Bankable Frontier Weblog

Last week, I spent 3 days in the fair city of Cape Town at the second bi-annual African Microfinance Conference. According to the Centre for Microfinance at University and the MFRC, which organized the conference, there were some 400 delegates from 45 countries in Africa and elsewhere.

The sheer number of delegates alone is a sign that microfinance has come of age; although the very breadth of attendance—banks, microlenders, microfinance deposit taking institutions (MDIs), member-owned financial institutions (MOFIs), regulators—in some ways portends the end of the age of microfinance as a distinctive niche. As it mainstreams into the financial sector, through conferences like this, microfinance loses its early distinctiveness. Indeed, Barry Herman of the UN presented the UN’s vision of Inclusive Financial Sectors which has emerged in this, the Year of Microcredit, which goes far beyond microcredit. It is this broader vision which seems to be gaining traction, as the field of players in microfinance diversifies.

At the conference, CGAP released research which showed that African microfinance is characterized by much higher relative levels of savings mobilization than on other continents, largely through active MOFIs such as savings and credit co-ops. However, we also heard that the ongoing conundrum has not been solved of how to regulate such small and widespread entities appropriately, where frequent collapse often means that poor people lose their money.

We also heard from the CEO of another type of successful savings-mobilizer: Equity Bank in Kenya, which recently completed its transformation into becoming a regulated bank. Equity Bank now aims to list on the Nairobi Stock Exchange later this year. The listing will provide a first market valuation of microfinance specialist institutions in East Africa. This has been possible in South Africa since 1998, when the early success of first listed microlender Theta Investments (now ABIL, South Africa’s largest microlender) led to a listings boom of microlenders in the late Nineties. I heard at the conference that Capitec Bank, a large listed SA microlender with a growing savings/transaction base now of over 200 000 accounts, trades at a whopping valuation of 6 times book.

Equity Bank is in many ways the poster child of modern microfinance: it has enjoyed spectacular growth in number of clients and in profits; and is a locally owned entity which focused on underserved markets. However, James Mwangi also shared how Equity has struggled to gain admission into the Kenyan payments system—he described the ‘hostile competition’ encountered from incumbent banks. Several small SA banks, including Capitec, have had similar experiences. Creating level playing fields around access to the payments system is clearly becoming an increasingly important issue in microfinance, as newer entrants start to have the scale which upsets existing market structure.

Also present at the conference, although not featured on the program, were representatives from two other new forces in ‘microfinance’: MTN Mobile Banking, launched in SA recently (see recent blog post), and Vodafone, which is developing a mobile transactions platform in Kenya. These convenient ubiquitous platforms offered by large trusted consumer brands are likely to see large take-up. They could up-end traditional banking practice through their greater convenience and accessibility. After picking up a starter account pack at an MTN store, I was able to open my new MTN Mobile Money bank account within half an hour on my cell phone. Such low end disruptions (in Clayton Christensen’s memorable phrase) are likely to be popular not only with unbanked people, but the banked too. This is why the distinctiveness of microfinance is fading; and why the next African Microfinance Conference, penciled in last week for East Africa in 2007, may be the last of that name.