Africa Finance Forum Blog

Islamic Microfinance: Financing model for economic growth in Côte d’Ivoire

13.03.2018Mohamed Agrebi, Senior Operations Officer, MFW4A

At the crossroads of conventional microfinance and the principles of Islamic Finance is Islamic Microfinance, a concept that is rapidly growing and which enables millions of disadvantaged people, be they Muslims or otherwise, access innovative financial services aimed at assuring their well-being.  The principles of Islamic Finance are simple and clear, and based on the fundamental belief that money does not have any intrinsic value and that all risks should be borne by both parties ; the lender and borrower. Islamic Finance is an economic system which lies on five core principles, namely ; i) prohibition of interest rates ii) prohibition of uncertainty, iii) prohibition of investing in illegal activities/industries, iv) profit and loss sharing, v) prohibition of using tangible assets as collateral.

Islamic Microfinance differentiates itself from conventional microfinance systems by the simple fact that it offers accessible and adaptable financial products to all sectors of the economy. The concept contributes to financing viable products through participatory financing which expands the possibility of implementing investment projects and favouring economic growth.

Today in Côte d’Ivoire, there are two distinct sectors that are directly linked to economic growth; the agricultural and small-and-medium-sized (SME) sectors. These two sectors contribute to the tune of 25%  and 18%  respectively towards the national GDP and employ more than 70% of the working population.

As regards the agricultural sector, producers are mainly in the northern part of the country, a predominantly Muslim region. In recent years, Côte d’Ivoire has proved itself as one of the  world’s top producers of several agricultural products such as cocoa, cashew nuts, kola nuts to mention but a few. Yet, only 13% of conventional microfinance institutions are present in these regions, and where Islamic microfinancial institutions are yet to set up businesses.

In terms of agricultural finance, Islamic finance offers products such as Salam, which is well adapted to the sector.  Salam is a forward financing transaction where the seller is obliged to deliver specified goods/assets to the buyer on a pre-agreed date in exchange for payment made out in full at the singing of the contract. Salam has a number of advantages especially for agricultural producers, notably, the absence of interest rates, profit and loss sharing with the financer, in addition to direct financial contribution to cover overhead expenses such as salaries and taxes. In this regard, Salam is an ideal financing model for activities like agriculture, handicrafts as well as SMEs.

The SME sector makes up 80% of the economic fabric of Côte d’Ivoire and contributes upto 18% of the country’s GDP . Looking at these statistics it can easily be said that Côte d’Ivoire’s economy is mainly run by the SME sector.

Financing businesses is at the heart of Islamic Finance. Islamic microfinance institutions have an array of participatory financial products such as Mudaraba and Musharaka, which easily adapt to the needs of SMEs. In the case of Mudaraba, the financing bank can take full responsibility for funding the entire investment project as a business associate. This kind of funding is suitable for startup SMEs looking for initial capital. Musharaka, on the other hand, is a contract between two or more parties and is mainly used to fund projects where profits or losses are shared on a prorata basis depending on the capital contributions of the concerned parties. The Musharaka financial instrument aims to essentially fund an investment project that is considered profitable while remaining compatible with the principles of Islamic Finance. The investment using Musharaka is a contribution from parties who are supportive of one another in the event of loss and who share the profits if and when the venture is profitable.

As such, Islamic Microfinance has a great potential to respond to the needs of several economic sectors through the use of innovative and participatory financial instruments. Nonetheless, the sector is still in its nascent stages in Côte d’Ivoire. The Ivorian Islamic microfinance market is mainly made up of two players, notably, Raouda Finance based in the economic capital, Abidjan and Al-Barakat, in Daloa, a town in the mid-west region of the country.

In addition to the issue of geographical distribution in the country, (for example Raouda Finance has only 4 branches in the southern part of the country) these microfinance institutions face a number of major challenges such us the lack of a governing framework which takes into consideration the specificities of Islamic Finance, and insufficient resources as well as lack of skilled workers in the domain.

