Rural Economic Transformation (5/5)
Sub-component B-3: Rural Financial Services
(USD 2.85 million)
Output. Rural households, individuals,
groups and enterprises have organized and sustainable savings
systems and more ready access to financial services.
Guiding Principles and Strategic Framework.
The following are the basic principles that have guided the
re-formulation of the sub-component:
· Facilitate the provision of financial
services appropriate for a broad cross-section of the rural
population with assured access by the active poor and women.
· Help ensure responsiveness to credit demands
of the Programme’s target population by facilitating understanding
and linkages between suppliers of financial services and potential
clients.
· Work within the framework of the recent
central bank instruction for micro-finance that will come
into effect on 15 March 2004 and those financial service institutions
that comply with it.
· Work with a limited number of existing
institutions that have proven and cost effective financial
service approaches.
· Promote the development/strengthening
of solidarity groups and similar local organisations, including
those formed during the first phase of UCRIDP, as a means
to facilitate for poorer segments of the rural population
to access finance.
· Harmonise the Programme financial services
approach and procedures with those of PPPMER.
· Actively monitor the operations, performance
and impact of the two local MFIs that the PCU has contracted
to provide lessons learned and guidance for future implementation
of the rural financial services programme and possible expansion
of the operations of the two MFIs.
· Facilitate the strengthening the capacity
of the Programme to oversee the implementation of the rural
financial services sub-component by ensuring that the PCU
has professional in-house expertise in management of rural
finance systems and institutions.
Strategy. The enactment of the new
central bank instruction has changed the rural finance landscape
in Rwanda. The forthcoming enforcement of the instruction
will probably induce substantial changes in the microfinance
sector. Many of the existing institutions involved in microfinance
operations will probably not qualify under the new legislation.
The lowest level institutions such as the basic community
savings and credit societies formed by UCIDRP during the first
phase, will almost certainly not meet the registration requirements
in their current form. Nor would they be exempted, as the
regulation is currently interpreted. In such an environment,
a cautious Programme strategy is dictated. The implementation
of the microfinance sub-component would therefore begin with
the preparation of a comprehensive implementation methodology,
taking stock of institutional changes, will be prepared, together
with a plan of action for the second phase. The activities
outlined below would most likely form the core of such a plan
but would need to be revised once the plan of action is completed.
Because of the low level of rural finance activities in the
province, support would be needed both by the different groups
demanding such services and the institutions supplying the
services.
Sub-component
Description
The sub-component would have four main strategic
thrusts: (i) support to groups and individuals accessing
rural financial services; (ii) support for MFIs; (iii) provision
of a line of credit; and (iv) technical assistance.
Support for Rural Groups to Access Financial
Services. This activity would build on the success during
the first phase in forming and training community-level savings
and credit groups. But, the support would be extended to include
the full range of target groups with which the Programme is
working, each with their own demands and needs in terms of
technical/management support and structuring of financial
services. Study of the target population indicates that there
could be some three main groups on which the Programme would
initially need to focus: solidarity groups (traditional tontines)
plus GRF groups and WID groups formed during the first phase.
Many of these groups save in order to meet social expenses
rather than income generating needs. There is a definite potential
to convert some of the more dynamic of these groups into viable
accumulative savings and credit groups that not only can provide
increased access to finance for their members but they can
do so as a profitable business. However, the new microfinance
legislation throws into question this type of initiative:
under the current interpretation, they would be illegal.
One parallel initiative that could shed
light on potential for development of such groups is a pilot
project financed by and IFAD grant for an international NGO,
CARE. The NGO will set up in four districts in Umutara a project
entitled ‘Community learning and action for savings stimulation
and enhancement of business’ project. It will be based on
the creation of grassroots associations that mobilise savings
to finance income-generating activities. These associations
will be grouped under an apex organisation (intergroupement)
to be set up in each of the participating districts. The apex
organisation is to be responsible for extending technical
services to member associations and for increasing lending
capacities through refinancing from the rural capital market
(including MFIs and UBPR). The success and even its implementation
will be contingent on CARE's ability to design the project
in accordance with the new legislation.
