By Mandy De Waal, Daily Maverick Loan sharks and micro-finance offices have mushroomed in South Africa’s inner-city centres. The lure is attractive – borrow R10,000 and create your dream life by growing your business. But in a country where half the population lives in poverty and much more live in debt, a greater understanding of how... 

By Mandy De Waal, Daily Maverick

Loan sharks and micro-finance offices have mushroomed in South Africa’s inner-city centres. The lure is attractive – borrow R10,000 and create your dream life by growing your business. But in a country where half the population lives in poverty and much more live in debt, a greater understanding of how they use money could lead to more appropriate financial services.

In the late 1990s, Wall Street equity manager Daryl Collins came to South Africa. Driving through the Cape Flats, the native New Yorker would pass by townships like Langa and Khayelitsha. Collins was sent to South Africa to manage a financial portfolio, but her imagination was captured by what was going on inside those shacks.

“I kept wondering: ‘What is happening inside there and how are people managing their money?’ I decided to shake my life up a little. I moved away from asset management to become an academic at UCT. I lectured in finance and during that time went to see Stuart Rutherford about his work on Financial Diaries in Bangladesh. A light bulb went on in my mind and I knew that this is what I wanted to do,” Collins says.

Rutherford is a renowned independent researcher and financial services pioneer for the poor. He lives in Bangladesh where he invents new financial services for the marginalised, who often don’t have access to funds that suit their specific needs outside of their communities.

After meeting Rutherford in India, Collins came back to South Africa and, together with the FinMark Trust and the Ford Foundation, started a South African version of the Financial Diaries.

This research evolved into a book called Portfolios of the Poor: How the World’s Poor Live on $2 a Day by Collins and Rutherford, with Jonathan Morduch and Orlanda Ruthven. The local portfolios in the book come from a year’s worth of fieldwork overseen by Collins in Langa in Cape Town, Diepsloot in Johannesburg and Lugangeni, a rural village in the Eastern Cape. The field work will continue this year, expanding into Kenya and beyond.

“When we first started doing this research we thought that people might say no to us very easily, given that we wanted to keep financial diaries of their lives. Surprisingly, if you approach people in the right way, and if you’re well vetted by the community, people are actually quite generous of their time,” says Collins, adding: “In part it is a matter of paying people respect and respecting their time. You develop a relationship with the community and with people, and that’s how you gain their help and trust.”

Contrary to popularly held myths about the poor, Collins found that people living in poverty have careful, accurate if not complex financial lives. “They save, they take credit, they have their own businesses, they are very active credit givers and they insure themselves: they have burial insurance and personal insurance. What the research showed us is that these people had very active portfolios that they were managing,” Collins says, speaking to iMaverick from the US.

One thing Collins never appreciated about marginalised locals is how helpful stokvels are in terms of getting people to save. “Of the people we surveyed, about 21% of what households made each month was put into a stokvel saving. It is a matter of discipline. People would make sure they go to the bank and put money in every month because other people were counting on them for that money. We found that people were much more likely to follow through on a savings plan like that,” she says.

Stokvels work in different ways in South Africa. Some use banks, while for others it’s a matter of keeping the money somewhere safe in an elected member’s home. “Or the people in the stokvel would lend their money out to people in the community. They would charge very high rates – the rates in the townships are about 30% per month,” Collins explains.

“In places like Diepsloot, people would spend a lot of money on transport, but food is still the big winner and people in this township would spend about 30 to 35% of their money on food. A fair amount of money is spent on funeral plans,” she says.

“What surprised me is that people in rural areas were just as financially literate as people in urban areas. In rural areas people were lending and borrowing back and forth quite a bit. They arranged credit from each other and the local shops on an informal basis. They were involved in stokvel societies and a lot of them had bank accounts and were getting their social grants through bank accounts,” says Collins.

The research looked at access to capital and here Collins says the assumption that a pipeline to loans equals an escape out of poverty is false. “Access to capital doesn’t necessarily mean that people living in poverty will automatically increase their revenues or profits. It is not as if people make money and open one shop after another to become incredibly successful. I think it is important to remember that not everyone is an entrepreneur, and not everyone has that appetite for risk.”