The operations of Islamic Microfinance institutions are generally impeded by the governing framework which does not take into consideration their particularities, despite the fact that Ivorian authorities have up until now tolerated their operations. The temptation to go back to conventional financing options is real given the insufficient resources of islamic microfinance institutions. There is also a lack of skilled personnel particularly with regard to certain complex aspects of Islamic financial concepts such as the profit and loss sharing (PLS). Financial solutions based on PLS require a good understanding the principles of risk management. Furthermore agents working in MFIs have been trained in conventional financing models and therefore end up using inappropriate terminology such as « we can give you a loan to the tune of…. » «…. the interest rate is….. ».

Islamic microfinance is a financial paradigm capable of triggering a buzz in the Ivorian financial landscape especially with regard to sustainable economic growth for the country. However, its development highly depends on the political and economic will of the country’s decision makers.


About the Author

Mohamed Agrebi is the Senior Operating Officer at Making Finance Work for Africa (MFW4A), hosted by the African Development Bank (AfDB). Since 2010, he has been working for MFW4A. Mohamed also leads on MFW4A' Islamic Finance-related activities. He holds an executive master degree in Islamic Finance and Banking from “Ecole Superieure des Sciences Economiques et Commerciales de Tunis”. In 2017, he authored a research paper on the prospects of Islamic Microfinance in Côte d’ivoire.

Mining the gap: Financial inclusion and gender

26.02.2018Brittney Dudar, Master's Student, University of Toronto

This blog was originally published on Cenfri website

The 2014 Global Findex Report identified that in developing economies, women are 9% less likely to be formally banked than men, with 59% of men and 50% of women having bank accounts. 

The financial inclusion community is actively addressing this gap, but there is limited data available on the gender dynamics of financial inclusion that can offer insights into how to address it. However, there are some data sources that shed light on this problem and offer insight into which interventions, products and services may be particularly effective in improving women’s financial lives across the developing world, where sizable gender gaps in financial inclusion prevent women from full economic participation.

Starting with sub-Saharan Africa, this blog is the first in a series that explores financial inclusion and gender dynamics emerging from our research and the gaps that future research needs to consider.

Figure 1: Access to formal and informal financial services | Source: FinScope Kenya 2016, FinScope Rwanda 2016, FinScope Tanzania 2013, FinScope Uganda 2013

In sub-Saharan Africa (SSA), 70% of women are financially excluded. More women access informal financial services in SSA than men, with 26% of women saving informally versus 22% of men. Men access more formal services, with 13% of women saving formally compared to 18% of men.

FinScope data across Kenya, Rwanda, Tanzania and Uganda in Figure 1 below shows that women consistently have lower access to formal financial services than men. This gap is particularly pronounced in Kenya, where women’s access to informal financial services is 18 percentage points higher than men’s.

Saving informally is not necessarily a bad thing. However, there is evidence that the informal savings mechanisms that women have access to are not necessarily meeting their needs. A study in Kenya by Dupas & Robinson (2013) provided randomised access to non-interest-bearing bank accounts among two types of self-employed individuals in rural Kenya: market vendors (mostly women) and men working as bicycle taxi or boda bodas. Despite large withdrawal fees, the researchers found that a substantial share of women used the accounts, saved more and increased their productive investment and private expenditures. There was no impact for male bicycle-taxi drivers. These results suggest that extending simple banking services to women can have an impact on women’s financial inclusion at a low cost to financial service providers (FSPs), especially compared to offering credit. However, the sample size in this study was small, and more research is needed to explore beyond the two specific types of income-earners analysed in the study.

