Paper

Microfinance Investment in Sub-Saharan Africa: Turning Opportunities into Reality

What are the challenges to public and private foreign microfinance investment in Sub-Saharan Africa?
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This CGAP Brief examines public and private foreign investment in Sub-Saharan Africa (SSA) microfinance retailers, and the key challenges that limit investment. Findings are based on CGAP data on cross-border funding flows, publicly available resources, and interviews with more than 30 investors and other stakeholders conducted in the first quarter of 2012. Foreign direct investment flows to SSA have increased over the years. Yet, the region has the lowest share of banked households in the world. Governments and international funders are keen to contribute to expanding financial access in the region, but face several challenges that limit investment. They include:

  • Weak MFI management and governance;
  • Lack of transparency, poor reporting standards, limited availability of information on MFIs;
  • Concerns about the reliability of external audits of MFIs;
  • Lack of market infrastructure and market information;
  • Inadequate supervisory capacity;
  • Macroeconomic instability, and political instability and interference.

The Brief concludes that given the fragmentation and high transaction costs of doing business in the region, investors will either have to accept lower returns, or find business models that can lower the cost of handling large numbers of small transactions.