Microfinance in West Africa Grows Up
We are seeing today the explosion of microfinance institutions in West Africa. But as I look back, I remember that it hasn’t always been this way.
I was born and raised in West Africa. I have family members in several countries in the region so I traveled a lot as a child. Although most people feel that they belong to a specific country in the region, I feel more like a “West AF’’ citizen because of my family roots.
While growing up, I was surrounded by many “tontines,” which are traditional forms of rotating savings groups. The group is usually comprised of relatives or friends. The group agrees on a specific amount for each member to contribute and a specific day for the contribution as well as the total number of participants in the scheme. On the agreed date, the members meet and pool the money together and one of them takes the total amount. The chosen member can be selected by lottery or the group can decide to allocate it to someone specific because of urgent matters affecting that person. No member can be selected twice in the same cycle. In West African countries, before the entry of formal microfinance institutions, micro-lending existed through these “tontines,” as well as informal moneylenders and cooperative associations. Families, neighbors and villagers used these methods to help each other escape poverty. I have experienced these forms of “social lending” in several countries in West Africa.
I remember how the tontines helped my mother while I was growing up in a small town in Ivory Coast. My mother was selling vegetables and fruits in the market. I helped her after school or on weekends. The ladies in the market would pool money together; it was mainly coins, less than $1 every week. The total amount would go to one of them each month. I, with some of my fellow school friends, would act as their secretary. Our job was to keep the books for them because most of them were illiterate. The ladies used the tontine money to buy more goods and grow their businesses.
My father was also part of the cooperative association for farmers. They worked in groups to help each other. All the members would go to work in a chosen farm until sunset. This substantially decreases the cost of working in the farm. They then pooled the crops to sell as a group. This gives them more power when negotiating the price. The cooperative enabled my father to expand his farms and diversify his crops. From subsistence agriculture, my family move into a more industrial form of agriculture. My father and his group became the biggest farmers in the region. They even started to import products such as pineapple, coconut, and palm nuts. The success served as an incentive for more families to join the cooperatives and for more cooperatives to be formed. As our farms were growing, my parents were able to employ workers who worked full time on our farms. I am convinced that had it not been for the cooperative, such performance would have been difficult to achieve.
My aunt, in Burkina Faso, was part of a neighborhood women’s association called “Badeya.” The association’s objective was social, to help each other. They would meet every month to eat, talk. Every year, they organized a party in the street where they all wore beautiful uniforms and danced. The association also had a savings program where each member would contribute, like a tontine. These savings were the main source of funding for the activities. It works like an informal insurance policy as well. Anytime a member is affected by a tragic event like a sickness or a death in the family, an agreed amount is allocated to that person. This kind of association exists in most West African countries including Mali, Senegal, and Ivory Coast. They are organized predominantly by women.
These tontines, cooperatives and associations were the precursors of micro-lending in West Africa. They did make a difference in people’s lives but the scale was limited as groups needed to remain at a manageable size. Although these traditional savings associations continue to exist, microfinance is now growing all over West Africa and getting more organized and more professional. It brings scale to saving and lending and makes these services available to a larger number of people, bringing hope to millions of them. In order to keep this hope alive, the industry needs to be transparent and responsible.
People used to choose their associations or cooperatives because of the trust they had in the members. It was simple and easy to understand because it was part of their daily life. The cost if any was known and accepted by all. Now, with the evolution of microfinance, the lending process is more complex and difficult to understand. So people who are taking a loan don’t always understand the commitments they are taking. These commitments represent a price that they have to pay. The MFTransparency Transparent Pricing Initiative helps create the right environment for both the lender and the user of the loan to make an informed decision about this loan. The Initiative will make the lending process more effective by helping to create a market condition where those in need will benefit while the providers will be more efficient in servicing them.
If microfinance could be as effective on a larger scale as the cooperatives were for my parents when I was growing up, it could really change people’s lives. The conviction that MFTransparency’s work will make a significant contribution in creating this “better microfinance” for Africa drives me every day.