Collins says often what’s preferable to what could be a projected dream of entrepreneurial success is to prevent vulnerability, so that marginalised families aren’t wiped out by one financial shock. “If a big financial crisis or need hits a family, access to smaller amounts of cash could mean they don’t get themselves heavily into debt or sell all their assets.”

“I came out of this research thinking that aspiring to capital or aspiring to microfinance is not as grounded in reality as one would like to think. What is probably more realistic is a slower path out of poverty. A path where people are able to make adequate money for nutrition, to pay for schools and have business opportunities that are sustained and don’t get derailed,” she says.

There’s this romantic view of poverty – shared by opportunists in financial services – that one bigger lump sum will be invested by those in poverty to grow their businesses and raise them up out of poverty fairly soon. It’s the dream sold by many a loan shark to many a marginalised person who isn’t an entrepreneur.

“Maybe what they need is much smaller amounts of money that help them patch cash flows so that they can ensure they can keep these businesses going,” says Collins. “I think that microfinance is very backward. What these institutions normally do is to give a sum of money that is much larger than most people need, imagining that people will make an investment and try to grow their businesses. Mostly what people were trying to do is just to keep their businesses ticking over.”

Collins says her experience was that what people need is much smaller amounts of money, but on a higher frequency basis. “Instead of giving somebody R10,000 and saying: ‘Here. Go buy a new shack and open up a spaza shop’, rather say: ‘In January when you need to pay all your school fees, and you don’t have enough money because you’ve spent it on Christmas – and you can’t buy stock – come and borrow R1,000. Pay it back in a month or so when you get back on your feet.’ It is much smaller amounts that are needed more often in these communities,” she says.

The bottom line for people living in financial destitution is that access to lump sums of capital isn’t automatically going to lift them out of poverty within a generation. This is possibly why there are so many mushrooming micro-finance businesses in inner city centres that are doing so well. They’re staying in business by helping people become indebted, while stokvels are likely a more useful way of getting households in poverty through a cash crunch.

Poverty doesn’t only make the poor vulnerable, it makes society vulnerable. Everyone knows the stats because they’ve been bandied about so much. Half our population lives below the poverty line, which means making do with only R500 a month. There has been a slight improvement in these numbers since 1993.

While the government’s patting itself on the back for marginally reducing poverty, it might want to take a look at an Oxfam report published earlier this year. Called Left behind by the G20? the report predicts that a million more people will be pushed into poverty locally and that the number of people living in absolute poverty may increase.

“Looking ahead, inequality in South Africa is so high that our model predicts that, even if it remains static and is accompanied by strong GDP growth of around 3.7 percent, the number of people living in absolute poverty in South Africa is likely to increase. The poverty rate would fall, but not enough to offset the impact of a rapidly growing population, so the absolute number of people living in poverty would still rise,” says Caroline Pearce, who co-authored the report.

“The fact is poor people missed out on their fair share of the prosperity of the boom years and have been hit hardest by the crisis that followed,” says Pearce.

The Oxfam report goes further to compare inequality in net household income using the gini coefficient. The results for our country are damning. South Africa is the most unequal country in the G20 by a “considerable distance”.

Data on how income is shared in this country shows that the biggest concentration of wealth is at the top end of the income scale. Increases in inequality have escalated since 2000, and the report states that: “Strong economic growth in South Africa will not stop the number of people living in poverty increasing by 2020 unless inequality is brought under control.”

While South Africa’s elite class increases the gap between itself and those living in poverty, it would be wise for the former to pause for a moment to understand what growing inequality means: if poverty makes for a compliant populace that’s more accepting of tyranny in the short term, in the long term it could prove fuel for insurrection and instability, just the right forces to profoundly threaten elite wealth.


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The government of Blue Nile issued a decision forming the high council of Microfinance in the state. The decision was supported by the federal government by allocating 2 billion pounds for microfinance. The Governor of Blue Nile during the inauguration of Bank of Sudan branch in Damazin said that they have become more assured that the process of development... 

The Central Bank of Nigeria (CBN) at the weekend said that the Micro, Small and Medium Enterprises Development (MSMEs) fund was not meant to bail out distressed micro-finance banks. The Director, Other Financial Institutions Development (OFID) department of the CBN, Mr. Olufemi Fabanwo, made the clarification at the 2nd Annual General Meeting (AGM)... 

