Here’s an article from the New York Times that stresses the impact microfinancing has had on Africa…

Microfinancing gains pace in Africa

By Bosire Nyairo

Published: Wednesday, May 2, 2007

NAIROBI — Selling vegetables at a stall in a filthy open-air market in Nairobi, Fatma Amina barely makes enough to feed her four children, let alone give them an education that would lift the family out of poverty.

The Kenyan government receives millions of dollars in aid to fight poverty, but little of it is available to small traders like Amina unless they can put up collateral.

“I hear of donors but where are they?” Amina said.

But that situation may be changing as African countries follow the lead of Asia, where tens of millions of people have obtained small loans, thanks to an explosion of microfinance operations.

Kenya’s Microfinance Act, signed into law late last year, provides a legal framework regulating lenders, known in the industry as microfinance institutions.

“It makes business sense for the government to have a clear policy because this is the fastest growing sector of the economy,” said Winnie Kathurima, a general manager at Equity Bank, which won an international award in 2005 for its role in providing loans to microentrepreneurs.

Microfinance has been around for decades, but has mushroomed in recent years, especially in Asia where nearly 100 million people have access to it, according to the Microcredit Summit Campaign, which hopes to bring such services to 175 million of the world’s poorest families by the end of 2015.

In Africa, the poorest continent, the campaign’s figures show seven million people had access to microcredit at the end of 2005.

Germany will press rich nations at a Group of 8 summit meeting in June to create a microcredit fund for African entrepreneurs as a way to help the continent’s poorest, the international development minister, Heidemarie Wieczorek-Zeul, said in February.

Anna Awimbo, the Microcredit Summit Campaign’s research director, said, “There’s a long way to go.” She added, “It may look daunting, but there is such a huge potential for growth and that’s the region where we are most likely to see the biggest growth.”

Some governments have already made progress.

Kenya’s partners in the East African Community, Tanzania and Uganda, have also adopted new laws governing the industry, which Awimbo said should allow microlenders who meet certain standards to offer savings accounts, thereby giving them access to more money to lend.

Microfinance shot into the headlines last year when the Bangladeshi economist Muhammad Yunus and the Grameen Bank he founded picked up the Nobel Peace Prize for their grassroots drive to end world poverty through microlending.

Because of the higher unit costs, microcredit interest rates are higher than normal bank rates, often around 15 percent to 35 percent. Yunus’s Grameen Foundation, which promotes access to microcredit, said that was preferable to paying loan sharks or money lenders annual rates of 120 percent to 300 percent.

Operators in Africa may have to adapt the Asian model to the conditions on the continent.

“One obvious difference is the population density,” said Sam Daley-Harris, director of the Microcredit Summit Campaign. In Asia, ” you did have population density, which gives economies of scale. I would say that is one of the biggest barriers in Africa.”

“It’s much easier for one bank worker to reach 400 clients who are jam-packed in villages next door to each other than to reach 400 clients spread out in rural areas, which is why so much microfinance in Africa is urban,” Daley-Harris added.

Technology may have some of the answers.

Some operators are looking at using prepaid phone credit and Africa’s rapidly expanding mobile networks to transfer money and make repayments, reducing the need for credit agents to travel from village to village collecting tiny amounts of cash. Better communications and credit monitoring will also help.

Kenya’s new law, for example, encourages lenders to pool information on borrowers’ credit history, drastically reducing the risk of default, said Jean-Philippe Prosper, senior manager for Eastern Africa at the International Finance Corp., the private sector arm of the World Bank.

“International experience suggests that the use of credit information allows banks to reduce loan processing time and cost by 25 percent or more and lower default rates by 40 percent to 80 percent.” Such cost-saving measures could be crucial to future growth.

The Grameen Foundation’s president and chief executive, Alex Counts, said some African countries had already demonstrated ways to nurture microfinance, like Morocco, where new regulation and government backing set off an explosion of microcredit.

“Within six years microfinance outreach went from 10,000 to more than half a million,” Counts said.

“If this kind of growth happens in the most populous countries, then things will start to change very quickly, and if it’s done correctly the G-8 fund could be a big part of that,” he said.

“Africa could catch up with the average country in Asia in a matter of five to eight years.”

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