Policy Research Work in Microfinance
Innovations to Enhance Access of Ethiopian MFIs to Commercial Loanable Funds from External and Internal Sources (2019):
Microfinance sector in Ethiopia has grown rapidly, but future growth needs sufficient funds to meet growing demand for credit from its client in all segments. According to this study, the demand gap in 2023 could be in the range of ETB 20 billion to ETB 43 billion, which is huge if seen from the prospect of Central Bank’s Guidelines on self-reliance of MFIs on their own saving mobilization from clients. This study was based on the performance of MFIs in Ethiopia and the lessons drawn from select countries from Asia, Africa and Latin America on various aspects relating to the working of Microfinance and regulatory and supportive roles played by the Government and the Central and Apex Banks. It has been observed that various instruments used for mobilizing foreign and domestic savings are different in their design and performance but holds some basic criteria.
Innovations can help MFIs in lowering down their lending rate without diluting the portfolio quality and increase the breadth and depth of its segment. In the Ethiopian context, this Study makes a series recommendations that include: ensuring MFI Loan book leveraging with Banks; rapid digitization; putting the 4 basic building blocks (Technology, Capital Markets, Credit Bureau and Credit Ratings) in place; increasing the credibility and transparency in market, strengthening and enlarging the scope of Credit Information Bureau operations; developing capital market for mobilizing funds; making Credit Rating mandatory; creating Deposit Insurance; securitization; Microfinance bonds and Debt instruments for funding; setting up of Apex Bank or wholesale lending institution for rural finance etc.
Risks and Mitigating Solutions for MFIs in Ethiopia (2019):
The study on risk management practices of the Ethiopian MFIs attempts to serve as a real-life documentation of the members’ practices and thereby serves as inputs for promoting and supporting the development of stronger, more appropriate risk management practices by its member MFIs. This study looked at risk and mitigation not only as a tool for management but as a strategic enabler. This coupled with technology investments to cope with and manage the growth and the changing environment is imperative. These technologies must be chosen with care, implemented with focus and utilised strategically. There are of course elements of this that have to be considered at the industry-level as well, for instance access to new age sources of funding like co-lending and securitization at the industry level and elements such as need for a credit bureau and access to foreign sources of funding that operate at a national-level.
A comprehensive approach to risk management reduces the risk of loss, builds credibility in the marketplace, and creates new opportunities for growth. The Enterprise Risk Management Framework provides one such approach for effective risk management for MFIs enveloping all of these considerations and hence is chosen to detail and recommend. The Study based on the conclusions made certain specific recommendations at the level of the MFI with respect to Governance, Board Procedure, and Business Process etc., and Action Points beyond the interest of any one MFI that would benefit MFIs, if undertaken.