The UN Capital Development Fund (UNCDF) launched in 2004, just after the end of a devastating civil war in Sierra Leone, the Microfinance Investment and Technical Assistance Facility (MITAF) as a multi-donor funding mechanism with the aim of providing financial services to low-income people through a sustainable, competitive and inclusive financial sector. MITAF has been successful in setting up in Sierra Leone a facilitating environment to which donors, investors and commercial banks adhered in support of a pro-poor and accessible financial sector. Some of the key achievements of MITAF, which makes it a wide success today include: “moving financial services from the government to independent institutions; providing a joint platform for a coordinated donor approach; developing the concept of microfinance from charity into sustainable services; attracting the interest of commercial banks to broaden their client outreach into both rural areas and the microfinance sector.”
Despite the development of innovative mechanisms and delivery channels to reach the poor in Africa, less than a quarter of adults living on the continent have an account with a formal financial institution. The vulnerability of African fragile states restricts even further the ability 97 of households and SMEs to access different types of financial services (including savings, loans, remittances, and insurance). Account penetration in African fragile states lags behind other African countries. On average, only 14% of adults living in African fragile states have an account at a formal financial institution, compared to 23% for the entire continent. In Burundi, Central Africa Republic, Chad, Congo, DRC, Guinea and Sudan, more than 90% of adults are unbanked (Figure VI.1). Poor infrastructure and security threats in fragile states are impediments to the expansion of access points. In addition, the lack of identification due to weak institutions constitutes a sizable barrier to account ownership in most fragile states.
Adults in African fragile states report active use of formal accounts to receive remittances (66% in Somalia and 55% in Zimbabwe). This could be linked to high levels of poverty and shortage of resources prevailing in these countries which creates greater need for support from family members living abroad. High remittance flows represent an opportunity for financial 98 Box VI.2: Diagnostic Tools for Financial Sector Development To ensure the efficient use of scarce resources available to fragile states, coordination between government and development partners is of paramount importance and all the more crucial in an environment which typically lacks a roadmap and stakeholders’ consensus around a unique national agenda/action plan for the financial sector. Diagnostic tools such as the World Bank/IMF backed Financial Sector Assessment Programs (FSAP) and the diagnostic works of the CGAP are good indicators of driving components of financial inclusion. The UNCDF in collaboration with FinMark Trust and Cenfri, have developed a holistic diagnostic and programmatic framework for financial inclusion, driven by detailed demandside data that links the needs of poor households within the political economy of nation states, with a special focus on Least Developed Countries. Making Access Possible (MAP) is a diagnostic and programmatic framework to support expanding access to financial services for individuals and micro and small businesses. The MAP framework creates the space to convene a wide range of stakeholders around an evidence-based country diagnostic which leads to the development of national financial inclusion roadmaps. MAP includes an integrated and holistic diagnostic that shifts beyond the narrow supply-led focus to a broader focus on the financial ecosystem. The toolset goes beyond microfinance to look at the entire financial sector by taking a detailed look at the demand-side through the implementation of a nationally representative survey on financial inclusion which examines the usage of products, barriers and enablers to uptake of financial services, particularly for poor households, a detailed supply-side diagnostic which also takes into consideration the nature of distribution networks and the availability of both products and infrastructure to serve market demand. This diagnostic is captured within the policy and regulatory frameworks of the country and benchmarked against international best practices. The growing momentum around financial inclusion leads us to re-think the role and responsibilities of traditional service providers in a rapidly evolving financial eco-system and compels us to help governments develop concrete tools and processes to help situate financial inclusion within their national development agendas. MAP diagnostics have been completed in Cote d’Ivoire and active in Mozambique, Myanmar, Thailand, Laos and DRC.