By Dias Nyesiga, The New Times
In a move to scale up efforts to increase financial inclusion for the rural poor and end discrimination, Microfinance institutions (MFIs) have adopted the voluntary savings and loans scheme.
The methodology was first introduced by Care Rwanda to help the rural poor save and acquire loans through their group savings as they build financial credence to access bank and MFIs services.
According to the Executive Secretary of the Association of Microfinance Institutions (AMIR), Rita Ngarambe, the strategy is a result of the current intervention by government and financial institutions to ensure that rural Rwandans access financial services.
“We want to embrace voluntary saving and loans in order to facilitate the process of inclusion and linkages because, this is the right method to reach to the very poor in Rwanda” she said, adding that if the method is adopted, the rural poor would be able to acquire loans from financial institutions.
She also observed that the method would help to mitigate the risks of non performing loans within MFIs.
“In these groups, the portfolio at risk for financial institutions is protected, so you are assured of already organised and trained groups that understand how to invest the loans they have acquired.”
Bright Batamuliza the Marketing and Special project Manager at Vision Finance Company, a microfinance which has already adopted the method noted that the VSL groups reduce on the costs of training and monitoring since they are already organised and financially trained.
“Because we work in rural areas and we are always looking at productive poor, the VSL groups are always better for us. There is no collateral as they cross guarantee each other and this is to our advantage as a microfinance institution,” she said.
By Dias Nyesiga, The New Times
Microfinance Institutions (MFIs) opt to give loans to women and their cooperatives because they are trustworthy in loan repayments compared to men, enabling them to do business better, according to Vision Finance Company.
Bright Batamuliza, the Marketing and Special Projects Manager at Vision Microfinance revealed that with their increasing responsibilities in their families, women have exhibited a culture of trustworthy and diversification of doing multi businesses to raise enough income.
Vision Finance Company is MFI, which provides financial and non-financial services to the economically productive poor Rwandans especially women.
“Women are trustworthy clients; they know how to use the loans effectively by investing in many businesses. When they are in cooperatives the trust is much stronger that you don’t get worried of defaulters,” she told Business Times.
She also noted that women are attracting MFIs to engage in rural areas, especially in agriculture through provision of group loans, which have indicated gloss loan returns.
With voluntary savings and loan project, she said, financial inclusion for all is being realised, especially in rural areas which have been discriminated by banks
According to Batamuliza, MFIs in the country must be gender sensitive if they are to play their role of promoting financial inclusion.
“There is need to ensure all MFIs in Rwanda are gender sensitive in all their operations, if we empower women economically we would have empowered the country.”
By Ambrose Gahene, The New Times Rwanda -
Gicumbi — IRIBA Microfinance located in Byumba Sector has been dissolved after failing to collect over Rwf170m from its debtors.
The microfinance suspended operations way back in May due to bankruptcy, and its administrative council sought the assistance of Gicumbi District in recovering loans from defaulters.
The liquidation was announced, on Tuesday, at a meeting which brought together a loan recovery special committee and a liquidator appointed by the National Bank of Rwanda (BNR)
“After failing to raise all IRIBA Microfinance funds in hands of bad debtors, the council was advised by BNR to liquidate and pay the clients their money,” said the chairman of Gicumbi District loan recovery special committee, Ildephonse Butera, who is also the vice mayor for Economic Affairs.
Butera added that IRIBA Microfinance’s bankruptcy is attributed to the fact that its administration issued out loans to clients without security. “It became difficult for the district committee to recover loans from debtors, who had no security,” added Butera.
The liquidator, Marc Nkunduwemera, said his task is to establish the amount of funds IRIBA Microfinance owes its clients, total amount of non performing loans and the current value of the institutions assets. “After auctioning all assets and recovering loans in the hands of bad debtors, our next task shall be to pay all clients the bank owes money,” said Nkunduwemera.
The loan recovery meeting resolved to compile a list of all the microfinance loan defaulters, which will be submitted to courts of law by Thursday. “We have no option but to seek legal redress against the defaulters,” added Nkuduwemera.
