MFIs want global rethink of banking

April 6, 2010
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, NAIROBI, Kenya, Apr 6 – Microfinance institutions (MFIs) are calling for a fresh design of the global banking system to make it more inclusive.

The founder of the micro credit movement and 2006 Nobel Prize winner Prof Mohammad Yunus said on Tuesday that this would allow more microfinance institutions make the transition towards becoming mainstream banks and play a critical role in banking the poor.

Addressing journalists in Nairobi, Prof Yunus said current regulations in African countries make it hard for MFIs to use deposits to grant loans.

“We should redesign the financial system so that nobody is denied access to financial services because MFIs have proved how resilient they can be,” Prof Yunus said.

Unlike banks, microfinance institutions rely on shareholder funds to loan money, thus limiting their lending capacity. The downside of this is that as businesses grow, they move from MFIs to commercial banks in order for them to access higher levels of credit.

Prof Yunus however said the global financial crisis highlighted the fragility of financial sector.  During that period a number of banks went under, others required bailouts to remain afloat while MFIs were booming.

“While the big banks which were handing out billions in loans and holding billions in collateral were collapsing, MFIs which don’t require collateral were flourishing,” Prof Yunus said.

He said incorporating MFI practices into the banking sector could see credit taken as a basic human necessity that everyone is entitled to.

He was speaking ahead of a three-day Micro Credit Summit that is due to be opened on Wednesday.

According to the Association of Microfinance Institutions Chairperson Lydia Koros, the biggest challenge for MFIs has been funding and information dispensation.  Mrs Koros however said they had been aggressively investing in technology to take services deeper in the grassroots.

The 43 Microfinace Institutions in the country account for close to 6.5 million people but the fear has been many more are yet to be reached.

A Fin Access 2007 report shows that 106 million people bank with MFIs with most coming from Asia and the Middle East.

Mrs Koros said regulation was slowly changing in Africa making it possible for the sector to grow and reach more people.

“The industry is coming of age with the government taking a more proactive approach in making changes,” she said.

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