Appendix I: Back-Home Plan by Participants

SELF-SUSTAINING MICROFINANCE INDUSTRY

By: Howayda Magdy (EGYPT)

Introduction:

In its role as a microfinance apex institution, the Micro Finance Sector (MFS) serves as a convenient channel through which donors can channel funds to support microfinance. The primary objective of MFS programs is to improve the socio-economic conditions of local communities by increasing the incomes of poor households throughout Egypt through the extension of small loans via NGO intermediaries. Our target group is the economically active poor who wish to expand their existing enterprises or to start new ones.

Plan Objective:

 The major objective of this plan is to promote microfinance best practice in the MFS in order to achieve sustainability for itself and NGO intermediaries. These best practices include pricing, organizational structure, financial management…etc.

Resources required:

*  Human Resources

Trained and specialized staff is needed in the MFS in order to apply the above-mentioned best practices, and to perform the tasks suggested in this plan:

1-      Training officer:

Duties:

-         Delivering training programs for our clients (NGOs) regarding the suggested material stated hereunder.

-         Developing a training manual to be added as an annex in our contracts with the NGOs to help them monitor themselves, achieve sustainability and serve more end clients.

2-      Loan Portfolio officer:

Duties:

-         Managing MFS’ portfolio.

-         Financial analysis (using financial ratios like ROA, ROE, Repayment rate…etc.)

-         Acquiring data from project officers on a regular basis to use them in his reports including amounts disbursed to NGOs, paybacks (principle &interest)…etc.

-         Regional study to define which areas to be served and which are areas are fully satisfied.

Regarding the actual employees -especially the project officers- they will need to improve the monitoring of the NGOs’ performances.

* Financial resources:

-         Financial resources will be needed to finance the new employees’ benefits.

1-            From UNDP resources

2-            From the “Social Fund for Development’s” resources

-         Resources to fund more NGO intermediaries to increase our outreach:

1-            From Donors (grants/loans)

2-            From MFS’ yields

3-            From the “Social Fund for Development’s” resources

* Technology resources:

- Improving the actually used MIS, by adding more information to our actual reports.

- Encouraging the NGOs to use MIS (loan tracking systems for ex.)

Operational aspect:

-         After the establishment of the Egyptian microfinance network, we can discuss and encourage the legal aspect of micro savings to help the NGOs to find more funds and achieve sustainability.

-         Encouraging more stakeholders to get into microfinance field, like banks and other NGOs.

-         More coordination will be needed with different stakeholders to unify the vision and mission in Egypt.

-         Adding to the reporting annex in our contracts with the NGOs some of the financial ratios as indicators for performance.

Outputs expected & time frame:

-         By the end of year 2007 MFS would increase its staff and started already implementing the new structure and tasks.

-         By the end of year 2009 MFS funds 150 NGOs more with and average fund for each NGO 2,000,000

Training Material Suggested:

-         Client Targeting (cost effective targeting/ targeting tools like housing index &income index/ reaching and empowering the poor specially women… etc).

-         Interest rates calculations.

-         Cost effective management.

-         Risk management.

-         Financial Ratios or Indicators (ROA, ROE, RR, PAR…etc).

-         Diversified repayment installments, depending on the type of business of the end borrower (risk management tool).

-         Registering data on a daily basis, so that the reports would be available whenever needed by the donors or by the management.

-         Having adequate accounting systems.

-         Encourage the concept of being partner with clients

-         Balancing between social mission and commercial mission.

-         Having the adequate staff within the NGO.

2. Gihan Fahim

(Egypt)

Situation:

-    Formal (Banking): Through credit lines for Microfinance Projects.

-      Informal: NGOs, CO-Ops, MFIs, Individuals, etc.

Outlook:

Vision:

-     A viable microfinance services through the different sectors such as:

-     Agricultural services.

-      Development services.

-      Social services (education, health, illiteracy, etc.)

Mission:

-       Providing sustainable technical and financial services in microfinance projects.

-       Creating a competitive environment in the financial markets.

-       Developing a sustainable microfinance market.

-       Decreasing the gap between the increasing demand and the available microfinance services.

Objectives:

-       Empowering women and other disadvantage population groups.

-          Creating employment and income opportunities.

-          Leads to more spending on basic needs (education, nutrition and health care).

-       Capacity building and technical assistance to the implementing agencies as well as the beneficiaries.

Activities:

-         Target Areas:

Rural Areas

Areas that suffering from a shortage in essential needs

-         Target Groups:

Women and especially household

Potential micro entrepreneurs

Small farmers and landless

Law income persons on remote areas

Tools:

-         Source of finance diversification.

-         Professional management in microfinance operations (Liquidity and Loans).

-          Capacity building.

-          Impact assessment.

-          Monitoring, verification and evaluation.

RISK MANAGEMENT OF MICROFINANCIAL INSTITUTIONS

By: T.C. Mokaya (KENYA)

I wish to thank the Government of Indonesia, JICA and NAM CSSTC officials for their overwhelming support to our country Kenya, through the excellent training and exposure to Micro Financial Institutions in Indonesia. I have learnt a great deal by being in your country and I will not remain the same. Our efforts to empower the poor financially and socially in order to alleviate poverty could not have come at a better time than this. Through the skills acquired, I hope to impart the same to my country and in a small way, contribute to poverty alleviation.

Warm Regards

1.1       Introduction:

The goal of this “Back Home Plan” is to initiate a project that entails the following activity:

“Operational Risk Management For Micro Financial Institutions in Kenya”.

The project is expected to take three years and is to be driven through a conglomeration of actors including the Association of Micro Finance Institutions (AMFI), the NGOs in Kenya, the Civil Society and the Government through the Ministry of Finance.

The Kenyan banking industry serves about 2 million people with accounts in formal banking. The banking sector is characterized by segmentation of the market into three distinct groups:

(a)    Those related to corporate business

(b)   Those related to national business

(c)    Those related to community driven including the Micro Financial institutions and are operating both in the urban and rural areas. These institutions are faced with the problem of delinquency and pause major problems of fraud thus leaving the clients being affected financially.

About thirty-to-forty micro finance institutions operate in Kenya and some have faced delinquency problem. There are over 10,000 Savings and Credit Cooperatives with about 4 million members. Also the Kenya Post Office Savings Bank has 1 million account holders. The per capita income is US$ 585 with the majority of the population living below poverty line.

1.2 Objective of the project:

To stop the hemorrhaging of resources in Micro Finance Institutions by developing appropriate tools to manage risk, management structures and loan portfolios in Micro Finance Institutions. This will aim at educating the officials of micro finance institutions on risk management so that the cases of credit risk and fraud and minimized.

1.3 Process of risk management:

It is an acceptable notion that risk management should be an ongoing process since vulnerabilities of the micro finance institutions in Kenya have changed over time. Management of risk will be divided into various steps including (a) identification of the current and future vulnerabilities (b) designing and implementing controls to mitigate risk and (c) monitoring effectiveness of those controls.

There are many categories of MFI risks. The risks will be identified through the following:

Ø        Institutional - Social mission risk, Commercial mission risk, Dependency risk;

Ø        Operational - Credit risk, Fraud risk, Security risk;

Ø        Financial - Asset liabilities management;

Ø        External - inefficiency, system integrity, regulatory and competition)

Social mission risk occurs when a micro finance institution does not have a clearly defined target market and monitoring mechanism to ensure satisfaction of the intended clientele. Commercial risk occurs if the micro finance institution does not set interest rates high enough to cover costs, whereas Dependency risk occurs when an MFI depends on support provided by the external organization.

To mitigate these risks, the project will undertake research to determine the appropriate financial services each of the MFI is providing and measure the impact each MFI has had on the targeted market while carrying out its services. Since an MFI is a business operation that must run on business principles, there is need to monitor its activities regularly. The MFI will be advised to undertake a strategic plan where it can address the financial resource mobilization and the operational aspect of the institution.

Credit risk is the highest risk in micro finance since it is involved in the business of lending money to the poor who do not have a collateral and hence loans are unsecured.  Poor portfolio quality leads to loss as the client fails to meet the terms of loan contract. In this case, the MFIs will be advised to engage in active management information system (MIS) that is suitable to their organization. An MIS with credit risk controls should be established to include loan product design, client screening, credit committee credit risk monitoring and delinquency management.

