Transforming Rural Finance in Africa: The Role of AFRACA in Linkage Banking and Financial Systems Development

This paper discusses the role of linkage banking approach in Africa. This approach utilizes the widespread nature of self-help groups (SHGs) which function as informal financial institutions, and the need for donors to collaborate in bilateral projects with government institutions such as development banks.

The paper elaborates on the role of AFRACA as an association of interested banks with a rural and agricultural mandate. In order to transform rural finance in Africa, AFRACA's objectives constitute transformation of the policy framework, legal framework, financial infrastructure, institutions, terms and conditions of banking, and financial innovations. The paper also analyzes the key takeaways from three case studies:

• As a prerequisite for credit eligibility, groups' deposit part of their savings in Caisse Nationale du Credit Agricole (CNCA ) in Burkina Faso as partial collateral. This in turn refinances the groups as autonomous financial intermediaries;
• Central Bank of Nigeria (CBN) acts as coordinator of the linkage program;
• Agricultural Finance Corporation (AFC) in Zimbabwe has converted most of its retail lending through more than 1000 SHGs. Through its expanding branch network has built up the capacity for linkage banking on a rapidly increasing scale.