Supporting Growth and Stability of the Microfinance Industry in Sub-Saharan Africa: A Shifting Role for Development Agencies

This paper reviews the role of donors and development finance institutions (DFIs) in the development of financial systems for Africa’s poor. It examines the current state of microfinance in Africa, identifies barriers to development of the industry and makes recommendations.

The paper states that though demand for microfinance in Africa is substantial, the market remains underserved. It observes that African MFIs fall short of global standards on selected performance metrics. Barriers to development of microfinance include large rural populations, poor infrastructure, inappropriate government regulations, poor utilization of technology, lack of transparency and consistency, poor management quality and lack of early-stage funding.

The paper recommends interventions for donors and public funders in specific focus areas. These include:

• Investment in early-stage MFIs through financial intermediaries;
• Credit bureau development and information sharing among MFIs;
• Development of management information systems and expansion of branchless banking networks;
• Training and capacity building for senior management of MFIs.