REPUBLIC OF THE GAMBIA

THE NATIONAL STRATEGIC FRAMEWORK FOR THE

DEVELOPMENT OF MICROFINANCE IN THE GAMBIA

FINAL REPORT

Consultants: Client:Sahel Invest Management Intl Rural Finance & CommunitySahel Plaza Initiatives Project (RFCIP)Bakau New Town Reuben Thomas BuildingTel: (220) 4497950/4497856 Cape Point Tel: (220) 4497343Fax: (220) 4497951 Fax: (220) 4497353Email: sahel@qanet.gm Email: ruralfin1@gamtel.gm

May 2006

TABLE OF CONTENTS

EXECUTIVE SUMMARY 3

ACKNOWLEDGEMENT 6

ACRONYMS 7

1.0 INTRODUCTION

1.1 Poverty Alleviation and Microfinance Programmes1.2 Rationale for the National Strategy Framework Paper for

Microfinance Development in the Gambia1.3 Terms of Reference (TOR)1.4 Methodology

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2.0 SITUATIONAL ANALYSIS: MICROFINANCE INDUSTRY IN THE GAMBIA

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2.1 Microfinance Development Trends in the Gambia

2.2 Structure of the Micro and Small Enterprise (MSE) Sub-sector

2.2.1 Structure 2.2.2 Constraints

2.2.3 Key Sectors Benefiting from the MSE and Microfinance Industry

2.2.4 Source of Finance

2.3 Structure of the Microfinance Industry

2.3.1 Structure, Market Size and Governance 2.3.2 Microfinance Actors/Stakeholders and their Distribution 2.4 Microfinance Approaches/Types and Services/Products

2.5 Microfinance Interventions and Critical Service Issues

2.5.1 Limitations of Existing Regulatory and Supervisory Framework

2.5.2 Credit Needs of the Population, Levels of Demand for Microfinance Services and Framework for Short and Medium Term Plans to Address the Needs

2.5.3 Microfinance Outreach to Satisfy the Credit Needs2.5.4 Assessment of Unmet Demand2.5.5 Microfinance Interest Rates and Spread2.5.6 Microfinance Capacity Building Needs and Gaps2.5.7 Integrating Microfinance and the Banking Sector for

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Complementarities 2.5.8 Ways of Coordinating and Streamlining Microfinance

Actors and Interventions2.5.9 Microfinance Best/Sound Practices

3 MICROFINANCE OPERATION AND ITS IMPACT ON THE GAMBIAN LIVES AND THE ECONOMY

4 INSTITUTIONAL AND ENVIRONMENTAL ASSESSMENTS (SWOT AND PEST ANALYSIS)

4.1 General Assessment of Microfinance Players4.2 Assessment of Some Key and Predominant Players4.3 Environmental Assessment of the Microfinance Industry

4.3.1 Political, legal and regulatory factors4.3.2 Economic factors4.3.3 Socio-cultural factors4.3.4 Technological and Communication factors

4.4 Vision for Microfinance Development in the Gambia

5 PROPOSED MICROFINANCE STRATEGIES FRAMEWORK, INSTITUTIONAL ARRANGEMENTS AND ACTION PLAN

5.1 Strategic Issues5.2 Institutional Arrangements5.3 Action Plan

6 CONCLUSIONS AND RECOMMENDATIONS

7 REFERENCES

8 ANNEXES

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EXECUTIVE SUMMARY

A study on the National Strategic Framework for Microfinance development in the Gambia (NSFM) was conducted in the country with the hope that microfinance will be one of the important tools in poverty alleviation interventions in a country where two-thirds of the population are considered to be below the poverty line. The rationale for the NSFM is to holistically streamline the actors and interventions especially through sufficient specialization, coordinate activities and help regulate and develop the microfinance industry in the Gambia. The introduction of an NSFM will also:

Provide a common vision, goal and objective for the development of microfinance in the Gambia;

Ensure a self-managed, self-sustaining and socially viable microfinance service delivery; Better coordinate and streamline of the activities of various actors and interventions; Ensure realisation of a thriving microfinance/rural finance development environment for the

Gambia in the short and medium-term; and Create linkages between the microfinance and commercial banks as well as other productive

sectors of the economy.

The study was conducted using the following methods: Literature review, consultations, FGDs, SWOT and PEST analyses based on the TOR prepared for the consultancy.

During the study an indepth analysis of the microfinance industry was undertaken giving particular attention to the structure of the sub-sector including the actors/stakeholders and their level of intervention, the main microfinance approaches depending up targets, service providers and delivery style. The main microfinance services/products, size of the industry in terms of institution, level of savings utilization and credit portfolio the outreach capacity were analyzed.

The study also examined the banking sector vis-à-vis the microfinance industry looking at complementarities and how the two industries can be integrated. Certain critical issues of importance in the regulatory and supervising framework for microfinance development were also addressed. An impact assessment of the microfinance industry on the lives of the Gambians and the economy as a whole was undertaken, focusing on series of socio economic factors including increased income, job creation, food self sufficiency, improved health and nutrition of the family, increased social and cultural cohesion as well as self-actualization. A SWOT and PEST analysis were finally conducted on the microfinance industry and on some key microfinance service providers. The findings indicate many strengths, weaknesses, opportunities/potentials and threats for the various player categories of the microfinance industry. It was found out that the key strengths were:

Operating close to the communities served using owned offices; Good connection to networks and support agencies; Strong membership drive (for the practitioners/direct lenders); Few competent and qualified professional staff; Broad based linkages with donors; The largely countrywide coverage and autonomy (for the intermediary

funders); Capability of providing some form of training for MFIs and grassroots clients; Ability to mobilize the communities (for facilitators/promoters); Committed members; National and international recognition; Conducting trainings in best/sound practices for microfinance development

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Serving as important sources for networking and linkages (for network institutions);

Having a special Microfinance Department at CBG; and Professional staff and FIA’s backing of operations (for regulators and

supervisors).

Some of the main weaknesses include:

Capacity constraints in terms of well-trained staff, supply of equipment and materials and infrastructural development

Inadequate capital to meet the funding needs of the industry Insufficient management information system (MIS) Poor record keeping Inadequate diversification of services/products Weak governance High operational costs due to many inefficiencies Inadequately defined performance standards and indicators, and Regulatory and supervisory constraints

The major opportunities/potentials available for players in the microfinance industry include:

Increased client demand for microfinance services Existence of many projects/programs dealing with microfinance More training possibilities for staff of the industry players, and Creation of employment opportunities and improved access to education and

good health for clients/beneficiaries.

The key threats identified in the study include:

Growth retardation of the microfinance industry due to inadequate specialization, susceptibility to fraud and financial mismanagement due to poor record keeping, theft and loan default, moral hazard and adverse selection problems, unhealthy competition among players, possible political interference and long term funding problems due to heavy reliance on donor-funding.

The outcome of these analyses provided the basis for defining a national strategic framework for the development of the industry, which included justification of such strategies supported with lessons of sound and best practices.

The strategic framework include:

A. Overall Policy Enabling Environment

1. Improve coordination at national level for the efficient and effective delivery of microfinance services through the identification of a Department of State in the country with a portfolio responsible for broad and overall microfinance policy and general coordination of the industry.

2. Strengthen the capacity of GAMFINET

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B. Enhancement and Maintenance of Enabling Environment to promote Microfinance Market

3. Regularized (i.e. ensuring that prudential standards are met) the wide divergence of MFIs lending conditions, credit policies, procedures as well as eligibility criteria.

4. Encourage healthy competition among service providers to encourage the provision of sound financial services to the poor.

5. Improving the regulatory and prudential framework of the CBG and encouraging in self-regulation among the operators.

6.. Maintain a level playing field among economic sub-sectors and enhance competition.

7. Encourage those NGOs and other agencies that work with MFIs in providing non-financial services to concentrate and specialize in their areas and avoid duplication efforts.

B. Direct Micro-Financial Interventions

8. Provision of adequate outreach and access to microfinance by the poor and rural population.

9.. Ensure capital adequacy (i.e. encouraging savings mobilization and provision of loanable funds) for MFIs to cater for the potential unmet demands for development and credit needs.

10. Enhance the capacity and enabling environment for MFIs and their clients/beneficiaries.

11. Improving and enhancing management information systems (MIS) in the microfinance sector.

It was recommended that microfinance service providers adopt strategies that would ensure their being focused on core competences and where comparative advantages lie and to adopt strategies that would enable cost optimisation for better performance in the microfinance industry. The long-term goal is to develop the sub-sector within the framework of internationally accepted “sound practices” and principles of no/reduced subsidies, while having operational and financial self-sufficiency with the highest microfinance assets quality.

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ACKNOWLEDGEMENT

The Consultant wishes to acknowledge the kind assistance offered by the staff of the various Government institutions, CSOs, NGOs, CBOs, MFIs and commercial banks, which were consulted as well as by the other service providers and community groups who participated in several Focus Group Discussions (FGDs). The valuable information obtained from the various stakeholders was key in coming up with the proposed strategies. The team of Consultants would like to express special thanks to the staff of the IFAD-funded Rural Finance Community Initiatives Project (RFCIP) for the funding of the study and the excellent support accorded during the study period. Finally, the team of Consultants expressed particular gratitude to IFAD, World Bank and ADB missions met during their assignments connected to RFCIP II, the Community Driven-Development project (CDP) and Poverty Reduction Project II (PRP II) respectively. The open dialogue between the team of Consultants and the various stakeholders led to the development of the NSFM. The hard work done by the various secretarial staff and the field enumerators is also highly acknowledged.

