Concept Note on Microfinance Scaling Up in Africa: Challenges Ahead and Way Forward

This paper examines the current state of microfinance in Africa and suggests ways for scaling it up. The microfinance scenario in Africa is diverse, with individual lenders, self managed groups, cooperatives, NGOs, regulated MFIs, and banks providing a wide range of financial services. A majority of the economically active population, however, remains excluded from the formal financial system. African MFIs face challenges such as high expenses, low revenues and low efficiency in terms of costs per borrower. They need to achieve scale and reach remote areas without losing control of costs.

Africa needs to develop inclusive financial markets where the poor have access to the whole set of financial services. Larger institutions in Africa have proved that they can make profits. They were able to expand operations and achieve economies of scale, once they reached profitability. The paper recommends that stakeholders should focus on certain priorities to achieve scale. They include:

• Bringing financial services to rural areas;
• Implementing efficient microfinance regulation and supervision framework;
• Training human resources;
• Encouraging enterprises to go formal;
• Developing financial infrastructure.