Microfinance in Africa: Experience and Lessons from Selected African Countries

Presentating the development of the microfinance sector in Africa

Based on the experience of selected countries, this paper identifies the main contributors to the expansion of microfinance institutions (MFIs) in Africa , which include:

  • Community based approach to MFI development characterized by development of innovative saving vehicles supported by participatory efforts in local communities to form cooperatives;
  • Formalizing informal methods of financial intermediation since informal traditional methodologies by licensed MFIs are instrumental in mobilizing savings.

The paper explores the links between the MFIs and:

  • Banks - With increasingly closer linkages between commercial banks and MFIs, the prospects for enhancing financial deepening have improved;
  • Donors and NGOs - Credit-only schemes have been developed by NGOs, often with donor support;
  • Governments - Experience with failed state-owned banks has led African governments to focus on developing regulatory and supervisory frameworks that are well adapted to supporting microfinance operations.

The paper concludes that:

  • Existence and growth of cooperative banking in the microfinance sector in Sub-Saharan Africa reflects the growing demand both for savings and credit facilities;
  • The group-based savings cum credit institutions rely on peer pressure and joint liability (rather than collateral) to ensure loan repayment;
  • Donors and NGOs play an important supportive role in the development of MFIs in Sub-Saharan Africa as they help to disseminate best practices, build local capacity, and develop the entrepreneurial skills of borrowers.

About this Publication

By Basu, A., Blavy, R. & Yulek, M.