1. finance
2. bank

Africa Microfinance Program Review
May 11, 2015
This document has a restricted distribution and may be used by recipients only in the performance
of their official duties. Its contents may not otherwise be disclosed without authorization.
Africa Microfinance Program. IEG Category 1 Learning Product
Contents
Acknowledgments and Preface ……………………………………
3
Key Messages…………………………………………………………
5
1.
Background…………………………………………………….
6
2.
IFC and Microfinance…………………………………………
8
3.
Microfinance in SSA and the AMP………………………….
10
4.
AMP Development Results…………………………………… 13
5.
Key Findings of the AMP Review…………………………… 15
6.
What Worked, What Did Not, and Why? …………………. 20
7.
Conclusions and the AMP Going Forward………………… 23
2
Africa Microfinance
IEGIEG
Cluster
Evaluation
Review
Program.
ofofthe
the
IEGAfrica
Africa
Category
Microfinance
Microfinance
1 Learning
Program
Program
Product
1. Acknowledgements and Preface
This review was prepared by members of the Independent Evaluation Group's Private Sector
Evaluation (IEGPE) unit. The Task Leader, Leonardo Bravo (Evaluation Officer / FIG Sector Lead,
IEGPE), was supported by Kelly Andrews Johnson, Jack Glen, Surajit Goswami, Gurkan Kuntasal,
Khaliun Yadamsuren, and Eskender Zeleke. Administrative support and data was provided by
Feruza Abduazimova, Nadia Asgaraly, Emelda Cudilla, and Unurjargal Demberel. Editorial support was provided by Heather Dittbrenner.
It was carried out under the peer review and guidance of Beata Lenard (Head, Micro
Evaluation, IEGPE), Stoyan Tenev (Manager, IEGPE), and the overall direction of Marvin TaylorDormond (Director, IEGPE). The team would like to acknowledge the valuable comments from
external peer reviewer Michael Higgins.
The objective of the IEG review was to highlight the development results in the Africa Microfinance Program by extracting key findings and policy considerations of IFC investments and
advisory operations in the Program.
Scope of the Document. Since 2007, the International Finance Corporation (IFC) has significantly expanded its presence in microfinance in Sub-Saharan Africa (SSA) through greenfield
operations (financial institutions which started from the ground up and do not have clients,
branches, or operations). As of March 2015, IFC has funded 20 greenfield projects in the
region. Of those 20 investments, 12 have reached early operational maturity and 10 of them
were evaluated by IEG by June 2014. Thus IEG conclusions should have a strong degree of
applicability for the entirety of the AMP. Although the assessment is based on operations that
reached operational maturity and were evaluated by IEG, the program continues evolving and
final outcomes may change due to various factors, including possible operational response to
the conclusions of this review. This document will also provide input to the upcoming IEGPE
macro study on financial inclusion, led by Stefan Apfalter and Andrew Stone (Head, Macro
Evaluation, IEGPE).
Discussions with IFC. IEG held discussions with IFC staff directly involved in microfinance
during a Workshop held on May 29, 2014. The presentation from the event is available in
Spark. The event featured Leonardo Bravo as presenter, Beata Lenard, Terence Gallagher
(Senior Microfinance Specialist, Microfinance - FIG, IFC), Momina Aijazuddin (Principal
Investment Officer, Microfinance - FIG, IFC), Tor Jansson (Principal Investment Officer, Microfinance - FIG, IFC), Sarah Rotman (Financial Sector Specialist, CGAP) as panelists and Stoyan
Tenev (Manager, IEGPE) as moderator.
3
ACKNOWLEDGEMENTS
AND1PLearning
REFACE Program
Africa Microfinance
IEGIEG
Cluster
Evaluation
Review
Program.
ofofthe
the
IEGAfrica
Africa
Category
Microfinance
Microfinance
Program
Product
This review was based on IEG’s evaluation of 10 Expanded Project Supervision Reports (XPSRs)
(8 operational entities and 2 holding companies) and 6 Project Completion Reports (PCRs) (of
which three were also evaluated as XPSRs).
IEG reviewed all the supporting documents of the XPSRs and PCRs, had discussions with the
IFC officers (Investment and Advisory) of the evaluated operations. IEG also compared actual
to expected results and used market information from Microfinance Information Exchange
(MIX), the most complete information about microfinance globally, and reports generated by
IFC, the Consultative Group to Assist the Poor (CGAP), and the World Bank. The review cluster
also included recently published documents about microfinance in Africa by the World Bank
Group, including IFC Greenfield MFIs in SSA, Success Factors in Microfinance Greenfielding,
Benchmarking the Financial Performance of Greenfield MFIs in SSA, other internal IFC
documents about microfinance strategy, the AMP and other materials on this topic available
outside of the World Bank.
For further information about the Africa Microfinance Program please contact:
Leonardo Bravo
IEG
[email protected]
202 458 1547
Martin Holtmann
IFC
[email protected]
202 458 5348
The electronic version of this document contains hyperlinks to:
a) Relevant sections; b) Project Details in Lesson Finder; and c) Tableau.
4
Key Messages
The Africa Microfinance Program (AMP) started in April 2007 with a programmatic approach of
six microfinance transactions in five countries in SSA, which grew to 20 operations as of 2015.
It was designed to expand access to finance services for poor populations and low income
micro-entrepreneurs and to establish commercially viable microfinance entities to provide
access to credit and financial services for previously excluded populations.
IFC was a major contributor to these commercially oriented microfinance institutions. Overall,
the AMP generated positive market developments but it required more time and resources
than expected.
The program had mixed results. Some leaders emerged from the program, that exhibited
balanced growth between loans and deposits and demonstrated ability to gain profitability
and market share. Less successful operations, are still struggling to grow. On the positive side
none of the projects are currently in special operations, have defaulted or had their debt
rescheduled. Despite the positive private sector development, none of the supported operations reached the profitability expected by IFC. Despite variations between projections and
actual performance, AMP is a successful example of institution building. Impact has been
relatively small-scale and the main challenge for IFC and the program remains: to scale up
existing operations and reach rural clients.
Highlights