The Central Bank of Nigeria (CBN) at the weekend said that the Micro, Small and Medium Enterprises Development (MSMEs) fund was not meant to bail out distressed micro-finance banks.
The Director, Other Financial Institutions Development (OFID) department of the CBN, Mr. Olufemi Fabanwo, made the clarification at the 2nd Annual General Meeting (AGM) of the National Association of Micro Finance Banks (NAMB) in Abuja.

Fabanwo said the fund, which was initially established as Micro Finance Development Fund (MDF), was changed to MSMEs Development Fund.

“The MSMEs fund is not medicine for those who are weak, the MSME fund is going to be assessed by institutions that have shown proven record of performance; it is not for any micro finance bank.
“It is not a bailout fund. There is going to be a social window for capacity building in any area that will augur well for the development of the sub-sector.’’

The director said CBN was not satisfied with the level of returns rendition and the audited accounts of micro-finance banks. He said that only about 70 per cent rendition had been recorded by the apex bank since the end of the last financial year.

Fabanwo, however, added that the MFBs had recorded greater stability after the September ‘sanitation’ carried out by the apex bank in which 244 licences of MFBs were revoked. He stressed the need for micro-finance banks to update their subscriptions annually, warning that the apex bank would not hesitate to penalise defaulters.

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Khartoum: Khartoum State workshop organized to prepare Microfinance strategy has called for formulating a strategy consistent with the national strategy. The speakers at the yesterday’s workshop, organized by the Ministry of Guidance and Social Development, stressed on the necessity of mapping the productive projects in the state and applying clear... 

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By Crusoe Osagie, This Day Live The Federal Government has commenced moves to position the Small and Medium Enterprise sub-sector in Nigeria as growth drivers for the economy. The Minister of Trade and Investment, Mr. Olusegun Aganga, who disclosed this recently, said with the move, SMEs in Nigeria would soon become vibrant enough to drive the... 

By Crusoe Osagie, This Day Live

The Federal Government has commenced moves to position the Small and Medium Enterprise sub-sector in Nigeria as growth drivers for the economy.

The Minister of Trade and Investment, Mr. Olusegun Aganga, who disclosed this recently, said with the move, SMEs in Nigeria would soon become vibrant enough to drive the required level of growth in the economy.

He spoke while briefing journalists on the sidelines of the recent World Economic Forum meetings, in Addis Ababa, Ethiopia.

Aganga said in the last year of the President Goodluck Jonathan administration, the results of new SME policies and schemes, in terms of job creation, had shown that, if given the necessary support, SMEs would provide the foundation for sustainable growth and poverty alleviation in Nigeria.

He therefore said that the priority, currently, for the Ministry of Trade and Investment was the SME sector, noting that the ministry had put plans in place to remove the major barriers to SME growth (access to affordable finance, low level of business support and high cost of operation) to boost the development of the sub-sector.

The minister said a committee, comprising of experts in the different fields relating to the major bottlenecks in the sector, was already being set up to ensure that the country achieved a turnaround before the end of this administration, adding that vehicles had already been created to achieve this goal.

“Micro, Small and Medium Enterprises remain the backbone of the development of any economy and the driving force of national growth. In Nigeria, there are currently over 17 million Micro, Small and Medium Enterprises, employing over 31 million Nigerians. They account for over 80 per cent of the total number of enterprises in Nigeria and employ 75 per cent of the total workforce,” Aganga said.

“But their contribution to the nation’s GDP is still relatively low, due to major constraints in the operating environment, which have limited their abilities to create jobs and perform the vital role of enhancing economic growth and development,” he added, noting that in the next three years, Nigerians should expect more SMEs with enhanced productivity.

He said, already, a national database had been developed in partnership with the National Bureau of Statistics, which was the first step in the effective tackling of the problems of the sector. According to him, there would also be a national SME Policy that would address the major problems in the sector.

He said the Bank of Industry was already executing matching programmes with state governments on SMEs and deepening financing penetration, using microfinance banks.

The minister said his ministry had also begun regular interaction with SME desks of banks to develop unconventional but workable means of providing affordable finance for SME growth.

He said, “For instance, we have started getting round collateral issues related with funding through cross-guarantees by members of cooperatives and setting up special intervention funds for critical sectors such as textiles.