While savings and credit have been explored to some degree, there has been limited research on insurance and the difference in risk needs between women and men. One study that offers insights is from Delavallade et al. (2015). In the study, male and female farmers in Senegal and Burkina Faso were offered a choice of weather index insurance or three different savings devices:

  • An encouragement to save for agricultural inputs at home through labelling
  • A savings account for emergencies that was managed by the treasurer of a local ROSCA or farmers’ group
  • A savings account for agricultural input investments that was managed by the same treasurer

The study found a 30% stronger demand among men for weather insurance than among women, and among women a stronger demand for emergency savings. The demand for emergency savings could reflect the increased risk needs among women for health and childcare-related expenses. This, in turn, limits their demand for agricultural insurance coverage. For policymakers and/or FSPs trying to drive the uptake of weather index insurance products, a better approach for marketing may be to combine it with health or other emergency insurances.

One of the often-cited difficulties for understanding why women are less served than men is the available gender data. While more sex-disaggregated data is needed, it also needs to be relevant for the questions FSPs and policymakers have. For example, there are many studies on women, but for them to be relevant, behaviour needs to be compared across men and women to provide counterfactuals to interpret the insights.

Prioritising the collection and analysis of this data requires a behavioural change on the part of researchers and FSPs alike. Some central banks, such as the Bank of Chile, have already been focusing on collecting and analysing sex-disaggregated data to better serve clients and unlock new markets.

i2i is currently looking at what behavioural interventions are particularly effective in increasing the uptake and usage of financial services for women. Stay tuned for more on this work. 


About the Author

Brittney Dudar is a second year student in the Master of Global Affairs program at the University of Toronto’s Munk School of Global Affairs. Prior to Munk, Brittney worked in the UK at a technology incubator where she led an educational program for female technology entrepreneurs. This past summer, Brittney spent her internship working at The Centre for Financial Regulation and Inclusion in Cape Town where she investigated gender differences in access to financial services. Her interests lie at the intersection of innovation, development and gender equity.

SMEs provide opportunity for Africa to grow its debt market

13.02.2018Kelsey Tanner, Senior Private Equity Analyst, RisCura

Investments into private firms in Africa are funded by a relatively low proportion of debt compared to equity, especially in contrast to developed markets, where debt is more readily available and affordable. This is according to RisCura’s latest private equity update of its Bright Africa report, released in October 2017.

With a relatively small value of assets under management, there is capacity for the development of the private debt market in Africa. The undercapitalisation of traditional lenders, such as banks, and the current uncertain economic environment have led to the development of alternative sources of capital. One such alternative is the private debt market where fund managers provide finance to private businesses seeking credit. These businesses, such as small and medium-sized enterprises (SMEs), which do not fit into the traditional financing paradigm, provide a pool for private debt funds to tap into. A funding supply gap exists because SMEs are not able to access finance through traditional channels and private debt fund managers have limited investment opportunities.

This gap is fast being closed by private debt funds that have taken on the role to provide the necessary capital to SMEs. African funds that are already targeting SMEs with this type of finance include Vantage Capital’s third mezzanine fund with a $280m commitment from investors in 2017, and the Investec Africa Credit Opportunity Fund 1 with a 2015 investor commitment of $226.5m. 

SME owners are largely unaware of private debt as a funding option, how to access it, and its benefits and risks. This problem is compounded as fund managers cannot easily identify businesses that require funding, and therefore rely on potential borrowers to approach them.

Private debt can be accessed through a number of strategies. Private debt funds such as mezzanine and credit opportunity funds are frontrunners in meeting demand from SMEs seeking growth capital and debt refinancing. Advantageous to SMEs is that private debt funds may offer them finance and management support, but often do not pursue a direct ownership interest. Credit opportunity funds have a broad mandate and may involve a range of debt instruments, allowing fund managers to provide solutions that are suited to each individual company. This is critical when deploying capital effectively in diverse business environments.

