Global MFI investors shift focus from Asia to Africa

With the MFIs realigning their fund allocations, South Asia, the traditional microfinance hub, is facing challenge from Africa for the first time

As Africa treads on a growth path, international funding agencies are sensing new growth vistas in the mounting demand for microfinance in the region. With the institutions realigning their fund allocations, South Asia, the traditional microfinance hub, is facing challenge from Africa for the first time.

Even though South Asia with $3.4 billion fund commitment in 2012 remains slightly ahead of Sub Saharan Africa in terms of funding commitments for financial inclusion, commitments to Sub-Saharan Africa at $2.7 billion exceeded those to Latin America and the Caribbean ($2.2 billion), according to Trends in International Funding for Financial Inclusion, a 2013 survey by the Consultative Group to Assist the Poor (CGAP).

The shift is more evident in the matrix of overall funding pattern across sectors of some of the biggest funding agencies such as the UK government' Department for International Development (DFID) and Dutch development bank FMO.

DFID publication Statistics on International Development, dated October 2013, aid spending or the Official Development Assistance (ODA), in Africa increased by 52 per cent between 2008 and 2012 (from nearly £1,434 million in 2008 to £2,174 million in 2012). At the same time, the aid to Asia region reduced by 17 per cent in the same period (from nearly £1,674 million in 2008 to £1,366 million in 2012).

At FMO, which has done major investments in India, the highest committed portfolio (across sectors), about 30 per cent, is concentrated in Africa, followed by 25 per cent in Asia, according to data available on its website. Two categories - financial investments (investment funds) and financial institutions (other) - constitute 56 per cent of FMO's committed portfolio across sectors.

"Sub-Saharan Africa is attracting considerable investment in microfinance. This is due to strong end-client demand in an environment of booming economies, an overall improving business environment , as well as due to the emergence of a growing number of strong institutions with often innovative business models," said Christian Etzensperger, senior research analyst, responsAbility Investments AG, a global investment manager.

However, according to Etzensperger, growth in Sub-Saharan Africa does not come at the expense of South Asian or Indian microfinance.

The reasons for the shift outside South Asia, as well as India, are also rooted in the fact that the MFI market in India is now developed eno-ugh not to require much handholding.

The Michael & Susan Dell Foundation invested in eight, early-stage urban MFIs including Ujjivan, Janalakshmi, Arohan, Swadhaar, Sonata, Svasti and Samhita bet-ween 2006 and 2009. However, the foundation has now shifted focus to other sectors such as micro housing, pension and financial literacy.

The present investments of the Foundation include Micro Housing Finance Corporation, Sub-K - a micro- transaction processing technology platform designed to enable low-income clients to easily access banking services such as savings - and Invest India Micro Pension Services, which provides pension products designed for low-income clients.

"As the urban microfinance industry has matured and begun to attract more conventional investors, we have begun to shift focus toward the identification and development of new products and services," according to Megan Matthews, chief communications officer, The Michael & Susan Dell Foundation.

Domestic MFIs and analysts agree that global funding agencies, especially, donor agencies, have tapered fund flow to India, as Africa corners a major chunk of funds.

"The flow of grants to India has slowed down considerably, as more funds are going to Africa," said Samit Ghosh, CEO and founder of Ujjivan and president of president of the Microfinance Institutions Network (MFIN).

"Many European donors are now reducing or realigning their portfolios in India, as the focus has shifted to Africa," said Shashi Shrivastava, senior vice-president at Grameen Capital.

"Africa has been the focus area of funding agencies, but Indian MFIs continue to get equity funding," said Abhijit Ray, managing director at Unitus Capital.

Global funding agencies committed at least $29 billion in 2012 to support financial inclusion - an estimated increase of 12 percent compared to 2011, according to the CGAP survey findings on financial inclusion.