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ACRONYMS

AATGADBADBAEUAFETAGOAAG’S&DOSJAGEAGIBANRATUAVUBDSCBGCBOsCSOsCSCRDDCDDOSADOSFEADOSMFDOSTIEECOWASERPEUFASEFFHCFFIFIAFIBGAFNAGAICGAMFINETGAMSAVINGSGAMSEMGARDAGAWFAGCCIGCDBGIPFZAGNICGTBGTTIGOTGGRECIBASIBCICDFIDBIFAD

Action Aid The Gambia African Development BankAgricultural Development BankAgricultural Engineering UnitAssociation of Farmers, Educators and TradersAfrica Growth Opportunities ActAttorney General Chambers of the Department of State for JusticeAssociation of Gambian Entrepreneurs Arab Gambian Islamic Bank Agriculture and Natural ResourceAppropriate Technology UnitApex VISACA UnionBusiness Development ServicesCentral Bank of The Gambia Community Based Organizations Civil Society OrganizationsCooperative SocietyCentral Revenue DepartmentDepartment of Community DevelopmentDepartment of State for AgricultureDepartment of State for Finance and Economic AffairsDepartment of State for Microfinance Department of State for Trade Industry and EmploymentEconomic Community of West African StatesEconomic Recovery ProgrammeEuropean UnionFight Against Social and Economic Exclusion Project Freedom From Hunger Campaign Fiduciary Financial InstitutionFinancial Institution ActFirst International BankGambia Food and Nutrition Association Great Alliance Insurance CompanyGambia Microfinance Network Gambia Microfinance Savings Company Limited Gambians for Self-Employment Gambia Rural Development Agency Gambia Women’s Finance Association Gambia Chamber of Commerce and Industry Gambia Commercial and Development BankGambia Investment Promotion and Free Zone AgencyGambia National Insurance CompanyGuarantee Trust BankGambia Technical Training InstituteGovernment of the GambiaGambia Renewable Energy CompanyIndigenous Business Advisory Services International Bank for Commerce International Cooperation for Development FundIslamic Development BankInternational Fund for Agricultural Development

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IRDPHIPCJLGLGAsMFIMFPCMISACINACCUGNASACANAWFANBFIsNCFANGOsNSFMNYSSOPECPASPIAPAUPESTPRSPPSDROSACAsRFCIPSACAsSAPSBAsSBGSDFSDRDSGSHGSHOsSWOTMSEDAMSEsSPASPACOTARUDTBLTDTORVATGVISACAsWADWASDAWBWISDOMWTO

Integrated Rural Development ProjectHighly Indebted Poor CountriesJoint Liability GroupLocal Government AuthorityMicrofinance InstitutionsMicrofinance Promotion Centre Micro Savings and Credit InstitutionsNational Association of Cooperative Credit Unions of The Gambia National Association of Village Savings and Credit Association National Women Farmers’ Association Non-Bank Financial InstitutionsNational Cashew Farmers’ Association Non-Governmental OrganizationsNational Strategic Framework for MicrofinanceNational Youth Service Scheme Oil Producing Economic CountriesPresident’s Award Scheme Participatory Impact Assessment Policy Analysis UnitPolitical/legal, Economic, Socio-cultural and TechnologicalPoverty Reduction Strategy PaperProgramme for Sustained DevelopmentRotating Savings and Credit AssociationsRural Finance and Community Initiatives Project Savings and Credit AssociationsStructural Adjustment Programme Small Business AssociationsStandard Chartered Bank (Gambia) Limited Gambia Social Development Fund Support to Decentralized Rural Development Solidarity GroupSelf Help GroupSelf Help OrganizationsStrengths, weaknesses, opportunities and ThreatsMicro and Small Enterprise Development Agency Micro and Small Enterprises Strategy for Poverty AlleviationStrategy for Poverty Alleviation OfficeTrust Agency for Rural Development Trust Bank Limited Term DepositTerms of ReferenceVillage Aid The GambiaVillage Savings and Credit Associations Wuli Association for DevelopmentWuli and Sandu Development Association World BankWomen in Service, Development, Organization and Management World Trade Organization

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1.0 INTRODUCTION

1.1 Poverty Alleviation and Microfinance Programmes

The Gambia is one of the poorest countries in the world. The UNDP Human Development Index for 2004 ranked the Gambia as 155th out of a total of 177 poorest countries. Poverty in the Gambia is pervasive and largely a rural phenomenon. Poverty studies [the ILO Food Poverty Studies of 1989, the ADB-funded Household Economic Survey under the ‘Social Dimensions of Adjustment’ of and the Household Poverty Survey carried out by the Central Statistics Department (CSD) in 1998] indicated that poverty in the Gambia has been increasing and as 2003, about two-thirds of Gambians live below the poverty line with average life expectancy is about 54 years and three-quarters of the poor live in rural areas, where extreme poverty is increasing. The poor are rarely consulted on major policy orientation or strategic investments. The Poverty Reduction Strategy Paper (PRSP) was prepared in 2002 to help address the increasing poverty situation of the country.

According to the PRSP, The Gambia’s per capita GDP is projected not to rise beyond US$500 by 2019. This implies that there is need for substantial international concessional assistance to be able to attain a per capita income of more than US$1 a day (a measure of poverty level) for the population. The macro economic and structural imbalances need some corrections in order to enhance growth in productivity in public as well as private sector enterprises. Indeed, government’s efforts to adjust the macro economy and structural imbalances to meet human development standards, has a historic perspective in the Gambia. This range from the five-year Development Planning periods in the late 1970s and early 80s, which failed to reverse the downward spiral in agricultural productivity to the Economic Recovery Programme (ERP) of 1985 and the PRSP.

The PRSP is a product of the efforts of the Strategy for Poverty Alleviation I (SPA I). The SPA laid foundation for a more focused programming capable of addressing multi-faceted dimensions of poverty including the need to raise opportunities for income generation and employment creation for the poor.

SPA I (1995-2001) and SPA II (2003-2005) are development strategies set to stimulate human resource development resulting into productive capacity enhancement of the poor with a view to enabling them to access microfinance services for poverty alleviation. The policy and programmes focused, among others on:

Creation of employment opportunities Improving the agricultural productive base and productivity Improving labour market information systems Promotion of labour-intensive industries Intensifying vocational training in order to meet specific needs of microfinance services

users.

SPA II is centered within the national context of Vision 2020, a long-term strategy (1999-2020) that envisions transforming the Gambia into a middle-income country. Vision 2020 is based on four strategic development areas:

Accelerating private sector development, Restructuring economic management, Development human capital base, and Institutionalizing decentralized and democratic participatory government structures,

processes and systems

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The PRSP strategies are geared towards the achievement of the Millennium Development Goals (MDGs), which are the global goals set by the United Nations (UN) to fight world poverty and the MDGs related to microfinance include:

(i) To cut absolute poverty in half by 2015

(ii) Cutting in half the number of people living on less than US$1 a day by 2015

(iii) Working to ensure that 175 million of the world’s poorest families, especially the women of those families, are receiving credit for self-employment and other financial and business services by the end of 2015. With an average of five in a family this would affect 875 million family members

(iv) Working to ensure that 100 million of the world’s poorest families move from below US$1 a day adjusted for purchasing power parity (PPP) to above US$1 a day adjusted for PPP, by the end of 2015. With an average of five members per family this would mean that 500 million people would have risen above $1 a day nearly completing the MDG on halving absolute poverty.

The PRSP has given great importance to microfinance as one of the important and effective tools for poverty alleviation, hence the necessity of microfinance development in the country. However, the macro strategies formulated in the past on microfinance service delivery did not adequately cater for the needs of microfinance service providers and the poor, hence the importance of a comprehensive NSFM.

1.2 Rationale for the National Strategy Framework Paper for Microfinance Development in the Gambia.

One of the main obstacles to improving conditions among the poor, particularly the rural poor is the lack of access to capital required to fund income generating activities (IGAs), whether agricultural or non-agricultural to pay for the education and health needs of family members and meet important social obligations. Informal savings and credit mechanism exists, but the resources invested in them are restricted to the amount and serve solely to fund immediate consumer expenditure or working capital.

Microfinance is ‘the provision of financial and non-financial services to the low-income clients (i.e. the poor and the poorest of the poor) and including the self-employed poor’. On the other hand, Rural finance is a development finance that is geared towards the development of the rural poor by providing them with both financial and non-financial services.

For the past five to six years, efforts have been made in developing and experimenting different approaches to provided financial services to the poor. Today, despite the presence of so many players at various levels in the country, the penetration rate of services is far from adequate. Various fora and reports suggest that the proliferation of different players operating under different delivery technologies and environments without a common vision is counter-productive to the development of microfinance. These led various constraints and lessons learnt. The rationale for this NSFM is to holistically address some of the key constraints including:

Conflicting microfinance goals i.e. commercial versus social welfare objectives.

Over-servicing of source areas with microfinance while others have little/or services

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Programs with liquidity deficits and allowing delinquent borrowers continued access to credit by being able to skip from one program to another.

Apparent non-adherence to operational guidelines, and

Unhealthy competition among service providers.

Moreover, such an NSFM will provide a common vision and the enabling environment for the development of microfinance in the country. The development of the microfinance industry is essential in view of the fact that it increases the opportunities for job creation and private sector participation in the economy, which are preconditions for sustainable development of any nation. In other words microfinance provides access to both financial and non-financial services, security, stability, opportunity and independence for service providers and users. It helps to develop skills, leadership and managerial capabilities, utilisation of indigenous and scarce resources and increases capital formation. Making available an NSFM in the Gambia will not only refine and guide the microfinance operations, but also create practical and a common platform for all players, as well as increase the growth performance of the industry in poverty alleviation. Because of the very significant role the microfinance is seen to be playing in the key sectors of the economy such as agriculture, tourism, trade and manufacturing, it becomes increasingly relevant to establish with the participation of various stakeholders an NSFM in the country. The introduction of an NSFM will also:

Provide a common vision, goal and objective for the development of microfinance in the Gambia;

Ensure a self-managed, self-sustaining and socially viable microfinance service delivery;

Better coordinate and streamline of the activities of various actors and interventions;

Ensure realisation of a thriving microfinance/rural finance development environment for the Gambia in the short and medium-term; and

Create linkages between the microfinance and commercial banks as well as other productive sectors of the economy.

1.3 Terms of Reference (TOR)

The study was conducted based on a terms of reference (TOR) prepared for the consultancy. Details of the TOR for the study are in Annex 1.

1.4 Methodology

The study was conducted using the following methods:

- Literature review- Consultations- Focus Group Discussions (FGDs) of key players- Sample Survey (see questionnaire guides in Annex 2)- Strengths, Weaknesses, Opportunities and Threats (SWOT) and Political/legal,

Economic, Socio-cultural and Technological (PEST) Analyses

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The major limitations and constraints encountered during the study were:

a) The difficulty in getting certain information from some institutions especially on the outreach and performance records on microfinance activities.

b) Ideally it would have been useful to meet/consult all relevant stakeholders for such an important assignment, but the time allocated for the study (ten weeks) was too short to do that and that was why samples of the players in major categories were selected.

