CENTRAL BANK’S CONTRIBUTION
DEVELOPMENTS IN MICROFINANCE SECTOR FROM 1994-2004

INTRODUCTION

Microfinance continues to be mainstreamed in most development programmes of government as a vital strategy to alleviate poverty. Over the last 10 years substantial developments have taken place registered at various levels of intervention in the sector.

GOVERNMENT

At the level of government, the requisite enabling environment continues to be created for the development of microfinance. In 2002, microfinance was given greater impetus by being exposed nationally in the PRSP as a pivotal social development component for channeling productive capital to the rural and urban poor population. Furthermore, and hitherto the last 10 years, a host of donor funded government projects and programmes with microfinance components have been established (SDF, RFCIP, FASE, and SDRD). These projects and programmes continue to enhance institutional development and capacity building of varieties of stakeholders in the microfinance sector. Other support agencies facilitated by government have also been established to provide on-going technical services, particularly for microfinance promoters and practitioners. With assistance from IFAD, the VISACA Promotion Centre (VPC) was restructured and transformed to Microfinance Promotion Centre (MFPC) in a bid to expend its range of services in a more cost-effective manner by providing training and other technical services to not only the rudimentary VISACAs, but to a wider range of mocrofinance institutions and stakeholders in the sector.

REGULATION AND SUPERVISION

The Central Bank continues to assume the lead role of guiding the development and growth of the microfinance sector. It is the regulator and supervisor of the microfinance institutions ranging from the grassroots oriented SACAs to the Savings and Credit Companies and the envisaged Fiduciary Finance Institutions.

In 2001, the Bank embarked on a series of initiatives to bring greater focus to the execution of its regulatory and supervisory mandate as well as to make the governing policies more appropriate and adaptable to microfinance, given the dynamism of the sector especially since the formulation of the regulatory framework in 1992. For this reasons, a full fledge microfinance department was also established in 2001 to focus mostly on the development of microfinance. The microfinance prudential Rules and Guidelines were also reviewed in 2001 to allow for greater latitude for microfinance borrowers and lenders to leverage funds. On the credit side, this expanded the quantum of borrowed funds as well as the loan term maturity up to 12 months. On the savings side, it was prudent to safeguard public deposits. Consequently, borrowers cannot access any amount of credit, which is more than three-fold their savings balance. In the same review, the governing Rules and Guidelines contained in volume two now clearly spells out cooperatives as VISACAs, although the individual networks are not directly supervised by the Bank, but by the Department of Cooperatives. A workshop was conducted on this review at the BB Hotel.

In recognition of the need to promote confidence in the VISACA system and make them accountable to the regulatory purview of the Bank, all VISACAs that do not meet the regulatory status to be fully registered were given provisional registration certificates in 2002. Like their fully registered counterparts, they are subjected to the prudential requirements and on-site supervision with technical assistance provided to build their capacity to attain full registration. Consequently, some 63 VISACAs have emerged and benefiting some members. Some 33 are fully registered whilst 30 are provisionally registered. On average, the VISACAs have mobilized close to D7.0 million in savings and disbursed D8.0 million in loans. To gauge the performance of the VISACAs, a ranking system based on selected parameters was developed in 2001. Based on data from on-site inspection, the VISACAs, are rated bi-annually in terms of their development status. This provides the basis to assess heir capacity and training needs where deemed required. In this regard, the Bank works closely with RFCIP and MFPC for possible funding and training of the identified VISACAs.

Though the Bank does not directly supervise the Credit Unions, they have been close collaborators in ensuring that prudential standards are maintained in the sector. Currently over 60 Credit Unions have been formed with a total loan portfolio of D31.0 million and savings of D38.4 million as a December 2002. Credit unions serve over 44,000 members.

At the higher tier of the microfinance institutions’ hierarchy, two more Savings and Credit Companies, GAMSAVINGS and NACCUG Central Finance Facility have been licensed in 2002 to create greater competition in the market in addition to the long standing GAWFA. On aggregate these three have a total loans portfolio of D32.00 million and savings of D14.7 million as at May 2004. likewise, close to 64,000 beneficiaries are using their services.

COORDINATION

In recognition of the need to harmonize the activities of the myriad of microfinance stakeholders in the sector with a bid to eliminating the unnecessary overlapping and duplications in the sector, the Central Bank and the RFCIP commissioned a consultancy on the formulation of a National Microfinance Coordination Framework in 2001. The framework took cognizance of the different levels of intervention and stakeholder activities. Three Committees were formed within the framework and included the Inter-Department of State Microfinance Coordinating Framework, the projects and Programmes Coordinating Framework. The framework should serve as an apex body to harmonize stakeholder activities by working closely together. Follow-up to the establishment of the framework, a Microfinance Summit was convened in 2003 which will be an annual event to bring together all stakeholders to compare notes, take stock of progress made and pave the way forward.

In the same vein, the Central Bank and some key stakeholders are working on strategies to promote linkage banking with the commercial banking sector, which is direly needed to bring about financial deepening and greater capacity in the sector.