World Bank unit, MasterCard Foundation boost crucial small loans in Africa

They'll spend $37.4 million over five years to provide microfinancing, which helps people lift themselves out of poverty by starting or expanding small businesses, sending children to school, or improving farms.

By , Associated Press

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    Loan borrowers show their pass books given to them by a microfinance company near Hyderabad, India. India's microfinance sector is the world's largest by number of borrowers. A new effort in Africa aims to spread the benefits of microloans there.
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A World Bank partner devoted to developing the private sector and The MasterCard Foundation will spend millions of dollars so more impoverished Africans can get loans and other financial services, officials said.

At a Johannesburg, South Africa, news conference May 7, officials from the International Finance Corporation (IFC), which is part of the World Bank group, and The MasterCard Foundation said they would spend $37.4 million over five years to support banks and other institutions across Africa that provide small loans, a strategy known as microfinancing. People around the world have used such loans to lift themselves out of poverty by starting or expanding small businesses, sending children to school, or buying fertilizer for subsistence farms.

The MasterCard Foundation was established with funds from MasterCard Worldwide in 2006 and operates independently of the company.

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The IFC-MasterCard Foundation project, the IFC's largest with a private foundation, also targets banks and communications companies that help mobile phone users send and receive money and get access to other banking services. Mobile phones have meant people in remote rural areas and urban slums, where banks have been reluctant to build branches, can still get banking services.

The IFC, which started investing in microfinance programs in Africa in 1997, estimates only between 5 percent and 25 percent of African households have bank accounts or other relationships with financial institutions.

Reeta Roy, president and chief executive of The MasterCard Foundation, said she and the IFC were seeking to radically expand access to banking for Africans at a time when their continent's middle class is expanding and political stability is growing.

The initiative, she said, is "part of a much, much larger story. It's the story of the political, economic, and social transformation that's happening across this continent."

Thierry Tanoh, the IFC's vice president for sub-Saharan Africa, also was optimistic about Africa's prospects. He added the IFC sees microfinancing and mobile banking as priorities in the campaign to ensure more Africans have access to banking services.

Perhaps the world's best-known microfinance institution, Grameen Bank, was founded in the 1970s in Bangladesh by economist Muhammad Yunus. His pioneering concept – giving the poor, women in particularly, small loans to help them build their families and businesses – earned Mr. Yunus the 2006 Nobel Peace Prize. 

Steve Wardle, Grameen Foundation's Africa director, said Africa's low population density and high proportion of poor people living in rural areas make the work of microfinance institutions on the continent different from work in Asia or Latin America. Grameen was particularly excited about mobile phone technology making it easier to get information, as well as banking services, to the poor, Mr. Wardle said in a telephone interview from Kenya.

Grameen Foundation, which was not involved with the project announced May 7, like the corporation and The MasterCard Foundation, places hope in improvements in Africa's political and economic outlook. Investors who once shunned the continent will now have the confidence to make much-needed capital available, he said.

"It's an exciting time in Africa," said Wardle, who has worked in Asia and Africa.

He welcomed competition in the field, saying that would increase knowledge and help drive down prices and ensure services were tailored to the population.

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