The Report constitutes five chapters. Following the introductory chapter presenting on poverty alleviation and microfinance, while chapter two dealt with the methodology for the study. The third chapter gives an overview of the microfinance industry in the Gambia and chapter four deliberates on the institutional and environmental assessment of the industry. The last chapter deals with the proposed/recommended strategic framework for microfinance development in the Gambia. The references consulted and the appendices follow the chapters.

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2.0 SITUATIONAL ANALYSIS OF THE MICROFINANCE INDUSTRY IN THE GAMBIA

2.1 Microfinance Development Trends in The Gambia

Informal agencies, such as merchants, moneylenders and the Rotating Savings and Credit Associations (ROSACAs) or ‘Oususus’, started microfinance operations in the country centuries ago. Some of these still exist, but the major problems with some of these delivery agencies are that they charge very high interest rates (100% to 200% per annum) and are not regulated or coordinated by any institution in the country.

The merchants, moneylenders and ROSACAs were later supplemented with service delivery by some NGO MFIs, the Agricultural Development Bank (ADB), the Gambia Commercial Development Bank and micro credit components of the Integrated Rural Development Projects (IRDPs) in the late 1970s and 1980s. Most of these agencies failed in delivering microfinance services in an effective, efficient and sustainable manner due to various reasons. The failures of the agricultural and development banks were mainly due to: -

Political interference: Politicians influenced the credit delivery by giving directives for loans to be issued to certain politically affiliated people irrespective of their creditworthiness or being actual farmers. Furthermore, some politicians instruct certain borrowers not to pay the loans.

Operational Inefficiencies: The loan appraisal, approval, disbursement, monitoring and supervision systems had many loopholes and inadequacies, which culminated in a lot of inefficiencies in service delivery.

Low repayment rates: The above weaknesses gave rise to very low recovery rates that then led to the insolvency of the financial institution that was later declared bankrupt. There was difficulty in re-launching any such enterprise to assist the country’s microfinance industry in the future

The defunct Gambia Commercial and Development Bank (GCDB) and other commercial banks in the Gambia also failed to deliver microfinance services in the required manner due to:

Lack of interest at the time: The GCDB and other commercial banks were not at the time interested in the area of microfinance, because they were more interested in providing formal financial services to mainly urban and peri-urban regions;

Products not designed for needs of the Poor: The GCDB and other commercial banks did not design their financial products to suit the needs of the poor. The situation still remains the same;

Limited access of the poor to conventional/formal financial institutions: Access of the poor to conventional/formal financial institutions are limited or non-existent, because of lack of resources and the problem of the requested collateral (usually leased properties and or mortgages), which the poor face.

The microcredit components of the Integrated Rural Development Projects (IRDPs) were introduced to assist in the provision loans to trained farmers with increased cultivated areas in the CRD. Many of these projects also met with disappointing results in terms of repayment, sustainability and impact e.g. the Jahali-Pacharr Rice Development Projects and the RDP I & II.

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It was in the late 80s and the 1990s that the development of microfinance in the Gambia took a significant stride when NGOs, umbrella CBOs, self-help organizations (SHOs) and other civil society organizations (CSOs) seriously began venturing into the industry. The period saw the interventions of organizations like GAWFA, NACCUG and its affiliated credit unions, GARDA, WISDOM, AFET, FFHC, FORUT, FANDEMA, WASDA and the VISACAs. These organizations, under the supervision and guidance of the CBG, were later able to better shape and organize the emerging industry. Regulation was introduced for some professional microfinance service providers, and some players organized into the national apex body, the Gambia Microfinance Network (GAMFINET).

While microfinance has been with us since the 70s especially in the area of subsidized credit, the industry is still in its infancy and has yet to make a great impact in improving the conditions of the poor.

2.2 Structure of the Micro and Small Enterprise (MSE) Sub-sector

2.2.1 Structure

The Gambia’s economy thrives on the Micro and Small Enterprises (MSEs) sub-sector, which employs the largest share of the labour force within the 15 to 64 years age bracket (about 70% of whom are self-employed in one form of enterprise or the other). MSEs are expected to increasingly play the role of labour sponge in the economy in view of the declining trend in employment in the formal sector and increasing urbanisation.

Whilst in some parts of the world consideration is given to size of enterprise, monthly or annual turnover, the number of employees, production process, type of technology used and level of capital, the general understanding of micro enterprises in the Gambia is characterised by the following elements:

Small business entities, mainly in the informal sector with very little capital outlay

Low productivity, low volume of business and low turnover with erratic earnings

Players have little or no literacy and often have little or no entrepreneurial skills and business training

MSE players make a living from whatever enterprise they operate and are often self-employed

Few workers, less than five (five to twenty workers for small enterprises).

MSEs are reasonably visible in the local economy with small capacity depending on the amount of resources the entrepreneur can harness

There is not much information on the success factors of MSEs with little documentation on them

They keep very poor records or none and are well captured through poverty alleviation programmes.

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2.2.2 Constraints

Despite great potentials for their growth and significant contribution to employment generation and poverty alleviation in the Gambia’s development process, some of the following constraints are often enumerated by studies conducted in the MSE sector:

Insufficient technical and business managerial skills.

Poor access to appropriate credit facilities

Inadequate skills in diversifying product design, packaging and poor marketing infrastructure.

Low level of access to modern technological and production equipment for small and cottage industrial development.

Insufficient policy guidance resulting into unregulated commercial activities for MSEs.

Inadequate promotional and support services.

Weak enterprise culture amongst Gambians.

Lack of sufficient co-ordination and linkage between the different categories of the MSE sector i.e. between small entrepreneurs and large-scale firms and businesses.

Microfinance should endeavor to address some of the above constraints that beset the MSE sub-sector.

2.2.3 Key Sectors Benefiting from the MSE and Microfinance Industry

The major sectors that benefit access to microfinance services in the Gambia are agriculture, fisheries, tourism and other services sectors. The Gambia is an agrarian country and one therefore expects a large amount of microfinance activities in the agriculture sector. Certain institutions in the microfinance industry of the country reported that about 25% to 35% of their credit goes to agriculture. Agricultural credit supports enterprises like field crop production, livestock rearing and horticultural (vegetable and tree crop cultivation) through the purchase of farm implements, seeds, fertilizers, pesticides, animal feed and medication. The sources of most of the agricultural credit in the Gambia are the informal and formal sources. The main credit sources for the agricultural sector are the cooperative institutions such as the Federation of Agricultural Cooperatives (FACs), Credit Unions through NACCUG and Gambians for Self-Employment (GAMSEM). A significant amount of informal credit from moneylenders and Osusus supports agricultural activities especially in the rural areas, but there is very little documentation on them. Agricultural production does not have much support from the formal credit sources like the commercial banks, the reason being that agriculture is being perceived as a very high risk venture by these bodies and above all most agricultural entrepreneurs do not have the required collaterals/guarantees that the formal credit institutions need from their clients. However, a study of status sector loans by commercial banks in the Gambia indicates that up to March 1999, a total of 11.45% of all bank loans went to support agricultural production, processing and marketing.

The fisheries sector also enjoys a significant amount of credit in the country. Fisher folk doing fishing, fish-processing and fish-mongering attract credit mainly from sources like credit unions, VISACAs and NGOs such as GAWFA, AFET and GAMSEM. Some informal sources of credit like moneylenders and Osusu groups or rotating savings and credit associations. The risk involved

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in fisheries credit makes it not too attractive for support with the formal credit from the banking sector. About 1.74% of credit offered by the banking sector goes to the fisheries sector at least up to March 1999.

The tourism, transportation and other distributive sectors in the Gambia have credit sources mainly from the formal commercial banks and NBFIs. The study of the status of sectoral loans offered by the commercial banks indicates that the formal banking system forms a major source of credit for distributive trade (42.26%), tourism (3.68%) and transportation (2.16%) sectors. There is more credit support from the informal and semi-formal sources for the sub-sectors of the petty trading distributive trade and transportation in general than for the tourism sector. It should however be pointed out that the Gambian banking sector extends almost the lowest level of domestic credit to the GDP suggesting “excess capacity” for the sector in its traditional lending role, especially to the micro and small enterprises in the informal sector.

2.2.4 Sources Of Finance

These include programs and projects as well as internal and external donor agencies that provide money as credit funds to be lent either to the commercial banks, microcredit practitioners, promoters, NGOs for forward-lending to the general public operating in the MSE, SME and macroeconomic sectors. They include: The Gambia Social Development Fund (SDF), FASE, Rural Finance Community Initiatives Project (RFCIP), Support to Decentralized Rural development (SDRD), Action Aid The Gambia (AATG) and external donors (e.g. African Development Bank - ADB, World Bank - WB, International Fund for Agricultural Development - IFAD, European Commission – EC, the Taiwanese International Cooperation for development Fund - ICDF) and the Islamic Development Bank (IDB).

IFAD’s strategy for poverty reduction and broad-based growth hinges on increasing access for the poor to a variety of assets. The Strategic Framework for IFAD 2002-2006 notes that there is a strong complementarities among the variety of assets that the poor need, which are: a) human and social assets; b) productive assets and technology; and c) financial assets and markets. Just like IFAD’s approach for West and Central Africa, the Gambia’s NSFM should be highly consistent with the emerging vision of building of financial systems for the poor, which entails ensuring permanent access to a wide range of client-responsive financial services, including savings, credit, micro-insurance and transfer services for the rural and urban poor. To do this, IFAD has had a strategic shift (which is also applicable in Gambia’s case) some of which include moving from:

Agricultural and state-owned banks to pro-poor rural financial institutions like VISACAs, credit unions, NGO MFIs and village banks;

Supply-led agricultural credit to demand-driven rural financial services;

Subsidized interest rates to full cost recovery/commercial interest rates; and

Accountability for activities focusing on size of target group and number of loans to accountability for performance with clear indicators on efficiency, financial viability and outreach.

The Gambia’s NSFM should also mimic the World Bank and the ADB’s Strategic Objectives for microfinance interventions, which include:

a) A holistic approach to development; b) Stronger country ownership; c) More strategic partnerships;

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d) Greater accountability; and e) Focus on result-oriented development.

The NSFM should factor in these strategic objectives if the World Bank, ADB and other external donors are to act as important sources of finance for the Gambia’s microfinance interventions.