Greenfields can be a powerful tool in countries where IFC has first mover advantage.

IFC was a major contributor in putting commercially oriented microfinance on
Africa’s map and establishing Microfinance Infrastructure in several countries.

AMP generated positive market developments but required more time and resources than expected. None of the projects achieved the profitability expected in
the Board Report.

The main beneficiaries of the program are middle-income individuals and microentrepreneurs (mostly women) in cities. In selected countries, the program is progressively expanding its reach to lower income individuals and rural areas but it is
taking longer than initially expected.

New greenfielding in Africa slowed down in 2012 and since then IFC has been
focusing more on expansions, transformations, and digital finance.

The main challenge for the AMP is to take stock of what has been achieved, reach
greater scale, and rural clients.
Keywords: Africa Microfinance Program, IEG, IFC, Greenfield, Microfinance.
5
1. Background
According to Deutsche Bank , almost 30 years after the first microfinance institutions were
founded, the microfinance market is still evolving. Microfinance started to expand during the
1980s and focused on lending to the rural poor for income-generating purposes, mainly
through solidarity group loans of small amounts. Since then, microfinance has evolved into a
more comprehensive tool, with the aim to supply access to financial services for people in
emerging markets who do not have bank accounts. Besides the traditional microcredit
(financing of small entrepreneurs and start-ups), microfinance today is complemented by payment services, savings accounts, insurance, and other financial services that can be offered on
a small scale. Along with a widening of the product range, the base of microfinance customers
and the ways of serving them have changed, too. Group lending has been complemented by
individual lending, and microfinance institutions (MFIs) have expanded into urban areas and
started to target higher income clients.
Emerging markets Microfinance demand is significant. According to Findex (financial inclusion data of the World Bank), an estimated 2.5 billion adults worldwide are unbanked. The
issues are more acute in SSA, where more than 75 percent of the population is unbanked,
compared to 61 percent in Latin America and the Caribbean, 55 percent in Europe and Central
Asia, and 45 percent in Asia and the Pacific. World Bank Development Indicators (WDI) data
show that in 2013 in SSA there were 163 bank accounts per 1,000 adults, compared with 635
bank accounts per 1,000 adults in developing countries worldwide. In addition, in the region
there were 28 bank loans per 1,000 adults, compared to 245 loans for developing countries
worldwide. More than 300 million adults and 30 million micro, small, and medium-size enterprises remain without access to finance in Africa.
Graph 1. Number of Financial Institutions
Billion reporting to MIX and Loan Portfolio (2012)
0
NBFI
NGO
80
70
60
50
40
30
20
10
0
Credit Union
Bank
$
Other
Microfinance offerings are concentrated in
banks in East Asia and Pacific and in Latin
America and the Caribbean. There are several providers of microfinance globally, but
most of the loans are concentrated in financial institutions that have a banking license.
As of 2012 there were 1,260 financial institutions reporting to MIX globally, of which 66
percent were non-bank financial institutions
(NBFIs) or nongovernmental organizations
(NGOs) (see Graph 1).
100
200
300
400
500
Number of Financial Institutions reporting to MIX
Source: MIX. Calculations by IEG.
6
CHAPTER 1
BACKGROUND
Graph 2. Distibution of Loan Portfolio (2012)
by Regions of FIs reporting to MIX
By volume microfinance is concentrated in
SA
banking institutions as 63 percent of loans (of
9%
SSA
MENA
9%
about $100 billion globally as of 2012) were
1%
provided by banks, and the five largest banks
had 36 percent share of total loans. In
EAP
addition, 70 percent of microfinance loans
LAC
35%
35%
(outstanding) were in East Asia and the Pacific (mainly in China) and Latin America and
the Caribbean and only 9 percent in SSA (see
ECA
Graph 2). Concentration in banking instituSource: MIX. Calculations by IEG 11%
tions is also true in Africa where the largest
two institutions reporting to MIX, Capitec Bank of South Africa and Equity Bank in Kenya,
represented 73 per cent of total microfinance loans in Africa as of 2012.
7
2. IFC and Microfinance
IFC is one of the largest funders of microfinance globally. According to CGAP, total global
funding to microfinance is estimated at $25 billion of which 2/3 are coming from public sources,
including 27 percent from Development Financial Institutions (DFIs). IFC is the second largest
DFI funder of microfinance (after KfW), with cumulative commitments of more than $3.5 billion
in the past 10 years. In fiscal year 2014, IFC had 150 active microfinance projects with $2 billion
in outstanding commitments that represented
about 12 percent of total Financial Institutions
Graph 3. Distibution of IFC MF Portfolio (2013)
by Regions and by size of investment
Group (FIG) projects (measured by number of
projects).
SSA
WORLD
3%
12%
Most of the projects were in East Asia and the
Pacific, Europe and Central Asia, and Latin
America and the Caribbean (see Graph 3). SSA
represented nearly 3 percent ($41 million) of
total commitments but grew from nearly zero
in five years when IFC undertook a programmatic approach to developing microfinance
operations in Africa.
EAP
30%
SA
12%
MENA
8%
LAC
15%
ECA
20%
Source: IFC. Calculations by IEG
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1995
Division of labor between the World Bank
Graph 4. IFC MF Commitment by year
and IFC. In the past ten years the World
Bank has focused mainly on creating an
500
enabling environment to support micro- 450
finance. In addition, working through its 400
public sector counterparts, the World Bank 350
300
has provided support to microfinance via 250
lines of credit and development programs 200
such as ”Crediamigo” in Brazil. IFC has 150
100
directly supported financial institutions via 50
0
investment and advisory activities. In addition IFC has also supported the creation and
improvement of credit bureaus globally to
Source: IFC. Calculations by IEG
facilitate microfinance development. IFC’s
involvement in microfinance accelerated after 2007, when most of the projects originated. In
FY14 alone, IFC’s global commitment to microfinance institutions was $0.5 billion in 43 investment projects (Graph 4) and $74 million in 86 advisory projects.
8
CHAPTER 2
IFC AND MICROFINANCE
IFC microfinance primary goals. IFC’s global microfinance goals are to scale up access to a
range of high-quality financial services for underserved populations, maximizing development
impact and ensuring institutional sustainability by combining investment and advisory services
to financial intermediaries. Main approaches are:

