MFIs capacity building investments

The microfinance sector in Ethiopia has grown rapidly over the last decade and now has a robust network of 38 Microfinance Institutions (MFIs), serving over 5 million loan clients and 17 million savings accounts. Even with the achievements to date, reaching optimal outreach and impact with financial and operational self-sufficiency is still a challenge for most MFIs. However, investments for MFI capacity building is insufficient, mainly due to lack of knowledge and understanding of the value propositions for capacity building; and a long history of donor fund support.

Association of Ethiopian Microfinance Institutions (AEMFI), in partnership with Enterprise Partners (EP), recruited an international industry expert to assess the MFIs practices in developing the capacity of their staff and to develop a business case on why MFIs should invest in capacity building.

The main objective of the assignment is to increase MFIs’ investment in capacity building by presenting a business case and the tools that would help MFIs to identify their capacity building needs. Data for the study was collected from various MFIs, AEMFI and the National Bank of Ethiopia (NBE), as well as key informants.  On June 26th, 2018, a half-day workshop was organized to present key findings of the assessment and the business case for investment in capacity building. Participants included CEOs and senior managers from MFIs, capacity building service providers, AEMFI and the NBE.

The welcoming and opening remarks were delivered by Teshome Kebede, Executive Director of AEMFI and Frezer Ayalew, Director of MFI Supervision Directorate at NBE. The introductory presentations encouraged participant involvement in the consultation of the assessment findings, working towards addressing the capacity building investment gaps in the industry in order to maintain a competitive edge.

The workshop continued with the consultant, Petronella Chigara-Dhitima, whom began with a unique approach and provoked participants to welcome new perspectives; summarizing:

I can’t change the direction of the wind, but I can adjust my sails to always reach my destination”.

The research produced a number of key findings, which include: (1) Non-existence of human resource strategy or misalignment of human resource strategy in light of a comprehensive business strategy, (2) Inadequate skilled manpower, (3) Poor innovation, (4) Weak system and process, among others. In general, MFI capacity building efforts are sporadic, incomprehensive, non-systematic and not-strategic. Subsequently, a capacity building investment business case for MFIs with regards to the triple-bottom-line was presented by the consultant.

The presentation from Petronella was followed by a discussion with attendees. There was a consensus amongst all participants that developing capacity of their staff is important to sustain and grow their organization and the sector as a whole.  Few MFI CEOs commented that they were already spending more than 2 per cent of their budget (the minimum required by the NBE) on capacity building efforts, but it is not consistent across the sector. The training needs assessment and monitoring tool to be developed as part of the same initiative will help support the effort to increase investment by MFIs.

The conclusions drawn from the study and workshop indicate that there is a need to align HR strategy with the business strategy and invest more in capacity building to positively impact the ‘triple bottom line’ as well as to maintain a competitive advantage.

Finally, the workshop closure speech was made by Hajera Mohamed, SME Finance Lead at Enterprise Partners.