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Strong FSP boards prepare for and respond to external shocks as a rule, not an exception.

30784872334_b499dfc281_mThe following is part of a blog series spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s Africa Board Fellowship program.

> Posted by Paul DiLeo, Founder and Managing Director of Grassroots Capital Management and Governance Expert for the Africa Board Fellows Program

Far from being “extraordinary and rare,” challenging environments are a “normal” part of business for financial service providers (FSPs) targeting low-income populations. We tend to think that external environment challenges are extraordinary events that cannot be predicted or are too varied and diverse to prepare for—and therefore are best confronted as they arise. What do currency devaluations, deteriorating security, political interference or regulatory upheavals have in common? Can we can plan for them all and prepare effective responses in advance? Do responses need to be tailored to each circumstance?

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30784872334_b499dfc281_mThe following is part of a blog series spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s Africa Board Fellowship program.

Africa Board Fellowship graphic harvest illustration

By Danielle Piskadlo, Director, CFI

In recent years, some African countries have experienced slower economic growth and less stability in their currencies. This deterioration in macroeconomic conditions has presented challenges for financial service providers (FSPs) seeking to serve the base of the pyramid and improve financial inclusion. Some ways macroeconomic conditions impact FSPs include:

  • Higher operational expenses (e.g., imported IT equipment and software; office leases and technical services invoiced in foreign currency)
  • Increase in non-performing loans as small businesses have had fewer growth opportunities
  • Higher cost of funds (both deposits and debt)
  • Reduced access to debt from international and local providers
  • Decrease in revenue or tighter margins

We’re talking to Africa Board Fellowship (ABF) alumni to share their experiences dealing with deteriorating macroeconomic conditions.
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Woman holds POS device

Demand for credit in Africa exceeds supply, despite the rise in mobile money. Yet start-ups, growing daily in number, are at risk of accelerating over-indebtedness, by supplying credit to clients without conducting appropriate repayment capacity analysis. Digital lenders need to understand the risks of over-indebtedness from a client perspective, and algorithms need to evolve to take this into account. Regulation also must guide good practice for fintech digital lenders.
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> Posted by Rachel Morpeth and Danielle Piskadlo, Analyst and Director of the Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion 

The following post was originally published on the Microfinance Gateway.

As a hub of technology-based innovation, sub-Saharan Africa (SSA) leads the world in mobile money accounts. 12 percent of adults in the region have a mobile money account, compared to 2 percent globally. In a recent global survey measuring progress towards financial access and usage, five of the ten highest scoring economies hailed from SSA. However, financial exclusion remains acute.

The fact that most of Africa’s population lacks access to formal banking services but has one of the highest mobile penetration rates in the world provides the perfect breeding grounds for the use of financial technologies to grow a customer base. However, as disruptive technologies and business models continue to revolutionize the financial inclusion landscape in Africa, they present new challenges to leaders and boards.

These challenges can only be overcome through creative, forward-thinking solutions and active dialogues across governance bodies – boards and regulators. Board members, CEOs, regulators and fintechs will come together to advance these issues in Ethiopia on October 12-13 at the Center for Financial Inclusion at Accion’s (CFI) Governing in a Digital World roundtable, a side event to African Microfinance Week. In the meantime, let’s take a quick look at a few of the challenges to be discussed, and their respective solutions.

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> Posted by Ross Tasker, COO, Nobuntu

A worker prunes trees

A worker prunes trees

Imagine an elderly lady in her late seventies, who lives in a township in South Africa. Her income is very little, some US$120 a month in assistance from the government, and her body is old and sore – she is now too old to work. With no savings to draw upon, and no other sources of income, she struggles to afford medication for her chronic ailments. Two of her three children are unemployed, and her grandchildren are hungry and unable to pay the taxi fare to get to their school. This position isn’t atypical in South Africa. There are hundreds of thousands of older adults in the country (8 percent of the total population). Making matters worse, there is a distinct lack of a formal savings culture in the country. Imagine the impossible financial decisions faced by so many elderly South Africans on a daily basis.

There are various reasons for the shortage of savings in South Africa. One of which is the legacy of structural exclusion along racial lines that the pre-democratic regime left behind. During this time, a large part of the population was denied access to basic services and human rights, let alone access to any meaningful financial services.

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> Posted by Kettianne Cadet, Lead Analyst, Investing in Inclusive Finance, CFI

“Evolve or die, it is that simple!” remarked Kelvin Twissa, Board Member of FINCA Tanzania. His comments came during a session on Disruption at the recent Africa Board Fellowship (ABF) seminar in Cape Town.  In an era where business is definitely not usual, many incumbent financial institutions and their operating models are being threatened by disruptors, and the ability to continuously innovate and evolve has become an increasingly important ingredient for survival.

