Institutional linkages between commercial banks and MFIs for enhanced microfinance delivery
In 2005, the United Nations Capital Development Fund (UNCDF) asked for expert opinion on the following observation and question:
According to the Report of the Commission for Africa, "microfinance institutions (MFIs) alone are not the answer. Banks and other financial institutions, domestic and international, have far greater resources to take up the challenge of enterprise financing and come up with innovative financing schemes."
Q. Do you agree? If not, why? If so, what concrete steps can be taken to generate greater involvement by banks and other financial institutions in responding to the financial needs of poor people in sub-Saharan Africa?
I offered the following advisory opinion:
In global comparison, poverty levels are highest in sub-Saharan Africa with recent figures showing that over half of the population is living on less than US$1 per day and three-quarters on less than US$2per day (Chen and Ravallion, 2000). As such, the challenges to entrepreneurial growth are even greater, and include the growing socio-economic effects of the HIV/AIDS pandemic, high illiteracy levels, inadequate vocational skills training programmes, poor telecommunication and other infrastructure. Due to the enormity of these challenges, it is a fact that microfinance institutions (MFIs) alone are not the answer. As such, there is need for concerted effort among all stakeholders in order to meet the financial needs of the poor in Sub-Sahara Africa. Commercial banks have the potential to bridge the gap that leads to exclusion of the poor from the formal financial system. Commercial banks have the expertise and know-how; they have the capacity in terms of financial capital, human resources and infrastructure; they also have the technology. However, they lack the empathy and understanding of the needs of the poor due to their profit-driven culture.
It is for the afore-mentioned reasons that establishing proper institutional linkages between commercial banks and MFIs (and other non-formal and informal financial service providers) is the answer in that such linkages can create synergy by maximising the commercial and social attributes of commercial banks and MFIs, respectively. Furthermore, the linkages can also enhance capacity for wider outreach in the delivery of financial services to the poor not only in sub-Saharan Africa but across the world.
Dr. Kennedy Bisani Lweya
UNCDF Voices of Microfinance - http://www.uncdf.org
According to the Report of the Commission for Africa, "microfinance institutions (MFIs) alone are not the answer. Banks and other financial institutions, domestic and international, have far greater resources to take up the challenge of enterprise financing and come up with innovative financing schemes."
Q. Do you agree? If not, why? If so, what concrete steps can be taken to generate greater involvement by banks and other financial institutions in responding to the financial needs of poor people in sub-Saharan Africa?
I offered the following advisory opinion:
In global comparison, poverty levels are highest in sub-Saharan Africa with recent figures showing that over half of the population is living on less than US$1 per day and three-quarters on less than US$2per day (Chen and Ravallion, 2000). As such, the challenges to entrepreneurial growth are even greater, and include the growing socio-economic effects of the HIV/AIDS pandemic, high illiteracy levels, inadequate vocational skills training programmes, poor telecommunication and other infrastructure. Due to the enormity of these challenges, it is a fact that microfinance institutions (MFIs) alone are not the answer. As such, there is need for concerted effort among all stakeholders in order to meet the financial needs of the poor in Sub-Sahara Africa. Commercial banks have the potential to bridge the gap that leads to exclusion of the poor from the formal financial system. Commercial banks have the expertise and know-how; they have the capacity in terms of financial capital, human resources and infrastructure; they also have the technology. However, they lack the empathy and understanding of the needs of the poor due to their profit-driven culture.
It is for the afore-mentioned reasons that establishing proper institutional linkages between commercial banks and MFIs (and other non-formal and informal financial service providers) is the answer in that such linkages can create synergy by maximising the commercial and social attributes of commercial banks and MFIs, respectively. Furthermore, the linkages can also enhance capacity for wider outreach in the delivery of financial services to the poor not only in sub-Saharan Africa but across the world.
Dr. Kennedy Bisani Lweya
UNCDF Voices of Microfinance - http://www.uncdf.org
Labels: Financial Institutional Linkages
posted by kennedylweya at 6:05 AM
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