Micro Finance Institutions operating under poor economic environment are also vulnerable to fraud; hence there is NEED FOR a vibrant management information system. With the financial sector reforms being undertaken, the MFIs constraints such as location, infrastructure, security and costs of setting up branches are being addressed. Security risk is a major problem since micro finance institutions handle money just as the conventional banks. In the running of the MFIs in Kenya, these institutions should be advised that of the fact “THERE IS NEED FOR A CLEAR AND PRUDENT POLICY AND PROCEDURE FOR PROCESS OF LENDING”.  To mitigate credit risk, the MFI should seek to increase their efficiency and transparency through provision information.

To achieve the above objective there are a number of requirements to be sought. These include resources, operation, expected output and time frame.

2.0              Resources

2.1              Human: The project consists of training the personnel running the MFIs in Kenya. The personnel to run this project will be drawn from Association of Micro Finance Institutions, the Ministry of Finance. The Central Bank of Kenya and partly the Economic Affairs Department (EAD) and Government Investment and Public Enterprises department (DGIPE) in the Ministry of Finance will also be involved on the provision of data and relevant statistics from the various institutions since they are the ones in charge of monitoring the financial institutions for the country. Besides the

2.2              Financial: Finances are essential in the running of this project. I will link up with the External Resources Department to identify donor funds in line with the poverty reduction strategy. I also will approach the JICA through the NAM CSSTC for further support. Training will be the major activity and hence, identifying the institutions that offer conducive environment for training is vital. Depending on the number of MFIs, I will need to draw up a budget that will consist of costs of the training. This will involve hiring the institutions that offer training facilities, consultants, stationary, training facilities, transport, allowances and other incidentals. The constraint will be resources and therefore, the activity will have to be staggered for three years. In the first year, about 14 institutions will be covered. In the second year, another 13 institutions will be covered and in the final year, 13 will be done. The training of approximately 3 persons from 40 micro finance institutions will mean training about 120 persons for the next three years.

            Tentative Budget:                           Kenya Shillings (1 US$ = Shs. 75.00)

2.3              Technology: Information Technology management is vital for this project. This will be sourced from the relevant institutions in liaison with the Government Investment Technology Services (GITS) department in the Ministry of Finance.

3.0              Operational aspect

3.1              Stakeholders: These are the institutions that mobilize resources for Micro Finance institutions. This includes the Ministry of Finance, the Ministry of Co-operative Development, the NGOs, the civil society and the private sector.

3.2              Co-ordination: The Association of Micro Finance Institutions, the Ministry of Finance, the Ministry of Co-operative Development and the Central Bank will co-ordinate the activities of this project.

3.3              Expenses: The hiring of the hall will vary depending on the location of the training. Those institutions near the cities of Nairobi, Mombasa and Kisumu are more expensive than those in other towns or locations. The location will also influence the transport expenses. These have been factored in including the inflation aspect. Approximately US$ 15,000,000 will be required over the project period.

4.0              Outputs expected – policy, field actions

It is expected that the management and operators and micro finance institutions will be made aware of limiting the risks that make these vital institutions go under as has been the case for most of them in the recent past. In the first year, the activities will involve mobilizing the members of the said institutions to undertake training courses on risk management. About a third of the institutions will be reached in the first year (2006/07). The following year (2007/08), another third and the final year (2008/09), another third will finally be attained.

At the end of the project, the MFIs will be equipped with the knowledge and skills to tackle the operational risks. Hence, we shall be able to run sound MFIs for Kenya and minimize the poverty rate.

5.0              Time Frame:

The project will be undertaken for a three-year period starting from the next financial year. This is taking into consideration the availability of financial resources.

DEVELOPMENT OF THE NATIONAL STRATEGY OF MICROFINANCE

By: Randriamanantena A.C. Florent (MADAGASCAR)

I - JUSTIFICATION AND FOCUS 

Why a National strategy of  Micro Finance? 

It has been mentioned in the Country Report that the political and strategic weaknesses of order are: 

• The lack of National Strategy of Micro Finance; 

• The lack of the real national politics centered on the" internationally recognized optimal practices" concerning micro finance; 

• Some projects of credit not respecting the" good practices" introduce important distortions within the sector. 

The National Strategy of Micro Finance (NSMF) should be therefore a gait devised to drive the development of the sector of the micro finance. It aims to gather the actors around actions capable to reinforce the sector and to develop it. It constitutes a set of operational objectives kept to set in motion the national politics of micro finance. 

It will be the consequence: 

• Of a precise diagnosis of the sector, of its strengths, weaknesses, threats and opportunities,; 

• Of the fixing of realistic and concerted choices; 

• Of the clear determination of the roles and responsibilities of every category of actors; 

• Of the determination of adequate operational objectives. 

It must lean on the leading principles and the good practices, and must be articulated with the policies or following strategies aiming: 

• The promotion of the financial sector; 

• The farming development; 

• The urban development; 

• The promotion of the micro and small enterprises; 

• The reduction of poverty. 

The National Strategy of the Micro Finances must answer to the waiting of the main actors also: 

• For the MFI, their associations and their clientele: it is about the recognition of their profession, the professionalization of the sector, of the application of the good practices, of the setting in work of an adequate political and authorized setting, in order to develop a perennial, viable offer and in expansion of the products and financial services; 

• The Government and its Ministries concerned see in the NSMF a concrete setting of support to the strategy of promotion of the micro and small enterprises, of support to the development and reduction of poverty and mobilization of the internal and external resources for the development; 

• The Central Bank sees in the NSMF an approach devised of the actors aiming to the development of a sector regulated with institutions fitting thus in the banking and financial, contributory landscape to the integration of the national financial markets; 

• The financial backers consider the NSMF like a setting of setting in consistency and increase of the efficiency of their interventions and application of the good internationally recognized practices aiming to the promotion of viable and perennial MFI. 

II – TARGETS GROUPS 

II -1 - Vision of Development 

The vision of development describes the future picture of the sector that the set of the actors é sharing one given moment. This projection of the evolution of the sector constitutes the foundation on which transplants themselves the objectives and their actions. 

To the present stage of the development of the sector of the micro finances to Madagascar, the vision that the main actors must grant for the years to come will be: "to have a sector of the micro finances, professional, viable and perennial, integrated to the financial sector, varied and innovating, assuring a cover satisfactory of the demand of the territory and operating in the adapted legal, authorized, fiscal and institutional setting and favourable ". 

II – 2 - Global Objective

The Global objective is to encourage the access to viable and lasting services of micro finance to a majority of the poor households or to weak incomes and the micro entrepreneurs on the whole territory, thanks to viable MFI integrating in the national financial system. 

II – 3 - Immediate Objectives 

  Three immediate objectives are joined to this objective of development: 

• The economic, legal and authorized setting is improved in a sense favourable to the emergence and to the development of the MFI; 

• The MFI are professional and assure viable and perennial way an offer of products and services of micro finance, adapted, varied and in increase, notably in the even covered zones; 

• The institutional setting is organized in order to permit: 

ü      A good structuring of the sector and the moralization of the profession; 

ü      A coordination efficient of the sector; 

ü      The efficient and concerted conduct of the NSMF and its joint with the other policies of development. 

  II – 4 -Impacts Waited 

  The main impacts waited to setting in work the NSMF are: 

• The reduction of poverty: (i) improvement of the incomes of the poor populations, (ii) development of the generating activities of incomes, (iii) improvement of the food security; 

• The attack of the Objectives of the Millennium for the Development (OMD); 

• The development and the funding of the Small and Medium Enterprises (SMEs); 

• The promotion of the private sector. 

III - MAIN PHASES OF REALIZATION

III – 1 - Participative Process 

 Generally, the lack of popular participation in plan formulation, plan implementation, monitoring and evaluation was yet major issue identified as impediment to the attainment of rapid and equitable development, so we choice the participative process.

