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> Posted by Alison Slack, Associate, CFI
As CEO of the South Sudan Microfinance Development Facility, Elijah Chol is tasked with helping develop the financial inclusion sector in his fledgling country. Elijah is a member of the inaugural class of the Africa Board Fellowship (ABF) program, who begin their six-month fellowship in June in Cape Town, South Africa. We recently sat down with Elijah to learn more about his work in microfinance, and the governance challenges he faces.
South Sudan is a country striving to emerge from decades of crises on many fronts. “Post-conflict countries like ours have unique problems,” says Elijah. “One of the most pressing issues for us is that of education, especially in the villages and rural areas.” Because the education situation is so desperate, it is difficult to find board members with the skills necessary to effectively guide institutions.
> Posted by Center Staff
In two weeks the first class of the Africa Board Fellowship (ABF) program will kick-off the fellowship in Cape Town, South Africa. The convening seminar marks the start of the inaugural fellowship, a six-month program aimed at strengthening the governance expertise of microfinance leaders in sub-Saharan Africa. The first class is composed of 31 board members and CEOs, coming from 13 institutions throughout 12 countries in Africa. Given the diversity of backgrounds and experience these fellows bring, in addition to our seasoned faculty, advisors, and subject expert staff, we are confident that the opportunities for peer learning and exchange will be plentiful in Cape Town, and throughout the fellowship. The profiles of our inaugural class of fellows are now available on the ABF website. Please join us in welcoming these fellows to the program!
> Posted by Elisabeth Rhyne, Managing Director, CFI
Since 1992, when Accion created BancoSol in Bolivia, the first private commercial bank dedicated to microfinance, Accion’s aim has been to create a financially inclusive world, primarily through building financial institutions that serve the base of the pyramid. Accion has contributed to the birth, growth, or strengthening of 66 microfinance institutions in 34 countries, which together serve millions of clients with a broad array of financial services.
Through the years, Accion has gradually evolved its own unique microfinance institution partnership model. I recently spoke with Michael Schlein, Accion’s president and CEO, Esteban Altschul, chief operating officer, and John Fischer, chief investment officer. I asked them how and why Accion’s model for working with microfinance partners has taken its current form, and what has been learned along the way.
Michael Schlein said that the starting premise for Accion’s model was, “the recognition that charity – though very important – is insufficient to the task of building a financially inclusive world. You have to tap the capital markets.” As a non-profit organization originating in the international development arena, this premise set Accion onto a path that was “disruptive” in the 1990s, though it is widely adapted today in the impact investing movement.
The model assembles private investors around the common purpose to build a healthy and profitable financial institution that can grow and provide services over time. To succeed for investors, it must produce adequate financial returns and an exit path so the returns can be realized. To succeed for Accion’s mission it must result in quality financial services for people who would otherwise be excluded. Accion also looks for a demonstration effect. When business success inspires others to enter the market and thus creates an industry, that’s how Accion’s broader vision advances.
What has now crystalized is a model of partnership in which a web of incentives meets the needs of each organization involved, aligns all the players behind the mission, and elicits strong performance from each partner – including Accion itself.
Here’s how it operates.
> Posted by Amitabh Brar and Paul DiLeo, Investment Manager and President, Grassroots Capital Management
Performance data on private equity funds is not easy to collect, and privately-held microfinance investment vehicles (MIVs) are no exception. Much less is known about the investment process within these MIVs, and how the three main elements of their governance — board, investment committee, and fund manager — interact to create value within these funds. A new Calmeadow study written by Grassroots Capital Management shines light on the elusive subject of governance inside a pioneer equity fund, AfriCap. The study, sponsored by a group of AfriCap investors, evaluates strategy setting and resetting, investment decisions, and portfolio management from the standpoint of the prime movers governing the fund: the board and its committees.
After three years of planning, AfriCap was launched in 2001 with $13 million to invest in support of commercial microfinance in Africa. The sponsors were inspired by the accomplishments of Latin America’s Profund, then in its sixth year, and indeed many of AfriCap’s investors had collaborated earlier on Profund. Fund investments were complemented with a $3 million technical assistance (TA) grant facility to strengthen investees’ capacity. AfriCap saw some spectacular early successes. Some of its investees are today well-recognized financial institutions, including Equity Bank (Kenya) and Socremo (Mozambique), among others. These early results led to increased investor interest and in 2007 new investors joined, tripling AfriCap’s capital to $42 million. The TA pool was boosted to $11 million. In addition, the decision was taken to transform the closed-end fund into a permanent investment company, and the manager into an African-owned and run management company with the ability to manage multiple funds
Yet, notwithstanding AfriCap’s early successes, the fund failed to recover investment costs in 12 out of 21 investments, and there were several write-offs. The fund ended up delivering only modest financial returns to its investors, and the results were especially disappointing for new investors who joined at the time of recapitalization. In 2013 the board approved a plan to liquidate the fund and return unused capital to the investors, reversing an earlier decision to run AfriCap as a permanent company.
