Microfinance Horizon

Author: Mark Napier (Development Fellow CSFI)

Conclusion:

As we have seen, financial inclusion is about much more than traditional microfinance. The advent of mobile payments has disrupted the established order, and financial institutions of all kinds are wondering what happens next. On the one hand, they are worried about where they will fit in the new world order; on the other, they are excited about the opportunities that seem a little less elusive than in the past.

Rightly, considerable attention has been paid to what poor consumers need most from financial services – a safe place to store money easily and cheaply, and a reliable way to send money easily and cheaply. But we must also be careful to nurture other forms of innovation as well – in more intractable industry sectors such as SME finance, housing finance and agriculture – so that financial markets offer a value proposition not just to the poorest but also to people who are economically on the way up.

In many African markets, there are large numbers of near-poor whose financial needs extend beyond basic money transfer and savings services and who currently lack access to affordable credit and pensions (and other forms of long term savings products), as well as insurance. Such people have access, in the sense that they may have a basic bank account or use M-Pesa, but it is still a form of access that is too constrained for someone looking to build a house, acquire farming tools or simply build up capital for investment at a later date.

There are already yawning gaps in the supply of certain kinds of finance to population groups who probably can access basic transactional services, thanks to the increasing spread of mobile money transfer services, but who can get no further than this.

Not surprisingly, donors have been anxious to ensure their resources are used to target the poorest in society, and many are therefore, focused on population groups who could not even afford a bank account. While we must respect these mandates, there is a good argument, based on support for economic growth as well as poverty alleviation, for taking a broader view of where it is justifiable to support innovation. To support more challenging markets – such as SME finance or agriculture – donors may need to contemplate providing incentives higher up the pyramid than they would ideally wish.

We still need the grant-giving, the competitions and the challenge funds. Indeed, with solid economic growth taking place in much of Africa, there is a very good opportunity for governments and donors to strengthen their support for market leading innovation through these kinds of mechanisms.

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