These last years the sector of the Malagasy micro finance benefited several technical and financial supports of the partners to the development that allowed him to enter in the phase of expansion. To allow the sector to pursue its growth and to enter in a phase of funding, the concerned actors expressed their wish to achieve a diagnosis deepened to identify the constraints, the opportunities and the perspectives of the development of this sector. 

In 2004, one of the previous to the development of the NSMF has been achieved by the Government, to set up within the MEFB of a National Coordination of the activities of the sector with as objectives: 

• The promotion of the sector; 

• The setting in work of the Politics and the Strategy National of micro finance; 

• The follow-up of the activities and the operations of all intervening parties; 

• The assessment of the performances of the programs. 

III – 2 - Setting Up of a Piloting Committee 

A technical committee titled Piloting Committee for the Micro Finance (PCMF) and composed of eight (08) to ten (10) members will be put in place to pilot the process of NSMF. To facilitate the tasks, a Facilitator Principal will be recruited to enliven, under the authority of the PCMF, the process until its term. Indeed, the state of the places of the present situation of the sector of the micro finance should be done. This activity should lead to the inventory of all problems in order to prepare the shops diagnoses. 

III – 3 - Ateliers Diagnoses 

Under the technical framing of the facilitator Principal of the ateliers diagnoses will be organized by the PCMF according to the strategic axes planned to reach the underlined above objectives. Three groups will be formed in order to really surround the problems. 

The three intermediate objectives can be translated above in theme of reflection of every atelier with for every axis, of the objectives and specific actions. 

III – 3 – 1 - First Atelier: 

Strategic axis 1: 

Theme: Improvement of the economic, legal and authorized setting for a harmonious development and secured of the sector 

  Group 1: To put in work of the economic policies encouraging the development of the micro finances. 

In the setting of this objective, the Government will look after the application of the policies or relative strategies to the reduction of poverty, to the promotion of the private sector, of the Small and Medium Enterprise (SME) and Micro and Small Business (MSB), to the farming development and to the woman's promotion, in order to develop a solvent demand for the micro finance. 

Group 2 : To review the legal and authorized setting  

The actions bound to this objective are the following: 

• The law 96-020 carrying regulation of the activities of the micro finances and is compatible with the objectives of viability of the MFI and safety of the sector; 

• Setting in conformity with the legal and authorized setting. 

Group 3 : To reinforce the surveillance and the control of the sector. 

The setting in work of this objective will result in the following actions: 

• Backing of the capacities in resources human and material of the Central Bank (CSBF) and the PCMF; 

• Efficiency of the missions of control and surveillance of the sector; 

• Setting up and efficient working of a power station of the risks for the sector. 

III – 3 – 2 - Second Atelier: 

Strategic axis 2: 

Theme: Viable and perennial offer of products and services adapted, varied and in increase, notably in the even covered zones by professional MFI. 

Group 1: The MFI are professional.  

The actions to put in work understand: 

• The backing of the capacities in resources human of the MFI; 

• The development by the MFI of realistic and operational business plans, of tools of management adapted and of the effective Management Information System (MIS). 

Group 2: The offer of the products and the financial services is improved, varied and spread to zones no touched again. 

The actions to achieve carry on: 

• The support to the development of new territories for the MFI having the requisite capacities; 

• The diversification of the products and services adapted to the clientele targets. 

Group 3: The MFI are articulated with the Commercial Banks and are integrated progressively at the financial markets. 

            This objective consists of the following actions: 

• Development of a steady saving; 

• Backing of the financial position of the IMF; 

• Backing of the business relationships between the IMF and the banks. 

III – 3 – 3 - Third Atelier: 

  Strategic axis 3: 

Theme: Organization of the institutional setting in order to permit a good structuring of the sector, coordination efficient of the sector and an efficient conduct of the SNMF. 

Group 1: To reinforce the structuring of the profession 

The actions bound to this objective understand: 

• The creation of the Union of the Professional Associations by the fusion of the two present associations; 

• Of the institutional supports to the professional association; 

• The support to the backing of the capacities of the professional association to allow him to exercise with efficiency its role of representation, of moralization of the profession and the formation of its members; 

• The support to the programs of formation. 

Group 2: To assure coordination efficient of the sector. 

This objective includes the actions below: 

• The promotion of the sector; 

• The setting in work of a center of resources and the management of a data base on the sector; 

• The follow-up efficient of the activities and the operations of all intervening parties; 

• The assessment of the performances of the programs. 

Group 3: To manage and to drive in an efficient manner the NSMF in dialogue with the other strategies of economic development. 

This objective includes the actions below: 

• The creation of a Dialogue Committee for the Micro Finance (DCMF) to operate the NSMF; 

• The setting in work of mechanism of follow-up of the NSMF. 

III – 4 - Conception and Development of the Document 

After the three shops diagnoses, the Facilitator Principal elaborates a temporary document of NSMF. On the basis of the diagnosis will be achieved and of the complementary documents gathered by the PCMF, the facilitator Principal will produce a first version of document of NSMF that will be discussed and improved within the PCMF before distribution to the main actors one week before the shop of validation.

III – 5 - Atelier of Validation 

             After two months of the result of the improvement of the document, an atelier of validation of the diagnosis and the document of NSMF will be organized. This atelier will regroup about hundred (100) participants representing about sixty (60) actors of the sector to deepen some aspects of the document. Thereafter, the participants will form three (03) groups to amend and to debate the axes of the strategy and the plan of action there relative. 

III – 6 - Establishment of the Budget of the NSMF 

            At the end of this atelier of validation, the PCMF will establish the budget of the plan of action to have a national program of setting in work of the NSMF thus. This budget will be elaborated jointly by the General Department of Planning and the National Coordination of the Micro Finance. This budget will be integrated in the Financial Law of Ministry of Finance in 2008. 

III – 7 - Approval and Diffusion 

            The document (containing its plan of action and its budget) validated thus by the different actors will be transmitted to the Government for approval and diffusion will follow a round table that will unite the operational actors, the Government and the lessons in view of the mobilization of financings then required and debate modes of setting in work. 

IV - SETTING IN ŒUVRE  

            The gait participative and the dialogue will be pursued in the setting in work of the document approved and of the national program that would be the emanation of it. A committee of dialogue for the Micro Finances (PCMF) could be put in place in the setting of the follow-up-assessment of the NSMF. 

V - STRUCTURE OF THE DOCUMENT 

            The document of the National Strategy of the Micro Finances (NSMF) must understand the following parts: 

• General introduction; 

• General context of the Micro Finances; 

• State and Analysis of the Sector of the Micro Finances; 

• Constrained and Weaknesses, assets and opportunities; 

• Politician National of Micro Finance; 

• National strategy of Micro Finance.  

  VI - ACTION PLAN 2006-2008 

Titled: Development of the Malagasy National Strategy of the Micro Finance          (SNMF) 

Global objective: To have a sector of the Micro Finance, professional, viable and perennial, integrated to the financial sector, varied and innovating, assuring a cover satisfactory of the demand of the territory and operating in the adapted legal, authorized, fiscal and institutional setting and favourable 

Duration of the project: Twenty (20) months

Costs of the project: Ar 125 000 000 either (US $10,000) 

Financing Sources: Resources Own Interns of the Ministry of the Economy, Finances and Budget (MEFB). 

DEVELOPMENT OF MICROFINANCE

By: Edward I. Ruhaka (NAMIBIA)

1. Objective

To promote the national interest in developing the Microfinance Institutions in Namibia.

2. How to achieve the objective

Resources required:

            A) Human- and financial implications: The local people will be involved in

               establishment and running of the microfinance institutions. External

               expertise would also be needed for their input using their experience.

               The funds will be obtained from commercial loans, soft loans from the

              Government, donor agencies and from grants.

            B) Operational aspect: The stakeholders in this operations will include the

               Ministry of Trade and Industry; Ministry of Agriculture, Water and

               Forestry; National Planning commission; Namibia Financial Institutions

               Supervisory Authority (NAMFISA); Bank of Namibia and Non-

               Governmental Organizations (NGOs). These institutions in the past

               Committed themselves to develop microfinance in Namibia, but

               somewhere along the line they encounter some difficulties.

