Financing MFI Growth in Africa through Commercial Capital: A Seminar Report

This paper is a seminar report of the First African Investment Fund for Commercial Microfinance. It analyzes the value of capital markets in the development of the microfinance industry, and discusses how the microfinance industry can access those markets.

In its four chapters, the report addresses the four main questions that were raised during the seminar:

• Why is access to capital markets vital to the sustainable growth of the microfinance industry in Africa?
• What are the avenues through which microfinance can access capital markets?
• How can microfinance be better integrated into the rest of the financial system?
• What are the challenges ahead for commercial investment in African microfinance?

The article lists a variety of approaches to formalize microfinance, many replicable in other countries:

• The transformation of an NGO into a commercial financial institution;
• Small commercial banks, either changing their market or starting this way from the beginning;
• Large, traditional banks forming subsidiaries, or creating separate private service companies specialized in microfinance;
• Credit unions as social investors.

The paper further discusses the roles of the following in developing access to capital markets

• Public sector;
• Donors;
• Specialized equity funds.

The report details three challenges raised during the course of the seminar that confront the microfinance industry. The challenge of:

• Providing a social return;
• Reducing risk;
• Making markets.

The document finally concludes that:

• The African microfinance industry's ability to continue the process of financial sector enlargement will depend on its access to capital markets.
• Commercial capital will facilitate growth in a much more rapid, comprehensive, and sustainable manner than existing funding sources allow.