The Microfinance Industry in Mali Has Been in Crisis Mode – Will it Rebound?

An analysis of the problems plaguing the industry and insight on how the country can recover.

By: James Harris

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Mali, the land-locked West African nation, is trying to revive its microfinance sector amid a crisis fueled by structural and political issues, as well as continued violence in the northern regions. A recent article in The Essor, a Malian news agency, details a presidential commitment to help end unemployment. The Youth Employment Promotion Agency (APEJ) will distribute CFAF (African Financial Community Franc) 1.3 billion to “young widows in military camps, young retailers, and young people from the diaspora” using the microfinance industry (Diabate). Microfinance institutions (MFI) seek to enhance the lives of people who cannot receive credit to fund projects, buy insurance, or smooth consumption through micro loans.

The microfinance structures in place have not been up to par because of inadequate resources and a lousy legal foundation that allowed too many MFIs to participate, reducing the overall efficiency of the system. A lack of government accountability, poor targeting, and insufficient infrastructure inhibit progress by limiting access to credit, preventing them from being successful.

The influx of funds is certainly helpful, but problems must be solved to maximize its effectiveness. A more open and transparent system with better trained staff is a good place to start, along with a better allocation of resources that will contribute to the goal of 200,000 new jobs by 2018.

The current system in place “considerably limits the access to credit for certain vulnerable groups” such as women and the younger population, according to the Minister of Employment and Vocational Training, Mahamane Baby. The problem started over a decade ago with a flawed legal framework that allowed too many underqualified institutions to enter the market. Mali, consistently ranking as one of the poorest countries in the world, received plenty of donations from the United States, Britain, and organizations like the World Bank, but the system in place was not ready for such a rapid expansion. Over 300 MFIs were given licenses to operate during an eight-year period spanning from 2002 to 2010. However, not all met the “minimal conditions for ensuring the security of savings deposits,” found in a 2015 report by the World Bank.

Furthermore, the volume of deposits and outstanding loans more than doubled, while insufficient resources were dedicated to hiring more experienced staff to oversee the projects. The national supervisory body (CCS/SFD) only conducted about 20 supervisory missions each year and if recommendations are made, rarely do follow-up missions take place (World Bank).

The poor state of infrastructure exacerbates the problem by making it hard for the CCS to conduct these audits. Some rural villages are, on average, “14 miles from the nearest paved road” (Beaman). Formal and informal institutions must try to lower supervision and transportation costs as much as they can, because the interest rate and the default rate will decrease. The default rate is the percentage of borrowers who do not pay back their loans. When borrowers are risky, their default rates are high and for lenders to carry out this loan, the interest rate will be higher as well.

Officers tasked with checking up on a project in a very rural area might have trouble physically getting there, making it extremely difficult to know if an investment will go up in smoke. Being able to supervise more projects with greater ease will result in more success for rural borrowers and a substantial improvement in their lives.

Improved infrastructure will also help reduce the effects of asymmetric information in the microfinance sector. When the borrowers know more about their immediate situation than the lenders do, the loans may be given to bad risks because they could not properly evaluate the projects. Modern technology and access to more roads will better enable the lenders to judge each investment.

The government’s targeting of funds is certainly skewed because the economy is growing, but per-capita GDP is not increasing. According to the World Bank, 19% of government spending in 2011 was on education, yet the top 10% most educated children absorbed 50% of the resources. The literacy rate in Mali is only 54%, so evenly spreading out education funds would be beneficial to MFIs, as it could decrease costs associated with explaining loan terms to borrowers and accurately communicating information. A more educated population will improve the quality of investments and might also reduce violence that has impeded progress in the past, such as the 2012 political coup that stopped the inflow of funds for MFIs.

Several issues need to be fixed if the country will achieve its goal of 200,000 new jobs by 2018 and revive the microfinance industry. The MFIs need to employ more loan officers and staff to handle the funds efficiently. More workers will enable them to supervise more projects and ensure that they are giving loans to the right targets. Similarly, the government must spend more on infrastructure to improve communication between lenders and borrowers, which will reduce costs and the default rate.

The desire for change is strong in Mali, because ironically, there is too much money and not enough people to manage it. There is potential for the microfinance sector to be successful, but it cannot happen without improvements to the current system and the infrastructure.

References

Diabate, F. “Promoting Youth Employment: CFAF 1, 3 BILLION TO FINANCE GENERATING INCOME ACTIVITIES.” The ESSOR. The ESSOR, 23 Mar. 2017. Web.