            C) Output expected: The coordinators should come up with conducive

               legal policy framework that will governs the operations of Microfinance

               Institutions. This is very important, because one of the factors that led

               to the failure in development of Microfinance Institutions in the past in

               Namibia, was the inappropriate legal policy framework. This legal

               Framework should enable the Microfinance Institutions to address the

               Accessibility of rural poor to the financial assistance.

3. Time frame.

This program will run for approximately three year.

4. Policy related issues.

Currently there is no specific regulatory framework for Microfinance Institutions in Namibia, and this led to the poor performance by Microfinance Institutions in the past. Therefore, the development of a regulatory and supervisory policy for Microfinance Institutions will be the break-through for further development in this field.

To this effect, the Ministry of Trade and Industry, being a line ministry, through its Directorate of Industrial Development, will be tasked with insuring inter-ministerial co-ordination regarding the development of policy related issues.

In this regard, the following is recommended:

The regulatory framework should put in place that will address:-

            -the need to regulate the microfinance activities

            -different types of regulations (non prudent- and prudent regulation)

            -what to regulate (institution or activities)

            -regulators of the microfinance operations

            -promoting microfinance by allowing deposit takings.

Co-operative Act of 1996.

This Act gives the regulatory powers over savings and credit co-operatives to the Division of Co-operative Development in the Ministry of Agriculture, Water and Forestry. In terms of this Act, the SACCOs are allowed to take deposits and give credits, but the Division of Co-operative Development does not have capacity to prudentially regulate this activities. Therefore this Act should be amended to make provision for prudential regulation for SACCOs.

Post and Telecom Act, No. 19 of 1992

The post Office Savings Bank mobilizes deposits from the public but does not give credit. It is therefore recommended that the Post and Telecom Act of 1992 be amended to allow the Post Office savings Bank to give credit to the borrowers.

Non-Governmental Organizations.

Non-governmental organizations that are involved in providing credit are prohibited in mobilizing savings. As a result of lack of an appropriate legal framework, their internal control tend be weak. It is further recommended that the legal framework makes provision for Non-governmental organizations to take deposits and so to contribute to the improvement to their poor performance. These Non-Governmental Organizations must be prudentially regulated and supervised by Division of Co-operative Development (DCD).

5. Action-related issues.

Despite several efforts by the Government, Non-Governmental Organizations, Commercial banks and Microlenders, the rural communities and the poor in Namibia are still experiencing difficulties in accessing credit and modern savings and payment facilities. This is due to the fact that rural and poor people do not have collateral, and they are restricted by the distance between rural villages and urban centers. Couple to this is the fact that rural infrastructure is in very poor conditions.

To this effect, it is recommended that the Ministry of Works, Transport and Communication, in consultation with relevant ministries, develop plans for the investment, construction and maintenance of transport and communication infrastructure in rural areas. This will make it conducive for Microfinance Institutions to reach the rural poor.

It is further noted that the performance of the Microfinance Institutions in Namibia is very poor. The reason for this is the limited outreach by MFIs, high default rates, high operation costs, low efficiency, low profitability and the problem of sustainability.

Self-sustainability is very important for the Microfinance Institutions to improve their performance. Sustainability means relaying on commercially priced and internally generated funds rather than on donors for growth. Therefore the Microfinance Institutions will be encouraged to rely on fees and interest rates that will cover the real cost of funds, operational costs and to cater for inflation.

With the adjustments to the legal policy framework, the Microfinance Institutions will be encouraged to take savings and deposits from their clients to enable them to be sustainable.

With regards to the high default rates, the Microfinance Institutions will be advised to put in place its principles of collecting payments and promote repayment cultures that are cost effective and must assess trustworthiness of its clients.     

DEVELOPMENT OF MICROFINANCE

By: Musa Makin Kabbashi (SUDAN)

(1)Name;    G.A.C

2-Location:     Kordofan State –Western Sudan

Total population of the state2.5 million. Agriculture employed more than 75% of the total population. The main products grown   in the area   were   sorghum and millet   for subsistence and household consumptions while cotton and Gum Arabic   were mainly   as cash crops.

Lending to the small producers is limited as   most banks managers consider it as risky.   In the   previous years part of this area was affected by drought, most farmers lost   their animals.    Poverty rate is very high about 65% of the population considered as under   poverty line.

 The area was very potential of resources. Forests and other agricultural products mainly Gum Arabic is highly demanded in the market and has good prices.

This plan is only for one year 2007 (the target population for one year 900 families)

(3)   The Mission

 Raise the standard of living of the target population, about 2700 families.

(4) Goal

By the year 2007      the financial institution    will extend its serves to 33% of the target population.

(5) Objectives:

1- Raise the economic awareness of the community

2_ Train 50% of target group in year one on the best way of Gum Arabic collection and some environmental issues e.g. forest reservation.

3-    Form three committees to facilitate the training and other issues concerning     Gum Arabic marketing, contact research centers.

4-Legalise ownership and register forests for a number of farmers.

5-Link farmers with banking system and incorporate them in economic cycle.

(6) Human Resources:

The personnel needed to run the activities of this institution efficiently were

1-      The manager

2-      Deputy manager

3-      Monitoring and evaluation officer

4-      Administrator

5-      Credit officer

6-      Accountant, assistant accountant and cashier

7-      Field officers 3persons

(7) Vehicles and equipments

1-Three cars

2-Three motor cycles

3_Office equipment

(8) Financial Resources Needed

1-Vechiles and equipment-------------------------------------------------------104,200 us $

2-Field survey-----------------------------------------------------------------------8,000 us$

3- Loans required first year for a number of 900  clients ----------------54,000 us$

Sub total----------------------------------------------------------------------------- 166,200 us $-

4-Salaries for one year ----------------------------------------------------------- 66,000

5-Operating capital including allowances---------------------------------- 24,000

6- Training ------------------------------------------------------------------------  10,000

Sub total -------------------------------------------------------------------------  100,000

Grand total---------------------------------------------------------------------    266,200

This amount of money needed only for the first year. The second year the total amount of money needed for loans will be 108,000 us $

(9) Terms of payments

a-Total amount of a loan per a farmer only 60 us $

b-Interest rate to a farmer  20% or Profit sharing.

c- Repayment duration 2 months.

d- The loan amount paid immediately after selling his product.

(10) The main expenses covered by the loan

The farmer or the borrower uses his loan to cover such expenses-

a-Transportation of the products.

b- Packing materials.

c-Meals during collection period.

d-Hired labor.

e- buys hand tools for gum collection.

f- Pays local fees

The expected yield or returns, one farmer collects 3 kantars equals 2,500 us $

(11)        Management of repayment failures.

a-      Field officers collect data on clients who fail to repay their loans and what are the main causes of the failure.

b-     Credit officers report to the deputy manager about the unpaid loans.

c-      A meeting held by the manager with sections discussing causes of failures and how to overcome them.

d-     If a client responsible of the failure, he may not be given another loan. While clients who successed to pay in time  they will be  paid another loan .

 The client responsible to sell   his product usually they sell at village market during market day

(12) Stakeholders .

a-The Agricultural Bank of Sudan will pay the loan amount  to the institution  with interest rate 15%, but if some communities  demand profit sharing (SHARIA SYSTEM)  its also available  by the bank.

b- Government; Federal Ministry of Finance, Local government of Kordofan state and NGOs will provide 

--Vehicles and office equipments.

-- Operating capital for the first year.

(14)  Information system management;-

M and E officer receive information from field officers  and collect data from other resources he report weekly about the activities  done  to the D. Manager  .The General Manager  receive monthly  reports by the D. M  and held monthly meeting with sections to evaluate  of the institution.

ESTABLISHMENT OF MICROFINANCE INSTITUTIONS

By: Widad A Rahim Haj Omer (SUDAN)

Introduction :-

Sudan covers an area of 2.5 millions sq.kms & has significant natural resources which include oil, natural gas ,gold , minerals ……….etc . Although Sudan is rich in natural resources agricultural production of cash crops represents vital importance in term of production & exports to the economy of Sudan. It’s the main source of food and household incomes are employed more than 60% of the population. Production and incomes are constrained by several technical , economic , policy and financial factors lending to non form micro and small enterprises in rural and urban areas is limited as most banks management consider this type of finance as a social welfare and high risk lending and they do not see it as an investment opportunity . So the objective of Back Home Plan is to start to establish of micro finance institutions .