Local currency loans / Equity / Guarantees. Investment teams are using a wide set of
tools to support microfinance.

Transformation / expansion. IFC supports transformation of microfinance providers into
regulated commercial microfinance institutions or banks, offering a broader range of
services and a diversified funding base.

Downscaling. IFC supports commercial banks entering the microfinance sector.

Institution building. IFC supports microfinance providers in building and strengthening
their operations by providing advice and training on risk management, responsible finance
practices, and operational efficiency.

Innovative products. IFC helps microfinance institutions design and streamline new
products and distribution channels such as mobile banking, housing finance, and
insurance.
9
3. Microfinance in SSA and AMP
A. Microfinance in SSA
Small, fragmented market with few forGraph 5.
profit players. The microfinance market in
SSA is still very small and fragmented.
From 320 institutions in the region
reporting to MIX as of 2012, only 37 (or 12
percent) had more than $10 million in
loans and had a bank or NBFI license.
Nonetheless it improved compared to 14
institutions that shared those characteristics in 2005 (see Graph 5). Given the environment, a strategy to grow microfinance
Source: IFC. Calculations by IEG.
in the region had to include greenfield
operations.
Several challenges arose around working
with established MFIs before the AMP: In
2007 when the AMP started there were
few partners with sufficient and relevant
experience in microfinance to grow the
business. IFC faced several issues when
working with established institutions
including (a) management quality and
staffing constraints; (b) questionable ownership and governance structures; (c) limited capacity to manage internal controls,
systems, and procedures associated with
decentralization; (d) difficulty maintaining
strong operations while developing new
products; (e) low financial literacy levels of
clients; (f) poor infrastructure; and (g) dispersed populations.
Africa
AMP
Graph 6. Map of AMP Projects in SSA
Countries in which
there were evaluated
operations
Countries in which
operations were NOT
yet evaluated
Source: IFC. Calculations by IEG.
10
CHAPTER 3
MICROFINANCE IN SSA AND AMP
B. Africa Microfinance Program Highlights
AMP (investment and technical assistance) was designed to support greenfield MFIs in SSA
and was implemented between 2007 and 2012. AMP was setup to address the challenges of
working with established MFIs. In the first stage (between 2007 and 2009) 10 projects were
approved in 7 countries followed later by 10 more projects (2009—2015) (see Graph 6). According to IFC, greenfield operations were meant to operate according to global best practices
in corporate governance, credit methodology, product design, and social and environmental
standards. Operational and managerial capacity in the new institutions was built from the
ground up, and over time local staff were to be trained to take over virtually all functions of
the new institutions. Main objectives were:

Jump-start commercially oriented microfinance services in SSA.

Have high development impact, expanding access to financial services for poor populations
and low-income micro entrepreneurs by establishing commercially viable microfinance
entities to provide sustained access to credit and other financial services for previously
excluded populations.