The sub-component will also work with enterprise
groups and other groupings of rural entrepreneurs – a fair
portion of which are expected to participate in other Programme-support
activities – to help them organize themselves to qualify for
access to credit. The support is to include training in accounting/bookkeeping,
preparation of business plans, cash flow management, debt
servicing modalities, etc. This support will be harmonized
with a similar support provided under the Programmes enterprise
development sub-component. The option would be maintained
to merge the two at a later stage if deemed advisable.
Support for MFIs. Most of the local
MFIs are weak and need technical/management support to improve
their operations. The Programme would select a limited number
of local MFI with which to work and would assist them to become
viable/sustainable institutions. The contracts given to the
two MFIs in late 2003 – Duterimbere and CSC Ugama – will provide
a test case and allow the PCU to determine if they would be
suitable candidates for inclusion in the rural finance support
programme during the second phase. If Duterimbere and/or CSC
Ugama comply with NBR instruction by 15 March 2004 and perform
satisfactorily over the four-month trial period, they would
continue extending their services in their current districts
over a trial period of one year. During this four-month period,
an assessment would be made of the other MFIs operating in
the country to ascertain whether any of these could be potential
institutions to work with UCRIDP. The response of each of
them over the coming months to the new legislation will be
a key factor in this decision.
In addition to the direct support for MFIs,
the programme would provide technical assistance to Rural
Microfinance Forum to contribute to the reinforcement of its
capacities, particularly with regard to the provision of advisory
services and training to MFIs and the production of manuals
and other methodological tools.
Provision of a Line of Credit. A
Programme would include two credit mechanisms: a ‘credit facility’
and an ‘SME credit line’. make available a refinancing facility
that could be accessed by a range of different financing institutions:
· Credit Facility. These funds will
be available to MFIs contracted by UCRIDP. While the institutions
would be allowed to apply their own methodology, lending criteria
and other procedures, the criteria for their selection would
promote the following practices that have proved to be successful:
savings mobilisation; formation of solidarity groups; and
progressive incremental lending. The programme will assist
the MFIs tailor their financial products to the needs of the
client groups and, where needed, will assist them in developing
new products and services. If necessary, part of the credit
line could be transformed into capitalisation funds, which
might be needed to support apex organisations of the type
promoted by PPPMER 2 with the Centres financiers de proximité
and their unions.
· SME Credit Line. The SME credit
line included in the twin project will be maintained to finance
medium-term loans for small and medium entrepreneurs willing
to invest in the province. Loans financed through the SME
credit line will be submitted to specific eligibility criteria
ensure that they have a direct impact on the livelihoods of
the community where they are to be implemented. They would
only be extended if they would lead to the creation of a minimal
number of new jobs, or if they would result in improved provision
of agricultural inputs or services to farmers. Detailed criteria
will be further spelled out by the PCU, in collaboration with
PPPMER. The credit line will also be available to finance
investment loans over FRw 1.5 million (as per PPPMER methodology),
in support to small and micro entrepreneurs promoted under
the Rural Enterprise Development Sub-component.
Technical Advisory Services. The
allocation included in the twin project to finance technical
advisory services to set up the BRD credit line would be maintained.
It would be used to hire international and national consultants
to: (i) assess the lending market in the province; (ii) design
the conditions of utilisation of the credit line; (iii) assess
the functioning and impact of the credit line after two years
of operation; (iv) study extended modalities for the operation
of the credit line; and (iv) provide other advisory services
to BRD in connection with the operation of the credit line.
Umutara Microfinance Platform. To
promote coordination and complementarities between the various
structures operating in the area of microfinance in the province,
the PCU would set up a Microfinance Platform. It would bring
together representatives of MFIs, banks, Fund Advisers and
NGOs providing technical assistance, Rural Enterprise Advisers,
district authorities, CARE… to promote networking, exchanging
information, solving problems and developing innovative solutions.
Sub-Component
Investments.
Financing would be provided for the sub-component as follows:
· Support to rural groups to access financial services
(USD 0.54 million), contracts with service providers.
· Institutional support for MFIs (USD 160 000),
contracts with service providers and support to the Umutara
microfinance.
· Credit funds (USD 2.03 million), including
a credit facility, SME credit line and management of credit
funds.
· Consultancy services (USD 120 000).
|
