United Nations Public-Private Alliance for Rural Development (UN Alliance) and Bank of Africa
Team: Cari Widmyer '06, Jake Bennett '06, Mark Pickens (SIPA '05) and Saidja Drentje '06
Project: MFI financial (liquidity and capital budgeting) and administrative capability assessment
Supervisor: Patrizia Moggia '94 and David Stillman, UN Alliance
(l to r): Cari Widmyer '06, Jake Bennett '06, Mark Pickens (SIPA '05) and Saidja Drentje '06
The United Nations Public-Private Alliance for Rural Development (UN Alliance) is part of a growing number of initiatives, within and outside the UN system, that emphasize the positive role that private business enterprises can play in development. The mission of the UN Alliance is to identify, highlight and promote implementation of successful business policies and practices that are profitable and at the same time promote social and economic advancement of poor people in rural areas.
The expansion of different types of institutions that offer microfinance in rural areas is seen as one way to foster the creation of a more inclusive financial services sector. Combining banking with social goals, microfinance refers to providing very small loans, savings accounts, insurance, pensions, money transfer services and other financial products targeted at the poor who would otherwise have no access to the formal financial sector.
For this project, the UN Alliance connected the team with the Bank of Africa in Antananarivo, Madagascar, to help identify profitable ways to expand microfinance lending in rural areas. The Bank of Africa wanted to know how to best create and develop "credit unions" of small farmers, which could act as wholesale loan originators for the Bank. The team focused on the role that Sociétés de Cautionnement Mutuel (mutual borrowing societies) could play in the expansion of the Bank's microfinance business.
Operational capability assessment
The team conducted research and gathered information from key individuals and groups at the Bank of Africa, the Mutual Guarantee Society, the APIFM (Association Professionelle des Institutions Financières Mutualistes), the Ministry of Agriculture, the Chief Actuary's Office, and PNUD (Programme des Nations Unies pour le Développement). Hard data ranged from agriculture yield statistics (broken down by region, crop and year) to loan and repayment records. Soft data revolved around anecdotal evidence of the challenges of microfinance in a largely illiterate society, which included amongst other things shortcomings in debt collection facilities and judicial resources, and the need to make sure that illiterate loan recipients understand relevant clauses in the loan contracts they are asked to sign.
Recommendations for the improvement of the Mutual Guarantee Society were made to the Bank of Africa's Director General. These focused on the improvement of corporate governance controls, management and operations training, and borrower education. In addition, the team examined ways to achieve a reduction of default rates to reduce the commercial bank's reliance on international donors for loan guarantees.
Adapting best practices to local needs
By examining best practices in the microfinance industry before assessing the operations and network of the Bank of Africa, the team was able to make recommendations that have been effective elsewhere but could also be applied to local circumstances and conditions. "This project gave me an insight into what it takes to build a credit culture," says team member Jake Bennett, "In a country that has never had savings deposit accounts, it takes some time for society to accept that for lending institutions to exist and credit to be available, borrowers have to repay their loans! Our team had the opportunity to draw on our collective experience in US and European banking to contribute to the shaping and building of rural banking where, until recently, loan-sharking was the only source of finance available to poor farmers."
The team's travel costs were supported by the Bank of Africa and the Social Enterprise Program through its International Development Consulting Project Travel Fund.