2.3 Structure of Microfinance Industry

2.3.1 Structure, Market Size and Governance

Savings and credit structures are the dominant models in the Gambia’s microfinance industry. The structural framework for microfinance operations in the Gambia also includes wholesalers (SDF, RFCIP and commercial banks), retailers (NGO MFIs, VISACAs and credit unions) and buyers (clients/beneficiaries). The structure of the Gambia’s microfinance industry comprises of projects/programmes, NGO MFIs, umbrella CBOs, VISACAs, credit unions, associations/kafos, network institutions, regulation and supervision bodies and other facilitators. The actual size of the Gambia’s microfinance market is relatively small compared to the neighbouring countries. The microfinance market share for different categories from year 2000 to-date are summarized in Table 1 below. The table also indicates the relative market shares (in percentage terms) of various agencies within the different categories of the Gambian microfinance industry.

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Table 1: Microfinance Market in the Gambia

Institutional Type TOTAL credit (DAL)

Credit Percentage

Total net savings (DAL)

Savings percentage

Programs/ProjectsSDFRFCIP AGIB

69,250,00048,000,00021,000,000 250,000

11.33%69.3%30.3%0.4%

NANANANA

NANANANA

NGO MFIsGAWFANACCUGGAMSAVINGs

68,569,54033,766,16934,803,371NA

11.22%49.2%50.8%NA

63,985,983 9,700,00045,666,9838,619,000

5.34%15.2%71.4%13.4%

Other NGOs/GOTGAFETGAMSEMWISDOMGARDANASACANYSSPASTARUDAGEIBASFACs and ACP

24,696,400 4,180,000 625,000 300,000 1,500,000 389,400 300,000 50,000 250,000 252,00010,000,000 6,850,000

4.04%16.9%2.5%1.2%6.1%1.6%1.2%0.2%1.0%1.0%40.5%27.8%

514,000NANA192,000200,000NANANA100,000 22,000NANA

0.04%

NA37.4%38.9%NANANA19.5%4.2%NANA

VISACAs 52,320,596 8.56% 174,454,810 14.55% Credit Unions * 34,803,370 5.69% 45,666,983 -Kafo CBOs 338,600 0.06% NS NSTotal Microfinance excluding commercial banks

215,175,136 35.6% 238,954,793 19.93%

Adapted from the Mapping Study of Microfinance Institutions in The Gambia, 2004 * Are excluded from the totals because they are accounted for under NACCUG as an NGO MFI

It is evident from Table 1 above that the commercial banks have the largest market share for credit in the Gambia, but most of their services are geared toward the formal sector. These are followed by NACCUG and GAWFA (two licensed NGO MFIs in the Gambia) with relatively large market shares (i.e.11.22% of total market but with 50.8% and 49.2% respectively of the category that they operate in the market for credit). IBAS, AFET and FACs and ACP combined are the market leaders in the category of microcredit agencies that are either NGO or Government institution. The 61 assessed VISACAs and 67 Credit Unions control 8.56% and 5.69% of the overall Gambian credit market

The potential microfinance market size for the Gambia could be far more than what table 1 above depicts because studies have shown that the demand far exceeds the supply. Furthermore, it has been estimated that the total credit clientele currently being served only forms about 20% to 25% of the Gambia’s population. With over 50% of the population below or at the poverty level in the country, one could estimate an increase of 25% to 30% in the potential market size for microfinance in the Gambia over the years as the industry emerges from its infant stage of growth.

Various governance structures characterize the microfinance industry. Most NGO MFIs, VISACAs, credit unions and cooperative societies are governed by Boards of Directors (BOD) assisted by a management team all of whom are answerable to the General Assembly. Constitutions

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or by-laws are developed which spells out the object, governance, functions, proceedings, financial management and amendment procedures. Key resolutions are tabled and discussed at annual general meetings (AGM). Various committees, especially the Credit Committee, are used to assist in the governance of the financial institutions and their client groups. This is truer for the credit unions than any other type. However, VISACAs used the Management Committee to run both the affairs and the credit issues of the organization.

Credit unions are characterized by voluntary membership through a common bond. The common bond for association may base on workplace, same location or religious affiliation. On the other hand, the VISACAs’ membership is mainly based on same location (either village or set of villages in catchments area). VISACA membership is strictly characterized by rural settlement, which may not be the same for credit unions, as members of these could be either in rural areas or urban settlements. That is also the case for NGO MFIs, but the NGO MFIs’ membership is either open to the general public (e.g. GAMSEM, AFET and MICRO-FIMS) or restricted to certain categories of people (e.g. women for GAWFA and WISDOM, and people dealing with food and nutrition for GAFNA). Two of the biggest problems affecting governance in the microfinance organizations/groups within the country are the:

Dominance of the executive leaders (especially for VISACAs and CBOs) who normally control most records, finances, decision-making and information.

Relatively permanent term of office for most BOD and/or Management members. The unlimited term of office have the tendency to lure some leaders to engage in corrupt practices.

i. Microfinance Actors/Stakeholders and their Distribution

Although the microfinance industry of the Gambia has taken some significant strides in recent years, it should be borne in mind that it is still at its infant stage. Various players are in the industry and these broadly include: practitioners/direct lenders, microfinance intermediary funders, facilitators/promoters, network institutions, microfinance clients/beneficiaries and a regulator and supervisor. As at June 2005, thirty-eight active institutional/entity players can be identified in the microfinance arena of the Gambia. These are mainly twenty microfinance practitioners/direct lenders, ten microfinance intermediary funders, seven facilitators/promoters, two microfinance network institutions, various clients/beneficiaries and one regulator and supervisor. Some players such as NACCUG, AFET, GAMFINET and FASE operate in many categories.

2.4 Microfinance Practitioners/Direct Lenders

These are MFIs that mobilized savings from their clientele and/or provide small loans for various income generating activities (IGAs) and purposes. There are many forms: ranging from NGOs, government agencies, Savings and credit associations (SACAs), credit unions, cooperative societies and umbrella CBOs. The ownership depends upon their institutional structure and form. Most are membership-based organizations. The twenty practitioners operating in the country are: Gambia Women’s Finance Association (GAWFA), National Association of Cooperative Unions of the Gambia (NACCUG), Association of Farmers, Educators and Traders (AFET), Gambians for Self-Employment (GAMSEM), Gamstar Savings Company (GAMSAVINGS), Gambia Rural Development Agency (GARDA), National Youth Service Scheme (NYSS), Indigenous Business Advisory Service (IBAS), Gambia Youth Business Trust (GYBT) of the President’s Award Scheme (PAS), Women in Service, Development, Organization and Management (WISDOM), Rural Development Association (RDA), Credit Unions (CUs) with seventy (70) in the country, microfinance market developer and service provider (MICRO-FIMS), Village Savings and Credit Associations (VISACAs) with sixty-four (64) currently in the country, Village aid The Gambia

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(VATG), Cooperative Societies (CS) with one hundred and fourteen (114) now existing, Trust Agency for Rural Development (TARUD), Wuli and Sandu Development Association (WASDA), Rural Support Organization for the Disabled (RSOD), Gambia Food and Nutrition Association (GAFNA).

2.4.1 Microfinance Intermediary Funders

These provide funds to the practitioners/direct lenders or promoters either for on-lending to their clients or for other purposes. They are projects/programs, or apex institutions or commercial banks and the ten are: the ADB-funded Social Development Fund (SDF) and its partners projects [Community Skills Improvement Project (CSIP), Peri-urban Smallholder Improvement Project (PSIP) and Artisanal Fisheries Development Project (AFDP)], the IFAD-funded Rural Finance Community Initiatives Project (RFCIP), the ILO/UNDP-funded FASE Project, UNDESA Pilot Project on Managing Water and Energy Resources in Rural Gambia, NACCUG, Arab Gambian Islamic Bank (AGIB) and Standard Chartered Bank (Gambia) limited (SCBG).

2.4.2 Microfinance Facilitators/Promoters

These are NGOs or Civil Society Organizations (CSOs) that work with MFIs in providing non-financial services to the microfinance clients/beneficiaries. They offer business development services (BDS) and training, supply materials and equipment (passbooks, other record sheets and books, and safes) and in certain cases, establish infrastructure to facilitate and promote microfinance activities. As facilitators/promoters, these institutions perform roles such as:

Preparing proposals for establishing new VISACAs or CUs;

Training management committees/boards, cashiers and auditors in areas like general management, record-keeping, simple book-keeping and accounting, savings and credit management and preparing simple business plans and financial statements;

Providing backstopping to animators/field officers;

Providing audit services for VISACAs (MFPC) and CUs (NACCUG);

Assisting VISACAs or CUs to be part of networks or establish linkages with the formal financial institutions and NBFIs;

Assisting VISACAs and CUs to seek external funding; and

Monitoring and supervising of the VISACAs.

The seven microfinance facilitators/promoters in the country are: AFET, Freedom From Hunger Campaign (FFHC), Campaign for Development and Solidarity (FORUT), NACCUG, National Village Savings and Credit Association (NASACA), Microfinance Promotion Center (MFPC) and FASE.

2.4.3 Microfinance Network Institutions

These are associations of microfinance practitioners/direct lenders, funders, and facilitators/promoters working actively for the promotion of standards and fair-play within the microfinance industry. The two main network institutions in the country are Gambia Microfinance Network (GAMFINET) and NACCUG. GAMFINET membership currently includes nineteen agencies: AATG, AFET, FFHC, FORUT, GAFNA, GAMSEM, GAWFA, IBAS, MFPC, MICRO-

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FIMS, NACCUG, NYSS, PAS, RDA, RFCIP, SDF, TARUD and WISDOM. The specific objectives of GAMFINET are:

Provide a forum for exchange of information and ideas on microfinance issues for development;

Influence national policies and practices affecting microfinance activities;

Facilitate capacity building and access to both financial and non-financial services and resources for its members;

Conduct research and create a database on microfinance activities in the country; and

Foster linkages with other national networks, formal banking sector, NGOs and donor agencies.

GAMFINET did significant work towards the realization of the above objectives. It has conducted much capacity building training for microfinance actors in the country, and it was also able to link MFIs in the country to the African Microfinance Network (AFMIN), the Annual General Meeting (AGM) of which GAMFINET hosted for 2004. However its capacity needs to be further strengthened it to enable it carry out its other mandates effectively.