Also present was the District coordinator of cooperative societies Appolinaire Habyakare, and the district Executive Secretary, Sinese Museveni.
Claude Mansell, KF10, Rwanda –
Microfinance is rarely associated with high technology. Neither is Africa. Yet here is Rwandan Microfinance Institution Vision Finance Company about to launch its pilot in mobile payments, in two of its 9 branches.
In a partnership with World Vision and MTN, the leading phone company in Rwanda, Vision Finance Company (VFC) has started a 12 month project that will lead to 30% of its customers doing their monthly repayments via mobile phone. VFC will be the first microfinance institution (MFI) in Rwanda, a country that is making great progress in the application of ICT, to implement mobile payments in partnership with Triple Jump Advisory Services (a global capacity-building NGO for MFIs that operates under the umbrella of the Netherlands-based microfinance investment manager Triple Jump).
CEO of VFC, Shem Kakembo: “We are proud to be leading in this field, it gives us a competitive edge. It will greatly help our customers, and reduce our costs and business risks. Actually, it was Kiva who talked to us about the benefits of mobile payments and brought us in touch with Triple Jump”.
Significant benefits for the customers, for VFC, for the phone company and indirectly for Kiva and its lenders.
To understand the sources of benefits, let’s take a look at the current processes. Microfinance loans (which are around $1000 in size) are usually disbursed in cash to customers at one of the local branch offices of an MFI. Repayments plus payment of the interest are done on a monthly basis. In 60% of the cases, a customer has to go to the local branch office to make the monthly repayment and in the other 40% a credit officer goes to the customer to collect the cash.
Especially in the rural areas, travel time for customers and credit officers can be significant (one hour back and forth is no exception). At each branch, a cashier and an accountant deal with the physical cash and administration of the transactions. Currently, at VFC 60% of all repayments take place in the last 4 days of the month. This means that during those days much cash is in the hands of the credit officers and/or in the local branches.
Mobile payments will eliminate the monthly travel by customers and credit officers. At VFC one calculation of transportation costs (excluding the opportunity costs of a customer’s travel time) is Rfr 1000, or about $2 per month. This is about 8% of the interest charged to a customer. A mobile payment would cost only Rfr 200, or $0.40.
Focus group results show that customers respond enthusiastically to the new technology. Project Manager at VFC, Jean-Marie Musangwa: “Customers see the monthly travel time as a real burden. Also, they do not like to carry much cash with them each time. Credit officers will not only save travel time but also much time making reports on repayments. The time freed up by use of mobile payments can be used to reach more customers and provide better quality of service.”
Other benefits for VFC are a less time spent on repayments by cashiers and accountants at the branches. In addition, the risk of holding cash money will be reduced, which is an important element in avoiding theft and fraud.
For Kiva and its lenders, the benefits are an improved management of the repayments, and possibly an increase in the repayment rate. Ben Elberger, Kiva’s Regional Director on Anglophone Africa, said: “since 2007, we have been excited to see the propagation of mobile payments by our MFI’s. Thus far, in Africa, 4 of our MFI’s are engaged in pre-studies or projects implementing mobile payments. Long term, mobile payments have the potential to bring down costs for MFIs and thereby benefit clients”.
Investments will be carried by MTN, VFC and the Customers (who buy the phones)
Investments in the infrastructure, equipment and the implementation program will be shared by MTN and VFC. The mobile phones will be sold to the customers for $6 each. The phones can be used for the payments as well as for normal voice communication via the MTN network.
Once operational, the customers and VFC will both pay for the transaction costs.
The downside of the new technology must be properly managed
The main downside to mobile payments is the reduced number of interactions between the credit officer and the customer, specifically in the 40% of the cases in which credit officers went to collect the repayments on a monthly basis. These interactions strengthen the ties between VFC and its customers, and are believed to be beneficial for the repayment rate. Jean-Marie Musangwa on how VFC will ensure its customer intimacy once mobile payments have been introduced: “The follow-up with the customer will be maintained. We will make sure that our credit officers stay in touch with the customers, both for the social and economic reasons. However, we can be more selective in doing so.”
