SEMINAR ON SUSTAINABLE DEVELOPMENT OF MICROFINANCE SERVICES

1
SEMINAR ON SUSTAINABLE DEVELOPMENT OF
MICROFINANCE SERVICES TAIPEI OCTOBER 2, 2003

2
Comments On Paper Presented by Mr. Alex Counts
BY Mr. Cherno A. Sowe General Manager GAWFA
3
DEMAND AND IMPACT

• CHALLENGES, AND
• PERSPECTIVES

4
GAWFA
GAMBIA MICROFINANCE INDUSTRY
5
Background
Benin
6
HISTORICAL OVERVIEW OF THE MICROFINANCE SYSTEM IN
THE GAMBIA

• Prior to the adoption of the World Bank IMF
  supported Economic Recovery Programme, the basic
  trust of the Government policy towards rural
  finance was to provide cheap and readily
  available , agricultural inputs and credit to
  farmers. This was done primarily through the
  Gambia Comercial and Development bank (GCDB), the
  Indiginious Business Advisory Services (IBAS),
  the Agricultural Development bank (ADB), and the
  Gambia Cooperative Union (GCU). All of these
  Institutions were supported by funding from
  either the Government , and /or Multilateral
  Institutions (MLIs).
• Due to a vareity of reasons, including poor
  crops, malfeasance, inadequate credit approval
  and monitoring systems, little contact with
  the-end user, the perception that loans did not
  need to be repaid, and political interference
  9including the rural debt moratorium in 1982),
  most of these programmes had poor repayment
  records, and subsequently failed. Mainly as a
  results of these events, the

7

• availability of credit to the rural sector
  contracted, with the ratio of rural credit to
  rural GDP declining from 30 40 in the early
  1980s to 7 - 8 in the 1990s. Gambias history
  of rural credit is therefore, not conducive to
  another supply led rural finance programme,
  particularly one which, in the eyes of the
  beneficiaries, will be associated with the
  Government or a parastatal organisation.
• Recognising that supply led intervention in rural
  credit has failed, and in line with a more open
  market policy, the government has changed its
  approach to rural financial services. Rather than
  being a provider of financial services itself, it
  is now concentrating on creating an enabling
  economic and regulatory environment in which
  independent rural finance institutions can
  flourish. To this end, the Central Bank of The
  Gambia (CBG) has now established a set of
  regulatory requirements under which rural credit
  institutions can operate, and various government
  departments (funded by external donors) and Non
  Governmental Organisations (NGOs), have started a
  variety of schemes. This has resulted in a
  multitude of small projects operating in all
  Divisions of the Country, which have achieved
  only a limited outreach and impact to date.

8
DEMAND FOR MICRO CREDIT
As noted above, the provision of credit to the
agricultural sector has declined sharply from
levels existing in the early 1980s. As a rough
indicator of potential rural credit demand, to
return the availability of rural credit to the
level that was extended at that time (a medium of
35 of agricultural GDP) would require credit
availability totaling D230,000,000 per annum in
both short and long term credit facilities, based
on the statistics for 1994 ( the most recent that
are available). This far exceeds the total amount
of loans made by the commercial banking sector
for agricultural purposes (D 57,000,000 as at
30/6/1996). Based on these statistics, therefore,
there is an overall potential rural demand for
credit from the financial sector that is not
being met of D 173,000,000 per annum.
9
CURRENT PROVIDERS OF MICROFINANCE SERVICES

• In the Gambia micro financial services are
  primarily supplied by the non bank financial
  sector,since the commercial banks maintain only
  three branches outside of the Greater Banjul
  region. Of these, the main providers of financial
  services in the rural areas are as follows
• Gambia Womens Finance Association (GAWFA)
• The VISACAs
• The Credit Unions

