microfinance providers operate.
9

10. 10
Which level of intervention should
MICFAC focus on?
DFID and the World Bank recognise that there are significant
capacity constraints at each level.
The challenges of tackling capacity constraints at each level
differs.
It is proposed that MICFAC should FOCUS on
building human and organisational capacity.

11. 11
Missing Graduates in Africa
4766
4434
696
0
1000
2000
3000
4000
5000
6000
Asia Sample Latin America Sample Sub Sahara Africa Sample
Tertiary Graduates per million population
Series1
Source: World Development Indicators

12. 12
3 out of 5 Top Risks in African
Microfinance are Capacity Related
Macro-economic
trends (-)
Inappropriate
regulation
Refinancing
(27)
Staffing5
Credit risk (3)Managing
technology
Management
quality (1)
Cost control4
Corporate
Governance (6)
Credit riskMacro-
economic
trends (24)
Inappropriate
regulation
3
Staffing (7)Management
quality
Liquidity (20)Corporate
Governanc
e
2
Management
quality (2)
Too little fundingCredit risk (10)Management
quality
1
2009200820092008
Africa Global responseRank
Note: Major risks facing the microfinance industry as identified by practitioners, investors, regulators and
deposit takers (2008 rankings are in parenthesis in the 2009 columns); Source CSFI

13. 13
Diverse Providers of Microfinance in SSA
Typology of Providers reporting to MIX Market:
Bank;
Rural Bank;
Non-bank financial institution;
Non-Governmental Organisation;
Cooperative/credit union.
In addition, Microfinance is provided by:
Community based groups (e.g. VSLAs/ ROSCAs);
Integrated programmes supported by Government and/ or
development agencies.

14. 14
The Microfinance Providers in SSA are
Facing Many Challenges
Portfolio quality, profitability and productivity lag behind global
averages;
Difficult to attract and retain managers and skilled personnel;
MIS systems and internal controls are underdeveloped;
Financial Products don’t fully reflect user’s priorities;
Large number of small, inefficient and poorly performing
organisations;
Evolving legal and regulatory frameworks require adaptation by
microfinance providers;
Few mature microfinance providers consolidating and expanding to
new markets within the region.

MFIs recognise that strengthening their human and organisational
capacity is crucial to their sustainability and growth.

15. 15
Diverse Suppliers of Capacity Building
Services
Academic institutions;
Specialist training programmes;
Specialist service providers;
Embedded services (e.g. investment and TA);
International networks;
Donor projects;
Government initiatives;
Solo consultants/trainers;
In-house provision.
15

16. 16
The Capacity Building Providers in SSA are
also Facing Many Challenges
Users of capacity building demonstrate variable ability and willingness to
pay;
Insufficient service providers of capacity building (single serious provider in
some countries);
Multiple weaknesses in microfinance providers (e.g. weak ownership/
governance impacts on articulation of strategic capacity building priorities
and its links to the business plans of microfinance providers);
Impact of capacity building inputs are not always clear in the short term;
Variable ability of service providers to specifically respond to the context of
microfinance providers and provide tailor made solutions (in terms of
relevance, location, language and prices);
Weak institutional framework for capacity building provision (lack of
standardisation, certification and market clearing i.e. linking demand and
supply for capacity building);
Microfinance draws from a number of related markets to reduce its skills
deficit (e.g. auditing, information technology, market research) but many of
these markets are also very shallow.
16

17. 17
Capacity Building Demand Exceeds Supply
The overall level of skills gap in SSA is high and the demand for capacity building
services to build skills is high;
Some examples of fully commercial capacity building transactions;
Many microfinance providers seek to deliver commercial and profitable
microfinance but have not as yet achieved this;
Microfinance providers under-invest in staff capacity (as high skills deficit and
staff retention a problem);
History of extensive subsidies has increased the gap between demand and supply of
capacity building services (if the price is zero, demand tends towards infinite);
Many large donor capacity building initiatives have been completed, although there
is increasing demand (new microfinance providers are emerging and existing
providers are expanding);
There are a number of existing donor funded capacity building initiatives, which
either focus exclusively, or in part, on the institutional level or support to specific
models and providers;
Few existing capacity building initiatives focus systematically at human and
organisational capacity with a long term, market development perspective.