Objectives: -

To establish micro finance institutions in order to:-

(1)   Provide financial services to poor people who have small business saving or credit needs.

(2)   Empower women or other disadvantaged population groups.

(3)   Create employment and income opportunities.

(4)   Reduce poverty.

HOW TO ACHIEVE:-

(1)   Resources required:

a.      Human Resources: -

-         Companies can be established by a minimum of two to three persons for the purpose of safety, one director and one supervisor. For the co-operatives and non-governmental organizations the human resources required include chairman, secretary, general manager, human resources manager, marketing division and staff (range between 6-8 persons).

-         At least half of them must have two years experience.

b.      Financial resources: -

-         Main sources of the fund: -

                                                                                      i.      Grants & loans form government, non-governmental organizations & donors.

                                                                                    ii.      Members’ share of the co-operative or the company.

                                                                                  iii.      Deposits.

                                                                                  iv.      Savings.

-         There should be enough margin to cover all of the business costs.

-         Financial self-sufficiency, having enough source of funding.

-         Providing extensive & easy access to financial services &costs (interests, fees (loan or membership), discounting, group fund or insurance fund contributions, saving requirements.

-         Setting up an adequate pricing policy.

-         For the donors the MFI must have a proposal stating the mission, vision and the objectives.

c.       Technology: -

-         Computers (hardware & software).

-         Data management.

-         Telephone

-         Implementation of information system should take place to monitor the inputs and outputs of MFIs.

-         Having network system to enable accessing information about the market.

(2)   Operational Aspect

-         Coordination: -

1- Promotion of local goods and services is a form of support by the government to micro finance institutions.

2- Government should encourage big outlets and multinational companies to market their products locally form micro and small enterprises.

3- The government supports micro finance activities and other private sectors through encouraging commercial banks to lend 40% of their credit to basic sectors, also subsiding the banks which provide micro credit and requiring them to take low interest rates.

4- Develop operational guidelines for government and donor support.

(3)   Out puts Expected:

1-         Micro finance will allow poor people to protect and increase their income. This reduces poverty.

2-         Will promote children’s education.

3-         Some considerable impacts of micro finance on the levels of women and their dependents among other include:

-         Increased productivity of women. The provision of financial services directly to women increases their economic position at home & in the community.

-         Creation of jobs.

-         Improved social interaction. It lead to increased spending on basic needs such as education, nutrition &health care.

Time FRAME:  -

          Fist year: -

-         Acquiring assets, equipment & office.

-         Appointing the human resources.

-         Register the institutions either as NGOs or companies under the companies act, or as savings &co-operatives with the ministries of agriculture, industry &trade.

          Second year:-

-         Create uniform format & a law, which provides a policy & regulatory framework conducive for operation.

-         Develop guidelines for government and donors support.

-         Build skills within micro finance staff from government and its agencies, MFIs and service providers by attending various training and study tour & conduct a technical workshops and annual conferences including Business, Financial &Management analysis.

         Third year :-

-         Developing a strategic plan.

-         Implementations of information technogy about market.

-         Providing extensive & easy access to financial services &costs-financial for examples interests, fees (loan or membership), discounting, group fund or insurance fund contributions, saving requirement.

-         Setting up a careful pricing policy.

-         Identify computer system for clients’ management.

ESTABLISHMENT OF STANDARD REPORTING SYSTEM FOR SAVINGS AND CREDIT COOPERATIVE SOCIETIES (SACCOS)

By: Marwa Nyahende Kesanta (TANZANIA)

1.      INTRODUCTION

Cooperative financial Institutions are very important factor in cooperative development. Financial Institutions, which are established as cooperative societies, are an alternative to commercial banking systems and may be utilized to encourage thrift and saving habits. The cooperatives are also source of loans to cooperative members and other cooperative societies based on favorable loan repayment conditions. Further, cooperatives help to keep finances that are mobilized by members within the cooperative for their benefit.

Understanding its importance the government of Tanzania has given the Ministry of Agriculture and Cooperatives (MAFC) with the role of regulating and creating conducive environment for the development of Cooperatives, this includes controlling and monitoring the performance of SACCOs.

Microfinance in Tanzania is relatively new and dominated by semiformal financial Institutions, which among them are SACCOs. According to survey conducted in 2005 in all regions of the country it was established that SACCOs account almost 70% of all MFIs in the country and most of these SACCOs are rural based where the demand of financial services is very high. Savings and Credit Cooperative Societies, SACCOS in Tanzania have been using different reporting format for long time. The reports that have been produced by these SACCOS have been not reflecting appropriate financial parameters like loan loss reserve, loan loss provisions etc. This has been therefore making the task of controlling and monitoring the performance of these SACCOs very difficult, and this has led to inappropriate decision making for SACCOS sustainability.

2.      OBJECTIVE

The objective of this paper is therefore to help the Ministry in the establishment of reporting standards which will help in the whole task faced by the Ministry of controlling and monitoring the performance of SACCOS in the country.

3.      IMPLEMENTATION

To achieve this task the ministry must have a very well organized plan in the area of human resources; financial and technology as follows;

a.   Human resources

Well trained SACCOS leaders and Staff who are the paramount implementers of the system. SACCOS leaders are the internal controllers of the organization through various committee e.g credit committees. The staff includes SACCOS managers, cashier or bookkeeper who prepares those financial reports. It is expected that with new cooperative reform and modernization program, which is taking place in the country, the qualified implementers mentioned above will be available for the plan.

Service providers of SACCOS also need to be in line to make the task materialize.  Service providers have been dealing with SACCOS for a very long period of time with different reporting system. However, through harmonization programme it is anticipated that service providers will contribute to come out with relevant reporting system.

Furthermore, there are several networks that are involved in the SACCOS like SCCULT and Dunduliza. In collaboration with these networks, the task will be accomplished.

b.  Financing

In order to implement the plan, it is certain that source of fund must be predetermined early. In this case the major source of fund is expected to be;

v        From Government budget, the Ministry responsible for cooperatives is required to set aside some fund for the implementation of the program.

v        From internal and external donors.

v        Also SACCOS themselves are required to set little percentage for relevant training for their leaders and staff. This is evident, as some SACCOS, which are sustainable, have been affording to finance some training like training in entrepreneurship, good governance etc.

c.    Operational aspect;

There are a number of stakeholders who are involved in cooperative movement in the country. All these stakeholders must be involved fully in formulation and implementation of the standard reporting system. These stakeholders include;

-   Cooperative Audit and Supervision Corporation (COASCO).

This is parastatal organization acting as external Auditor for Cooperative Societies. During their inspection they have been writing some shortfall of the existing reporting system but yet corrections have been not made due lack of standard reporting format.

- Saving and Credit Cooperative Union League of Tanzania (SCCULT)

This is the umbrella of all SACCOS in Tanzania, which will assist much in plan through its daily routine.

-   Rural Financial Services Programme (RFSP)

Is nine donor funded programme implemented in the country, it is involved in SACCOS capacity building and empowerment.

-   Small Entrepreneur Loan Facility (SELF) Project.

This is a Government Project dealing with SACCOS by giving them loan facility. As their day-to-day activity it hopped that they will encourage and support the standard reporting system development.

ESTABLISHMENT OF MICROFINANCE DATABASE IN TANZANIA

By: Nangi M Massawe (TANZANIA)

1.0         BACKGROUND

Tanzania has undertaken financial sector reform since 1991. The major objective of the reforms was to enhance efficiency and effectiveness in the functioning of the financial sector. Despite the efforts of the government still the majority of the poor have continued to face limited access to financial services, where these services are made available they are often at very high cost. Since 1995 the government of Tanzania in collaboration with micro finance key players started the move to create an enabling environment for the development of micro finance in the country.