> Posted by Andrew Fixler, Associate, CFI
Inclusive financial services in Africa are blooming. Between the turn of the millennium and 2011, the number of African MFIs reporting to the MIX increased from 58 to 397. From 2000 to 2014, the gross loan portfolio expanded over tenfold to $6 billion. Between 2003 and 2009, the number of borrowers served by MFIs in Africa increased from 1.6 million to 8.5 million. These numbers represent the development of an economic development tool for economies with very small financial sectors. It is impressive progress for an undeveloped industry beset by sparse human capital, problematic governance, and minimal external commercial interest.
AfriCap, which was the first private equity fund to invest exclusively in African microfinance institutions, and other microfinance investment vehicles (MIVs) funded by social investors have been a key growth factor through capitalizing MFIs and offering technical assistance and training. This interest is relatively new. The African MIV portfolio grew at an average annual rate of 36 percent between 2006 and 2013. This compares with an average growth of 38 percent for investments in the Latin America & Caribbean region since 2006, and 8 percent in both the Middle East & North Africa and South East Asia regions. The strong connection between MIV financing and microfinance sector growth was also noted in a World Bank paper, Benchmarking the Financial Performance, Growth, and Outreach of Greenfield Microfinance Institutions in Sub-Saharan Africa. The paper, released in 2014, explains the relevance of greenfield MFIs to effecting financial inclusion in undeveloped financial markets. These institutions are financed in large part by equity and debt from development finance institutions, as well as a now-significant cohort of MIVs.
> Posted by Sumaiya Sajjad, Program Manager, Financial Inclusion, The MasterCard Foundation
In Luxembourg recently, I took part in the European Microfinance Week, whose theme this year was “Developing Markets Better”. The event brought together an excellent group of people from various organizations around the world involved in financial inclusion. On the evening before the formal opening of the conference, Accion’s Center for Financial Inclusion hosted a special cocktail reception where I helped to launch the Accion Africa Board Fellowship program – proudly supported by The MasterCard Foundation.
This program aligns strongly with our Foundation’s goal of promoting financial inclusion in order to help catalyze prosperity and reduce inequality in developing countries. As part of that work, we recognize the critical importance of building capacity at all levels of the financial services industry – especially in that segment of the industry serving the poor. We’ve found that strong, committed, and capable leadership can have the most catalyzing effect on entire organizations, improving the quality of their work, and benefiting the clients they serve.
The following post was originally published on the Microfinance Gateway.
As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks.
The Center for Financial Inclusion at Accion has recently announced a partnership with The MasterCard Foundation to launch the Accion Africa Board Fellowship program. The new program will promote peer-to-peer learning on governance and risk management practices at financial institutions that serve low-income clients in sub-Saharan Africa, a region with more than 6.6 million microfinance clients.
We spoke with Beth Rhyne (left), Managing Director of the Center for Financial Inclusion at Accion, and Ann Miles (right), the Director of Financial Inclusion at The MasterCard Foundation, to learn more about their vision for the program.
Good governance helps an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. Why do you think the microfinance industry in Africa needs such a program at this time?
Miles: Good governance begins at the top of any organization. The policies that are set, and the signals that are sent, by board members and CEOs permeate throughout an organization. They are a major component, perhaps the major component, in determining how an organization succeeds in its given mission. So, how a board does its work is critically important, and it’s something that we at The MasterCard Foundation care about a lot.
> Posted by Center Staff
The microfinance industry in sub-Saharan Africa, boasting roughly 6.6 million clients, is growing fast. This expansion of financial services to the base of the pyramid, bolstered by an increasingly diverse array of providers and products, is enabling many lower-income individuals, entrepreneurs, and households to access and use essential tools like loans and savings accounts for the first time. To ensure the stability and success of the institutions that provide services, however, strong institutional governance and risk management needs to be a core priority. A new CFI initiative, generously supported by The MasterCard Foundation, sets out to address this.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
Last year, before I was a parent, my colleague Deborah Drake wrote a blog post asking “What do Governance and Parenting Have in Common?” Now that I am a parent, I would like to draw another commonality between governance and parenting: both are easier said than done!
There is plenty of literature out there on the best practices of parenting but in reality, it is really hard work, full of uncertain information and mixed advice. You may know the importance of letting them cry it out, feeding veggies, limiting screen time, or talking to your kids about risky behavior. However, we also know how hard these things can be to do in practice, and how often they get avoided, explained away, or ignored. It is often hard as a parent to take a long-term view or to experience the short-term pain needed for long-term gain. You just have to pick your battles, hope for the best outcome, and know there will be unforeseen challenges and crises along the way.
Same goes for governance. It is tricky to bring up the difficult conversations at board meetings, hard to think strategically about the long-term when you are busy putting out today’s fires. It is challenging to adhere to all the recognized best practices, and often difficult even to decipher which practices are important to adhere to.
In both parenting and governing, it is helpful to have advice and benchmarks to sort through all the noise. Googling teething or breastfeeding may provide some help, as will reading up on risk management or strategic alignment. But too often, these searches will leave you wondering where you actually stand between “nothing to worry about” and “oh boy, do we have a problem.” This is because these topics are harder to learn from literature and easier to learn from people who have been there.