18. 18
Capacity Building is a Dynamic and
Interconnected Process
MANAGEMENT
QUALITY
Service
Providers
(Trainers,
Consultants)
P
res
sure
from

C
ustom
ers

C
om
peititors &

M
e
dia
Q
u
a
l
i
t
y

o
f
S
y
s
t
e
m
s
In v e
s t o
r s /
B
o a
r d o
f
D
ir e c
t o r s
Qulity of Staff
(Recruitment,
Induction &
Training)
R
e
g
u
l
a
t
i
o
n

(
L
a
w
s

&

E
n
f
o
r
c
e
m
e
n
t
)

19. 19
Capacity Building is Much More Than
Training
Individual Level
Self study/ learning;
Learning on the job;
Mentoring
Exposure Visits;
Workshops;
Organisation Level
Interaction with peers, customers, investors, regulators, auditors etc;
Dedicated task teams;
Action Research/ market Research;
Technical Assistance.

20. 20
Examples of Management and Technical
Competencies Needed
Management
Strategic thinking;
Promoting vision and values;
Good governance practices;
Product development and operations;
Managing people, activities projects/resources, quality and information;
Industry and Technical
Industry/ Product knowledge;
Understanding customer needs;
Technical and operational knowledge;
IT systems and applications;
Management of customer and business relationships;
Administrative processes;
Contracts and negotiations;
Risk management;
Audit.

21. 21
MICFAC Vision
Accelerated access to financial services in Sub Saharan Africa
Take microfinance to scale in Sub Saharan Africa on a sustainable
basis;
Address binding constraints in human and organisation capacity to
enhance quality and quantity of financial services available;
Leverage opportunities to create livelihoods in Sub Saharan Africa,
especially in post conflict environments;
Reach rural, poor and unreached clients;
Enhance opportunities to address practical and strategic needs of
women (in their various roles as customers, staff of microfinance
providers, managers and owners);
Use smart subsidies to seek higher leverage, efficiency and value for
money;
Make capacity building and financial services markets work better.
21

22. 22
MICFAC Strategy
Strengthening the organisational and human capacity of
existing banks, MFIs and other providers (e.g. SACCOs/
VSLAs) to sustainably serve poorer/ unbanked clients;
Increase the supply of microfinance providers to serve new
clients and new markets;
Increase the quality and supply of capacity builders.
22

23. 23
How will MICFAC Work? - Approach
Take a long-term, market development approach to capacity development
Avoid supply-led provision/market distortion
Identify and leverage internal / external incentives for organisations to improve
capacity (e.g. work with regulators and investors).
Respond to demand driven funding requests demonstrating:
Ownership/ governance;
Proposals’ fit with strategic organisational priorities e.g. links between product
features, distribution and training;
Post project sustainability plans;
Regional perspective;
Cost sharing;
Likely impact on:
market actors not supported (does it crowd in or crowd out the private
sector?);
social performance;
Mechanisms for monitoring/performance assessment.
23

24. 24
Benefits of MICFAC’s Regional Approach
Enable small financial markets to access scale economies e.g.
rating agencies, specialist training programmes and payment
systems;
Increase efficiency and competition by increasing the number
and types of financial organisations leading to greater choice
and lower prices for microfinance clients;
Expand the scale and opportunities for intermediation between
savers and investors;
Support moves towards regional economic integration and
promote harmonization of business practices, laws and
institutions/ policies;
Facilitate greater diversification of assets and markets to
diversify risks for microfinance providers.