Research has shown that mezzanine and credit opportunity funds perform well during the contraction and early expansion phases of the business cycle. After two consecutive quarters of GDP contraction, South Africa emerged from recession in the second quarter of 2017. Renewed business confidence, albeit amidst low forecast growth of around 1% in 2018, could make this the opportune time for investment. South Africa’s over two million SMEs could thrive with an improvement to cash flow, working capital and management, thereby helping to realise the National Development Plan’s forecast that the sector will create 90% of jobs by 2030. Funds with dry powder – cash available for investment – can therefore provide liquidity in the early stages of economic recovery when traditional lenders are unprepared and uninterested. This market also offers investors the opportunity to diversify their fixed income exposure away from government bonds and listed credit, to high-yield investments. Mezzanine and credit opportunity funds typically have positively skewed returns, with more unexpected gains than losses.

Due to the broad range of strategies that mezzanine and credit opportunity funds may follow, investors can earn interest income and equity-like returns through convertible debt strategies.  Funds can gain exposure to assets that should predictably recoup principal and generate alpha (excess return relative to a benchmark). Another advantage is that private debt funds can incorporate diversification of investments by country, sector, or rating. Thus, lowering volatility of returns.

The pursuit of high returns, however, is not without risk, as these private debt strategies take a bet that returns exceed losses in the case of SMEs defaulting on payments. Mezzanine and credit opportunity funds often carry a higher premium to compensate for this.

As can be seen from developed markets, a flood of funding into the debt market could lead to private debt funds hastily pursuing even riskier options, such as “distressed debt” (lending to companies on the verge of bankruptcy), resulting in eroding industry returns. This has sparked fears of a “private debt bubble”.

In Africa, however, the debt market is a long way from reaching capacity. Private debt in Africa is expected to have potential over the long-term as an established part of investors’ portfolios. Investors into Africa willing to accept the risk could create real value for SMEs, the key drivers of economic growth. The development of the private debt market is essential to unlocking this potential.


About the Author

Kelsey Tanner completes independent valuations of private companies across Africa. In her role as senior private equity analyst, she prepares investment valuation reports for private equity industry clients. Kelsey also conducts industry research and compiles reports such as the Bright Africa (Private Equity) and the RisCura SAVCA Private Equity Performance reports, which provide insight into industry returns. Kelsey qualified as a Chartered Accountant (SA) in 2017 after completing her articles in KPMG’s financial services division, where she gained experience in valuation modelling and unlisted instrument valuation. She joined RisCura in February 2017.

How Can Insurers, Reinsurers and Brokers in the CIMA Region Issue Surety Bonds?

30.01.2018Jean Olivier Anet, Manager/Technical Operations, Continental Re

This blog is a summary of a recent book in french by the author (janet[at] about the theoretical and practical aspects of the surety branch and its reinsurance.


The question may sound puzzling given that surety bonds fall within the broader portfolio of traditional insurance products.  Yet, it is a crucial question nonetheless as surety is a highly specialized niche within the insurance world. The issue is equally important if one is to take into consideration the growing interest from mainstream insurance sector players particularly in the CIMA (Conférence Interafricaine des Marchés d’Assurances) region, which includes 13 African francophone countries. However, despite surety bonds being a new phenomenon in the franc zone, a number of specialized companies have already had their licences withdrawn.

More importantly, the issuance of surety bonds is a crucial topic especially with regard to emerging development prospects and synergies between the banking and insurance sectors. This is thanks to financial insurances and bank guarantees. Take for instance the housing finance sector, mortgage guarantee is a case in point with regard to synergies between the housing and insurance sectors.

What is a surety bond and what exactly do insurers understand by the term?

A surety bond is a regulated product that is governed by an agreement that protects against financial loss. As such, there is not one specific definition of the term. If anything, a definition per se does not quite exist. The only explicit reference of the concept in the CIMA insurance code, is in article 328 on the classification of insurance classes. The term surety bond is listed under class 15 and split into two subsectors; direct bond 15A, and indirect bond 15B.

There is no further direct reference of the concept in the CIMA code, hence the recourse to doctrine, jurisprudence, legal references from other countries and professional practice.

What is a direct bond?

