Hundreds of millions of people lack access to the formal financial sector. As a result, they cannot save, borrow, buy homes, or grow their businesses—a significant social and economic cost to the communities and countries in which they live. Pride Africa is the largest micro-finance institution in East Africa and is addressing this challenge in an innovative way. The organization has lending operations in five countries, a client base of 100,000, and reaches some of the poorest of the poor. Pride Africa's average loan size is US$125, and these loans finance everything from trading operations to production of foodstuffs to manufacturing of clothing.
Business Model. Pride Africa is designed as a franchise model built around proprietary software systems, uniform processes, and extensive training to achieve pan-regional economies of scale that allow for rapid, cost-effective expansion. The software provides loan tracking, financial projections, and branch office management information. Its use has significantly streamlined the organization's internal transactions, both reducing costs and demonstrating an approach to improving the fundamental inefficiencies of the micro-finance industry.
Software tools, telecommunications links, and other ICT technologies are even more central to Pride Africa's strategy for the future. Pride Africa is negotiating relationships with commercial banks and intends to link micro businesses to the formal financial sector by playing a crucial intermediary role—aggregating loans and savings, and providing consolidated loan tracking, accounting, credit referencing, and credit/ debit card processing. In effect, Pride Africa will serve as a buffer between large commercial banks and thousands of small clients, and offer a range of financial services currently not available to micro-enterprises, particularly in poor communities. The intended result is greatly increased capital for micro-lending and rapid expansion in the number of branches and clients served, multiplying the development effects of micro-finance. The software that will make this intermediary role possible is presently being piloted in Kenya.
Infrastructure. Most of Pride Africa branches are located where its clients are—in poor, semi-urban neighborhoods. Linking these branches through an ICT network to facilitate daily loan operations, software upgrades, and staff training is now possible only via satellite. Pride Africa's plans for ICT infrastructure to play a more important role in the future, since it will be essential to link its branch network to commercial banks, enable non-financial business services,76 and make possible expansion into rural communities. At present, however, the lack of ICT infrastructure in East Africa is a significant barrier to these ambitions.
Human Capacity. Pride Africa's success to date has been the result of a meticulously trained staff. Attrition rates are very low and some franchises boast credit officer productivity rates among the highest in the micro-finance industry. Pride Africa has drawn on the depth of talent in its franchise network to staff expansion and new franchise creation. However, Pride Africa faces a significant human capacity bottleneck—a shortage of local professionals with ICT skills. Its current solution, outsourcing, has slowed development of the software critical to its expansion plans.
Policy. Pride Africa in particular, and micro-finance institutions (MFIs) in general, operate under a tenuous financial regulatory status. They are treated as NGOs rather than as financial entities, even though some manage millions of dollars for their clients. Since accepting deposits is illegal for non-bank institutions in East Africa, MFIs accept "compulsory" or "non-voluntary" monies labeled as loan insurance funds. These irregularities are overlooked by national governments, who are generally supportive of MFIs since they are virtually the only available means of meeting the financial needs of the majority of their populations. Telecommunications companies and Internet service providers, on the other hand, are still highly regulated in most of East Africa, with the result that connectivity costs are high and access is limited. This is a significant barrier for Pride Africa and any other business wishing to link branches or customers via an ICT network.
Enterprise. Pride Africa's operations have been highly subsidized by soft funds and low-interest loans provided by international multilateral donors. Commercial or venture finance has not been available. This has limited expansion of the franchise network, since it is dependent on donor funding. Lack of more flexible funding has been a significant constraint on the technology development critical to Pride Africa's business strategy; some technology projects have been put on indefinite hold. Nonetheless, in the past year almost all country operations have reached financial sustainability and subsidized funds are being phased out of balance sheets.
Content and Applications. Pride Africa's plans to create local content are embodied in Drumnet, the information exchange and internal market that it hopes will eventually link its clients. Drumnet would permit clients to share experience, pool their buying power to seek lower costs, and eliminate middlemen in client-to-client business transactions. Development of Drumnet has been put on hold because of lack of flexible financing, shortages of local ICT talent, and infrastructure barriers.
Key Lessons. Micro-finance is a proven but under-utilized development tool. Pride Africa's case shows the potential for ICT-based strategies to bring micro-finance to scale by increasing efficiency, enabling access to commercial finance for rapid expansion, and mediating between banks and micro-enterprise to the benefit of both. Pride Africa's ability to realize its business goals will depend not only on clarification of the financial policy ambiguities surrounding micro-finance, but also on access to finance for technology development and elimination of the barriers facing East Africa's ICT sector in general—restrictive policy environment, critical shortage of local ICT talent, and inadequate infrastructure.
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