25. 25
Examples of MICFAC’s Regional
Approach
Microfinance providers leverage regional economic
integration to expand operations within the region;
Microfinance providers respond to regional migration
and offer regional remittances products either directly
or in partnership with other providers;
An academic centre/ training programme offers
courses for middle and senior managers on a regional
basis;
Market analysis and knowledge sharing on a regional
basis.

26. 26
Regional Approach of MICFAC: How?
Offer MICFAC resources to several countries from the same
economic region;
Allocate MICFAC resources to its most promising use in the
region (funds not restricted to a single country);
Work through relevant regional bodies (e.g. central banks,
training centres, Regional Economic Commissions);
Ensure that the economic and social benefits of the MICFAC
investment “spill over” national boundaries;
Structure/ locate MICFAC team(s) on regional basis;
Facilitate cross-border learning.

27. 27
How will MICFAC Work? - Channels
Separate windows/ funds for working with:
providers of financial services primarily:
focused on scale and efficiency;
focused on sustainably serving the poorest
Capacity builders
Work with aggregators/ organisations already committed and networked to
expand delivery of financial services to the poor:
Successful/ promising microfinance providers going to scale in Africa;
International microfinance providers (including “South-South” providers);
Investors/ Development Financial Institutions;
National Microfinance Networks/ Apex Cooperative organisations;
Commercial Banks downscaling (including move into neighbouring countries);
Partnerships and linkage banking;
New models of delivery (branchless banking/ partnerships between banks,
telecom companies)
Work with capacity builders (in consultation with users of capacity
building services to ensure demand focus).
27

28. 28
How will MICFAC Work? -
Implementation Arrangements I
Independent Facility;
Management Firm Model, based in Africa;
Phased Regional implementation Approach;
Operate in 39 IDA countries in SSA;
Project Duration (at least 5 years);
Priority Economic Groupings (e.g. EAC, SADC, UMOA,
CEMAC, etc.) to be determined;
Balanced regional representation (Anglophone/Francophone/
Lusophone; conflict affected countries).
28

29. 29
How will MICFAC Work? -
Implementation Arrangements II
Funding decisions, typology and size of different funding
windows informed by:
market analysis
links between providers of financial services and capacity building
services;
Micro, meso and macro context;
Seek out/ invite and assess proposals;
Fund and oversee approved projects;
Monitoring and Evaluation;
Knowledge Management;
Mobilise additional funds for MICFAC;
Linkages with other programmes.
29

30. 30
Grants to strengthen regional Centres of Excellence
to offer quality training (e.g. improve curriculum,
certification, training materials, expansion to new
markets and topics)
3. Strengthening supply of
skilled labour and service
providers
Grants: Scoping for cross-border expansion; bank
downscaling initiatives
2. Increasing supply of
microfinance operations to serve
new clients and new markets
Grants: Mgt skills/governance; new products dev;
MIS/risk mgt tools, IT platform improvements,
regulatory compliance – seminars/workshops with
regional entities
1. Strengthening capacity of
microfinance providers (criteria
to be
established in the design)
SAMPLE ACTIVITIESCOMPONENTS
Proposed Components and Activities of
MICFAC

31. 31
Potential Areas of Collaboration with
Others
Co-funding of MICFAC with other donors;
Collaboration with other initiatives to complement MICFAC
activities (in particular at meso and macro levels);
Knowledge sharing and lessons learning with private sector,
government bodies and donors.
31

32. 32
Proposed Calendar for Next Steps
Stakeholders’ Consultations:
Phone Call with MFW4A A2F Group: 1 Oct 2010;
AFMIN in Accra, Ghana: 5-9 October 2010;
On Line Consultation (to “go live” in early October 2010);
Phase 1 feasibility study to peer reviewers: October 2010;
Phase 2 Design Study to be finalized by December 2010;
MICFAC Launch: Early 2011.
32

33. 33
Thank You
For Feedback/Suggestions, please contact:
Korotoumou Ouattara
[email protected]
Angus Kirk
[email protected]
Zahia Lolila
[email protected]