Title: SITUATIONAL ANALYSIS OF MICROFINANCE SUPPLY IN SUDAN By Dr' Abubakr Hussein University of Khartoum K
1SITUATIONAL ANALYSIS OF MICROFINANCE SUPPLYIN
SUDAN ByDr. Abubakr HusseinUniversity of
KhartoumKhartoum, Sudan12 November 2007
2Opportunities in Sudan
- Large potential demand in the North and South
- So far approximately 3-5 coverage
- Commercial banks are interested and competent
- CBOS commenced to exercise leadership
- Good practice in region (MENA, SSA, )
- Global good practice firmly established
- Nobel prize 2006
- Pieces are there, need to connect them
3Key stakeholders/suppliers
- Federal Government (GNU)
- State Governments (GOSS, etc.)
- Local Government bodies below state level
- Banking system
- Insurance sector
- Projects, funds, programs, schemes
- NGOs, cooperatives and CBOs
- Private sector
- Training Institutions and Universities
4Microfinance supply State of art
- Several trials in micro lending have been
launched in Sudan during the past few decades to
extend small loans to the poor, small producers
and low-income groups, including women. - However, it appears that there has been no
conformity in approach among the institutions
undertaking these endeavors.
5- Hence, microfinance, as known and practiced
worldwide does not really exist in Sudan
(offering financial services such as micro loans,
repeated and larger loans, consumption loans,
savings, deposits, money transfers, insurance,
and adopting acknowledged performance measurement
indicators). - Most institutions and agencies involved in this
field operate mainly with a credit minimalist
approach.
6- The degree of success achieved varies according
to the nature of the institution and the
environment in which it operates. - Most micro lending to date has been handled by
NGOs. - Since 1994, approximately 5 percent of total bank
loans were allocated to financing the social
sector, and this percentage has gradually
increased to reach 12 percent in the Bank of
Sudans credit policy for 2007.
7- The CBOS circulars issued on this policy defined
social development as productive families,
handicrafts, artisans and small professionals. - 20 Sudanese banks are currently providing micro
lending services targeting craftsmen,
professionals and small producers including
productive families. - Despite the differences among the banks in
volume of lending number of businesses financed
and portfolio at risk, ratio of the value of
micro lending in each bank to its total value of
lending portfolio is very low. - Finance is made through unevenly distributed
Islamic formulae murabaha musharaka, mudaraba
and salam.
8- According to CBOS statistical records, the volume
of micro lending has increased by more than 30
percent, from SDG 30 million to more than SDG 40
million between 2003 and 2004. - Despite this considerable increase, to date micro
lending has not exceeded 1 percent of the total
volume of finance of most banks, with the
exception of the Savings and Social Development
Bank, the Exports Promotion Bank, the Nelien Bank
and the Agricultural Bank of Sudan.
9Banks-based experience
- Lack of exposure and training in microfinance
facilitation and management - Procedures are conventional, not tailored to the
conditions of the poor (e.g. the client has to
open and activate a bank account before receiving
a loan clients are required to issue post-dated
cheques for installments they have to provide
adequate and conventional collateral, lengthy
procedures, etc.) - Efforts depend entirely on individual bank
initiatives, not within a national policy - No unified definition of the target group or a
set of unified eligibility criteria across banks
or even across branches
10- Almost no bank targeted the poor
- Most experiences, with few exceptions, were in
urban or semi-urban areas - Limited experience in field work and limited
links with grass-root organizations (CBOs) and,
hence, limited coverage - Banking system is structured to serve those in
the formal sector (licenses, clearance from Zakat
and taxes, land lease, banking accounts,
requirements of cheques and collateral etc.) - Little emphasis on the savings component
- No allowance for consumption/emergency loans,
opening up potential for diversion of funds to
urgent needs.
11- NGOs-based experience
- Most are community-based
- They tend to have simpler procedures
- Can adopt flexible collaterals
- Some have created successful links with the
formal banking system - Finance a variety of activities, i.e., not
confined to the so-called productive activities - Adopt different microfinance mechanisms and
approaches, not all successful - Face problems in shifting from grants to credit
where credit is newly introduced after a period
of charity based operations - Face problems of grant based operation by
competing NGOs even when they have made
successful transition - Are endangered by sudden phase-outs which affect
sustainability - But do provide several clues to successful
microfinance operation
12- Social funds experience
- Most are largely or entirely grant or charity
based - Those with a window for credit target members
only, not the poor sections of the population - Share of credit is negligible in the use of
social funds - The exception is the SDF in Khartoum state, which
has grown over the years and refined its
operations by absorbing experiences from others - The staff of the social funds that are engaged in
micro lending have a limited exposure to best
practices and management
13- Development projects-based experience
- Adoption of an integrated development approach
- Achieving good results in environmental
protection and rehabilitation - Using credit as a tool for poverty alleviation
- Forming and working with CBOs as intermediaries
- Achieving some success in financing agricultural
production, but varied success in IGPs - Low skills, and inadequate training, in credit
and investment - Capital erosion in the earlier projects
- Limited impact on women, one exception is UPAP
- Good coordination with government counterparts
- High cost of research projects and management
(e.g. in the ADSs) - Lack of savings mobilization
- Absence of consumption loans
- Limited targeting of the poor and of special
needs.
14Microfinance supply constraints
- Because most banks do not follow best practices
in lending, the services provided are not in
conformity with the special needs of targeted
clients, and accordingly, other applications of
microfinance are unorganized. - There is a limited volume of funds earmarked for
microfinance - Costing and pricing of lending services is a
challenge - There is a lack of knowledge among microfinance
clients of the available programs, particularly
in rural areas. This could mainly be attributed
to the limited geographical coverage. - The economic and services infrastructure is not
conducive for operations in most areas of Sudan - Poor coordination between banks
- Microfinance operations are not linked with
business advisory services, BDS - Dearth of information among most banks about
credit demand in the different geographic areas.
15Serving the Majority - Success Factors
Commitment
Knowledge of MF best practices
Staff training incentives
Success Factors
Infrastructure close to clients
Adapted systems and procedures
Products specially adapted to market
Source CGAP, Commercial Banks and Microfinance
(2005).
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