A direct bond or surety bond is an ordinary legal guarantee granted by an insurance company.

Stricto sensu, a guarantor is a person committing to guarantee the payment of a liability contracted by a person or company (the principal) with a third person (the obligee), in the event that the principal defaults. On a broader note, a surety bond is a security for the main contract agreement. The surety can be implemented free of charge or paid at a fee of between 0.1% and 3.5% of the contract amount. When the surety is issued by a professional credit and financial institution, a collective credit guarantee entity, or an insurance company, it is referred to as a professional or financial guarantee. A surety allows for the fulfilment of numerous conventional or legal operations.  Whenever there is need for a guarantee, a surety is a definite way of securing the operation.

The business of guaranteeing, also known as « surety » is a financial service. The French Association of Specialised Financial Companies (ASF) defines the concept as: « a commitment made by a surety company (guarantor/surety) on behalf of a person or a company (principal), enabling the principal to offer a guarantee to its financial or economic partners (the surety beneficiaries). If the principal defaults, the guarantor shall replace the former to execute their legal duty. The guarantor may later seek financial redress from the principal.»

Surety bonds apply to a wide variety of cases, for example market sureties, which is necessary for public and private sector procurement. There is also a regulated profession guarantee fund, to protect clients of such professionals, when the latter handle funds belonging to third parties e.g. travel agents, notaries, lawyers, insurance brokers, etc.

As defined above, a surety bond, generally involves three parties, resulting in a dual relationship; between the guarantor and the principal, and between the guarantor and the obligee; which by nature is a personal guarantee or surety (a concept that protects the obligee against financial loss, thanks to a third party commitment). As such, a surety, which is actually a financial service, is not limited to a guarantee. It also covers the independent guarantee, which in itself is a commitment separate from the main contract. The legal nature of a surety bond is similar to a bank loan rather than to an insurance contract. A good rule of thumb is that not all guarantees issued by an insurance company constitute an insurance policy.

To non-specialists, this difference between a surety bond and an insurance policy may not be obvious, and especially because service insurance companies that issue sureties use the same risk management techniques as those in mainstream insurance business. For instance, the risk pooling which includes spreading the risk across a large number of policy holders for risk mitigation, risk selection, premiums, risk reinsurance, provisioning collecting premium tax etc.

In actual sense, the difference between the two concepts is rather obvious. Unlike in insurance where the risk is linked to the occurrence of an unforeseeable/unavoidable event, such as a fire or an accident, surety applies when the damage is as a result of a person’s or a company’s inability to honour their commitment.  Yet, a principal’s failure to honour his engagement is seldom an accident. It is usually the result of either financial, technical, judicial, economic or political situations, which in some cases could have been avoided. The damage does not result from unforeseeable circumstances as would be the case with traditional insurance. Additionally, unlike an insurance contract, a surety bond gives an obligee, subrogatory or personal recourse in the event that a payment is made out on his behalf. Unlike bankers who control financial flows of the clients they guarantee, which enables them obtain a reimbursement for payments made out on their behalf, a guarantor does not have direct access to their clients’ bank accounts. It is for this reason that a surety has to build his business model around a sound risk management mechanism and a clear and innovative re-insurance structure.

In a nutshell, a bond is not an insurance product but rather a financial service. If an insurer were to issue such a product, he would be forced to adopt a banker's attitude, while managing the constraints of the insurance world.

What about suretyship (indirect), the second subsector of sureties?

Suretyship (indirect), also known as surety insurance by legal advisors is a type of insurance that provides a cover to sureties such as banks and financial institutions or entities other than surety companies. Surety insurers mainly target banks, financial institutions, surety funds, or even individuals. It is crucial to note that indirect bonds have the same judicial connotation as insurance contracts. As such, they can only be issued by insurance companies. That is the particularity of such bonds.

What is the purpose of this book and more precisely, who does it target?

