IFC and CGAP Highlight Progress of Greenfield Microfinance in Africa
Is greenfield microfinance a viable strategy for advancing affordable financial services to low-income individuals and small-scale entrepreneurs in Sub-Saharan Africa? A new research paper from IFC, CGAP and The MasterCard Foundation looks at the business model’s progress to date.
Greenfield microfinance institutions are newly created local institutions set up by a regional or international network or holding company. It can be considered a type of franchise, where the holding company backstops operations, provides standards for policies and procedures, and co-brands the subsidiaries. There are currently more than 30 greenfield microfinance institutions in Sub-Saharan Africa, spread over 12 countries.
The business model has been employed on the continent since 2000, and examples include AccessBank in Liberia and Advans Banque in the Democratic Republic of Congo. IFC is a co-investor in several of these institutions, and also provides advisory services to some of them.
“African greenfield microfinance institutions now have sufficient track record for us to fully review their performance and role in the market,” said Julie Earne, IFC microfinance specialist and co-author.
Greenfield MFIs in Sub-Saharan Africa: A Business Model for Advancing Access to Finance found that after five years in operation, greenfield microfinance institutions on the continent attain larger size, greater reach, higher loan quality and better profitability than MFIs with no strong holding or network affiliation.
The study also found that greenfield microfinance institutions have had positive effects on responsible market development in several countries, and on innovation and development. The institutions often make a significant contribution to the professional development of staff in the local banking and microfinance sectors.
Antonique Koning, CGAP microfinance specialist and co-author, said, “Greenfield microfinance institutions employ and train an impressive number of young adults, typically with little previous work experience. The employees of greenfield MFIs eventually become attractive candidates for mainstream banks. Some holding companies calculate that they will train two to three times the number of required staff to address expected attrition to local financial institutions.”
One challenge shared by most of the holding companies was the relatively high cost of doing business in Sub-Saharan Africa compared to other parts of the world.
The study was authored by experts from IFC and CGAP. It was funded by the Partnership for Financial Inclusion, a joint initiative between IFC and The MasterCard Foundation to advance microfinance and mobile financial services in Sub-Saharan Africa and to build and share industry knowledge.