VFC is innovating in line with Rwanda’s technological vision
While VFC may be the first MFI in Rwanda to engage in mobile payments, it definitely will not be the last one. Rwanda is making a massive move to implement mobile technologies and is heavily investing in its internet infrastructure. Watch Rwanda catch up and leap-frog into the next decade!
Microfinance is booming. Certainly in Rwanda. And the Netherlands is contributing to this ‘success story’. Via both the front and the back door.
“Very, very many microfinance organisations (MFIs) came to Rwanda after the genocide in 1994,” says Aussi Sayinzoga. He is a Rwandan who is researching microfinance in Rwanda and Burundi at Wageningen University in the Netherlands.
“Microfinance is a big chance for us,” says Sayinzoga. Six million of the ten million inhabitants of his country live below the poverty line. “People have no access to money. Only ten percent of my countrymen have a bank account. In the countryside, the figure’s just three percent. That is a big problem.”
Western countries are very interested in succeeding in Rwanda. The little Central African country is seen as a model nation in Africa following a series of economic reforms which has seen average economic growth rise to six percent.
In a short time more than 200 Rwandan MFIs came into being. Every year they receive more and more money from Western donor nations, destined for farmers and small businesses. Donations increased from 60 million euros in 2006 to almost 80 million euros in 2008.
The Netherlands, as one of the first donors after the genocide, is conspicuously present in Rwanda. Every year it gives 25 million euros to the little country, totally separate from the money provided to developing countries by the World Bank, the European Union and the United Nations. Approximately nine million euros goes to the private sector, most of it to MFIs.
The success story of Africa
“That’s because Rwanda is Africa’s success story,” says Robert Lensink, senior lecturer in Developing Economies at Wageningen and a professor at the University of Groningen. He recently gave a course about microfinance to employees of the Central Bank in the Rwandan capital Kigali. The topic: How do you regulate microcredit on a large scale?
“And indeed, even I was enormously surprised when I arrived there for the first time. Because everything did appear to be so regulated and organised. I think it’s because of their war past. I think because of what happened, they want to keep a closer eye on what’s going on.”
Despite this, the international ‘donor darling’ remains controversial. At the end of 2008 Bert Koenders, the Dutch former Minister for Development Cooperation scrapped several million euros in direct budgetary aid to Rwanda. He did it for political reasons: the involvement of the Rwandan government in violence in the eastern region of its neighbour, the Democratic Republic of Congo.
“That was a victory for Koenders,” says Lensink. “He wanted to show that the Netherlands does not give money to undemocratic countries where human rights don’t count.”
Professor Lensink thinks the Netherlands and Rwanda have a strange relationship. The vast majority of the development aid does, in fact, continue. “You can see now that our money is reaching Rwanda by another route. For example, via an educational project that I’m responsible for.” And MFIs profit indirectly from this.
The Dutch Foreign Office is also keeping a close eye on Rwanda. The run-up to the coming elections in August has been accompanied by several controversial arrests of political and military opponents. Critics are calling the government in Kigali dictatorial and undemocratic.
Impoverished Rwanda is heavily dependent on donors. Close to 400 million euros a year – half its total budget – comes from countries such as the Netherlands, the United States, the United Kingdom and Germany.
MFIs receive several of those millions a year. But this considerable amount of money appeared to be – at least in the beginning – unverifiable. Several institutions were badly organised, says researcher Aussi Sayinzoga. “There was little control. The National Bank didn’t keep a close eye on what happened. Microcredit was confused with development aid.”
This chaos led not only to corruption at the local level but also in the government in Kigali, says Mr Sayinzoga: “I can recall an MP who received a loan of 48 million Rwandan francs (60,000 euros). That’s not microfinance! And an MP is not poor!” In 2006, eight MFIs were shut down. Dozens of people were arrested.
Professor Lensink thinks corruption can be found everywhere. “Certainly in microfinance. The sector has grown so much in recent years. Microfinance is seen by everyone as the solution to all sorts of problems. Money is pumped in all over the place. But in the end you have to deal with people. And you will find rotten apples among them. That is what happened in Rwanda.”