2.4.4 Microfinance Clients/Beneficiaries

The microfinance clientele or beneficiaries are mainly women (about 80%) because women are largely involved in Micro and Small Enterprises (MSEs). They may access services as: (i) Individuals, (ii) Solidarity Groups with limited membership, or (iii) Community-based Groups (VISACAs, Credit Unions and Kafos with some degree of open membership). Overall, the efforts of MFIs have attained recognition as pioneering agencies for microfinance development in the Gambia. Over a relatively short period, MFIs have reached more than 300,000 clients, distributed over D215 millions credit funds and mobilized over D238 millions in savings. The clientele served is mainly the rural poor, 70% of whom are women. The repayment rates for microfinance are in the order of 80% to 90%, while the main constraints of the clients are inadequacy of capital (credit funds) at their disposal to carter for the potential demand for microcredit, and the constraint faced by the existing systems of providing microfinance in the Gambia.

2.4.5 Microfinance Regulators and Supervisor

One main regulator/supervisor exist for microfinance activities in the country. Other regulators include: the Department of Cooperatives for credit unions and cooperative societies and GAMFINET and NACCUG for self-regulation of their members using mutually agreed Code of Ethics.

Microfinance actors in the country operate in various geographical regions with some having countrywide coverage. The distribution of the main actors is presented in Table 2 below.

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Table 2: Distribution of Major Microfinance Actors in The Gambia

MicrofinanceService Provider

Operating LGA

GBA WD NBD LRD CRD/N CRD/S URDMicrofinance Practitioners/Direct LendersGAWFA x X x x x x xNACCUG x X x x x xAFET X x x x x xGAMSEM x x x x x xIBAS x x x x x x xWISDOM x x xMICRO-FIMS xVATG xCus x x x x x xCS x x x x x x xVISACAs x x x x x xTARUD xWASDA xGAMSAVINGS x xGAFNAMicrofinance Intermediary FundersSDF x x x x x x xCSIP x x x x x x xPSIP x xAFDP x x x x x x xRFCIP x x x x xUNDESA Pilot Project

x x x x

NACCUG x x x x x xMicrofinance Facilitators/PromotersAFET x x x x x xFFHC xFORUT xNASACA xFASE x x x xMFPC x x x x x xmicrofinance network institutionsGAMFINET x x xNACCUG x x x x x xRegulators and SupervisorCBG x x x x x x xDepartment of Cooperatives

x x x x x x x

2.5 Microfinance Approaches/Types and Services/Products

Various microfinance approaches/types exist in the Gambia depending upon the targets, service provider and delivery style/ form. Based on the targets, the microfinance approaches can be categorized into the three areas of:

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a. Wholesale (or Apex) Approachb. Group Approachc. Individual Approach

The wholesale “apex” approach involves the use of retail/intermediary MFIs, NGOs Kafos or other agencies to delivery services/products acquired from wholesales to the final end user (i.e. the clients). The approach mimics the marketing system where the distribution channel has wholesales, retailers and buyers. The group approach on the other hand, targets groups of clients for services delivery while the individual approach targets individual clients.

Based on the style/form of service delivery mechanism, microfinance approaches in the Gambia can be grouped into:

a. Informal Approach (Moneylenders and Rotating Savings and Credit Associations – ROSACAs or ‘Oususus’)

b. Formal Approach – NBFIs (NGO MFIs, VISACAs, Credit Unions, Umbrella CBOs) and Banks

The informal approach involves rudimentary microfinance where moneylenders, the Rotating Savings and Credit Associations (ROSACAs) and other Self–Help Groups (SHGs) provide services delivery. The formal approach entails the use of Non-Bank Financial Institutions (NBFIs) such as NGOs MFIs, credit unions and other cooperative agencies, VISACAs and umbrella CBOs provide microfinance services as well as the commercial financial institutions that may be involved in microfinance service delivery and these include:

Central Bank (CBG) Commercial Banks Insurance Companies Postal Services Banks (PSBs) Foreign Exchange Bureaus

Based on the service provider, microfinance approaches in the Gambia can be grouped into:

a) Village-based Approach (VISACAs) b) Credit Union Approach c) Specialized MFI Approach [GAWFA, NACCUG, and GAMSAVINGS]d) Other Players Approach (NGOs, CBOs, etc.)

Various financial and non – financial services/products are existing or planned in the Gambia. The main financial services/products are:

Savings [voluntary or compulsory; passbooks and term deposits (TDs) such as TD3, TD6, TD9 and TD12]

Credit (short, medium and long term loans, cash or in-kind credit, production or consumption credit and working capital or investment credit)

Broadly, there are two main savings and lending channels in the country: Group and individual channels, which can be further subdivided into four savings and lending channels such as indicated in Table 3 below.

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Table 3: Microfinance Savings and Lending Channels in The Gambia

TYPE SIZE DESCRIPTION/FEATURESIndividual 1 person Savings/ other fund

mobilization and lending done by an individual

Solidarity Group (SG) Generally 2 – 3 members Savings/ other fund mobilization and lending done by small group. Group members provide moral guarantee for loans taken by its members

Joint Liability Group (JLG) Generally about 10 members Savings/ other fund mobilization and lending done by group (may be sometimes large). Group members act as guarantors for each other

Self-Help Group (SHG) Generally 10 – 20 members Savings/ other fund mobilization and lending done by group (small or large). Loans are provided by SHGs to their members.

Source: Integrating Microfinance into the Fight Against Social and Economic Exclusion (FASE), UNDP/ILO, Banjul, June 2002

All savings and lending group channels use the basic objective of “peer pressure” on their members to ensure maintenance of the trust their get from lending institutions. It was discovered that the SHG channel for groups as both service provider and client generates and maintains the peer pressure very effectively.

Services/products such as micro–insurance schemes (MIS) and micro health insurance schemes (MHIS) do not exist in the country but are currently being planned.

The non-financial services or technical assistance that are being provided for microfinance in the Gambia included:

Entrepreneurial capacity building training [such as business planning and management, basic bookkeeping, group formation and management, leadership and governance, record-keeping, simple auditing, savings and credit management and financial management]

Supply of materials and equipment (e.g. savings and credit records such as passbooks, ledgers, registers and safes)

Infrastructural development (VISACA and credit union buildings) Monitoring and supervision Functional literacy/numeracy services, and Advocacy

More description on some of these financial and non–financial services/products is described below.

(a) Financial Services/Products

(i) Savings Mobilization

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Savings is a deposit of money or other valuables for future use. It is a legal requirement for any microfinance company or agency to make savings mobilisation a mandatory requirement. In the Gambia a lot needs to be done to improve the general savings culture of the people.

With the exception of GAWFA, GAMSAVINGS, IBAS, VISACAS and Cooperative Unions, savings mobilization does not play an important role in most of the MFI credit programmes. Various kinds of savings product are offered by MFIs, including mandatory savings, voluntary savings and fixed deposit. Voluntary savings schemes tend to be popular as clients can save whatever they can afford with a minimum of D50 required to open a savings account. Most MFIs do not however pay interest on these accounts with few exceptions.

Some MFIs set maximum limits for loans to be provided to borrowers in terms of savings, however linking loans to savings may have negative effects, because:

(i) Groups may concentrate on repaying the loan, rather than using the funds to generate extra income and additional savings.

(ii) Loans based on savings amounts may be inadequate for the loan purpose. Such under financing is likely to result in the diversion of funds for other purposes.

Despite these shortcomings, MFIs have succeeded in attracting significant savings funds and demonstrated the strength of grassroots financial resource mobilization as shown in Table 1 under section 2.2.1. Cumulative savings mobilized by MFIs in the Gambia was about D238,954,793 in 2004

(ii) Credit Delivery

Credit delivery deals with the process of lending from a trustee financial agency to a trusted borrower i.e. credit delivery is provision of loans to those who need them. There is a specific statement in the Gambia’s Prudential Rules and Guidelines that no person shall use credit or a supply-driven approach as the sole entry point in the microfinance market. However, there are some institutions that are still using the supply-led approach to microfinance and that is something the NSFM should address.

(b) Non-Financial Services/Products

(i) Business Advisory and Extension Services

In the Gambia, Government has established the Indigenous Business Advisory Service (IBAS) as a key Government arm under DOSTIE for providing business advisory/support services to the informal sector. However, the agency has been incapacitated to fulfill its mandate due to financial constraints and poor management after the ILO first funding phase ended. Other business advisory and extension service providers include some national and international NGOs and development projects and/or programmes such as NACCUG, GAWFA, FASE, GAMSEM and SDF amongst others. The types of services provided vary according to the type/category of service providers. However, most service providers are involved in the following activities:

Enterprise management training in basic marketing concept, financial management, income and expenditure analysis, and record-keeping.

Auditing of VISACAS/credit unions, organisational development, planning, strategic planning and information technology.

Advisory services, technical assistance and credit as initial capital

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Sensitisation activities Dissemination of ideas on micro and small enterprise operation and cost-reduction Monitoring and supervision Mobilisation of individuals into more cohesive groups/organisations to pull their

resources and/or skills together. Creation of linkages with the formal sector Provision of financial services (financial investment advice).

(ii) Functional Literacy and Numeracy

Overall literacy rate in the Gambia is low compared to other sub-Saharan African countries. The average literacy rate of the country is 36.5% (48% for males and 25% for females). This low literacy rate affects the performance of microfinance activities in the country since micro and small entrepreneurs accessing the services found it difficult to keep proper records of plan their businesses in the right way. In view of the above an NSFM for the country need to feature the role that functional literacy and numeracy should play for the development of the industry in the Gambia.

(iii) Advocacy and Advisory Services

Advocacy and advisory services assist equipping the microfinance players for better performance. Microfinance service provision in a holistic manner tends to have a positive impact an each of the above characteristics that help to address the multifaceted poverty, hence their immense importance. The communiqué on the First National Microfinance Summit (2003) in the Gambia noted that: “Profit is a necessary condition for capital accumulation in microfinance, which in turn is necessary condition for poverty alleviation. In that regard, both MFIs and their clients must run profitable operations for the financial system to be sustainable”.

2.6 Microfinance Interventions, Critical Service Issues

The microfinance interventions critical service issues include: limitations of existing regulatory and supervisory framework, credit needs of the population, levels of demand for services, framework for short and medium term plans to address the needs, outreach to satisfy the needs, unmet needs, interest rates and spread, capacity building needs and gaps, integrating microfinance to commercial banks for complementarities, ways of coordinating and streamlining actors and interventions, and best/sound practices. The NSFM needs to address these issues in the microfinance industry as shown below.

