microfinance to protect African VSEs and SMEs – Jeune Afrique

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Relatively spared in terms of health, Africa will have to face an inevitable economic recession. Growth is expected to contract sharply between 2019 and 2020, falling from 2.4% to -5.1%, according to World Bank estimates. Economic and social activity is slowing down but coercive measures are multiplying, sometimes taken by mimicry in certain States, without taking enough perspective to adapt them to the modes of social organization on the continent. Some measures are totally removed from the aim of well-being of populations supposed to justify them.

For example, at the start of the pandemic, the International Labor Organization (ILO) posted a short video on “five things to know for effective remote working”. However, teleworking is not a popular practice and usually used by many workers on the continent. Most informal actors, many VSEs and SMEs, cannot work from home. In addition, social distancing is a privilege for a significant segment of the African population and is inappropriate to their way of life.

Financial inclusion

From a socioeconomic point of view, Covid-19, like other pandemics, is disintegrating the economic fabric and weakening the most vulnerable, in particular actors in the real economy in Africa, the informal sector, very small businesses ( TPE) and medium-sized enterprises (SME/SMI). In Africa, 90% of business units, or about 75% of the labor force, operate in the informal sector. 50% of domestic wealth is produced in sub-Saharan Africa by this sector, which accounts for 85% of jobs. Faced with such a structuring of the economic fabric, the microfinance sector is best suited to effectively support VSEs, SMEs, SMIs and vulnerable households in order to avoid a dual economic and humanitarian crisis.

To meet the financing needs of households and informal businesses, microfinance institutions (MFIs) or decentralized financial systems (DFS) operate in more than three-quarters of the countries on the continent. The promotion and increase in the penetration rate of MFIs or DFS over the past two decades on the continent has significantly improved financial inclusion and contributed to the reduction of poverty in Africa, especially monetary poverty.

And yet, MFIs only cover a maximum of 15% of outstanding loans granted to the private sector, even though despite the expensive operating costs, the activity remains sustainable if it is part of a bank refinancing value chain. appropriate. The continent must therefore make the rescue and growth of VSEs and SMEs a crucial issue in the global response to the crisis, through special mechanisms which will have to affect the entire financing ecosystem and which will involve central banks, development, commercial banks and public financing mechanisms, such as funds.

Role as a catalyst for the economy

Recourse to microfinance requires several processes. First of all, the refinancing of MFIs so that they support vulnerable populations, accompany small entrepreneurs, craftsmen and preserve the economic activities of women. Then, the implementation of appropriate measures for MFIs to mitigate the risks of non-payment inevitable in such circumstances and likely to compromise their existence, and this, thanks to subsidies that can range from 30% to 50% of the competition brought.

Finally, the facilitation of their activities by strengthening technical and material capacities as well as the relaxation of certain prudential or non-prudential rules of the regulator relating, among other things, to the key rate, the capital ratio currently higher than that of banks in the zone of the West African Economic and Monetary Union (UEMOA), credit downgrading criteria, tax exemption for the sector, etc.

These measures will make it possible to further finance African economies and reduce the cost of microcredit. MFIs, banks and telecommunications structures investing in financial operations have a catalyst role for the economy to play. It would therefore be wiser for support to target monetization through monetary creation rather than budgetary effort.

The Economic Community of West African States (ECOWAS) and UEMOA have taken measures to limit the indirect economic repercussions throughout the West African regional economy. Among the solutions endorsed by the Central Bank of West African States (Bceao), there is in particular the special refinancing window for SMEs, which is extended to bank loans in order to increase liquidity in favor of of the microfinance sector.

However, while welcoming this measure, it should be noted that it only concerns, alas, large SFDs and therefore its impact will remain low. States must go further and opt for special refinancing plans for proactive SFDs and at concessional rates with, among other things, a substantial part of “Covid-bonds”, national solidarity and the various international support announced.

Rigor and transparency

Numbering 511 in the West African Monetary Union (WMU) at the end of September 2019, MFIs enabled more than 15 million people to benefit from financial services, through 4,869 service points. Knowing that their customers are 80% women and that 65% live in rural areas, it is appropriate to further consider the use of technological innovations, in particular digitalization and monetization, to reach the large number of people. In addition to the resources to be mobilized, innovative financing is one of the most promising solutions to meet the needs of DFS. They provide additional funds through exploration of existing, but untapped potential.

Southern states have the opportunity to take the reins of their destiny, with crisis exit plans and guidelines adapted to their context. They must avoid the trap of the “Dutch syndrome” [pays où les exportations à faible créations d’emplois supplantent l’emploi dans les secteurs à plus forte valeur ajoutée]. The new model to be targeted would benefit from aiming for shared prosperity with opportunities for all.

This vision is one in which the action of the State contributes to the common good by arousing the confidence of citizens. This implies greater rigor and transparency in the management of public finances with particular emphasis on the effectiveness of expenditure. The good news is that the Covid-19 crisis has taught us that certain priorities can be taken care of with a speed that no one would have imagined a few months earlier.

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