Development Opportunities and Private Sector Lessons for Africa: Building a MFI Remittance Network in Ethiopia

Microfinance International Corp. Development Opportunities and Private Sector Lessons for Africa: Building a MFI Remittance Network in Ethiopia: IFAD Remittance Conference, Session 4A Tunis, October 2009

Service to Migrants Licensing

Market Structure in Ethiopia ,[object Object],Market historically dominated by one MTO with over 70% market share maintained by exclusivity arrangements. Limited number of banks, and very limited rural branch network. Three large MFIs with extensive rural network but restrictions on the processing of international remittances. Successful deposit activation but still limitations on capital for lending. Remittance exclusivity prohibited in 2008 by National Bank. New Microfinance Law approved in 2009. Opportunity existed to enable MFIs to process international transfers, utilize their branch network to win new recipient-depositors and increase competition in remittance market to reduce costs.

IFAD-Oxfam Project: Enhancing Microfinance and Remittances in Ethiopia ,[object Object],Objective: Enable three large MFIs in Ethiopia to process remittances, reduce remittances prices and expand Microfinance services. Step 1: Create a remittance processing network based on the 600 mostly rural branches of three large MFIs. Step 2: Generate remittance volume by connecting the MFIs’ distribution network to banks and Money Transfer Companies in originating countries. Step 3: Expand Microfinance by promoting the MFIs and their services to recipients in Ethiopia and their potential Diaspora customer base.

MFI and ARIAS Processing Network

Operational and Commercial Challenges: ,[object Object],Regulation MFIS are facing restrictions on Foreign Exchange transactions. High duties on import of equipment Infrastructure Internet instable and comparatively expensive Basic equipment levels of MFIs Operations/Cost Provision of cash in rural branches is expensive so commissions are high. Extensive local training required. Marketing Research shows that MFIs are much less known to migrants than banks.

Problem Resolution ,[object Object],Regulation Work with MFI Association, Oxfam and local partners to obtain approvals and coordinate with government agencies. Invest time to brief government agencies prior to project begin. Infrastructure Use existing and reliable GSM network and easy to use POS devices. Use IFAD funding to donate POS terminals. Operations/Cost Utilize IFAD funding to hold central workshops for training and marketing. Place trainer/consultant locally for longer periods and to do local assessment, gap analysis and training. Marketing Investment in Marketing campaign stressing the benefits of MFIs’ services and rural reach. Cooperate closely with MFIs and community organizations for upstream/downstream promotion.

Development Opportunities and Private Sector Lessons for Africa: Building a MFI Remittance Network in Ethiopia

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Development Opportunities and Private Sector Lessons for Africa: Building a MFI Remittance Network in Ethiopia