2.6.1 Limitations of Existing Regulatory and Supervisory Framework

The CBG is responsible for prudential regulation. The financial system, including microfinance in the Gambia, is regulated by the Financial Institutions Act (FIA) of 1992, which was revised in 2003. It is the Prudential Rules and Guidelines, which is used as the regulatory and supervisory tool for the CBG. The Prudential Guidelines is still viewed by many stakeholders as being short of creating the necessary enabling environment for microfinance in the country. The Department of Cooperatives is the regulatory body for credit unions and cooperative societies in the country. This is done through the office of the Registrar of Cooperatives. On the other hand, GAMFINET and NACCUG help with self-regulation of its members using the mutually agreed Code of Ethics.

It is a CBG requirement for all microfinance players is to make savings mobilization a mandatory aspect. In that regard, the use of credit or a supply-led approach, as the sole entry point into the microfinance market is considered illegal.

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All deposit-taking institutions or institutions mobilizing public resources in the country need to be captured in the regulatory framework’s categories of MFIs for microfinance development in the country. Furthermore, different reporting formats for different MFIs tiers would be needed for prudential reporting by NBFIs. The reporting format should be as simplified as possible. Rudimentary MFIs’ reports are mainly on-site and stringent, whilst the more advanced MFIs’ reports are off-site and less stringent e.g. VISACAs and MISACIs’ reports are mainly on-site, while GAWFA and Cooperative Societies’ reports are mainly off-site and less stringent.

2.6.2 Credit Needs of the Population, Levels of Demand for Microfinance Services and the Framework for Short and Medium Term Plans to address Needs

Different types of credit are available for microfinance clients. The credit delivery process tries to satisfy the various credit requirements (that may be in the form for production, consumption, or working capital credits) and the different types of micro entrepreneurs at different stages of the business development cycle. The credit needs of different micro entrepreneurs by life cycle/stage of business development are indicated in Table 4 below.

Table 4: Credit Needs of Micro Entrepreneurs by Business Life cycle/Stage

TYPE OF MICRO ENTREPRENEUR CREDIT NEEDType I: Those who want to start micro-enterprises

Credit for working capital to start business on small scale

Type II: Those who want to expand, or diversify their micro-enterprises

Credit for fixed and working capital for expansion/diversification needs

Type III: Entrepreneurs who want to graduate from a group to individual entrepreneurship

Credit for fixed and working capital

Source: Integrating Microfinance into the Fight Against Social and Economic Exclusion (FASE), UNDP/ILO, Banjul, June 2002

Various credit and microfinance needs exist in the Gambia at different levels. Some of this credit needs include:

At all level (in terms of: increase in size and volume at all times and increase in savings)

At client level (in terms of: greatest credit need just before the rainy season mainly for production inputs like seed, fertilizer draught animal, farming implements/tools, land preparation services, increased credit for productive ventures/activities, and offering microfinance services as a full package of both financial and non-financial products)

At MFI level (in terms of: sourcing funds from commercial banks and private investors at concessionary rates and credit delivery with attractive incentives for good performance

Proper loan appraisal and monitoring is key in preventing delinquencies in any credit delivery service. Current repayment rates for credit delivery in the country ranges from lows of 70% to highs of 98% hence portfolio at risk (PAR) for the industry is between 2% and 30%.

The levels of demand for MFI services vary according to whether the services are offered to groups or individuals. The demand also varies at each of those levels in terms of:

Suitable loan terms (short, medium or long)

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Desired loan amounts (small or big)

Desired grace period (none or between 1 to 4 months) depending upon the activity type, loan amount and repayment period

Desired disbursement time and schedules (preferably just before the rainy season, May/June or just before the vegetable season September –October and in lumpsum)

Favorable interest rates and calculation methodology (straight line or declining balance, but preferably using the declining balance method)

Favorable collateral agreements (preferably use of non-conventional collaterals like peer pressure – joint-liability), and

Favorable loan repayment periods (lumpsum or by installments, and if by installment, monthly, bi-monthly, quarterly or semi-annually)

The financial tools that need to be developed and/or used in the Gambia as part of the framework for short and medium term plans to address the needs of the population for microfinance service provision and development include:

Savings mobilization Credit delivery Microinsurance Money transfers

2.6.3 Microfinance Outreach to Satisfy Credit Needs

In a study on the integration of microfinance into the Fight Against Social and Economic Exclusion (FASE) Project, it was discovered that within a short period MFIs were able to reach 200,000 clients by June 2002, disbursed over D60.1 million in credit form and mobilized about D35 million of savings. The clients served were mainly the rural and urban poor, 70% of whom were women. Using an annual growth rate in outreach of 5%, it may estimated that the outreach in microfinance as at June 2005 could be around 232,000 clients (i.e. 17% penetration) with over D200 million credit disbursed and D40.6 million savings mobilized.

The Gambia microfinance market is growing in terms of the number of clientele. It was found out that credit clientele groups in the Gambia increased from 1004 in 1997 to 2554 in 2003, which shows a percentage increase of 154.4%. The collective national credit portfolio is not increasing in response to the growing number of clientele and their diversified needs. There is an estimated credit need to be met in the country of about 20% to 40%. This implies that some of the needs of the clientele, which are enumerated as follows remain unmet by the products of existing MFIs:

Individual entrepreneurs credit needs Bigger loan sizes Longer grace periods for some special types of economic activities Seasonal credit for horticulture and crop production

There are the potentials for growth in the Gambia for credit service delivery. MFIs credit agencies are supplying an estimated amount D220 millions as total loan portfolio as at mid 2005 most of which in general cater for poor people’s needs in the rural areas particularly women. However there is a large demand [approximately D302 million in 2005 (adjusted for inflation)], which is not yet fully met and the scope for development is enormous.

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Currently there are two hundred and eighty-six individual microfinance entities in the country. These comprise the thirty-eight (38) institutions or bodies of microfinance participants, the sixty-seven (67) credit unions, sixty-four (64) VISACAs and the one hundred and fourteen (114) cooperative societies in the industry including credit and saving institutions, microfinance intermediary funders, facilitators/providers, microfinance networking institution and a regulator. Savings and Credit structures are the dominant models in terms of legal status and many of these institutions have boards or committees and homogenous membership comprising small farmers artisans and women with small commercial activities. The main problem affecting the running of these microfinance institutions are mainly the lack of capacity and governance. The main problems of governance relates to:

Traditional conflict of interest in credit and savings and credit cooperative structures, where decision makers are also users;

Inadequate competence and capacity among elected bodies in managing the financial structures and other resources that are constantly expanding in size;

Inadequate incentives for the elected bodies; and

Power struggle between the elected bodies and salaried staff in a framework in which functions and responsibilities are not clearly laid out.

The outreach for microfinance in the Gambia is currently estimated at 30% of the population1, which means that there is potential to increase the outreach to satisfy the needs of the remaining 70% of the two-third portion of the population categorized as being poor (i.e. 656,600 potential clients).

With the increase of the numbers of MFIs and the volume of deposit and loans, the Central Bank of the Gambia has provided the legal and Regulatory Framework for the MFIs. The CBG published the Prudential Rules and Guidelines on policies and procedures relating to the microfinance institutions and provides the regulatory framework, which is intended to enhance the stability and efficiency of microfinance services in general. The regulation is intended, among others, to:

Promote efficiency and uphold standards

Ensure that microfinance services providers have appropriate capacity;

Enable microfinance resources reach the poor in the rural countries and have positive impact on their livelihood;

Facilitate a market-orientated approach in the microfinance industry with equal emphasis on the promotion of mandatory savings for investment purposes.

The distribution systems for credit operations in the Gambia include wholesalers, retailers and buyers. The buyers are the clients or beneficiaries, while the retailers are those intermediary credit agencies, which obtain credits from the wholesaling institutions and then forward-lend to the final clients at the grassroots level. The main wholesale institutions in the country for credit are the SDF and RFCIP and to a lesser extent the commercial banks. The SDF wholesales credit directly to all CBG recognized MFIs and VISACAs for individual business activities as well as to reputable NGOs and umbrella CBOs for group business activities. The RFCIP, on the other hand, extend 1 The Income Generating Activities (IGA) and Rural Finance Study for Community Driven Development Project (CDD), September 2005

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lines of credit to the two CBG licensed MFIs (GAWFA and NACCUG Central Finance Facility - CFF) which in turn forward-lend to all VISACAs irrespective of their CBG registration. The distribution systems for microfinance delivery are indeed at their infant stage of development. The commercial banks extend lines of credit to some MFIs which forward-lend to the disadvantaged clients. Gambian MFIs hardly advertise their products because it costly. Most microfinance service providers, do door-to-door services, and majority use signposts, posters and word-of-mouth advertisement mechanisms to help create awareness about their services and products.

2.6.4 Assessment of Unmet Demand

The main unmet microfinance demands in the Gambia relates to: increased savings, bigger loan amounts, more consumption credit, entrepreneurial capacity building and micro-insurance services. Some microfinance clients have the feeling that loan amounts given them are on the low side. These are usually those clients are at the advanced stage of graduation into small and medium entrepreneurs. There are yet other clients (especially the agricultural ones) that would like to have consumption credit in addition to their production credits so as to smoothen the food requirements of the family during the hungry rainy months of August and September. Such consumption credits are therefore unmet demands of the clients.

2.6.5 Microfinance Interest Rates

It is a prudential requirement that interest rates in the country must be market determined with no subsidies. That is, they should not be exploitative, but instead remunerative, mutually fair and affordable to all parties. Although the policy requirement with respect to interest rates in the country is that it must be market determined, market interest rates are useful when the market is not distorted. The interest rates charged (which are expected to be market-determined and sustainable) must not be exploitative. Therefore subsidized interest rates are to be avoided and subsidies used only to build the entrepreneurial capacities of the clients. In this way, the strategic framework advocates for a flexible and market-oriented interest rates. The interest rate regime for some microfinance service providers as shown in Table 5 below.

Table 5: Sample Interest Rate Regime for Microfinance Players

Microfinance Service Provider

Type of Institution

Interest on Savings (per yr.)

