SITUATIONAL ANALYSIS OF MICROFINANCE SUPPLY IN SUDAN By Dr' Abubakr Hussein University of Khartoum K - PowerPoint PPT Presentation

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SITUATIONAL ANALYSIS OF MICROFINANCE SUPPLY IN SUDAN By Dr' Abubakr Hussein University of Khartoum K

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Title: SITUATIONAL ANALYSIS OF MICROFINANCE SUPPLY IN SUDAN By Dr' Abubakr Hussein University of Khartoum K


1
SITUATIONAL ANALYSIS OF MICROFINANCE SUPPLYIN
SUDAN ByDr. Abubakr HusseinUniversity of
KhartoumKhartoum, Sudan12 November 2007
2
Opportunities 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

3
Key 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

4
Microfinance 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.

9
Banks-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.

14
Microfinance 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.

15
Serving 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).
16
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