In its efforts to facilitate this government of Tanzania among other issues has achieved to develop the National Microfinance Policy (NMP), which stipulated the role of each microfinanace Key stakeholder. Bank of Tanzania (BOT) being one among the key stakeholders and government focal point in microfinance it has the role of coordinating the implementation of the NMP; specifically together with other roles the BOT has the role of collecting and disseminating all information related to microfinance; monitoring the progress of the microfinance sector; and advising government and it’s agencies on issues relating to microfinance.

To facilitate these roles the BOT has been advised to establish a microfinance database which will collect; process and disseminate microfinance information, it is therefore through this database where by the microfinance performance will be monitored, and the government and its agencies will be advised accordingly.

2.0         OBJECTIVE

The objective of this paper it is therefore to see how to accomplish this task of setting up an efficient and effective microfinance database which, will be able to collect, process and disseminate microfinance information accurately and in timely manner, Information that will enable the BOT to give and advice the government of the progress and performance of microfinance sector.

3.0         RATIONALE OF DEVELOPING DATABASE

According to microfinance country survey conducted in 2005 within 26 regions in the country, it was established that Tanzania has a total number 1,899 Microfinance Institutions, which includes SACCOs; NGOs; SACAs; Government Projects; CBOs; Banks, and Financial Services Associations.

This is compared to 2002 Survey, which reported that there were about 806 MFIs in the country. The increased number of MFIs is due to government efforts to promote this sector, but lack of accurate and reliable data have been hindering the progress of these efforts. Rationale for developing of Microfinance database is to provide a central collection point from which all relevant information to microfinance sector will be available and later be disseminated. Update Microfinance database is vital to check and monitor the performance of individual MFI and the performance of Microfinance sector in general.

4.0         DEVELOPMENT OF MICROFINANCE DATA BASE

4.1     CONTENTS AND REQUIREMENTS

It is expected that the established database be large and complex which will accommodate current and historical Microfinance Institutions data; annual reports including yearly Financial Statements that will be imported from MFIs; and Non-MFI data e.g donor/investors information. This is therefore; a larger desktop computer with a very big server is required to serve the purpose (IT people will help with required specifications for the desktop computer and server). A number of desktop computers to the selected MFIs and with established reporting format would also be required.

4.2     IMPLEMETATION

The designing and establishment phases of this database will be achieved by BOT in collaboration with other key microfinance stakeholders in terms of human resources, financial and technology.

The key Microfinance stakeholders include government, Ministry of Finance, Ministry of Agriculture and Cooperatives, Donors (Local and International); Practitioners (MFIs) and; Service providers (Training Institutions; National Board of Accounting and Auditing; Networks (NBAA); National Bureau of Statistics (NBS) );

It is proposed that the assignment be performed into three phases.

1^st phase is for Microfinance expertise from BOT to sit down with other stakeholders (practitioners, Networks, government) to establish the performance indicators, see the required data and the availability of these data from MFIs. 

2^nd phase is for the BOT Microfinace expertise and IT people to design a toolkit, which will include the database and the data collection tool.

3^rd phase be for the BOT microfinance expertise in collaboration with other stakeholders perform the following:

v        In collaboration with NBS design a large sample and selection of MFIs;

v         In collaboration with service providers and donors establish reporting standard basing on international reporting standards;

v        BOT in collaboration with Government and other donors provide computers to the selected MFIs (basing on specifications provided by IT people);

v        IT people install the programs in the computers and link the with the database for easy importation of the data;

v        In collaboration with training Institutions train the selected MFIs on how to use this data-collecting tool.

4.3     EXPECTED OUTPUT

1. An efficient and effective Microfinance database established. Database, which will be able to collect, process and disseminate microfinance data accurately and on timely basis.

2. Microfinance Institutions performance monitored

3. Microfinance industry performance monitored

4. Government, donors and public advised accordingly

5.0         FUNDING

It is proposed that BOT itself and government should fund this assignment. It is also advised to seek support from donors. NAM CSSCT being among the key players in microfinance sector in Africa and Asian will be requested to support this assignment in terms of capacity building and equipments.

6.0         TIME FRAME

This is a very big assignment, which will take at least 2 to 3 years. For the assignment to be accomplished on time every stakeholder must feel the ownership of that database. (See the table below)

-   Commercial banks like CRDB.

In Tanzania some commercial banks have shown huge interest to deal with SACCOS by giving the loans and relevant training. These are likely to see their services being controlled and monitored well, the only way to achieve this is through standard reporting system.

-      Moshi University of Cooperative College and Business Studies ( MUCCoBS)

It is a Government High Learning Institution, which targets to improve cooperatives in the country. It gives cooperatives staff with relevant knowledge in management, accounts, entrepreneurship and the like. Also it makes several researches in cooperative business.

-   Dunduliza network

This is the network of SACCOS that provides them with technical and financial assistance.

It is expected that the harmonization program will be conducted to bring these stakeholders together with various reporting format they think to be relevant according their daily operation to SACCOS and thereafter suggest the standard one to be followed by all SACCOS.

a.   Expected Outcome

-         Standard Reporting Format in place

-         SACCOS performance monitored

-         SACCOS accountable and Sustainable

-         Better SACCOS’ environment for Government to assist and advice.

IMPLEMENTATION PROGRAM

The following are the three phases for accomplishment of the project;

2.      TIME FRAME

This is a very big and complex task which is expected to be implemented for two to three years.  The complexity of this task is due to country environment e.g infrastructure and available facilities.

ATTAINING BETTER BUT SUSTAINABLE APPROACHES

TO IMPROVE SERVICES FOR DMF

By: Ahimbisibwe Catherine (UGANDA)

GENERAL OBJECTIVE.

To create a better policy enviroment so as to improve the institution’s products and services

SPECIFIC OBJECTIVE.

To improve employee’s productivity and quality of the institution’s products and services.

HOW TO ACHIEVE THE OBJECTIVES

   Organizational Governance through;

o       Organizing periodic meetings with all staff and board of directors

o       Highlighting on the motivational factors for the staff.

Financial methodology;

o       Lobbying for funds from the existing ministry of micro-finance.

o       Organizing training for all stake holders preferably by expertise planners before receiving funds from the ministry.

o       Direct involvement of all managers in the financial planning of the institution as they are the one’s on ground.

o       Deepening and broadening our out reach to the community as away of mobilizing savings so as to increase our reserve.

Risk management;

o       Review and or adjustment of the credit department as far as staffing is concerned

o       Re designing and improvement on our existing credit products to make them more attractive e.g, reducing the duration for saving before one acquires a loan from two months to at least one month

o       Regular internal auditing.

Marketing;

o       Involvement of all staff members in market research by sufficiently facilitating them once in a while.

o       Diversification of approaches to client targeting i.e. requirements for accessing loans among others.

 Human resource;

o       Adjustments in the staff structure i.e, more field officers so as to increase the number of clients and to ensure efficiency.

o       Facilitation of staff to attend more training workshops for diversification of skills and knowledge.

o       Designing a performance chart for all employees and rewarding of the best performers in order to avoid relaxation at work. 

Management information systems;

o       Develop a system for co-ordination between the head office and the branch offices so as to reduce the costs of traveling and to save time for branch managers.

o       Periodic training of staff on different management information systems to reduce on the workload and to improve on efficiency.

o       Installation vital software especially in loan tracking mainly to reduce on human errors and for effective monitoring of the loan performances.

FIELD ACTIONS.

o       Demonstrating to other staff members on what is to be done

o       Coordinating with the relevant information technology experts after the board’s approval of the implementations.

o       Conducting more regular meetings with staff members mainly to share ideas got from this particular training as all the information is enriching to our institution.

TIME FRAME.

 For the operational aims at least with in the first year starting from September and as regards the soft ware systems in the course of the second and third years since it involves a lot of costs for installation.

RE-THINKING MICRO-FINANCE IN UGANDA

By: Kasirye Samuel (UGANDA)

Micro finance institutions can be defined in the conventional context as organizations that provide small saving and credit facilities to small-scale businesses and sometimes-medium buisinenses. These are provided to the economically active poor who have experienced difficulties in acquiring loans from most formal banking institutions.

Goal

(National concern)

Eradication of poverty in households and communities by 2025.