Success in any given insurance sector can only happen if one fully understands and masters the parameters that govern the sector. The book "La branche caution et sa reassurance: Théorie et Pratique" (Surety and Reinsurance: Theory and Practice) allows the reader to have a better understanding of the reinsurance sector. It is a contribution to the sector as it scientifically examines the business of surety bonds in a neutral and practical manner.

The book covers topics such as; risk and claims management, the financial selection of risks, information systems etc. It is a guide book to be used as a strategic tool for decision-makers in the industry.


About the Author

Jean Olivier Anet is currently the Technical Operations Manager at the Continental Re-insurance in the Abidjan Regional Office. Prior to joining the organization, he worked for ten years as a Senior Underwriting Assistant in charge of claims management and underwriting of surety and credit insurances.  In 2012, Jean Olivier received the FANAF’s Jean CODJOVI Award in recognition of his work in surety. The Jean CODJOVI award aims to promote research in the Insurance and Reinsurance field. Jean Olivier holds a Master’s degree (Msc) in Management and another in Insurance.

Message from the MFW4A Partnership Coordinator

12.01.2018David Ashiagbor

Dear Reader,

As we begin 2018, I would like to wish you all a happy and prosperous New Year on behalf of all of us at MFW4A.

2017 was a pivotal year for us. We began our transition to a more inclusive Partnership with the integration of African financial sector stakeholders into all levels of our platform.  This new phase also includes a revamped value proposition designed to deliver sharper outcomes.

Our work in 2017 strengthened MFW4A’s position as a leading and independent voice on financial sector development in Africa. Mobilising domestic capital for long term investment was a focus for us. We brought together African pension funds, regulators and development finance experts in Abidjan in November, to identify options and instruments to leverage Africa’s growing pension assets for investment in infrastructure, agriculture and affordable housing. A task force was established to follow up on the meeting’s recommendations, which will continue to guide our work in this area. 

A notable outcome in 2017, was the approval of a $3 million Line of Credit to the Union Trust Bank in Sierra Leone, by the African Development Bank (AfDB) in September 2017, following the Conference on Financial Sector Development in African States Facing Fragile Situations co-hosted by MFW4A in June 2016. Another was the resolution taken by Governors of African central banks and Senior officials of international financial institutions, to strengthen supervision and solution plans for Pan-African banks at the ‘’Cross-Border Banking and Regulatory Reforms in Africa‘’ conference, jointly organized with the International Monetary Fund (IMF) and the Basel Committee for Banking Supervision (BCBS) in Mauritius.

Our work in support of a strong and stable African financial sector will continue this year, with national and regional Financial Sector Dialogues in selected regions. These high-level events will provide a platform for African financial sector stakeholders to assess the progress of ongoing reforms in their respective regions and identify future priorities. We will also launch a new programme on Trade Finance to help fill existing knowledge and skills gaps through research, capacity building and advocacy efforts. A Long-term Finance initiative expected to lead to the establishment of a scoreboard that provides comparative indicators of the level of development of long-term finance markets in Africa, will also be launched, in collaboration with AfDB and GIZ.

We will continue to support efforts to develop and implement financial risk management solutions in the agricultural sector while promoting an enabling environment for digital finance. Other activities include research to support diaspora investments and remittances as well as capacity building programmes in our SME Finance and Housing Finance workstreams.

We look forward to your continued support and collaboration.

With our best wishes for a happy and prosperous 2018.

David Ashiagbor
MFW4A Partnership Coordinator


What do renowned economists, financial sector practitioners, academics, and activists think about current issues of financial sector development in Africa? Find out on the blog - and share your point of view with us!


Islamic Microfinance: Financing model for economic growth...Mohamed Agrebi, Senior Operations Officer, MFW4A
Mining the gap: Financial inclusion and genderBrittney Dudar, Master's Student, University of Toronto
SMEs provide opportunity for Africa to grow its debt marketKelsey Tanner, Senior Private Equity Analyst, RisCura