Development of a Micro Finance Capability in The Gambia - Part II

This week Market Beat would like to continue from where we left-off last week Tuesday the 24th. June, 2004 on this august piece deliver at the second anniversary of the Gambia Association of Accountant (GAA). Thus:

Microfinance Market and Products

In The Gambia, the man existing financial services/products offered are: (1) savings mobilisation (voluntary or compulsory, passbooks and term deposits); and (11) credit delivery (short/medium/long-term loans; cash/ in-kind credit; production/consumption credit; and working capital/investment credit. The products offered cover only a small portion of the demand and need further improvements in order to address the recognised need for bigger amounts relevant to diverse economic activities.

Unmet Demands for Microfinance Services

A study that was carried out in 2004 concluded that the demand for microfinance services in the Gambia by far exceeds the supply. The credit demand for rural microfinance services in 2002 was estimated to be GMD 234.25 MILLION (UA 5.21 MILLION, corresponding to GMD 302 MILLION  UA6.711 MILLION in 2005(adjusted for inflation).

The RFCIP Refinancing/guarantee/insurance funds study. 2005 estimated that the total credit supply in the Gambia in 2005 is about GMD 220 MILLION UA 4.89 MILLION. This would imply a credit shortfall of over GMD 80 Million UA 1.7 MILLION, assuming zero-real growth of demand between 2002 and 2005. However, based on the assumptions that demand over that period increased in real terms by five percent 5% per annum, the shortfall would be GMD 133.5 MILLION UA2.966 MILLIONS).

This means that an increase in credit supply of 60% would be needed to meet existing demand. At the same time, it should be noted that presently only about 30% of rural households are receiving credit.

Moreover, the average inflation rate in 2005 was 4% compared to 8% in 2004 indicating a prudent macroeconomic management policy by government of the Gambia(GOTG) and which continued to remain favourable enabling a more accurate analysis of these financial projections. In addition to clients’ requirements for more credit, there is also a need for different products, which are not yet sufficiently offered by existing NBFI service providers.

Some of the products identified by emerging Medium Size Enterprises(MSEs) and rural entrepreneurs under the PRP are: a- Bigger loans, especially for economic activities with initial investments capital of more than GMD10,000 (US$350); B- Long-term credit and longer grace periods for specific economic activities (e.g. livestock and tree crop production  and beekeepingh0; c- Seasonal credit for horticulture and crop production activities; and  d- Adequate savings products combining proximity to the clients and attractive remuneration. The unmet needs for financial services listed above clearly suggest a considerable potential for growth of the microfinance industry in The Gambia in support of poverty reduction and employment generation.

Outreach and Sustainability

In June 2005, it was estimated that the outreach in microfinance was around 232,000 clients 9about 17% of the total population) with over GMD 215 MILLION credit disbursed and GMD 238 MILLION savings mobilized. The microfinance clientele served is mainly rural poor, 70% of whom are women. The repayment rates are between 80% and to 90%. The microfinance industry in the Gambia is still very young compared to other countries where almost 57% of the population have access to an average loan amount of GMD12, 500 compared to the GAAMBIA. NBFIs in the Gambia are concentrated in the Western part of the country mainly in the Greater Banjul Area (GBA) and NBR administrative divisions. Very few microfinance operators are available in the URR and the CRR mainly due to infrastructure constrains and unaffordable costs of expansion.

Currently, very few of the Non Bank Financial Institutions (NBFIs) in the country are self-sufficient both financially and operationally. GAWFA, NACCUG, RELIANCE FINANCIAL SERVICES and the VISACAs are the only NBFIs and credit unions which have continued to expand their operations sustainably while charging interest rates close to the CGB discount rates.

This indicates that GAWFA, NACCUG and its credit unions, as well as the VISACAs and more recently Reliance Financial Services are presently meeting the demand of large sections of the rural population for microfinance products.

It is pertinent to point out that GAWFA, NACCUG and the VISACAs have benefited from the support of international partners like (Women World Banking and IFAD) which have provided the necessary expertise and back stopping to launch and develop the institution which indicates that efficiency is mainly due to well identified outreach programmes based on client needs while working together with the clients with close technical assistance and guidance.

Moreover, sustainability is greater ensured due to the high level of ownership and participation in decision making by clients themselves, while these institutions are covering an unmet demand for credit in the most remote parts of the country thereby directly supporting poverty reduction.

Interest Rate Determination

The CBG’s policy on interest rates is generally to leave their determination to the market forces of demand and supply. Nonetheless, the CBG’s discount rate is used as a benchmark for microfinance interest rates. Development in the CBG discount rate in recent years has had an impact on the lending rates for microfinance activities in the country. In the late 1990s, the CBG discount rate was 12% per annum and this increased to 14-15% per annum between 2001 and 2003. factors such as the worsening fiscal deficit, exchange rate instability of the Dalasi and the increasing inflation rate from 4-5% to 18% (between 2000 and 2003), all contributed to the increase of the discount rate to a high of 31% per annum in 2004> the discount rate during the first six months of 2005 varied between 12% and 18%.

Support Services to the Microfinance Institutions

NBFIs cannot develop and expand their services without a supporting industry, which provides expertise and services essential to their development. This includes regional and international institutions comprising technical service providers and trainers, information technology firms, credit bureaux, professional networks, rating agencies, specialized auditors, etc. Apex agencies are also common for supporting refinancing and /or technical assistance to the retail NBFIs. This segment of the microfinance sector is very limited in the Gambia.

Some seven qualified microfinance facilitators/promoters exist in the country whose expertise in microfinance is limited and excludes more technical services such as computerization, organizational development, marketing and strategic planning, rating services. The main network institution in the country is Gambia Microfinance Network (GAMFINET).

GAMFINET is a founding member of the Africa micro finance Network (AFMIN).

Vision and Mission

The vision of the Gambia Microfinance Network is to contribute to the development of an effective, efficient and sustainable microfinance sector serving the poor in the Gambia, while its mission is aimed at poverty reduction in the Gambia.

GAMFINET aims to provide a leadership role in the Gambia by working with microfinance practioners, networks, technical service providers, promoters, donors, private sector operators and policy makers to create linkages and develop financial systems and innovative practices that work for micro finance institutions and their clients.

Plans are underway to strengthen the capacity of GAMFINET to enable it carry out its mandate effectively.

The Gambian rural areas suffer from lack of opportunities to engage in entrepreneurial activities face several constraints resulting in low profits. Main constraints identified from lessons learnt from previous projects are lack of access to entrepreneurship and skill training as well as micro finance.

Past donor support has been sporadic and often concentrated on individual financial institutions and/or financing of credit activities within stand-alone sectors without, related to the development and promotion of MSMEs.

In view of the foregoing and having regard to the importance attached to this sector by the Government and as part of the strategy to reduce poverty the Gambia Government has successfully concluded negotiations with ADF for a new Entrepreneurial Development and Micro Finance Project.

This project will support the training of at least 24,000 rural men, women and youth nationwide in the area of entrepreneurship and skills development during the project life. In the interest of reaching the most vulnerable group the following targets will be maintained in all training activities: at least 70% trainees will be women and female youth, and 30% trainees will be adult and young men. Moreover, the project will facilitate micro-finance and saving mobilization access to at least 116,000 new clients while creating at least 14,345 new loans.

The project will target the most vulnerable and poor segments of the population, in the five Regions with special focus on the rural population. The youth entrepreneurs from Banjul City Council and Kanifing Municipal Council will be limited to 25% of the total beneficiaries in order to provide more project resources outside the urban centres.

The beneficiaries of this project will be from rural households whose poverty situation is exacerbated by lack of diversification