Graphic harvesting image from May 2017 Africa Board Fellowship Seminar

Graphic harvesting image from May 2017 Africa Board Fellowship Seminar

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> Posted by Ellen Metzger, Consultant

Embed from Getty Images

With stories of fintech success and excitement showing up everywhere, it’s hard not to wonder about the place of banks in the financial landscape of the future. Are fintech providers here to stay or are they the buzz of the day?

The chief officer of finance, innovation and payments at Equity Bank in Kenya, John Staley, strongly stands in favor of banks. He recently argued that banks are in it for the long-term and that fintech companies will come and go – or get absorbed by the banking industry.

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> Posted by Haset Solomon, Communications and Operations Associate, the Smart Campaign

La Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the common central bank of eight West African countries (Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo) has prioritized financial inclusion in the region. A recently announced financial inclusion strategy led by BCEAO in partnership with the several national Ministries of Finance aims to include 70 percent of the adult population by the year 2020. Financial access rates range from 7 to 34 percent across the region, according to the Global Findex.

BCEAO is expanding its financial inclusion efforts, including in mobile and e-money, and financial inclusion is slowly progressing in the region, but the opportunities and challenges of the member countries vary significantly, and serious client protection issues remain, particularly among unregulated institutions and in countries with weak national supervision and enforcement. A recent IMF spotlight on Senegal calls for steps to strengthen the sector’s governance through technical assistance to improve supervisory capacities and training to improve reporting standards and practices.

Weak supervision can lead to problems like those the Smart Campaign uncovered during its Client Voice research in Benin, where illegal microfinance institutions collected and disappeared with clients’ savings.

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> Posted by Lizzy Bolze, CFI Analyst

Africa Board Fellows at the HBS-Accion Program on Strategic Leadership in Inclusive Finance. Pictured left to right: Felix Achibiri, Fortis Microfinance Bank, Nigeria; Titos Macie, Socremo, Mozambique; Elijah Chol, South Sudan Microfinance Development Facility; Charles Njuguna, Faulu Microfinance Bank, Kenya

It seems almost commonplace for financial institutions across sub-Saharan Africa to be confronted with currency devaluation, interest rate caps, political conflicts, increasing capital requirements, and disruptive technologies – not to mention the impact of wars, disease, climate change, and natural disasters. With all these complications and risks, I am left to wonder how can boards of financial institutions in Africa focus on anything other than constantly extinguishing crises?

In March, alumni of the Africa Board Fellowship (ABF) attended the HBS-Accion Program on Strategic Leadership in Inclusive Finance. During the weeklong executive education program, CFI staff had the opportunity to sit down with the four fellows pictured above to discuss some of the challenges they are facing.

A common challenge was the hardship caused by currency devaluations. MFIs often receive loans in U.S. dollars, and so as the value of local currency diminishes, squaring their balance sheets becomes increasingly tough. Elijah Chol of South Sudan reported that the Minister for Finance and Economic Planning announced a 500 percent devaluation of the South Sudanese Pound last December. At the South Sudan Microfinance Development Facility’s annual meeting a day later, the board was unable to take immediate action because the devaluation was so unexpected. Though prices in South Sudan’s market have since improved slightly, the impact of such extreme devaluation has posed great challenges across the microfinance sector.

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> Posted by Saran Sidime, Operations Assistant, the Smart Campaign

Despite – or because of – economic growth, booming exports, and increased foreign investments in many African countries, income inequality on the continent, by many accounts, is increasing. As a region, sub-Saharan Africa has a higher level of inequality than the rest of the developing world. Globally, seven of the top 10 countries in terms of inequality are in Africa.

Contributing to the discrepancy is the lack of formal financial services within the region, according to Shaking up Finance and Banking in Africa, a policy brief produced by the Africa Progress Panel, which draws its analysis from the 2014 Africa Progress Report. Only one in five Africans have any form of account at a formal financial institution. Like most parts of the world, the poor, rural dwellers, and women are particularly excluded. The strategic deployment of sustainable and inclusive finance is a vital ingredient to ensuring that Africa’s long-term growth encompasses all individuals equitably.

Between 1990 and 2012, the proportion of Africans who were poor fell from 56 percent to 43 percent, according to the World Bank. However, when you account for population growth, the total number of individuals living in poverty increased. The most optimistic scenario, calculated by the World Bank, indicates that across this 22 year window, the number of Africans living in poverty increased from 280 million to 330 million. On the other side of the spectrum, Africa is now home to over 160,000 people whose personal fortunes exceed USD 1 million, which represents a doubling in the number of individuals of such wealth since the turn of the century.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.