ii. Access to Financial Services

Financial resources are indispensable for employment creation by enterprises and governments, be it in the form of debt or self financing. Safe and attractively remunerated deposit facilities do not exist: either personal savings are kept liquid at no return, or they are invested in other activities with a return that is lower than its equivalent deposit in banks or credit unions. As a result, there is little capital accumulation that could serve the formation of productive assets like machines, equipment and stocks. Most enterprises have no access to other financial services such as lease finance or guarantees.

The reasons lie largely in the organisation and functioning of financial markets, in the institutional culture of banks, information asymmetries and the scarcity of investment opportunities. The situation is not entirely bleak: Africa's financial sector is also characterized by a wealth of innovative techniques in financial intermediation that help to reduce risks and costs. This applies particularly to the informal sector, be they group-based like tontines and other ROSCAs or undertaken by individual operators like moneylenders. They operate in a personalized manner which allows them to do without written contracts, while keeping up social pressure to ensure compliance with repayment obligations. The problem is that the financial services provided in the informal sector are often too small, too short and sometimes too expensive to be of interest to investors with job-creating opportunities.

A programme of action in this domain must focus on key constraints in Africa's financial sector that have a direct bearing on jobs: collateral constraints, lender transaction costs, governance and performance of social funds, savings mobilization and an inappropriate or non-existing regulatory environment. Such a programme must engage the policy dialogue with central macroeconomic institutions (Central Bank), while at the same time it must support grass roots initiatives. The one reinforces the other, and only implementation at these two levels would be effective.

The following strategies, that generalize lessons learnt and best practices tested in ongoing ILO and other field projects, are:

Expansion of member-based financial organisations

This strategy would enlarge and generalize the lessons of an ongoing successful partnership of the ILO with the Central Bank of West African States (BCEAO). The joint programme, PASMEC, supports at the macro - and institutional level decentralized financial systems (village banks, women savings groups etc.), i.e. precisely those suppliers that the informal sector operators and micro entrepreneurs turn to when making small investments. The PASMEC spans a very formal monetary authority and very informal grassroots initiatives: it is an attractive illustration of how the ILO can influence policy-making with an enormous outreach effect, namely through national coordination fore in each of the seven member countries of the monetary union bringing together NGO networks, banks, governments, Central Bank and donors. The success of the PASMEC has triggered recently a request by the monetary authority of the other CFA zone, the BEAC, to replicate the support programme in the five central African countries there.

Strengthening Social Development Funds

Social Funds have sometimes a micro credit window, that is most often administered by Government. The performance of such an arrangement has not been satisfactory and the ILO has therefore favourably responded to a request by the Government of Zimbabwe to turn around their micro credit facility within the Social Development Fund at the Ministry of Labour. The challenge is to set up a genuine APEX structure that lends through national retailers (banks and financial NGOs) and thus reaches more micro enterprises and the self-employed. It is of particular relevance to those who lost their jobs as a result of Structural Adjustment measures. The ILO has been contacted by the AFDB to generalize the rehabilitation programme.

Support to micro finance professional organisations

Jobs in Africa will be mostly created in the private sector. Employment policies make sense only if they address the constraints faced by private sector operators to undertake investments and create jobs. A key player in this respect is the private financial sector that acts according to cooperative principles. It is mutual savings and credit associations and cooperative banks that are most sensitive to the financial needs of the SMEs anywhere in the world, including Africa. The ILO has been testing an approach to help mutual savings and credit organisations acquire a genuine power and advocacy status. In Madagascar, for example, the ILO discovered a genuine need, and demand for, a professional association to represent members vis-a-vis public authorities, other financial institutions and donors. This policy dialogue is going to alter radically the financial conditions of participants, thus indirectly increasing employment in the rural areas and the informal urban economy. These best practices derived from the support programme in Madagascar show that viable micro finance institutions (MFIs) can indeed combine outreach and sustainability objectives, but they have to (i) be independent, (ii) impose strict recovery conditions; (iii) search flexibility on collateral requirements; (iv) charge positive real interest rates; (v) offer deposit facilities; and (vi) maintain a diversified portfolio.