Objective (MFIs)

Making credit and financial services accessible to all households in the communities we serve by 2009.

Fact

Nearly 40% of Uganda’s population lives in absolute poverty and therefore it should be the concern of not only government but also civil society in focusing on the eradication of poverty through all the various avenues available to every institution.

ACTION RELATED ISSUES

1.      Awareness

a)        Public policy

The government of Uganda has followed the transformation of micro finance institutions in Uganda closely and micro lending by the government is not new since such programmes were tried in the mid nineties. The challenge has been, even with government aid, how to effectively manage funds and how to target the right communities in need of micro finance.

The government of Uganda is spearheading the development of micro finance as one of the tools of alleviating poverty and targeting the vision 2025 of alleviating poverty. But as trends would suggest today, resources for credit and financial services should be targeted more at poor households and gradually to poorer households especially in northern Uganda an area that has been crippled by war for the last 20 years.

Since government micro financing have failed in the past, government should work in collaboration with NGOs so as direct funding through MFIs to cut on government bureaucracy and corruption.

b)       Civil society

   Civil societies and its stakeholders such as non-government organizations, institutions such as micro finance institutions should realize that microfinance is a vital tool in alleviating poverty and therefore should have a clear goal of improving the communities they serve and should therefore balance between social aspects and commercial aspects of their organizations.

2.      Response

a)        Initiative

All stakeholders should realize that microfinance is an important tool in alleviating poverty and therefore the initiative for redefining micro finance should be in the interest of all stakeholders including;

-         Government, non-government organizations, microfinance institutions, umbrella organizations for micro finance institutions, communities.

-         And further information leakages between the above is vital for debating analyzing indicators and help give specific route on how to rethink micro finance which should be shifted gradually to the very poor communities with specific attention to northern Uganda.

b)       Human resource

 Most of the Micro finance institutions in Uganda do not have the capacity to adequately train their staff and this should be done through;

·        Working in collaboration with other stakeholders such as non-government organizations such as GTZ foudation, USAID, DANIDA,

·        Working in collaboration with government in terms of sourcing for scholarships and training programmes for example the Uganda government has set aside 4.2 million dollars to train MFIs this financial year; this should be an opportunity for the MFIs to avail their staff for training.

·        Working within the umbrella organizations and associations so as to organize workshops and seminars on staff training this effectively minimizes costs since the costs are shared between different organizations.

c)        Financial resource

Achieving self-sustenance has taken precedence in Uganda has been an objective of all MFIs and.

·        MFIs should take the opportunity the Uganda government is offering in giving soft loans to MFIs so as to make their interest rates more competitive and more acceptable to the communities they serve.

·        Continue sourcing funds from wholesale organizations, and grants from development partners such as USAID, GTZ foundation, Danida.

d)       Institutional aspect

Stakeholders within the MFIs should redefine their objectives if they’re to achieve their final goal of eradication poverty in households and communities and this should be done through;

·        Redefining and re-thinking what our communities need rather than what they want. MFIs should target more poor people and integrate them with the existing clientele of the economically active within a period of three years and evaluate their operational and financial positions after three years and if they can achieve sustainability or go towards achieving it then they should in the long-run integrate the very poor especially in northern Uganda where MFIs are practically non-existent.

·        Strengthening internal cohesiveness i.e. regular staff meetings to make human resource audits and self-checks and also to improve morale of workforce.

·        The offering of training to potential clients should be elementary for example potential clients running small businesses should have skills in simple book keeping, how to improve their products.

·        As Uganda is an extensively agricultural country, MFIs should work in with collaboration with NAADS with the set frame work of the Plan for Modernization of Agriculture in order for its clients to get elementary agricultural training at no cost before agricultural loans are taken.

·        MFIs should work in collaboration with institutions such as trade organizations like KACIITA in Kampala or community co-operatives to find small markets for agricultural produce

·        Institutions should build strong links with the communities they serve and this can be done through;

-         Working in partnership with local leadership such as church leaders, Imams, traditional leaders, elders so as to make MFI programmes acceptable.

-         Relaying any vital information within MFI back to the community using simple mediums such as village meetings, church gatherings, and mosque gatherings.

-         Making social contribution to the communities we serve such as maintaining community water systems, giving scholastic materials to schools, engage in cleaning up exercises in the communities etc.

-         Employing a considerable number of community members as staff in the MFIs so to make it more acceptable to the community and helps building trust in the institution.

       3. Result

a)                 What to expect

Community enhancement and transformation coupled with self-sustenance should be the long-term goal of any MFI and with the above changes in strategy the MFI should expect;

·        Reduction in poverty levels in the communities we serve by a realistic percentage by 2009.

·        Creation of stronger communities.

·        Training of potential customers in elementary skills of managing their businesses.

·        Efficient human resource such as credit officers, accounting officers, and managers so as to increase efficiency in within the institution and also in the communities we serve.

·        Achieve self- sustenance and or working towards achieving it and clear indictors should evaluate progress or the lack of it by 2008.

b)     How to manage the result

·        The need for networking, training of staff and keeping up with the pace in technology advancement, change in market trends so as be effective and efficient to the communities we serve.

4. Future plan

a.      Where to go

Communities we are serving should be a main priority to all MFIs and thus there should be a balance between social and commercial aspects of our institutions.

b.      How to get there

·        Continue to keep and build strong relationship with the communities this helps to reduce on the occurrence of bad loans since clients are able to support each other.

·        Training of staff should be a continuous process this should be done through using, if available internal resources but more importantly sourcing for technical assistance from our development partners, NGOs,goverment.

·        Marketing is an important aspect of micro-finance and thus change in trends and consumer needs should be closely followed effective change in MFI policy, products and coverage.

·        Widening of products offered because the communities we serve are diverse and thus have different needs this should be done through investing in market research.

·        Achieving self-sustenance should be done through; reaching more clients especially the poor who make up a great percentage of our communities, improving internal effectiveness to offer better quality service to our clients.

·        Vital analysis of the information acquired from internal surveys such as market surveys, information from other MFIs, umbrella associations of microfinance such as associations, government, NGOs, communities so as to make well informed decisions.

·        Create standard indicators for identifying very poor households such as land tenure, level of education, housing material, and dependants so as to make suitable products.

                 Conclusion

 Microfinance in Uganda is transforming at a fast pace and with government support, the sector is set to grow. The aim of MFIs in Uganda should shift and include poorer communities and also take into account balancing social and commercial needs in order to achieve self-sustenance and reduce or cut dependence on donor aid.

IMPROVING MICRO CREDIT SCHEMES

By: Joseph Mulibo (ZAMBIA)

Introduction:

The poor economic performance has a significant impact on the level of poverty in Zambia. In this regard, there is need to improve and promote micro credit schemes in the country in order to reach and provide micro credit services to thousands of poor households so as the issue of poverty can be tackled.

1.0 Objective: Ensure that people living under the poverty datum line are liberated and resources distributed equitably.

2.0 Immediate Action:

Government should put up a special unit specifically to overseer the implementation and creation of Micro Financing Institution through the Central bank supervised by Ministry of Finance and National Planning (MFNP). This action if taken will ensure the smooth operations and creation of more Micro Financing Institutions.

An association will be formed and that each Micro Financing Institutions become a member to facilitate proper coordination amongst Institutions and that of other stakeholders.

3.0 Funding:

The limitation factor to the development of Micro Financing Institution is lack of capital. Commercial banks are not willing to extend loans to those Micro Financing Institutions, which do not provide collateral making it difficult for them to be viable. Several financial institutions are located inside large cities and district towns; this also has a retrogressive status in providing micro credit services to thousands of poor households in rural Zambia.  

 Therefore, to ensure that credit schemes are improved, the government should establish encouragement by way of putting up friendly regulatory framework of Micro Financing Institutions, such as:

3.1       Providing funds to existing and upcoming Micro Financing Institutions for further provision of loans to the poor, without collateral requirements and even at subsidized interest rates.

3.2       Coming up with a deliberate policy to exempt upcoming Micro Financing Institutions from restrictive registration procedures.