Mali The Microfinance Sector. Rep. World Bank, Dec. 2015. Web

The World Bank

International Labour Organization

UNESCO

Beaman, Lori, Dean Karlan, and Bram Thuysbaert. SAVING FOR A (NOT SO) RAINY DAY: A RANDOMIZED EVALUATION OF SAVINGS GROUPS IN MALI. Working paper no. IPR-WP-14-15. N.p.: n.p., n.d. Print.

Ray, Debraj. Development Economics. N.p.: Princeton UP, 1998. Print.

Schaffner, Julie. Development Economics. N.p.: Wiley, 2014. Print.

English Translation:

Promoting Youth Employment: CFAF 1, 3 BILLION TO FINANCE GENERATING INCOME ACTIVITIES
Published by: La REDACTION
Date: Thursday 23 March 2017
in: Top Story , Politics
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The beneficiaries of this APEJ support in the form of credit lines are the young widows of the military camps, the “Malitel Da” displaced youths, the young retailers and the young people of the diaspora
As part of the fulfillment of the presidential commitment to create at least 200,000 jobs by 2018, the Youth Employment Promotion Agency (APEJ), in partnership with the Armed Forces Social Services Department, The collective retailers and the collective of the “Malitel Da” dismantled last Tuesday, granted three credit lines for young women widows military camps, young retailers and young people from the diaspora . The ceremony was presided over by the First Lady, Mrs. Keita Aminata Maiga, at the Military Engineering Square. It was in the presence of the Minister of Employment and Vocational Training, Mahamane Baby, the General Director of APEJ, Amadou Cissé, the representative of the Minister in charge of Defense, Mamadou Diaou,
The sum of CFAF 1.3 billion is distributed as follows: CFAF 100 million for young widows in military camps, CFAF 200 million for young people displaced by “Malitel Da” and young retailers, And 1 billion FCFA for young people in the diaspora. These lines of credit aim to facilitate the integration of young people and women into the economic fabric through the financing of income-generating activities through microfinance institutions.
In his speech, the Minister of Employment and Vocational Training will say that the inadequacy of the services offered by the financial structures considerably limits the access to credit for certain vulnerable groups with modest incomes or in certain sectors of the economy ‘economy. “Accessing credit for the vulnerable layers especially for his young fringe, is part of the journey of the combatant,” he said. Furthermore, Mahamane Baby has indicated that this amount will be housed in the accounts of the partner microfinance institutions in the form of credit lines to finance the start-up or revival of the economic activities of the various beneficiary groups.
“The granting of these credit lines will be made through loans that will be granted to beneficiaries,” he said, adding that these loans will be repaid over a period of 12 to 18 months depending on the nature of the sector Trade, agriculture, handicrafts, livestock and fisheries.
In addition, Minister Baby urged future beneficiaries to better arm themselves for the management of their various companies and to persevere in the repayment of loans in order to allow others to benefit from these funds. He was convinced that it was through these kinds of actions that Mali could win the battle against unemployment.
He also took the opportunity to thank the First Lady who, despite her busy agenda, agreed to enhance the presence of this event. “We found that these widows and young people are somehow excluded from society, so we gave them these lines of credit,” said the director general of APEJ, adding that it is these genres Activities that will effectively combat unemployment. “The APEJ has to think about these layers, that is our mission. These women and young people are really in need. The APEJ will do its utmost to bring them up to the level of consideration, “assured Amadou Cissé.
The beneficiaries’ representative thanked the President of the Republic, the First Lady and all those who took part in the implementation of this action. “It does not surprise us because solidarity is a custom in Mali,” noted Moriba Doumbia. The signing of the conventions of the three lines of credit ended the ceremony.

 

3 thoughts on “The Microfinance Industry in Mali Has Been in Crisis Mode – Will it Rebound?”

  1. This government program is a big increase in the supply of microcredit in Mali. Most of the microcredit studies don’t find the big effects on business growth that the government hopes for, but the emphasis on loans to youth and displaced people is interesting. Chris Blattman found encouraging results of a similar program that provided grants, rather than loans, in Northern Uganda: http://www.poverty-action.org/study/northern-uganda-social-action-fund-–-youth-opportunities-program.

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  2. Mali’s excessive credit market issue seems like it may not be an isolated issue, since over supply of other resources in a capitalistic structure, especially in a developing country can have unwanted consequences as you mentioned. Did you find that the MFI oversupply caused any residual effects in the credit or other markets in the region? (aside from lack of staff and ability to understand loan terms, as you already mentioned.)

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  3. This is an intricate problem, similar to many issues in the developing world. Does access to credit take priority over building safe, sustainable infrastructure? This issue in Mali is a testament that there must be well-planned strategies to improving the well-being of poor households in the region. As more research in the field of MFI conclude that microcredit does not always help the poor, it will be interesting to see if the government shifts its strategy or tries to see if citizens may benefit from microcredit.

    -Adwoa B.

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