Hans Dieter Seibel
Financial innovations for microenterprises – linking formal and informal financial institutions
In the past, credit programmes including subsidies and neglecting savings mobilization have undermined rural finance. In recent years, the number of countries has been growing in which banks mobilize savings and practise commercial banking; but the rural poor still have to rely on informal financial institutions, which are better adjusted to local conditions. During the early 1980s, a novel approach entered into the debate: linking informal and formal financial institutions, with financial self-help groups acting as intermediaries between microentrepreneurs and the banks. This reduces transaction costs substantially, for the benefit of both. Within APRACA (Asian and Pacific Regional Agricultural Credit Association), Indonesia has been the first to implement such a pilot project. In a favourable policy climate, a project was designed which incorporates the major features of sustainability, such as reliance on institutional capacity, co-operation between governmental and private voluntary bodies and pre-existing grass-roots organizations, domestic resource mobilization, market forces, flexibility and socio-cultural adjustment. In 1989, 30 bankers, 30 PVO staff and 815 self-help group staff were trained. From May to September, a first set of some 20 bank units, 10 PVOs and 100 self-help groups entered into their initial financial transactions.
Centenary Rural Development Bank, Uganda: a flagship of rural bank reform in Africa
Centenary Rural Development Bank is a commercial bank providing deposit, credit and money transfer services to poor clients in Uganda. Established by the Catholic Church as a trust fund in 1983, it developed strengths in savings mobilization but performed poorly as a financial intermediary. This article describes Centenary'sprogress since reform in the early 1990s when it was transformed into a commercial bank. With donor support, the bank introduced a highly effective individual lending technology, including a computerized loan-tracking system, and staff and customer incentives encouraging timely repayments. This has resulted in an impressive portfolio-in-arrears ratio of around three per cent. Since 2002, the bank has started to overcome its quality-vs-productivity dilemma, by shifting incentives from repayment towards disbursement, and adding mesofinance for small and medium entrepreneurs. This move has substantially contributed to both the bank'ssustainability and its outreach to poor savers.
Financial linkages in Mali: self-reliance and liquidity balancing versus liquidity supply and donor dependence
Microfinance is now reaching almost one-third of households in Mali, one of the poorest countries in the world. The government-owned BNDA plays a part in this by linking to networks that extend credit and savings services to poor clients. Two distinct networks – a federation of savings and credit co-operatives and a network of village banks – are examined and found to have adopted quite different organizational strategies. The co-operatives concentrate on building client savings, so that the bank linkage simply covers liquidity requirements; whereas the village banks rely on the bank linkage to fund credit expansion. The article questions whether donor funding for credit expansion via BNDA will continue to be needed in years to come. The experience of Mali also shows that agricultural lending is feasible; that government banks and donor funds can play an important incipient role; and that there may be a great potential for growth of outreach through savings mobilization as well as for sustainable linkages through MFIs establishing their own banks.
The People's Credit Funds of Vietnam: A prudentially regulated credit cooperative movement
Emerging from the collapse of its command economy, Vietnam succeeded in creating a conducive policy environment and building a strong new credit cooperative system. The government benefited from the experience of other countries but replicated none. Instead it came up with an innovation: cooperative self-help under state control, seemingly a contradiction. The newly established People's Credit Funds (PCFs) are self-managed and self-financed; yet their success is due to the central bank designing the new system, preparing its regulatory framework, providing training and supervision and enforcing prudential standards, while abstaining from undue interference. Regulation and supervision have been the state's instruments for assuring good performance, avoiding the disaster of the previous credit cooperative sector. The network overall has proved resilient during the global crisis, but with some differences between the rural PCFs and their central fund, which in addition to liquidity exchange also provides retail services in urban areas.