“We are implementing the One Local Government One Product initiative to open up the rural areas for industrial development, employment generation and wealth creation; and we are partnering the Lagos Business School to develop Business Support Services,” Aganga said.
Other efforts, he said, included developing small hydropower plants in strategic areas where they could serve SMEs; creating financial inclusion by setting aside special funding schemes for women and mechanics; and establishing integrated industrial parks to enhance the productivity and profitability of SMEs; among others.

In a meeting with the Director-General, World Trade Organisation, Mr. Pascal Lamy; Aganga also reiterated the government’s commitment to deepening regional trade, saying it would open many doors for Nigeria in terms of job creation.

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By Tafirenyika Makunike, New Zimbabwe WHEN I was in Zimbabwe recently, I could not help but notice a resurgence of activity in the microfinance sector which had largely gone aground during the past hyperinflation days. I spoke to four or five microfinance entrepreneurs and most of them peg their interest rates for the investors in the region around... 

By Tafirenyika Makunike, New Zimbabwe

WHEN I was in Zimbabwe recently, I could not help but notice a resurgence of activity in the microfinance sector which had largely gone aground during the past hyperinflation days.

I spoke to four or five microfinance entrepreneurs and most of them peg their interest rates for the investors in the region around 10 percent per month. You immediately shudder to think what borrowers in this sector are expected to pay.

Microfinance institutions provide unsecured lending where loans are not backed by collateral and therefore riskier for the institution and more expensive for the borrower. The higher the interest rates, the greater the capacity of a microfinance institutions to transfer the cost of defaults to the performing clients.

Some institutions apply coercive collection mechanisms to ensure that payment gets prioritised. Some extend further loans to clients who may already be debt-stressed.

Micro-loans from microfinance institutions are generally easily accessible to the greater public than formal bank loans. Unfortunately, there does not seem to be sufficient regulation of the sector in Zimbabwe.

If the current wave of micro loans were focussed on developing and building SMEs in the country, I would have been very excited. But I found that the major reason many people in Zimbabwe are taking debt like performance-enhancing steroids is to fuel their insatiable desire for consumption.

When we mention drugs, most minds race to extreme drugs like morphine heroin or even cannabis. When I worked in the pharmaceutical industry, modern medicine always amazed me. If you break your leg in a car accident, you would welcome an urgent injection of morphine. I would characterise morphine as a wonder drug which unfortunately has gained notoriety from inappropriate use. Similarly, debt when correctly used can fuel wealth accumulation faster for entrepreneurs yet it can also ruin lives.

In the days of the decline of the Zimbabwe dollar and rapid inflation growth, borrowing made everyone look like a genius. Whatever was borrowed then, even with an interest rate with a couple of zeros behind it, you always ended up repaying the debt in less real value than originally borrowed.

There is an urgent need to increase client financial education. Microfinance can fulfill its societal mission of expanding financial inclusion by increasing transparency, pricing disclosures and building strong markets. Many financial products are opaque and do not make clear the implications of accessing the funds.

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By Hope Moses-Ashik, Business Day Online As a follow up to the certification programme for microfinance banks, the Central Bank of Nigeria (CBN) in collaboration with the Nigeria Deposit Insurance Corporation (NDIC) and Financial Institutions Training Centre (FITC)will be organising a one-week mandatory training programme for Directors of all Microfinance... 

By Hope Moses-Ashik, Business Day Online

As a follow up to the certification programme for microfinance banks, the Central Bank of Nigeria (CBN) in collaboration with the Nigeria Deposit Insurance Corporation (NDIC) and Financial Institutions Training Centre (FITC)will be organising a one-week mandatory training programme for Directors of all Microfinance Banks (MFBs) in six locations in June, 2012.

The programme is aimed at exposing these directors to microfinance fundamentals and in the process, equipping them with essential skills needed to operate their institutions efficiently, such that these institutions will be well positioned to effectively discharge their developmental role in the national economy, going forward. Key topics to be covered during the training programme include;introduction to microfinance, managing microfinance banks, financial statement analysis and planning, risk management, corporate governance, and regulatory issues and management of microfinance banks.

To ensure national coverage and facilitate participation of all microfinance banks across the country, the training programme will be held at six centres over a three week run. The centres are Port Harcourt and Enugu from June 4th to 8th, 2012; Ibadan and Abuja from June 18th to 22nd, 2012 and the two centres in Lagos from June 25th to 29th, 2012. Additional details on this programme are on the FITC website, http://www.fitc-ng.com.

