> Posted by Lizzy Bolze, CFI Analyst
It seems almost commonplace for financial institutions across sub-Saharan Africa to be confronted with currency devaluation, interest rate caps, political conflicts, increasing capital requirements, and disruptive technologies – not to mention the impact of wars, disease, climate change, and natural disasters. With all these complications and risks, I am left to wonder how can boards of financial institutions in Africa focus on anything other than constantly extinguishing crises?
In March, alumni of the Africa Board Fellowship (ABF) attended the HBS-Accion Program on Strategic Leadership in Inclusive Finance. During the weeklong executive education program, CFI staff had the opportunity to sit down with the four fellows pictured above to discuss some of the challenges they are facing.
A common challenge was the hardship caused by currency devaluations. MFIs often receive loans in U.S. dollars, and so as the value of local currency diminishes, squaring their balance sheets becomes increasingly tough. Elijah Chol of South Sudan reported that the Minister for Finance and Economic Planning announced a 500 percent devaluation of the South Sudanese Pound last December. At the South Sudan Microfinance Development Facility’s annual meeting a day later, the board was unable to take immediate action because the devaluation was so unexpected. Though prices in South Sudan’s market have since improved slightly, the impact of such extreme devaluation has posed great challenges across the microfinance sector.
Titos Macie and Socremo Bank are encountering the same problem in Mozambique. The devaluation of Mozambique’s currency happened very quickly and affected the country’s ability to pay for its imported commodities. For a country with an economy that relies on importing major commodities, the lack of money has significantly decreased the price of Mozambique’s key exports of coal, aluminum, and fish.
Recently, sub-Saharan Africa’s microfinance sector has also faced interest rate caps – most recently a proposal to install caps in Nigeria. In a CFI blog post the Smart Campaign’s Nadia van de Walle notes: “Interest rate ceilings are typically introduced as a government response to concerns about predatory lending, when consumers are struggling to afford high-priced loans, and particularly in markets where disclosure and transparency are poor and financial literacy is low.” Felix Achibiri of Fortis Microfinance Bank in Nigeria is concerned. If the interest rate ceilings are set too low, the following challenges might occur: financial service providers having difficulties recovering costs, slower growth, reduced service delivery in rural areas and other more costly markets, less transparency about the total cost of loans, and in some cases, institutions exiting the lower end market entirely.
When we met with him in March, Titos Macie mentioned how new bank capitalization requirements can abruptly arrive and require quick action. Macie had recently received word from regulators that Socremo had a very short time to comply with new bank capital requirements. His board was in the process of communicating with regulators to explain when and how they would meet this unexpected requirement.
Implementing a plan for accelerated growth is another hot topic for MFI board members in Africa. Charles Njuguna shared how his institution, Faulu Microfinance Bank in Kenya, recently implemented internal controls in preparation for an anticipated major growth period. The Africa Board Fellowship program aided his ability to support healthy growth, Njuguna remarked. His ABF program advisor facilitated an opportunity for him to visit three MFIs in Latin America and deepen his focus on customer centricity. Njuguna noted that the ABF experience spurred his institution to engage with clients by instituting more in-person meetings, a measure that has assisted him in managing sustainable growth.
If boards are to be proactive in facing moments of crisis, they need to have conversations about issues like this. When we talked with the ABF fellows, they expressed the value of the ABF program in building a network of peers to discuss the challenges and opportunities they are facing and to learn from the mistakes and successes of others.
For more on the Africa Board Fellowship program, click here.
Have you read?