Transfer of know-how and build local management capacity.
The programmatic approach generated 20 investments in 12 countries in Africa. AMP contributed to a significant increase of microfinance projects in SSA from five financial institutions
before 2006 to 20 as of March 2015. This was achieved with a relatively small number of
investment and advisory staff in less than 7 years and constitutes a landmark for IFC. As a
consequence of the AMP, IFC has now extensive experience in establishing greenfield operations and determining the cost and time required to ensure their sustainability. AMP projects
are located in 12 countries: Cameroon, Congo, Côte D’Ivoire, the Democratic Republic of
Congo (DRC), Ghana, Kenya, Liberia, Madagascar, Nigeria, Rwanda, Senegal, and Tanzania.
IFC-led coordination of stakeholders raised more than $200 million in equity and technical
assistance for AMP. Various stakeholders such as DFIs, investment funds, financiers, and
sponsors were involved in the implementation of the IFC-led AMP. Total amount invested
(equity and technical assistance) to finance the projects was about $160 million of which IFC
contributed $30 million. The average project cost was about $9 million ($6 million in equity
and $3 million in technical assistance). IFC and KfW (Germany) were investors and providers of
technical assistance in most of the projects. Other DFI counterparties such as FMO
(Netherlands), BIO (Belgium), Doen Foundation, and the African Development Bank funded
selective projects.
11
CHAPTER 3
MICROFINANCE IN SSA AND AMP
In addition, several other financiers (including investment funds) served as minority
stakeholders and provided funds to some projects. These included Societe Generale, Ecobank,
Zenith Bank, Triple Jump, Sonam, Oikocredit, AfricInvest Fund, and Triodos. To implement the
AMP, IFC selected six technical providers or networks as sponsors / partners for individual
projects: Access, Advans, Accion, Procredit, Microcred, and Ecobank.
IFC is now a major participant in microfinance in Africa with positive spillovers in local
markets. Currently IFC has a relationship (loans or equity) with one third of MFIs in Africa
that report to MIX, banks or NBFIs, with more than $10 million in loans as of 2012. The
evaluated projects had in total 5,000 direct employees and 150 branches in 7 countries as of
December 2013. AMP institutions currently serve more than 1.2 million clients (loans and deposits) and have been growing loans and deposits more than 20 percent annually. IFC and the
sponsors focused on individual lending, based on cash-flow analysis of borrowers, rather than
group lending, which is used in most of the countries in Africa by NGOs and cooperatives or
salary based lending used by other financial institutions. Loans to women represented 64 percent of total loans, in line with the expected gender focus presented to the Board (between 50
percent and 70 percent expected).
Most IFC investees ranked among top five MFIs in their countries. Procredit Banque Congo
(PBC), Access Banque Madagascar (ABM), and Access Bank Liberia are the leading MFIs in their
respective countries. PBC and ABM were not only the largest MFIs, but also the largest banks
in their respective countries. Accion Nigeria, MicroCred Senegal, and Advans DRC rank among
the top 2 and top 4 MFIs in their countries. Most of these institutions are growing and act as
role models for other MFIs in their respective markets.
Large market share achieved by some AMP institutions. Few institutions managed to gain
significant market share. According to MIX, ABM had a market share of 25 percent in terms of
loans and 30 percent in terms of deposits in MFIs in Madagascar. As of December 2012, ABM
was the largest MFI in Madagascar, followed very closely by MicroCred Madagascar (another
MFI in which IFC invested) the sixth largest bank in Madagascar in terms of assets. In contrast,
according to MIX, Advans Ghana (AG) had a market share of 2.2 percent among the microfinance institutions in Ghana in terms of loans as of 2013.
12
4. AMP Development Results
IEG evaluated 10 XPSRs for Investment projects and 6
PCRs for Advisory projects. These represented nearly all
mature operations of the AMP. The overall Development
Outcome (DO) of the evaluated XPSR operations of the
AMP was 50 percent, lower than the 67 percent
obtained by all other microfinance projects that IEG
evaluated between 2007 and 2013 (roughly the same
period of the AMP) (Graph 7). Development Effectiveness of the PCRs evaluated was at 66 percent, slightly
above IFC target of 65 percent.
AMP low Project Business Success (PBS) affects Development Outcome rating. As shown in Graph 8, the low
PBS of the AMP projects was the main contributor to
their lower DO rating. The main reasons for weaker PBS
ratings were:


Overoptimistic revenue projections. IFC had overoptimistic projections in terms of number of loans,
average balance per loan, and mix of loans between
microloans and SME loans. Given that the scale of
these operations was much smaller than expected,
the financial performance of the operations was
weaker than expected. Key Finding 2.
Higher costs than expected. The AMP investees
exhibited higher costs than expected because of (a)
delays in approval by the regulators and significant
regulatory risks (Key Finding 1); (b) greenfield
characteristics of the projects and frontier characteristics of the countries; management fees that are
burdensome for early stage operations (c) slow
deposit gathering; (d) high employee turnover,
which decreased efficiencies; and (e) too many
projects started at the same time, which stretched
sponsor resources (Key Finding 3).
100%
Graph 7.
Development Outcome Sector Average
Success Rate (2007 - 2013)
67%
(48 projects)
65%
(190
projects)
Microfinance
FIG
80%
60%
50%
(10 projects)
40%
20%
0%
AMP
Graph 8. DO Categories (2007 - 2013)
DO
100%
75%
50%
PSD
PBS
25%
0%
E&S
AMP
ES
Microfinance
Source: IEG.
13
CHAPTER 4
AMP DEVELOPMENT RESULTS
Very high Private Sector Development (PSD). As
shown in Graph 8 all AMP projects had positive PSD
ratings, compared to 85 percent for all IFC micro100%
finance projects globally. Most AMP evaluated
projects had positive demonstration effects in their 80%
markets, leading to increased competition and 60%
enhanced access to finance in the markets they
40%
operated.
Low Investment Outcome (IO). Only two of ten
projects or 20 percent exhibited positive ratings in
investment outcome. This is significantly lower than
the 63 percent of other microfinance projects in IFC
(see Graph 9).
Screening appraisal and structuring (SAS) was the
weakest part in terms of work quality, whereas
supervision and role and contribution were very
strong (see Graph 10 and discussion in Key Findings).
20%
Graph 9. Investment Outcome Sector
Average Success Rate (2007 - 2013)
63%
(48 projects)
78%
(190
projects)
20%
(10 projects)
0%
AMP
Microfinance
FIG
Graph 10. Work Quality Categories
100%
WQ
75%
50%
25%
Role
SAS
0%
Supervision
AMP
Microfinance
Source: IEG.
14
5. Key Findings of the AMP Review
1. Regulatory risk is significant in greenfield operations. Greenfield operations need approval
from local regulators to start operations. There were three regulatory risks that IFC faced in
the AMP:
A) At approval. IFC expected that most operations could be up and running in less
than six months after disbursement; however, in some cases it took almost two
years, with resulting cost overruns. Major delays in approving the operations from
local regulator occurred in the DRC, Ghana, and Liberia. IFC found that “the
pre-operational phase took longer and cost more than anticipated. The preoperational phase was a complex undertaking that, among other things, included
interacting with regulatory authorities, renovating branches, training staff, preparing
policies and procedures, and configuring the information technology platform.”
Delays in regulatory approval were a common issue in half of the cases (5/10 XPSRs).
B) Increases in the capital requirements. Most of the investee companies were set up
with the amount of capital sufficient to meet the minimum capital requirements at
the start up time. In 6 out of the 10 projects evaluated there were capital increases
unanticipated by most of the investees. In some cases local capital requirements
rose significantly over short time, consistently with international trends. Also, certain
NBFI clients decided to become commercial banks, which resulted in higher
minimum capital requirements. This tendency for minimum capital levels to increase
post-investment may put pressure on IFC and other DFIs to increase their initial
investment, since rights issues can be frequent and time-consuming, particularly
with a large number of DFIs participating.
C) Interest rate caps. In some countries (e.g., DRC and Senegal), the regulators
decreased the maximum interest that the financial institutions focused on microfinance could charge in some cases by half. This significantly affected the revenue
stream of these institutions.
2. Overoptimistic assumptions. In 8 of 10 evaluated XPSRs, overoptimistic assumptions were
the main reason for the difference between what was expected and what was achieved:
A) Loan growth. IFC expected a higher number of loans based on the projected level
of productivity per loan officer. The assumptions of productivity in SSA were taken
from other greenfield operations (mostly from Latin America and the Caribbean) but
such assumptions proved hard to achieve in Africa. In addition, IFC projected larger
average loans per borrower, but in some operations it was very difficult to expand
into SME lending, causing the size of the overall loan portfolio to be smaller than
expected.
B) Profitability. Breakeven was expected to occur within 18-36 months of launch.
Although some operations attained breakeven within 2-3 years, but when the technical assistance grant ceased, profitability declined significantly. Post technical
assistance break even for most operations was achieved between year 4 and 5, and
recovery of earlier losses only occurred after that period. Thus, for most greenfield
operations, projecting breakeven results after two to three years proved to be
optimistic.
15
CHAPTER 5
KEY FINDINGS OF THE AMP REVIEW
Advans DRC
Advans GHA
Advans CMR
Access LBR
Access TZN
Access NGA
Access MDG
EB Accion
Accion NGA
ProCredit DRC
Average
C) More rigor with projections. In view of significant issues with financial projections
IFC may consider preparing downside scenarios in addition to the base case specially in
IDA countries and greenfields. It may also include other groups such as Banking
Specialists for the discussion on assumptions. With the increased experience gained
with AMP and growing volume of data collected by IFC as well as other parties such as
MIX, IFC can do a better benchmarking work for future greenfields in this or in other
regions. In addition, IFC may also consider preparing credit / operating guidelines for
the Microfinance staff based on the AMP experience.
3. More resources required than expected. IFC
Graph 11. Total Investment AMP
and other shareholders invested about $160
Cumulative Right Issues
million in equity and technical assistance in
Initial Equity
TA Provided by IFC (In US$ Million)
the evaluated projects (this amount does not
RI / Initial Equity (Right Axis in x)
20
2.5
include IFC’s employees time and other indi- 18
2.0
