This narrative was inspired by the interesting presentation on Rural finance: ‘Rural Finance in Selected IFAD Operations’ by Omer Zafar and Thierry Mahieux during the retreat and as a reflection of the Sudanese experience with the formation of sanduqs and the need for its promotion into a formal sustainable Microfinance Institution, reports Mohamed Abdelgadir.
Over the last two decades, IFAD funded projects have proactively provided a range of microfinance initiatives and services. Among the prominent initiatives were the provision of loans through the Sanduq system which is an improved version of savings and credit association with mandatory membership associated with distribution of dividends. It is mainly built around self-reliance, autonomy, sustainability and rural poor outreach.
Sanduqs formation achievements and constraints
The Sudanese experience of North Kordofan Rural Development Project (NKRDP):
Between the years 2001-2007, the IFAD NKRDP supported the promotion of 173 village level Sanduqs in two localities in the State of North Kordofan. The sanduq formation process started with the constitution of the Village Development Committees (VDCs) in each village which were registered under the specially legislated State Law for Development Organisations, which allowed such entities to undertake savings and credit activities. Each VDC was subdivided into 3 sub-committees, one of which was the savings and credit sub-committee – popularly known as the Sanduq. A sanduq thus functioned as the rural finance arm of a VDC in each village.
The project supplied approximately USD 1.4 million as grants to individual sanduqs which in turn provided poor households with loans starting from USD 50-100 for livestock rearing, petty trading and crop production activities. It reached approximately 12,000 households, out of which around 6,500 households (54%) were classified as poor households. The loan terms and conditions, set internally by the sanduqs, resulted in an Annualized Percentage Rate (APR) of 60-70%. The high APR structure ensured that in spite of moderate repayment rates, ranging from 79%-83% across 5 years, the sanduqs consistently obtained annual yield of around 30%. In comparison, the sanduqs’ annual operational and financial expenses ranging between 10%-15% were much lower than the yield and contributed to the profitability of the model. These factors greatly contributed to the success of the sanduqs and served as one of the examples which inspired the formalization of the microfinance sector in Sudan.
After the NKRDP closure in December 2008, the lack of ground level supervision and oversight diluted the accountability of the sanduqs, weakened control systems and increased elite capture. However based on the experience below of the South Kordofan Rural Development Programme (SKRDP), the successor of NKRDP, decided to adopt the Central Sanduq model to reform the village level sanduqs under its jurisdiction in the North Kordofan State.
The Sudanese experience of South Kordofan Rural Development Project (SKRDP)
SKRDP’s original design involved the delivery of rural finance through an informal channel, in the form of direct revolving fund grants from the Project to village level sanduqs. However, the lessons learnt form NKRDP indicated that capitalizing scattered and independent community-level sanduqs leads to sustainability related problems. Therefore, SKRDP re-oriented its approach and opted to federate 45 communities in the Al Rashad Locality into central sanduq called Bara′ah and injected the revolving fund grants directly into it.
Since inception, Bara’ah has disbursed a total of approximately SDG 350,000 to reach approximately 4,000 family members from around 700 households represented through 53 groups. It has a repayment rate of 100% and a Portfolio at Risk (PAR) of zero percent. In year 2010 Bara’ah’s governance was restructured with the formation of a 90-member general body represented by one man and one woman from each of the 45 villages. The general body selected a 15 member board which meets on a bi-monthly basis to discuss progress and to endorse future growth plans.
The Central Bank of Sudan has provided Bara’ah with a provisional license as a non-deposit taking rural microfinance institution. The full license will be granted by January 2011 on fulfillment of the minimum capital needs. Technical assistance linkage was established with the Sudanese Microfinance Development Facility (SMDF), leading to the process of management and operation systems development along with a training and capacity building of the staff members. Bara’ah has also established technical linkage with the FAO for conducting a baseline survey and impact assessment of the microfinance services over a period of three years.
SKRDP deputed a full-time Bara’ah manager to be fully integrated in the Bara’ah structure from January 2011. The four credit officers, who were earlier employed by the extension department, were seconded to Bara’ah, and reported directly to the Bara’ah manager. The office was furnished by SKRDP and additional office space was rented to accommodate the growth of the organization. In view of Bara’ah’s extensive need for office space, the Rashad Locality government transferred an additional 800 square meters of land raising the full area for the future Bara’ah office premises to 1,600 square meters. The construction of the office building is scheduled to start in the first quarter of 2011.
The Microfinance legal framework
Until the year 2006, the microfinance sector in Sudan operated in a void with very limited number of initiatives for extending financial services to the rural poor. In 2007, the Microfinance Unit (MFU) was established within the Central Bank of Sudan (CBS) for promoting the growth of the microfinance sector in Sudan.
Since its inception, Central Bank of Sudan and the Microfinance Unit has taken a series of promotional and developmental steps as the following:
- establishment of microfinance units within commercial banks
- formulation of microfinance regulatory framework
- directing higher volumes of commercial funds towards microfinance by instructing commercial banks to allocate 12% of their portfolio to microfinance
- awareness generation campaigns and training and capacity building activities.
These measures have created a positive orientation and willingness amongst financial entities towards supporting microfinance initiatives.
Nevertheless, as in many countries in the Region, greater legal and regulatory clarity will help promote the development of a more vibrant industry, characterized by a diversity of products and delivery mechanisms. Branchless banking has long been recognized in other parts of the world as an effective way reduce costs and expands outreach through the use of non-bank retail agents and information technology (Sanabel Network 2010).