4.0 Coordination and Support:

As mentioned in the Country Report, almost all the Micro Financing Institutions, which existed in the years late 1980s backwards, suffered an accelerated downfall in the early years of 1990s due to the country’s poor economic performance.   The Zambian Government perceived the downfall as due to non-transparency and mismanagement. Of late after the resurrection of most Micro Financing Institutions, there is no proper mutual relationship amongst them, the government and other stakeholders. Therefore, Government usually provides agriculture loan programmes to individuals and groups, which have shown very low, or no loan repayment records at all, this has an effect on the Micro Financing Institutions’ operations as most of them face the same fate. The following points should be considered:

4.1       Then the Government intends to participate in provision of such micro credit service, it should enforce strict repayment method in order to lay a good environment. This will help Micro Financing Institutions cab high delinquency.

4.2       Government should instead deal with administrative matters while Micro Financing Institutions can be financially strengthened.

4.3       Amend lack of coordination amongst Micro Financing Institutions and other partners like the local authorities and NGOs.

4.4       Empowering women and encourage men’s participations.

4.5       Through Ministry of Agriculture, the government should strengthen agriculture rural business groupings.

4.6       Establishment of both social and financial infrastructures for rural credit services such as roads. Lack of proper infrastructure hinders the Micro Financing Institutions from reaching the poor household in the remote of the rural Zambia, as it will be difficult to reach and provide services to those areas where there are no roads for instance.

4.7       The Private sector should also play a role of promoting local goods and services to support the Micro Financing Institutions.

4.8       Commitment and willingness of government to link Micro

Financing Institutions to donor agencies.

5.0 Marketing

Micro Financing Institutions should redefine the way they perceive the intended beneficiaries, i.e. who should be the beneficiaries of the micro credit services.

Instead of targeting just the middle class income earners, exclusive focus on the poor should be a priority.

While setting a right market approach is another, the key to Micro Financing Institutions’ success is the provision of a right product to the right people.

Much as the Micro Financing Institutions require the Government and other stakeholders’ participation in setting out a leveled and flexible environment, their approach to the market should be cost effective either to attain a long-term survival.

Micro Financing Institutions should also capitalize on opportunities that can make them expand.

6.0 Expected Output:

Overall, given a period of two (2) years under flexible conditions, will not only better the micro credit scheme but also:

6.1       Micro Financing Institutions will become more viable

6.2       Transparency and proper management will be promoted

6.3       Micro credit schemes will improve

6.4       Usher in new Micro Financing Institutions to provide micro credit services, which will trickle down to empowering the less privileged and thereafter lessen the level of poverty in the country. 

TRANSFORMATION OF THE MICRO FINANCE SECTOR:

THE KEY TO POVERTY ERADICATION AND

SUSTAINABLE ECONOMIC DEVELOPMENT

By: Marcos Nyaruwanga (ZIMBABWE)

1          Introduction

Transformation for Micro-Finance Institutions is challenging and a cautious approach needs to be applied as there are bound to be a lot of difficulties. To reach out more people and impact on poverty micro finance institutions need to grow to be able to access larger funding sources as voluntary deposits and commercial funds. This therefore requires MFI’s to be sustainable.  It therefore compels MFI’s to be managed as business organizations and should have a commercial orientation. There should also be professionalism in the management of these institutions.

2          Objective

The objective is to come up with a pilot modernized micro financial institution that delivers services to address the concerns of the poor, that is sustainable and that can be used as a case study by other micro finance institutions for national economic development by the year 2008.

3          Short term plan year 2006

First step towards micro finance revolution

Changing perceptions and attitudes towards this micro finance sector

Ø      Changing people’s mindsets i.e sociological and cultural attitude towards micro finance, people should view this sector as an important player in socio economic development especially to the vulnerable groups of the society. This will involve awareness and education campaigns and will be done in association with the Zimbabwe Association of Micro-finance, Ministry of Small and Medium Enterprises Development, Ministry of Youth Gender and Employment Creation, NGO’S etc.

Ø      Strengthening the role of Government as a dominant player in the micro finance development, with the main focus now not only confined to medium scale enterprises but also to the poor, Government should recognize the contribution of micro finance development in its economic turn around strategy as a tool to   empower the indigenous people. Efforts will be made to create more windows of funding through government departments and parastatals etc. NGO’s have been making significant contribution to micro financing; therefore their efforts need to be harnessed together with private sector and public sector. This will be done through various government ministries with the lead agencies being Ministries of Finance, Youth Development and Employment Creation, Women Affairs and  Gender and Small and Medium Enterprise Development and ZAMFI etc

Ø      Closely related to the above is the issue of provision of a conducive environment for the development of micro finance sector, with the main focus being on revising the regulatory framework of this sector, there is no doubt that regulatory authorities consider regulation ad licensing of MFIs as important for their long term development and sustainability. What is debatable therefore is the form rather than the need.  Issues to be covered under this area include a revisit at the current policies, ie regulations, governance, supervision and licensing requirements and see how best to tailor make them to be efficient and effective for better service delivery by MFI, The lead agency in this subject will be the Reserve Bank of Zimbabwe and ZAMFI as well as Ministries of Finance and Small and Medium Enterprise Development.

4          Second step year 2007

Launch of a pilot project

Ø      In order to harness all the above plans of actions and the experiences learned from training there is therefore need to launch a pilot project, through probably restructuring  a government institution (SEDCO) offering micro-finance, focus might be on specific branches. The structuring will include changing the organizational structure and set up to meet the new mandate.

Ø      To pilot this project all the techniques and knowledge gathered from training will apply, a capacity building training programme be held incorporating various experiences from SEDCO, our own training, other stakeholders/colaborators and packaging it to come up with operational guidelines for our pioneer institution.

Major issues to be covered under the SEDCO capacity building programme

Client targeting

ü      Client needs assessment, application of client targeting methodologies & assessing the current portfolio of clients most of whom are currently not the intended beneficiaries of micro finance products. Focus will be on targeting particular set of clients probably poor farmers who have the capacity but can’t produce because of lack of working capital and incorporate them into this the new approach. The aim here is to remove all undesirable lending practices and redirect micro finance services to the poor in the rural areas, i.e looking at the gender aspects, income levels etc. Training of these people will also be done using SEDCO’s current capacity building programme and agriculture extension workers.

Product and services

ü      This will entail product development so that product and services offered will meet the requirements of the poor and also current branch networks with the view of expanding the current network to reach out the rural population. Focus will be also on trying to introduce new products like inputs, giving incentives, sourcing markets on their behalf, education schemes for children and  saving products

ü      Other issues to be covered will include issues of interest rate setting but for a start since funds will be subsidized from Government it will slightly be lower but the need is only to build the principle so that in future after being weaned off from government the institution can become sustainable. Focus will also be drawn on the current financial management and business planning systems networks to give more transparency, exposure and professionalism, in micro credit schemes through setting up standard performance, establishing rating agencies and promoting internal controls.

ü      Issues of delinquency, risk management will be applied or revisited with the view of coming up with an institution that embraces all the major aspects of modern day micro finance institutions,

ü      To support the above initiatives and be more client focus there will be need to look at management information system that can facilitate effective execution of operations.

Ø      Under this approach SEDCO will now refocus itself towards provision of microfinance services in a sustainable and redefined manner being guided by new regulations, a new thrust from government, new expectations from clients and proper business planning and financial management.

5          Resources

Government, together with other willing partners like NGO’s are expected to bank roll the above operations, it should be noted that Government through annual is already providing resources to SEDCO for on lending to small enterprises but under this thrust SEDCO will now be expected to adopt a new approach of doing business. Only recently the Reserve Bank allocated resources to the small and medium scale enterprises sector and it is expected therefore that transforming the micro finance sector will go a long way in harnessing all these efforts. What needs to be agreed on are the operational modalities.

6          Expected outputs

• A vibrant sustainable micro finance sector that address the needs of the poor in the long term

• Less households living below the poverty datum line in the long term

• More participation of the marginalized groups in economic development

• More client focused and efficient micro finance sector

• Once successful will be cascaded to other institutions sand in so doing contribute to the development of micro finance sector

• A prosperous and well developed nation by 2015