The Independent (Kampala)

2 January 2014

Uganda: Microfinance's Macro Potential

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The good news is that industry bodies, investors, and governments have already introduced metrics for factors ranging from pricing to conduct. While this has resulted in a rather disparate set of indicators, which must be standardised, such efforts are an encouraging sign of the microfinance industry's commitment to securing its role in the financial-services ecosystem.

The third step concerns technology. Mobile connectivity is transforming the global financial system by enabling remote, rural populations to access financial services for the first time. Mobile-payment systems like M-Pesa are changing how people transfer, receive, and save money in many developing countries, including Kenya, Pakistan, and the Philippines.

For the microfinance industry, such systems represent an important opportunity, as they enable borrowers to apply for, receive, and repay loans on their mobile phones, using a network of local agents to deposit and withdraw cash. But, without robust regulation, MFIs cannot make the most of these developments.

Moreover, the mobile-payments revolution has so far been led largely by telecom providers. If it is to deliver real benefits to the financially excluded, the financial-services industry will need to play a much more active role.

Of course, microfinance alone will not eliminate poverty, or even financial exclusion, regardless of how well it functions. To have a truly transformative impact, MFIs' operations must be supported by government-led efforts to improve access to education, training, and employment.

Although microfinance has already helped countless people worldwide, the World Bank estimates that some 2.5 billion adults still lack access to financial services. It is the responsibility of all stakeholders - including governments, regulators, banks, and civil society - to ensure that microfinance continues to be part of the solution.

Prashant Thakker is Global Business Head of Microfinance at Standard Chartered.

Copyright: Project Syndicate, 2013.

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