10
THE ROLE OF MICROFINANCE
Micro finance should be a key component of any
comprehensive anti poverty strategy. It comes
toady as a powerful anti poverty instrument
broadening the role and impact credit has on
economic activities, especially on the poor.
Credit has been used in the past to finance
income generating activities, assists households
to get basic services like water sanitation and
home improvement and allow the private sector to
finance local public infrastructure. Micro
finance can target and have a profound impact on
the livelihoods of the poorest of the poor
because it encompasses all type of financial
services from deposit mobilization to savings and
credit in poor areas.
11
Financial intermediation is the underlying
principle of micro finance. It is the process
that allows specific institutions (financial
intermediaries) to bring together supply and
demand of funds. The capital importance of
financial intermediation in steering the economic
process in a country was recognized more than two
decades ago. Since then, the role of savings and
credit in bringing about growth has been
demonstrated, together with the importance of
healthy and profitable financial
institutions. Micro finance calls for a fresh
look at the financial situation at the local
level. Here the MFIs, who are mostly NGOs, play
a special role as elements of local financial
infrastructures providing financial services to
the poor and the poorest. As micro finance
institutions we should first aim at developing
our financial infrastructure so that we can
better serve the poor.
12
This calls for a national network-oriented
approach, which would enhance horizontal linkages
between banks and MFIs operating in the same
local financial network. MFIs face several
internal and external challenges. Internal
challenges relate to the need to understand and
conceptualize micro finance further, especially
in relation to areas closely related to poverty
(e.g. peace-keeping, disaster mitigation,
reconstruction) and in areas critical to the
development process (e.g. environment empowerment
of women etc). Internal challenges relate also to
the need to strengthen the MFIs own capacity and
adapt procedures. External challenges relate to
the strengthening of cooperation between MFIs and
other Government projects involved in micro
finance or assisting MFIs involved in micro
finance, and also the development of public
awareness, about the use of micro finance to
fight unemployment and social exclusion.
13
BACKGROUND OF GAWFA
Gambia Womens Finance Association (GAWFA) was
established in 1987 CORE BUSINESS Provision of
financial services to small and micro
entrepreneurs, low income women farmers and women
engaged in any economic activity.
14
LEGAL STATUS

• Gambia Womens Finance Association is
• Registered under the companies Act 1955 and
  limited by guarantee
• Regulated and supervised by The Central
  Bank of The Gambia as a Non Bank Financial
  Institution (NBFI)
• Registered with the NGO Affairs as a National
  NGO.

15
MISSION STATEMENT
To serve as a financial Intermediary to enhance
the Entrepreneurship development of women as a
means of alleviating their poverty. It also
serves as a vehicle for mainstreaming women in
National Development Processes.
16
VISION
GAWFAs vision is the transformation of the
economic and social systems of the Gambia towards
an equitable distribution of resources and power.
17
OWNERSHIP
Owned by over 43,000 women members and the 23
founder members.
18
OBJECTIVES

• To promote GAWFAs financial and operational self
  sufficiency
• To build GAWFAs human and material resource
  base
• To maintain a sound governance structure,
  organizational vision and culture reflecting the
  principles of service, sustainability and growth
• To implement a cost effective savings and credit
  programme for low income women in the rural and
  urban areas
• To enhance the competitiveness and profitability
  of enterprise operated by low income women
  entrepreneurs
• To advocate for the formulation of government
  policies and legislation which are favourable to
  women entrepreneurs and micro and small
  enterprises.

19
COMPARATIVE ADVANTAGE

• Nationwide Coverage
• A loyal, stable customer base of over 43,000
  depositors and 20,000 borrowers.
• A highly qualified professional Board of
  Directors
• A highly qualified management team and staff
• A strong Organizational Culture built on values.

20
ACHIEVEMENTS TO DATE

• Membership of more than 3500 village base womens
  groups and 3500 individual members.
• Provided financial services to more than 50,000
  women.
• Provided business advice and management training
  to more than 10,000 women
• Achieved both operational and financial
  self-sufficiency in 2001.
• Recognized as a leader in the Micro finance
  Industry in The Gambia .

21
Portfolio by sector year 2002
22
OPERATIONAL AND FINANCIAL SELF SUFFICIENCY
INDICATORS
23
Dimensions of matching demand
with supply

• Scale of Penetration rate of poor reach
• Depth of penetration level of poverty
• Responsiveness of financial Products to clients
  specific needs and priorities ( having products
  that meet the needs of the clients and that help
  them grow
• Cost effectiveness for the client (
  affordability)
• Quality of service to clients ( treating the
  client right) ( might not be so important? You
  have to see)

24
Requisites

• Microfinance institutions that have a strong
  equity base that sustain financial challenges
  due
• Linkages with financial sector
• Technical capabilities to manage operations, to
  understand clients and to innovate
• Appropriate decentralization with adequate
  physical infrastructure and information systems
  to to ensure presence near to clients and
  effective monitoring
• Appropriate mechanisms to understand clients
  needs, satisfaction and to monitor impact

