Despite the rapid growth of the microfinance industry in the past ten years, it is estimated that between two and three billion people still lack access to a broad range of financial products and services on a sustainable basis. The situation is particularly dire in sub-Saharan Africa, where often more than 90% of the population is denied access to financial services from the formal financial system.

Key constraints to building financial sectors that are inclusive of poor and low-income households and micro and small enterprises include lack of strong institutions providing a broad range of financial services on a sustainable basis, an enabling legal, regulatory, and supervisory environment to facilitate access, and government vision and commitment to the development of inclusive financial sectors. In addition, the private sector needs to become more active and fully engaged in providing financial services to the poor.

Building Inclusive Financial Sectors in Africa

In 2004, United Nations Capital Development Fund (UNCDF) and United Nations Development Programme (UNDP) established the Building Inclusive Financial Sectors in Africa Programme (BIFSA) with two primary objectives:

• To build inclusive financial sectors in sub-Saharan Africa that provide sustainable access to financial services for poor and lowincome people and for small and micro enterprises; and
• To generate employment, economic growth, and human development in sub-Saharan Africa by increasing access to financial services for poor and low-income people and by encouraging and supporting micro and small enterprises.

The BIFSA Programme takes a financial sector development approach based on the recommendations of the United Nations “Blue Book” on Building Inclusive Financial Sectors for Development. In this context, microfinance is seen as an integral part of the broader financial sector. An inclusive financial sector is defined as a financial sector that offers a range of financial services to the entire active population of a country. An inclusive financial sector is thus characterized by competition among financial service providers, a diverse range of financial service providers, sustainability with respect to the permanence of access to financial services, and legal and regulatory environments that are built to ensure the integrity of the financial sector and access to financial services.

Within this context, the BIFSA Programme seeks to increase the number and viability of microfinance institutions (MFIs) and other financial service providers (FSPs) in Africa, increase the breadth and depth of financial products and services provided to poor and low income African households and micro and small enterprises, and improve policy, legal and regulatory frameworks and practices throughout the African continent. The BIFSA Programme follows a three-step process based on UNCDF’s sector development approach to financial inclusion:

• Financial Sector Assessment: In order to identify the specific constraints (such as policy, legal, regulatory, capacity and capital) to financial inclusion in each country, a country-specific Financial Sector Assessment is carried out, including a baseline survey measuring current access to financial services.
• National Vision, Strategy and Action Plan: The Assessment is validated by a multi-stakeholder, consultative process involving the government, policymakers, the central bank, a broad array of financial institutions (including MFIs and other FSPs), NGOs, development partners, civil society, and the private sector. Together these institutions establish a National Steering Committee for Financial Inclusion. This process promotes collaboration among a variety of market participants and ultimately results in a National Strategy on Financial Inclusion which involves a policy, legal and regulatory framework, measures and financial requirements to support MFIs and other FSPs, and any implementation and coordination mechanisms that may be necessary to implement the Strategy. The result of this process is a National Action Plan and Budget for Financial Inclusion. This Action Plan and Budget generally has a 5-10 year perspective and contemplates direct investments in MFIs, other FSPs, and financial services infrastructure that will together enhance access to a broader range of financial services to poor households and small enterprises.
• Investments: To finance and coordinate the implementation of a National Action Plan, an Investment Fund is established along with an Investment Committee to manage the Fund. The Investment Committee generally consists of government representatives, the central bank and donor development partners. Based on a request for proposals and applications received from MFIs and other FSPs, the Investment Committee, assisted by a UNCDF Senior Technical Advisor, approves investments (grants, loans and equity) in capitalization of MFIs and other FSPs, human and institutional capacity building, upgrading of financial infrastructure, and other investment opportunities that may arise. Further, the Investment Committee contributes to the coordination of donor funding to MFIs and other FSPs and seeks to substantially leverage these funds with investments from commercial sources. Lessons learned from these investments are channeled back to the Steering Committee.

The sector development approach of the BIFSA Programme ensures that investment requirements for increased financial inclusion are met in a structured and coherent way, and that regulatory and policy constraints to financial inclusion are continuously monitored.

BIFSA Programme Status

UNCDF and UNDP are currently working in 10 countries in sub- Saharan Africa under the BIFSA Programme. It is expected that by 2010, UNCDF will have conducted Financial Sector Assessments in 22 countries in sub-Saharan Africa and that each of these countries would have adopted a National Strategy and Action Plan and be making investments in accordance with that Plan. UNCDF also expects to make investments through the BIFSA Programme in at least 60 MFIs and other FSPs by 2010. At least 20 of these should attain national coverage and financial sustainability by the end of the project period. UNCDF estimates that these institutions will serve more than three million new clients and that more than 219 million people in sub-Saharan Africa will have gained improved access to financial services as the result of the BIFSA Programme.

Funding Requirements

The budget for the BIFSA Programme covering the period of 2004- 2010 is US$ 42.6 million. Significant co-financing will be required in 2007 and subsequent years to fund investments approved by the Investment Committees as they implement the National Action Plans. Grant-based donor funding will be required to assist in capacity building and strengthening of MFIs and FSPs in accordance with National Action Plans. Substantial additional funding will also be needed to make investments in MFIs and other FSPs, business services support organizations, and financial services infrastructure in accordance with the decisions of the Investment Committees in each of the BIFSA Programme countries. Finally, because of current budget constraints, the BIFSA Programme covers a limited number of African countries; with increased funding, country coverage in Africa could be expanded.

Find out more

To find out more about BIFSA, please visit bifsa.uncdf.org, or contact:

Makarimi Adéchoubou
Regional Technical Manager
UNCDF Microfinance for Western and Central Africa
BP 15702, CP 12524, Dakar - Fann (Sénégal)
email : makarimi.adechoubou@undp.org
fax : (+221) 869 38 15 / 16

Fodé Ndiaye
Regional Technical Manager
UNCDF Microfinance for Southern and Eastern Africa
7 Naivasha Road, Sunninghill
Johannesburg 2157, South Africa
email: fode.ndiaye@undp.org
fax: (+27 11) 603 5071

Magnus Magnusson
Business Development and External Relations Advisor
UNCDF
Two UN Plaza, 26th Floor
New York, NY 10017, USA
Email: magnus.magnusson@undp.org
Fax. +1 212 906 6479

About UNCDF

The United Nations Capital Development Fund (UNCDF) makes investments in the Least Developed Countries (LDCs). Established in 1966 as a special purpose fund of the United Nations, UNCDF now concentrates its investments in two areas: local development and microfinance.

UNCDF’s Local Development Programmes (LDPs) make investments in local communities to improve their access to social services and economic infrastructure. UNCDF´s microfinance investments provide enhanced access for households and enterprises to financial services and direct support for start-up and emerging microfinance institutions (MFIs). UNCDF’s investment capital is flexible, highrisk, and innovative, and its development approach seeks the longterm development of human, institutional, and financial capacity in the poorest countries. UNCDF currently invests in 28 of the 50 LDCs.

UNCDF is affiliated with the United Nations Development Programme (UNDP) and works closely with UNDP in every country where UNCDF invests. UNCDF also works closely with other UN agencies and with a wide variety of development partners, including multi-lateral and bi-lateral agencies and national governments. UNCDF is funded primarily by voluntary contributions from member states of the UN and through co-financing from governments and multi-lateral and bi-lateral organizations. UNCDF is committed to results-based management that combines quality programming with financially sound management. UNCDF produces concrete results through programmes that pilot innovative approaches to local development and microfinance for replication on a larger scale.

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