THE EMERGENT ROLE OF CENTRAL BANKS IN ADDRESSING RURAL FINANCE CHALLENGES THE GAMBIA EXPERIENCE

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• THE EMERGENT ROLE OF CENTRAL BANKS IN ADDRESSING
  RURAL FINANCE CHALLENGES THE GAMBIA EXPERIENCE
• BY
• S. Bai Senghor
• Director
• Microfinance Department
• Central Bank of The Gambia
• Banjul, The Gambia
• Presented During AFRACAs Technical Workshop on
  Innovations in Addressing Rural Finance
  Challenges in Africa
• Date 23th - 28th November 2008
• Venue Dar es Salaam Tanzania

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Introduction

• Microfinance has been recognized as one of the
  most effective tools to alleviate poverty as
  outlined in the PRSP II and Vision 2020.
• About half of the population reside in the rural
  areas, and
• About 80 percent of the household incomes are
  derived from agriculture with groundnut as the
  main cash crop.

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Introduction (cont.)

• Our goal is to achieve inclusive finance for the
  entire populace to improve the livelihood of
  Gambians by enabling people to invest in better
  nutrition, housing, health and education for
  their children as well as coping with difficult
  times caused by crop failures, illness or other
  calamities.

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Introduction (cont.)

• The sector has received and continue to receive
  enormous support from NGOs and Donor funded
  projects
• Rural Finance Project (RFP) funded by IFAD, a
  follow up to the Rural Finance Community
  Initiative Project (RFCIP).
• Social Development Fund (SDF) funded by African
  Development Bank (AfDB).
• NGO promoters and Technical Service Providers
  (TSP).

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Introduction

• The Central Bank of the Gambia continue to play
  pivotal role in the growth and development of
  MFIs
• renewed the policy guidelines
• drafted a Non-Bank Financial Institution (NBFI)
  Bill
• Aimed at creating an enabling environment for
  building more vibrant and sustainable MFIs. T
• facilitating the linkage of the MFIs with the
  commercial banks to complement each other and
  enhance building inclusive finance as part of
  efforts to expand and deepen financial services
  for financial sector development and economic
  growth.
• Notwithstanding the above, the microfinance
  sector is limited in scale and depth of outreach
  especially in the rural areas.

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Traditional Informal Financial System

• Traditionally
• USUSUs (resemble rotating savings and credit
  associations (ROSCAs)
• village kafos (community groups)
• based on neighborhood ties, gender, age, kinship
  and ethnicity.

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Traditional Informal Financial System (cont.)

• The NGOs and government donor sponsored projects
  also came with mainly credit which was intended
  to lubricate the process of maximising
  agricultural production and to play a significant
  role in promoting rural industrialisation and the
  service sector.

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Formal Financial System

• The Gambia adopted an Economic Recovery program
  (ERP) as advised by the World Bank in 1985 with
  the aim of correcting macroeconomic and
  structural imbalances of the economy.
• Financial Sector Policies Reforms
• Liberalisation and Deregulation
• At institutional level
• The revision of the Financial Institutions Act
  (1992)
• Operating Rules and Guidelines for both Banking
  and NBFIs
• Legal and Regulatory Framework

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Classification of The Gambias Financial System
Financial Institutions Act (FIA 1992)

• Category B (Deposit-taking NBFls)
• Finance Companies
• Village Savings and Credit Associations (VISACAs)
• Cooperative Credit Unions

• Category A
• Commercial Banks
• Insurance Companies
• Foreign Exchange Bureaus

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The Classification of MFIs
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Microfinance Sector- Regulated MFIs

• No Fiduciary Financial Institution as yet
• 5 Finance companies
• 70 VISACAs
• 67 Credit Unions

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Summary of Total Savings, Loans, Asets and
membership of Finance Companies
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Performance VISACAs Credit Unions
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Innovations in Rural Finance

• Innovations in rural finance refer to changes in
  the technology, the type of financial services
  offered, the strategic behaviour of institutions,
  the institutional arrangements, and the structure
  of incentives that result in improved viability.
• These innovations should contribute towards the
  reduction of the risks of service provision as
  well as the per unit transaction costs associated
  with financial intermediation in order to impact
  on small agricultural enterprises.

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CBG Reviewed MF Regulatory Policies

• Minimum Capital Requirement
• From D0.5m to D10.0m for Finance Companies
• From D10,000 to D300,000 for VISACAs
• In addition, maintain Gearing and Capital
  ratios of 10 and 16 reflecting their high risk
  exposure
• MFD to prepare the manual of Guidelines and
  Instructions
• Task Force created to draft the NBFI Bill to be
  submitted to the sector for validation
• Ensure viability and sustainability
• Ensure stable growth and help neutralise expected
  and unexpected financial losses

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Innovations in Rural Finance
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Innovations in Rural Finance (cont.)
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Innovations in Rural Finance (cont.)

• Demand-Oriented Savings and Credit Products with
  the following features
• Low Transaction Costs
• Non-Traditional Loan Appraisal and Collateral
  Substitutes
• Peer-lending (group)
• Incentive Mechanisms for Timely Repayment

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Challenges of the MF Sector

• MF Institutional Capacity and financial strength
• Management talent
• Technological constraints
• Expanding the scale and depth of outreach
• Transforming NGOs (GAWFA)
• Integration into the domestic financial
  system/Linkage Banking
• Sustainability

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Conclusions and Way Forward

• Our goal is to create enabling environment and
  private sector participation in providing
  financial services in the rural areas.
• Increase scale and depth of Outreach
• Commercialisation
• Apex and Wholesale institutions
• Cooperative model and education program
• Linkage
• Sustainability

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• Thank You