25
Prerequisites in the environment

• Standards for the microfinance sector
• No cheap loan ( subsidized loans)
• Effective supervision of the sector to ensure
  sustainability and growth
• Regulation that encourages savings mobilization
• Appropriate support mechanisms for
  microentreprises
• Appropriate mechanisms to discourage defaults

26
CHALLENGES

• Lack of funding for financing loans
• Lack of funding for strengthening institutional
  capacity
• Ineffectiveness in the environment
• High costs associated with operations in some
  sectors and areas

27
Challenges to growth

• Limited funding base to strengthen infrastructure
  ( office and mis to support decentralization in
  rural area)
• Lack of office and mis might slow service
  delivery, increase the costs of monitoring and
  ultimately cost the clients more

28
Challenges to growth

• Limited equity base difficult for the
  organization to weather challenges emerging for
  cyclical economic problems.
• For exemple, when interest rate becomes to high,
  the organization can review the composition of
  its financial resources. For exemple reduce of
  commercial loans. This is only possible if the
  organization has a good equity base

29
Challenges to growth

• Very limited local currency loans at the
  international level . This is a problem when the
  devaluation is combined with very high interest
  rate in the country
• Wide spatial dispersion of clients raise
  operational costs

30
Savings mobilization and growth

• Savings mobilization GAWFA strong in savings
  mobilization. The microfinance regulation allows
  NBFI to mobilize savings.
• Savings can be used for on lending
• However in times of high interest rate on loans,
  people tend to rely more on the savings this
  might make funding more difficult for the
  institution and growth in outreach could be
  challenged.

31
Ways forward

• Encourage diversity of models. This encourages
  learning and innovation. It also gives clients
  alternatives
• Develop an equity fund to support
  undercapitalized MFI that have strong performance
• Provide additional support for institutions that
  operate in rural areas especially in areas with
  low concentration and who support agriculture

32
Ways forward

• Encourage institutions to have wide range of
  clients. Important for clients satisfaction ( not
  left out because he has performed instead he is
  supported) Important for institutional
  sustainability. Important for long term impact
  and snow ball impact that will lead to economic
  growth and job creation
• Facilitate exchange on innovations
• Support microfinance networks to help promote
  standards and to facilitate change in the policy
  environment

33
Ways forward

• Revisit financing strategy ensuring a good mix
  of equity fund, concessional loans, commercial
  loans and savings
• Encourage equity ( capitalization fund) to
  support institutional development (
  decentralization automation , strengthening
  market research and impact capabilities in MFIs)
• Give priority in resources allocation to
  strengthening best performing institutions
  regardless of the model

34
Ways forward

• Monitoring the microfinance sector where
  possible assist institutions in producing
  information useful to monitor the sector ( this
  could done with the national networks or with the
  central bank ( impact, growth)

35
Support to growth oriented microentrepreneurs

• Business development services
• Support to microentrepreneurs is becoming more an
  issue especially as the clients grow
• Opening markets through technologies and access
  to information

36
Similarity Points of view on presentation

• Support growth with a combination of
  capitalizatio ngrants and leverage commercial
  funds
• Integrating ICT in microfinance
• Supporting microentrepreurs IT and other services
  
• Where regulations warrant transformation assist
  in transforming some MFI in specialized banks?
• Improve supervision and protection of savers
• Promotion of enabling environment ( interest rate
  policy free, standards, effective supervision,
  promote linkages with banks )
• Be careful with creating new institutions that
  could disruptive for the sector when there are
  performing institutions which could be
  effectively assisted

37
Caution

• Transformation into banks not a panacee for
  outreach.
• Seabed strategy only where there are no
  performing microfinance institutions. Other
  distortions in the sector. Send the wrong signal.
  
• Scale up in operations without strengthening
  infrastructure and capacity lead to disaster
• What is important is monitored. Strengthen
  internal capacity to monitor quality of services
  and impact.
• Take into account regional differences high
  density vs low density average loan size,
  savings( strong)

38
CONCLUSION

• Equity fund to support rural and agriculture
  finance (infrastructure)
• Support institutional development (infrastructure
  and capacity)
• Access to technology MFI to reduce costs
• Support a wide range of institutions in the
  Country
• Giving priority to best performing institutions
  for financial resources instead of creation of
  new
• Promoting all the dimensions of matching demand
  with supply
• Encourage a range of clients as basis for having
  long term impact and ensuring financial
  sustainability ( assist in having products for
  clients which businesses are growing)