In order to ensure affordability by all microfinance banks, the course fee has been significantly subsidised by the CBN and NDIC. In furtherance of this, each microfinance bank is expected to nominate two of its directors to attend the training programme.

It is expected that at the end of this mandatory training programme, the microfinance banks that participate in the programme, will be in the right position to support the Federal Government’s aspiration to transform the national economy, as experienced in the emerging markets and the developed economies by delivering on their respective institution’s mandates.

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By Olamilekan Andu, The Nation The National Anti-Corruption Volunteer Corps (NAVC), an arm of the Independent Corrupt Practices and Other Related Offences Commission (ICPC), has recovered N3 million bad loans from customers of Ijebu-Ife Microfinance Bank Nigeria Limited, Ijebu East Local Government Area of Ogun State. The money was recovered in the... 

By Hope Moses-Ashike, Business Day Online For N8.33 million assets to be recovered to date from microfinance banks in liquidation, shows that the measures put in place for assets recovery by the Nigeria Deposit Insurance Corporation (NDIC) are effective. The NDIC recently appointed debt recovery agents (DRAs) for microfinance banks (MFBs) in liquidation... 

By Hope Moses-Ashike, Business Day Online

For N8.33 million assets to be recovered to date from microfinance banks in liquidation, shows that the measures put in place for assets recovery by the Nigeria Deposit Insurance Corporation (NDIC) are effective. The NDIC recently appointed debt recovery agents (DRAs) for microfinance banks (MFBs) in liquidation to fast track recovery of debts owed to the 103 closed MFBs’ customers nationwide.

In his acceptance speech at the occasion of the Business Hallmark people of the year award, Umar Ibrahim, managing director/CEO, NDIC, disclosed that the sum of N8.33 million had been recovered to date in respect of the closed MFBs.

According to him, one of the principal liquidation activities of the corporation is the realisation of assets of the closed banks. The cumulative recovery for the banks in liquidation since 1994 rose from about N21.756 billion to about N22.158 billion in 2011, representing an increase of about 2 percent.

Ibrahim noted that in August 2011, the corporation commenced payment of insured deposits to the depositors of Triumph and Fortune banks closed in 2006, thereby bringing relief to the depositors whose deposits were trapped due to protracted litigation.

Following the revocation of operating licences of the 103 MFBs by the Central Bank of Nigeria (CBN), in September 2010, the corporation had, as of August 2011, directly paid an aggregate sum of N2.024 billion to about 70,424 depositors, which represented about 41 percent of the total insured amount of about N4.94 billion.

He said the rest of the depositors continue through branches of appointed agent banks close to the location of their closed MFBs.

The corporation continued with the payment of insured sums as well as liquidation dividends to uninsured depositors of the banks closed before 2006 and those closed in 2006.

At the end of November 2011, the cumulative insured deposits as well as the liquidation dividends paid in respect of 35 banks that were closed before 2006 were N3.304 and N6.162, respectively. Similarly, cumulative insured deposits and the liquidation dividends paid in respect of 13 banks closed in 2006 were N4.294 billion and N66.757 billion, respectively. However, in furtherance of its efforts in ensuring protection for all consumers of the financial system, the corporation is in the vanguard of advocating for an integrated deposit insurance system in the country.

Under the system, protection would not only be for small depositors of banks, but also extended to small investors in the capital market as well as small conventional insurance policy holders. When put in place, it would facilitate orderly development and growth of the entire financial system.

Furthermore, in order to support the new licencing regime and as part of its preparations to extend Deposit Insurance System (DIS) to non-interest banks, the corporation has developed a framework that would enable it extend DIS to non-interest bearing financial institutions that would be licensed in due course by the CBN.

The development aims at creating a level playing field for all operators in the banking system as well as facilitating financial inclusion in Nigeria.

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From: Emmanuel Agyei – Joy Online The Bank of Ghana is warning the public against dealing with 4 Microfinance Companies.The Companies are MEDLORM Microfinance Limited, African Guarantee Trust, Abbey Cash Microfinance Limited and Swift Financial Services. The Central Bank says it has neither licensed any of these nor had any of them apply for... 

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