Around the world, hundreds of small and medium-sized microfinance institutions want to scale up and become more competitive. The relevant supervisory bodies and professional associations would also like to see the sector consolidate, and often include it in their strategies and action plans.
Small and medium microfinance institutions need to scale up (through commercial alliances and/or mergers) and become more efficient, professional and profitable. They would like assistance to diversify: their products (savings, credit, transfers, insurance), operating areas (rural, urban, secondary cities, market towns) and client base (poor households, small farmers, rural and urban entrepreneurs, small traders, women in the informal sector, salaried employees). It is a strategy that mitigates risk, offsets margins and optimizes infrastructure and human resources.
Growth could also be fostered by creating "windows" that offer technical and financial assistance to emerging MSMEs (especially those in agro-food chains with high value added). Or, MFIs could partner with financial institutions specialized in local economic development.
The objective of the Microfinance, Enterprises and Job Creation Department is twofold:
Accompany partner MFIs in their efforts to consolidate, diversify products and clients, and use technology to reduce transaction costs, thus increasing their outreach, efficiency and sustainability.
Promote a new, more open and inclusive approach to finance, that effectively serves business development and job creation in rural areas and secondary cities.
The Department will develop skills associated with these two strategic niches: consolidating small institutions, building links between MFIs with similar operating areas or similar clientele, merging legal entities, forging commercial alliances among MFIs or between MFIs and banks. The Department will help MFIs roll out new, innovative financial products with high social and environmental value added. It will develop partnerships with new players, particularly from the private sector in the North and South.
By 2014, the Department will have three regional programs, one in each major operating area (West Africa, East Africa/Madagascar and Central Africa). In West Africa, priority will be given to Côte d’Ivoire, Ghana and Togo; in Central Africa, Cameroon and Chad; in East Africa, Ethiopia, Kenya, Mozambique (or Zambia or Rwanda), Tanzania and Madagascar.
Each regional program will have two or three technical advisors with complementary skills: one with a banking background to focus on institutional strengthening and the others with expertise in rural finance and value chain finance of agro-food SMEs. The advisors will work with highly skilled regional experts and will support local projects throughout the entire sub-region.
a. Accompany the consolidation and transformation of existing MFIs, particularly in rural areas
The Department will build on its expertise in rural microfinance, its experience in institutional capacity building in East Africa, and its understanding of regulatory frameworks and sectoral policies to develop a methodology to effectively accompany consolidation efforts.
It will seek to round out the financial, legal and organizational skills needed to head up MFI mergers, to spearhead business alliances between different types of financial institutions with complementary missions, and to build financial institutions with regional and national outreach. The Department will collaborate closely with PAMIGA to ensure the synergy and complementarities needed for successful operations.
b. Build MFI partner capacity to diversify products and clients, and adopt new technologies
Diversification of products and clients is one of the keys to improving efficiency and profitability, and enables MFIs to better manage risk. Using technology to expand services inexpensively—namely ‘branchless banking’ techniques such as mobile phones and smart cards to carry out decentralized transactions—is another. The Department will build the capacity of partner MFIs to develop these kinds of products, to adopt new technologies and to deliver, safely and efficiently, financial services to their clients. To do this, it will develop new skills and create technical and business alliances with various actors: banks in the North and the South, telephone companies and smart card providers, major microfinance players in the South with experience in this area. It will also pursue partnerships with practitioners and specialized consulting firms in the South, particularly AIDR affiliates.
c. Support partner MFIs create financing windows to support employment-generating businesses
The Department will help all its MFI partners create MSME financing windows with dedicated staff and specific savings and loan products. This assistance will be provided in collaboration with BDS providers , so the latter can accompany financed businesses in their development.
Partner MFIs will receive support to develop procedure manuals for MSMEs’ needs analysis, monitoring and evaluation methods, and products tailored to targeted markets. Regarding BDS, MFIs will identify the most appropriate providers with nation-wide coverage and will make arrangements with them to offer services to financed MSMEs.
In two of the new countries, probably Côte d’Ivoire and Ghana, the Department will create new MFIs that cater to MSMEs from the most promising economic sectors, especially those downstream in agro-food value chains. After a period of instability, Côte d’Ivoire is experiencing renewed growth and numerous economic initiatives are underway. Ghana is known for its entrepreneurial spirit, including in secondary cities. In both countries, the Department will build partnerships and foster economic synergy with well-positioned local players: existing MFIs working upstream, BDS providers targeting MSMEs and private sector support projects in rural and urban areas. The objective is to establish CIDR as a recognized reference in urban MSME financing. Capitalizing on the methodologies and products implemented in these two countries will make it possible to replicate them elsewhere.
The Department will ensure MFI partners promote job opportunities for youth and women. This strategy will involve prioritizing labor-intensive sectors, participating in urban economic development programs and integrating business support into MSME financing. In large cities, where social disparity is high, the Department will also seek to finance reintegration companies, to help fight against extreme poverty by creating apprenticeships and jobs. To do this, CIDR will seek funding from donors and corporate foundations that prioritize job creation and youth employment.
d. Promote financial innovation by developing products and services with high social and environmental value added, in view of achieving the MDGs.
In Sub-Saharan Africa, access to financial services is limited; less than 20-30% of the population has access to a financial service provider of any sort. The Department will contribute to more inclusive finance, offering more people access to a wide range of financial services that suit their needs and constraints. The Department will test and develop products with high social and environmental value, such as financing rural waterworks and solar energy installations in villages and offering saving plans for education.
It will also carry out action-research on livelihood finance, an approach that has proven successful in Asia, in particularly vulnerable areas of Africa. All partner MFIs will receive guidance for developing appropriate financial products to help households diversify their resources and develop alternative economic strategies.
To do this, the Department will develop strategic alliances with major manufacturing companies (water companies and energy providers) willing to bring their expertise to developing countries, as part of their commitment to social and environmental responsibility; will forge relationships with corporate foundations wishing to contribute to the MDGs; and will pursue a partnership with a large Asian practitioner specializing in livelihood finance.
e. Establish a new organizational structure in line with the Department’s new business model
During this Strategic Plan, CIDR will establish or reinforce three regional programs. The East Africa program will be further developed to include new countries: Madagascar, Rwanda, and Mozambique. It will recruit at least one additional regional technical adviser and one or more national expert with complementary skills. A West Africa program will be created in one of the new countries, such as Côte d’Ivoire or Ghana. The Central Africa program will cover two countries: Cameroon and Chad.
In order to promote genuine opportunities for learning and technical/methodological innovation, the Department will become a specialized center of expertise comprised of a permanent team (program managers from headquarters and regional coordinators from West, Central and East Africa) and consultants from the North and South (including AIDR experts).
To implement this approach, the Department will develop a diversified business model, comprising:
At the core, a critical mass of projects and programs it implements, and
A research and advisory service that responds to requests from regional partners, and seizes new opportunities through calls for tenders, alone or in consortium with technical partners that have complementary expertise and experience.
The Department will participate in implementing CIDR’s financial strategy by renewing partnerships with institutional donors and expanding its funding base to include corporate foundations and private sector banks. It will strive to build long-term relationships with these actors by emphasizing its new intervention strategy.