Microfinance, Agricultural Banks, Commercial Banks: What Potential Partnerships Could Finance Family Agriculture?

Over the last 15 years, the development of the microfinance sector in West Africa has demonstrated that the MFIs have the capacity to operate in a much more decentralized way than the banking sector.

• It has become a diverse sector and includes institutions such as mutualizm, credit savings associations, businesses, projects etc.
• Large MFI networks try to securely invest their surplus capital by setting up their own financial establishments;
• However, most MFIs lack this capacity and turn to the classic banking system in order to gain a foothold in the financial market.

This paper attempts to study some examples of relationships between banks and MFIs in West Africa and to draw lessons to strengthen the partnership between the two sectors. The different types of relationships that exist between banks and MFIs are:

• No relationship;
• Competition:
  • The bank sets up an integrated microfinance activity;
  • Banks and MFIs target the same clients.
• Partnerships:
  • Financial partnerships;
  • Technical partnerships;
  • Institutional partnerships.

The paper explores the ways in which the two sectors may benefit by a closer association, and suggests strategies for the banks, the MFIs and the sponsors. The key constraints to the partnerships between these institutions are:

• The fragility of the MFIs and the banks;
• The difficulty of adapting bank products and services to meet the MFIs' needs;
• The difficulty of harmonizing management tools;
• The cost of the banks' financial service;
• The difficulty of confidence building.

Finally, the paper recommends various options to improve the partnerships between the MFIs and the banks with a view to increasing agricultural finance:

• The agriculture sector should offer interesting investment opportunities;
• The critical microfinance sector strengthening elements autonomy, professionalism and financial strength would automatically build confidence between the two sectors;
• Professional associations could become sectoral mediators;
• Increased attempts must be made to understand each other discussion forums, seminars, and joint and mixed trainings.