rect costs). IFC contributed about $30 million 16
14
($20 million in equity and $10 million in tech- 12
1.5
nical assistance) for an average 15 percent 10
8
1.0
stake, thus averaging $2 million in equity and 6
4
0.5
$1 million in TA per project. Subsequent capi- 2
0.0
tal injections exceeded initial capital by about 0
130 percent (see Graph 11). Main reasons for
the need of more resources were:
Advans DRC
Advans GHA
Advans CMR
Access LBR
Access TZN
Access NGA
Access MDG
EB Accion
Accion NGA
ProCredit DRC
Average
A) None of the operations reached
Board report expected profitabil- Source: MIX— IFC. Calculations by IEG.
ity. Most of the operations generGraph 12. AMP ROE (Expected vs Actual)
ated positive results in month 54
ROAE Projections Year 5
ROAE Month 54 (annualized)
(proxy to year 5 in Board projec60%
tions) but the return generated was
significantly lower than expected at
the time of approval (30 percent 40%
expected on average versus 3 percent actual) (see Graph 12). Oper- 20%
ating costs consumed most of the
revenues and the greenfields 0%
reported much lower profitability.
Only half recovered initial losses as -20%
of 2013. IEG did not compare AMP
profitability with other MFIs in Af- -40%
rica. For in-depth benchmark anal- Source: MIX— IFC. Calculations by IEG.
ysis see: Benchmarking the Financial Performance of Greenfield MFIs in SSA.
16
CHAPTER 5
KEY FINDINGS OF THE AMP REVIEW
B) Higher operating costs than expected.
Projections and initial assessments included
some expected difficulty of starting and running the operations in Africa. However, reality
was much tougher than expected. For example, Access Bank in Liberia faced the following
challenges: no reliable electricity; lack of
roads, high costs of rent, travel, and equipment; weak law and judiciary enforcement;
security issues; and a tragic outbreak of Ebola
that increased significantly transaction costs.
In addition, the cost of the sponsor’s management contract has been substantial and
delayed the onset of profitability for the institutions. For example, and as shown in Graph
13, in the case of one AMP investee where
data was available, the annual management
fee for four staff members in 2013 was $1.1
million (14 percent of total expenses). This
contrasts with general staff expenses of $2.5
million (32 percent of total expenses) for the
remaining 495 staff.
Graph 13. Expense Allocation for
AMP Investee /Revenues
Source: IFC. Calculations by IEG.
Graph 14. AMP Loan to Deposit Ratio
(Dec. 2013)
Times
8
7
6
5
4
3
2
1
-
EB-ACCION
Access Liberia
Access - NGA
Advans DRC
Advans GHA
Advans CMR
Access - TZA
Accion NGA
ProCredit DRC
Average
C. Very slow deposit gathering. With the
exception of Procredit DRC, for most entities
the ramping up of customer deposits has been
slower than expected and has resulted in the
dependence on funding mainly from DFIs. In 6
of 10 XPSRs evaluated, the institutions focused
on growing the loan portfolio first and then on
gathering deposits. Generating a significant
amount of deposits in Africa is hard for most Source: IFC. Calculations by IEG.
financial institutions. Although the projects were able to reach more than 100,000
clients on average, the level of deposits per account was low ($312 per account, which
is similar to $258 in the rest of Africa but significantly lower than $1,500 in Latin America and the Caribbean) and resulted in high loan to deposit ratio (see Graph 14). When
supporting microfinance operations, IFC may wish to require sponsors to give similar
importance to deposits as to loans in order to achieve more balanced growth.
17
CHAPTER 5
KEY FINDINGS OF THE AMP REVIEW
D. High employee and management turnover. IFC-supported projects encountered
greater difficulty in attracting and retaining qualified personnel in Africa (both expatriates and locals) than in other regions because of educational constraints, higher
employee turnover, hard living conditions and poaching of trained personnel. IFCsupported projects were characterized by some as “the Citibank of the ‘80s,” where
employees went to receive good banking training and after some time went to other
institutions as experienced middle managers. This is a positive spillover in the local
markets; however, for the entities it increased the operating costs and reduced staff
productivity. In these projects the frequent changes of personnel have not been
confined to second-level employees but have also happened with top-tier employees.
Some operations have had more than four CEOs in five years. These changes affected
the performance of the institution as the new employees and managers had to learn
the specificities of the market. In addition, in 4 of 10 institutions employee turnover
may have contributed to higher NPLs due to poor handover of loan files.
E. Too many projects undertaken in short time and fast growth stretched resources.
To deliver so many projects in a short period of time, IFC stretched its human resources
and those of the sponsors (both human and financial). For example, one of the
networks had 12 staff on the ground at the start to manage 7 operations. Most
technical sponsors were consulting firms with limited human resources and capital.
Thus, in some cases they experienced a shortage of qualified people and when the
projects started growing, people had to be hired from outside of the network, delaying
the onset of learning curve efficiencies and weakening the network’s culture. Given the
tight schedule, some of the second-generation projects copied some of the main characteristics of the previous ones, but faced adaptability issues. IFC could phase future
engagements at a more measured pace, performing more in-depth analysis of markets
and adapting products accordingly.
4. Development Impact. One of the main objectives was to have high development impact,
expanding access to financial services for poor populations and low-income micro entrepreneurs by establishing commercially viable microfinance entities to provide sustained access to
credit and other financial services for previously excluded populations. IEG found that AMP
clients were largely middle-income but there was no information if they were unbanked or
excluded.
A) AMP focus was largely on middle-income clients and microenterprises. According
to MIX, average loan (of $1,619) was about three times higher the gross national income per capita (GNI) of the evaluated projects as of 2013. This means that the loans
had relatively high balances and therefore were not focused on the lowest income
individuals but rather on middle-income ones and on microenterprises (1 to 10
employees).