Interest on Loans (per year)

1 GAWFA Practitioner/Direct Lender

5% 35%

2 NACCUG Central Finance Facility (CCF)

Practitioner/Direct Lender, Intermediary Funder & Facilitator

15% 22.5%

3 Credit Unions Practitioner/Direct Lender

5-10% (Dividend)

10-20%

4 GAMSEM Practitioner/Direct Lender

- 18-25%

5 VISACAs Practitioner/Direct Lender

20% 30-40%

6 GAMSAVINGS Practitioner/Direct Lender

5% 30%

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7 MICRO-FIMS Practitioner/Direct Lender

- 30%

8 IBAS Practitioner/Direct Lender

- 18-25%

9 AFET Practitioner/Direct Lender & facilitator

- 17-25%

10 WISDOM Practitioner/Direct Lender

- 30%

11 WASDA Practitioner/Direct Lender

- 25%

12 SDF and partners Projects (CSIP, PSIP and AFDP)

Intermediary Funder

- 12-14%

13 RFCIP Intermediary Funder

- 15%

14 GAFNA Practitioner/Direct Lender

- 25%

15 TARUD Practitioner/Direct Lender

- 25%

16 VATG Practitioner/Direct Lender

- 20 – 25%

Microfinance practitioners must charge “reasonable” interest rates that adequately cover their full costs and enable them make a “reasonable profit. In order to do this, the MFI should factor in the:

Cost of funds/capital Inflation rate Loan loss rate (LLR) Capitalization rate, and Opportunity cost of capital An acceptable profit margin

In the Gambia, most MFIs do not take the above factors into consideration, but instead arbitrarily set their interest rates just to get any spread. As a result interest spreads in the country range between 0% (for those offering full subsidized interest) and 20% to 21% (for VISACAs and GAWFA respectively). Any institution, which offers micro credit facilities to clients at zero percent interest rates, would actually undermine the microfinance market and it will not be sustainable. Sustainability of such institutions would best be corrected through advocacy and moral suasion. The CBG should also ensure that interest and credit controls are eliminated and that the reserve requirements for NBFIs are reasonable and affordable. To help reduce interest rates in country to facilitate access of poor to microfinance services:

MFIs should cut down on their transaction costs There should be a reduction of the layers of intermediaries Players should improve efficiency by decentralization of microfinance actors

2.6.6 Microfinance Capacity Building Needs and Gaps

In the Gambia, all actors in the microfinance industry are confronted with series of capacity problems. The capacity constraints cut across the human resource, supply of materials and equipment, infrastructure and technological know-how. If these capacity problems are not solved, microfinance development in the country will be stalled. One way of solving the capacity

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constraints facing the microfinance industry is the offer of technical assistance. The main capacity building gaps in microfinance institutions where technical assistance would be required include:

Inadequate technical and managerial skills

Relatively low outreach due to insufficient awareness about services and products

High mobility constraints

Difficulty in retaining good and excellent staff

Training in (management and leadership skills, book keeping, business skills, loan appraisal, enterprise management savings and credit management, interest rate setting and calculations, record keeping, governance, etc.)

All trainings to be preceded by a training needs assessment.

Supply of relevant materials and equipment to MFIs to get them functional in a more efficient manner

Training MFIs’ staff and/or clients to take up microfinance as a career

Building strategic alliances within and outside the Gambia with relevant capacity building and institutional development agencies for microfinance related programs

Capacity building needs and institutional development issues should be addressed in the country in the priority order of:

Strengthening the capacity building and institutional development agencies

Developing microfinance training manuals and modules for various microfinance topics like business planning, record-keeping, book-keeping, financial and business management, etc.

Building and maintaining capacity of stakeholders

Facilitating information flow between capacity building agencies and those that need their services

Most Gambian microfinance clients need more entrepreneurial capacity building than they normally have. Such capacity building could be in areas like record-keeping, accounting and bookkeeping, business plan preparation and management. These, together with micro-insurance (which would help in credit and business risk management) are all considered as unmet demands of the clients / beneficiaries. There are plans by FASE, SDF and Department of State for Health (DOSH) to soon integrate micro-insurance and micro-health insurance into Gambian microfinance programs.

2.6.7 Integrating Microfinance to the Commercial Banks for Complementarities

For the development of microfinance in the country, the banking sector needs to be fully integrated with the aim of having a synergistic effect. This may be better done through partnerships and linkages between the banking sector and the microfinance players. Commercial banks should be

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major wholesalers for microcredit funds, especially through lines of credit. The commercial banks should extend lines of credit to some MFIs which forward-lend to the disadvantaged clients. This way, the commercial banks would help to satisfy the short-term borrowing needs of the MFIs. This can in turn help increase the clientele base of the banking sector as well as probably increase their overall credit repayment rates. The savings mobilized by commercial banks and the credit given upend of 2002 are shown in Table 6 below.

Table 6: Contribution of Commercial Banks to Financial Intermediation in Gambia

Institution Type Total Credit (DAL)

Credit Percentage

Total Net Savings (DAL)

Savings Percentage

Commercial Banks 396,187,650 64.80% 960,148,000 80.07%US $ Equivalent 13,661,643.10 33,108,551.72

Adapted from the Mapping Study of Microfinance Institutions in The Gambia, 2004

The commercial banks and insurance companies have recently developed some interest as sources of microfinance funds for MSEs. Banks like the Arab Gambian Islamic Bank (AGIB), have already started putting money into microcredit for the NYSS micro and small entrepreneurial graduates, while others like the Guaranty Trust Bank and Trust Bank (Gambia) Limited are in the process of contemplating to enter the microfinance arena.

If the commercial banks commit themselves to setting aside some percentage of their annual profit after tax to set up a guarantee fund for the MFIs, then there could be ready availability of credit funds for the MFIs and the poor clients, who normally complain about inadequacy of microcredit funds. The undertaking of such a venture by the banking sector would assure the public that the commercial banks are living to the expected corporate responsibility.

One way of getting complementarities from the integration of the banking sector and MFIs is to allow the partner commercial banks to assist with the marketing of their collaborating MFIs and their services/products. Partner commercial banks of MFIs are capable of assisting with the advertisement of the linked MFIs and their services/products in the newspapers and on the radio/television or sponsor ppromotional materials like brochures, leaflets and product samples as well as fund trade fairs and study tours and all these will help to create awareness about the MFIs and their products hence their integration would ensure better promotion for the microfinance industry, its services and products.

2.6.8 Ways of Coordinating and Streamlining Microfinance Actors and Interventions

Various problems have been associated with microfinance actors and their interventions in the Gambia. Some of the key problems include: conflicting microfinance goals i.e. commercial versus social welfare objectives, over-servicing of source areas with microfinance while others have little/or services, programs with liquidity deficits and allowing delinquent borrowers continued access to credit by being able to skip from one program to another and unhealthy competition among service providers. If such problems are not overcome, there could be too many actors and interventions with little effect on achieving the desired poverty reduction and general development. To avoid such potential dangers, there is need to streamline both the microfinance actors and the interventions made. Microfinance actors and interventions could be streamlined using certain strategies and sound practices at the different levels such as:

Actors’ Level (ensuring specialization by the different players, efficient and effective coordination of Actors by key agencies such as CBG, GAMFINET and Department of State responsible for

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Microfinance [DOSMF, ensuring adherence to set standards, codes of ethics rules and regulations, establishing strict enforcement guidelines by CBG and implementing them, increasing viable networks collaborations and linkages between actors, permitting credit–only institutions that have 50% or more of their activities or income from microfinance operations and strengthening GAMFINET to help coordinate Actors and their interventions).

Interventions’ Level (regular consultations and share of information between stakeholders, efficient and effective service delivery with increased extension services using the MDFTs, categorizing microfinance agencies according to areas of interventions in Microfinance such as practitioners, promoters, technical services providers (TSPs) business development service providers (BDS), regulators and supervisor and fund providers as well as increasing the monitoring of microfinance operations).

Ensuring greater specialization and coordination would enhance streamlining of the actors and interventions at each of the above levels. Commercializing microfinance in a sustainable manner will facilitate this more. In addition, the main risk management tools to be developed and/or used to enhance access to microfinance services in the country include:

Microinsurance A guarantee scheme Microfinance audits

2.6.9 Microfinance Best/Sound Practices

Best/sound practices in microfinance service delivery dictate the following:

Ensuring loan repayment (through proper loan appraisal, proper loan monitoring and supervision, regular collection of repayments from clients, instilling credit discipline in the clients).

MFIs moving towards institutional sustainability:

(a) Ensuring Operational Self-sufficiency in the short-term (through having good repayment rates, appropriate interest rates for loans and savings to cover costs, keeping costs down to the minimum, use of management information systems – where possible, proper monitoring of loan and savings activities, ensuring good or excellent client relations and reduction/avoidance of the cost of having arrears with clients)

(b) Ensuring Financial Self-sufficiency in the long-term (through making adjustments to commercial cost of capital and loss of capital due to inflation)

Empowering Women (ensuring gender equity, facilitating women's access to credit and savings facilities as well as to ensure equal opportunities to jobs and employment, ensuring women's involvement in the decision-making processes, etc).

Measuring impact of microfinance interventions on the lives of the clients (use of simple, low-cost, credible/believable and useful impact assessment instruments, assess impact on individuals, groups/institutions, community in terms of enterprise growth, health, education, economic up-grading, improvements in socio-cultural issues, assess performance of non-clients and use of control mechanisms, etc.).

Mobilizing savings and ensuring their safe, and judicious use as investment capital (collecting idle money and save for future needs).

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Recruiting, training and retaining excellent staff (employing qualified and competent staff, upgrading the staff regularly with the requisite knowledge and skills and creating incentives and a conducive working environment so as to retain the good or excellent staff) as well as the building up of the entrepreneurial capacities of the clients / beneficiaries.

In the Gambia, some of the above best practices are not adhered to and thus the NSFM should develop strategies to ensure the adoption of best practices that suit the development needs of the country. To do this, the following best/sound practices have been suggested by microfinance stakeholders in the country with regards to access to services, institutional development and capacity building, coordination and streamlining of actors and interventions and regulation and supervision:

(i) Access to Services

Decentralization of management and financial service delivery Instituting efficient MIS in the MFIs Setting up and using effective performance indicators Having in place improved monitoring and evaluation systems Minimize fungibility in the use of credit by clients Promote indigenous ownership of the service providers Encourage timely delivery of loans for disbursement Encourage effective savings mobilization

(ii) Institutional Development and Capacity Building

Continuous support to microfinance organizations to expand their services Developing microfinance training manuals and modules Building and maintaining microfinance capacity of stakeholders Enhancing information with and among MFIs Preparing and updating business plans for institutions

(iii) Coordination and Streamlining of Actors and Intervention

Formulating policies and appropriate regulatory guidelines Conducting annual consultative meetings e.g. the National Microfinance Summit Ensuring specialization of players to avoid duplication of efforts and overlap in service

delivery

(iv) Regulation and Supervision

Avoiding over-regulation so as not to impair innovation and optimization of resources Permitting credit-only institutions through registration with the coordinating agency with

the hope of regulating them only when they are exposed to the risks of public deposits

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3.0 MICROFINANCE OPERATIONS AND THEIR IMPACT ON THE GAMBIAN LIVES AND THE ECONOMY .

