Teaming Up for Sustainability

It is contemporary knowledge that microfinance has the potential to lift poor families out of poverty, but I have been pleasantly surprised to find out that more and more commercial banks are supporting and teaming up with small microfinance organizations on the ground in order to increase access to financial services to the poor.

In Ghana Barclays- one of the world’s leading bank with its headquarters based in London- is collaborates with traditional Susu collectors like Mr. Offori (executive director of MFDCO) to provide and broaden the range of financial services available to the poor. After some research, I found out that the formal/ established partnership between Barclays and Ghanaians microfinance organizations exist since 2004.

What Barclays bring to the market (a market worth an estimated 75 million British pounds) are services such as deposit accounts for the collectors and capital for loans that the collectors can in turn lend to their clients. Thus, Barclays can be seen in this market as the middle man who comes in mainly with capital and expertise. So, a win-win deal for both parties isn't it?

Well, it is not that simple…

In fact believe it or not, Barclays has actually failed to bring on board some big MFIs in Ghana such as MFDCO because such partnership in the end increase operation costs for the collectors, and eventually forcing them to increase interest rates on their loans. After offering training and information sessions to close to 70 % of Susu collectors and agencies in Ghana today, only about 500 of them have partnered with the giant British commercial bank. As far as MFDCO concerned, its executive director had to turn down the offer based on his calculations that the interest rates it charges to its clients would have to increase from the current 20% on a three months loan to a new 35%. In a competitive market with close to thousand other Susu collectors in Accra alone this is a risk MFDCO was not willing to take.

There are currently about 4000 Susu collectors in Ghana which engage with an estimated 21 million customers, with small collectors servicing between 400 and 2000 clients. Although, stronger and more formal relationship between the formal and informal banking sectors in emerging markets such as Ghana is welcomed, such partnership should be worked out so it does not ultimately restrict access to financial services to the very poor: the very market failure microfinance institutions aim to redress.

My time at the MFCO was shorter than what I would have liked, but I hope to have brought you some key insights into the challenges of opportunities that MFIs have to face in their day to day administration.

It was a real delight for me to see first hand how the lives of hundred people were changed through microfinance, I am grateful for MFDCO for allowing me to interact with its staff and clients and last but not least the staff at the Financial Access Initiative especially Lara for posting on my behalf when I had not means to access the internet while in Accra and now in Addis.

Have a great summer….

Posted on behalf of Grace Gabala