18
CHAPTER 5
KEY FINDINGS OF THE AMP REVIEW
MicroCred - SEN
MicroCred - MDG
Access NGA
Advans Cameroun
Advans DRC
AccessBank - TZA
AccessBank - NGA
Access MDG
The situation was more extreme in the DRC,
Graph 15.
where Advans average loan was 12 times GNI
Outstanding Balance / GNI Per Capita
(see Graph 15) and Procredit 41 times. Excluding Times
those 2 operations, the average of the rest of 14
the operations was two times. In comparison, 12
10
MFIs in Africa had an average loan of 1.2 times 8
GNI as of 2013. The IFC investees or IFC did not 64
collect data on whether their clients were previ- 2
ously unbanked or excluded, so it is not possible 0
to assess the degree to which the AMP achieved
the objective of providing financial access to previously
excluded populations.
B) Average loan yields have fallen marginally
during AMP. One of the expected impacts of the Source: IFC. Calculations by IEG.
entrance of new players in the African market
Graph 16.
was a decrease in loan yields (interest revenues/
loan portfolio), making loans more affordable,
AMP Average Portfolio Yield
thereby improving access to finance. Although
70%
yields can change for a number of reasons, data 60%
provided by AMP indicated that the average 50%
portfolio yield remained fairly high as shown in 40%
30%
Graph 16.
20%
5. Conflict of Interest. By its very nature, the network 10%
model of microfinance may give rise to potential conflicts 0%
12 18 24 30 36 42 48 54 60
of interest. The sponsor’s role as an investor, manager,
Months of operation
and technical assistance counterparty at both the holding
company and subsidiary levels may create potential
conflicts of interests, which need to be objectively and Source: IFC. Calculations by IEG.
transparently managed. Sponsors provided very small
amount of capital and limited staff and in return earn their fees for managing the entity,
providing technical expertise and also have an equity stake. In contrast, DFIs provided equity,
loans, TA funding and frequently involved its staff, but have not received the expected return
on their investments. IFC's Microfinance, Corporate Governance, and Legal teams could
develop a model set of guidelines for addressing Management Services Contracts (MSCs) in IFC
investments. IFC could also disseminate the guidelines to other IFIs, in an effort to establish
best practices in an area that is vulnerable to obfuscation and abuse. Those guidelines could
address the management of conflicts of interest, dividend policy, loans to shareholders,
disclosures, recusals, and a host of other legitimate concerns that shareholders may have. IFC
could also use its convening power to have other DFIs join this initiative.
19
6. What Worked, What Did Not, and Why?
IEG analyzed the reasons for significant differences among the investees in terms of reach,
deposit mobilization, and profitability (see Table 1). Those differences appear to have arisen
for the following reasons:
Table 1. Comparison of AMP and MFIs in
A) First mover advantage. Countries where IFC
Africa
had first mover advantage (the DRC, Liberia,
Madagascar, Nigeria, and Senegal) its investees
were able to achieve higher market share than
those where IFC was a late comer (Cameroon
and Ghana). In the first set of countries, AMP
projects became market leaders (Table 2). In
more mature markets some entities were able
to enter as niche players, contain costs, and
obtain early profitability. Examples of this apSource: IFC. Calculations by IEG. Blue=High Red=Low
proach were Access Nigeria, Accion Nigeria,
and EB Accion Ghana.
Table 2. Ranking of Evaluated Projects
and Market Share in respective markets
B) Relevant sponsor experience was key.
Very few of the AMP’s sponsors had
relevant greenfield experience in Africa at
the time of the program set up. Most sponsors were consulting firms specialized in
acquisitions, or transformations but had no
relevant experience in starting greenfields or
managing day to day operations, especially
in Africa. Access Holdings had some experience with start up and managing operations
in Access Bank Azerbaijan (in 2002) with the
support of IFC, EBRD, and KfW, and has
grown significantly. Two of the three AMP
operations with Access Holdings were
evaluated as “high”. In the case of Advans Source: IFC. Calculations by IEG. Blue=High Red=Low
Holding, it had consulting experience and acquisitions experience, particularly in Amret
in Cambodia, but it did not have previous greenfield experience or managing operations
in Africa, which was one of its main weaknesses. All three evaluated projects of Advans
Holdings were rated as “low”.
20
CHAPTER 6
WHAT WORKED, WHAT DID NOT, AND WHY?
C) Well-defined plan to offer variety of asset and liability products. IFC provided a
comprehensive package to the AMP program that included equity, technical assistance,
partial credit guarantees, and loans in local currency, all in all a suite of products that
few institutions in the world could provide. Local currency funding offered to the
entities mitigated foreign exchange risk and was a critical component of the stability of
the program. It enabled the entities to provide diverse products to their clients. Some
of IFC’s most successful investees offered products tailored to the client specific needs.
For example, in addition to offering traditional loan and deposit products to its microfinance customers, ABM has engaged in agricultural, rural, and mortgage lending, while
also offering branchless mobile deposit products, to cater to the needs of its different
customers. Currently, it is expanding its remittance and transfer business. Procredit
DRC similarly is pursuing this path. In contrast, AG focused on building its loan book
during the first five years of its operations and is still struggling with deposit gathering.
All in all, most of AMP projects have been progressively broadening their product
offerings and expanding their reach to rural areas.
D) Early deposit collection was essential for achieving balanced growth. In the case
of ABM, loans reached on average 107 percent of the Board objectives between 2008
and 2013 despite severe political problems in Madagascar (including a coup d'état in
2009) and frequent changes of the CEO. Deposits reached on average six times the
Board objectives between 2008 and 2013. This was also the case of Procredit DRC. On
the other hand, AG was one of the most leveraged entities among other AMP participants, with a loan to deposit ratio of 318 percent as of December 2013. Because of a
small deposit base there has been a heavy reliance on debt from financiers, which increased the interest expense for AG compared to other participants in Ghana and the
AMP.
E) Early breakeven and recovery of losses enhanced self sustainability. ABM broke
even on annual terms since 2010 (year 3) and as of December 2012 (year 5) it had
recovered its initial losses. This was also the case for Accion Nigeria and Access Nigeria.
In contrast, AG incurred losses through to the fourth year of operation (2012) and in
2013 it generated a $0.1 million profit or 1.4 percent ROAA. Losses occurred despite a
buoyant economy in Ghana, where average GDP growth was 8.3 percent annually
between 2007 and 2011 and GDP per capita increased 43 percent during that period.
The losses were mainly due to (a) fast branch expansion in initial years, (b) higher than
expected interest costs as a result of heavy reliance on borrowings, and (c) inefficient
operations measured by volume of loans per branch and volume of loans per
employee. Advans DRC and Access Liberia had a similar performance to that of AG,
posting losses as of year 5 of operations.
21
CHAPTER 6
WHAT WORKED, WHAT DID NOT, AND WHY?
F) Considering full-fledged bank approach since inception. ABM, PBC, and AN sought
to become full-fledged banking institutions from the start, instead of focusing only on
loans. Those institutions applied for a commercial bank license and started gathering
deposits at their inceptions. Currently ABM has a large branch network (26 branches
countrywide), the largest of any project of the AMP. Procredit Bank DRC had 16
branches and the largest level of deposits of the AMP. AG and EB applied to be
licensed as deposit-taking NBFIs, as capital requirements were lower than those
required for a banking license. Capital requirements in Africa are generally higher for
banking institutions than for NBFIs, reinforcing a perception of safety that puts NBFIs
at a disadvantage in raising deposits. Thus, in appraising future greenfield investments,
IFC could take into account the competitive effects of a potential investee not having a
full-fledged banking license.
G) Adequate internal profit generation decreased the need of additional capital. Due
to early profit generation in the case of ABM, there were only two rights issues for
ABM ($0.7 million in total by IFC) since inception, largely to support the expansion of
the loan portfolio. However, in the case of AG, because of the losses and increase in
capital requirements, AG required three capital injections by the shareholders and total
losses exceeded initial capital injection.
22
7. Conclusions and the AMP Going Forward
Some development and business objectives were met. On balance AMP has been successful
in jump-starting commercially oriented microfinance operations in SSA focused on individual
loans and loans to women and has been a successful institution building example. The
supported operations have been able to successfully transfer the know-how from sponsors to
local employees, and the number of remaining expatriates declined. None of the operations
encountered problems so severe forcing them to be closed or transferred to special operations. However, AMP evaluated projects achieved on average 3 percent ROE, compared to 30
percent expected ROE after 5 years of operation .
Middle-income individuals and micro-entrepreneurs in cities were the main beneficiaries.
The projects have focused on mid-income individuals and micro-entrepreneurs (as the average
loan was of $1,619 in 2013) approximately three times the GNI per capita of countries in
which the projects operate. Instead of decreasing the average loan size to reach poorer
clients, it has progressively increased. This can be partly explained by loans to repeat clients
that are also growing their average balances but also because there are more SMEs in their
loan portfolio. By having larger average loans MFIs can improve efficiency and enhance
financial sustainability but it could push MFIs away from the poorest clients. Most of the
clients were women and urban; more than 80 percent of branches were located in the capital
city of each country. In contrast, lower-income individuals and rural clients were more likely to
be served by NGOs, NBFIs, and cooperatives. Some AMP entities are starting to expand their
branches outside of the main cities. Access to finance to the poorest populations (urban and
nonurban) has therefore not improved as much as initially expected.
AMP is still dependent on DFI funding. Only the strongest operations have achieved full selfsufficiency, generating enough internal capital to finance loan growth. Weaker operations still
require capital injections to continue financing their growth. In all projects, the main financiers
are still the DFIs and the investment funds. The next step in financial independence is to
gather enough retail deposits to finance the loan portfolio and to acquire stand-alone credit
lines from local banks. That could show confidence in the institutions.
Technology is a means to scale up what has been achieved. The main challenge now is to
expand the scale of the projects to impact more households and entrepreneurs. The quick
advances in mobile financial services, branchless networks, growth via agents, and technology
in general should help to expand current operations. AMP projects are starting pilots with
technology supported by the MasterCard Foundation, but if IFC and other sponsors want to
increase reach, they could accelerate current pilots and include more resources to mainstream
those advances. This could also help to keep the cost of opening new branches under control.
23
CONCLUSIONS AND THE AMP GOING FORWARD
No exit in the short term. IFC expected to exit these entities in five to seven years of
investment via (a) swapping of shares in the individual MFIs for shares in the respective investment holdings, (b) a put to the sponsor, or (c) selling to a third party. As of December 2014
only one had a defined put option. IFC is working on alternatives but there is no exit in the
short term for most projects.
IFC will complement greenfield operations with downscaling and transformation of NBFIs. In
the past 10 years greenfielding was the main strategy to grow microfinance in Africa. Now
IFC’s greenfield work has slowed down. IFC is currently working with other complementary
approaches: transformations of MFIs, downscaling of banks into microfinance and working
with large-scale institutions to grow microfinance.
Adequate results but still small. AMP has done a good job in setting Microfinance infrastructure in several countries but it is still small to meet Africa’s great financial inclusion needs.
24