The expected impact of microfinance operations on lives and the economy may be in the form of economic, socio-political and cultural, and/or personal or psychological impacts. Economic Impacts can be at the personal/household level or on the economy itself. In creating expected economic impacts, MFIs aim at changes in the following economic factors of their clients:

Increased income sizes, regularity and security with reduced expenditure sizes; Increased Savings Improved household consumption (i.e. food security and sufficiency); Enhanced employment creation; Increased asset accumulation; Reduced vulnerability to risks and shocks; Adequate and comfortable shelter (housing, clothing, land and security); Improved communication networks (roads, railways, sea and air routes); Improved telecommunication infrastructure (telephones, faxes, telegrams and internet

services); and Better environmental needs like water, energy and biodiversity.

A positive impact on a series of economic factors such as increased income, job-creation, food self-sufficiency, good housing, increased asset accumulation and ownership of mobile phones help to alleviate the poverty of many clients of the Grameen Bank in Bangladesh (Muhammad Yunus, 2000). In the Gambia, the RFCIP Interim Evaluation Report (April 2005) mentioned that microfinance services provide credit access to 35% of the rural population, where the VISACAs form sources for credit for 61.3% of the population. The same report further states that microfinance services had the impact of improving the food security and diets of rural people especially during the hungry season. Microfinance services helped to improve agricultural production, which in turn increased the incomes of groups/kafos between D2000 to D5000 per production season.

Both the Effect Study and the Beneficiaries Impact Assessment (BIA)2 both of the SDF indicated that the institution’s microfinance operations had an economic impact of increasing clients’ savings mobilization by an average of 25% to 30%. This shows the importance of microfinance in enhancing the accumulation of clients’ savings. On the other hand, the RFCIP Interim Evaluation Report asserted that rural finance operations enabled clients to deposit 32% of their savings with the VISACAs.

The expected Socio-political or Cultural Impacts influence the lives of clients by affecting the following socio-cultural/political factors:

Building of social or human capital through capacity building; Gender sensitivity and empowerment through involvement, access and control over

productive resources, bargaining power, autonomy and having equal opportunities; Improved health and nutrition of the family; Enhanced relations of trust; Increased social and cultural cohesion; Freedom from violence; and Better education of the family.

It was found out from the SDF’s Impact Assessment cum Baseline Survey3 that socio-cultural impacts of the SDF microfinance interventions include: enhanced unity and friendship among

2 SDF Effect Study by Sahel Invest International, 2001 and the Beneficiaries Impact Assessment of the SDF by Karafa Manneh, 2002. 3 Impact Assessment cum Baseline Survey, Final Report, Social Development Fund (SDF), May, 2005

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groups, increased group formation and cohesion and increased skills and knowledge on many IGAs.

The expected Personal or Psychological Impacts deal with the sense of the “self” of the clients. Microfinance is expected to have impacts on the following personal or psychological factors to alleviate the poverty of the clients:

a) Belongingness and participation in decision-making, and psychological well-being in terms of increased:

Self-confidence; Self-perception; Self-actualisation; and Self-esteem.

.

b) Personal or psychological impact measurements assess the empowerment of the clients. According to Baldeh (2003), it is widely believed that MFIs can reduce women’s vulnerability by providing access to financing for income generating activities. This has the potential of translating into empowerment if greater financial security allows the women to become more assertive in the household and community affairs. He quoted Susy Cheston’s definition of Empowerment as a process of change by which individuals or groups with little or no power gain power and ability to make choices that can affect their lives positively.

Within each of the above categories of expected impact of microfinance, there are different levels of the effects on different targets. The levels of the effects of the expected impact may be at one or a combination of the following levels:

At Individual Level At the Household Level At the Community Level

In a Beneficiary Impact Assessment (BIA) of The Gambia Social Development Fund (SDF) in its quest to alleviate poverty in the country with microfinance interventions, Manneh (2002) found out that mostly women accessed the loans (73% of the beneficiaries); 91% of the clients had improvements in their living conditions. The SDF loan scheme was also found to have enhanced the financial capacity of the individuals and at household level as well as increased the group membership, their financial management capacity and improved self-confidence at the community level. The participation of women in village meetings is indeed a force to be reckoned with in the decision-making process and microfinance provides the opportunity for it.

The expected impacts of microfinance on the lives of Gambians generally were:

Increased income for borrowers Increased asset acquisition More group formation at grassroots level Improved family health Improved family education (78% of SDF clients were able to pay for the education and

health expenses of their families) Improved food security More empowerment especially for women borrowers due to their increased involvement in

decision-making and better feeling of self-confidence, belongingness and self-esteem.

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The expected impacts of microfinance on the Gambian economy generally are:

Increase in micro and small business (42.6% business expansion was realized by SDF clients in the 2001 Effect Study).

Increase in wealth and overall employment Increased financial structures in the country Increased flow of money within the communities Improved transparency and accountability of fund management at the informal Reduced risk from disaster and theft due to secured savings Increased group formations, cooperation and cohesion. Increased tax revenue for Government from microfinance clients businesses. Improved nutrition status of families Increased skills acquisition Increased employment [23% and 59% of SDF borrowers were providing employment for

family members and non-family members respectively in CRD according to the “Effect Study” (2001)]

Increased used of local products (e.g. soap and processed juice) against imported commodities

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4.0 INSTITUTIONAL AND ENVIRONMENTAL ASSESSMENTS (SWOT AND PEST ANALYSES)

4.1 General Assessment of Microfinance Players

An institutional assessment of the various microfinance player categories was done using strengths, weaknesses, opportunities/potentials, and threats (SWOT) approach. Table 6 below gives the results of this analysis for the industry.

Table 6: Institutional Assessment by SWOT Analysis of the Microfinance Industry

TYPE OF INSTITUTION

STRENGTHS WEAKNESSES OPPORTUNITIES/POTENTIALS THREATS

Practitioners/Direct Lenders

Most operate close to the communities served

Most have own offices where they operate from

Most are well connected to networks/agencies that support them

Most use simple loan and savings procedures and records

Membership drive is strong for most of these institutions, which is potential

Few well-trained staff

Inadequate capital to meet the funding needs of all their clients

Insufficient management information systems (MIS) for tracking loans and savings transactions coupled with inadequate access to information, training and refinancing

Increased client demand for microfinance services, most of which are yet to be met

Many projects/programs with microfinance funds existing (e.g. SDF, CSIP, PSIP, AFDP and RFCIP)

Increased availability of funds targeting IGAs and microfinance

There is the opportunity to have large market shares for each of the institutions if it can increase outreach

Potential to create employment opportunities and improved access to education and good health for the clients

Inadequate specialization by many may lead to poor quality services that could retard the growth of the industry

Poor record-keeping by the institutions and their clients can negatively affect service delivery and increase the susceptibility to fraud

Theft (especially

for the creation of sense of ownership and helps improve resource management

Have the potential to reach vulnerable groups

Have shared vision of poverty alleviation

Are contributing immensely to the development of microfinance in the country

Many of them do savings mobilization, which can be used as a source of increasing available funding for their loans

They provide women and other vulnerable targets access to financial services and increase their self-confidence

Providing some form of training

sources. Most do little

capacity building for the end-user clients (especially in business management and other skills)

Inadequate mobility for staff leading to inadequate monitoring and supervision of activities

Poor record-keeping due to low literacy levels

Operations are mostly localized

Weak sub-project appraisals done by staff

Limited loan sizes that negatively affect the development of MSEs

Inadequate product diversification

stealing of cash) and loan default potential are important threats for these institutions

The threat of moral hazard and adverse selection are real for the relationship between these institutions and their clientele.

There is the threat of unhealthy competition between these institutions

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for clients Wide divergence in credit policies and procedures as well as eligibility criteria for access to services

Generally, loans are given on a short term-basis and hence are not suitable for capital investment.

Poor financial management and high portfolio at risk of many MFIs resulting in loss of loanable funds.

Unnecessary delays in loan disbursement.

Weak governance structures of many MFIs.

High operational costs due to inefficiency of many MFIs resulting in excessive

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interest rates and prices of credit products.

Some MFIs’ heavy reliance on subsidize credit, resulting in interest rates which are not sustainable and distort the market.

Untimely credit disbursements

Inadequate incentives for volunteer cashiers

Insufficient business planning

No insurance cover for credit services as yet

Inadequate institutions to provide microfinance training

Inadequate management skills of players

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Intermediary Funders Have qualified and competent professional staff with requisite skills and experience

Established broad linkages with both donors and the practitioners/direct lenders

Service coverage is largely countrywide

The autonomy of these institutions can improve service delivery

Ability to mobilize external funds

Inadequate MIS for loans and savings tracking

Limited number of staff for monitoring and supervision of activities and few staff having to cope up with large volume of work, thus making it difficult for timely service provision to clients

Insufficient mobility facilities which affect efficient service delivery.

Increased availability of funding for poverty alleviation interventions to meet the MDGs

Potential to create employment opportunities and improve access to microfinance funding facilities.

Possibility of political interference in service delivery

Sectoral approach to community development (a thought of some players) can be counter-productive in the development of microfinance in the country.

Facilitators/Promoters Are capable of providing training to clients in various areas like business and financial management, skills in tie-dye, soap-making, weaving, pottery, beekeeping and food processing,

Few specialist staff to the different areas that are necessary for comprehensive capacity building of those that need their services

Limited field staff to monitor

Increased client demand for microfinance services, most of which are yet to be met

Increased availability of funds targeting IGAs and microfinance (especially for BDS) by projects/programs

Inadequate specialization by many may lead to poor quality services that could retard the growth of the industry

Poor record-keeping by the institutions and

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and functional literacy/numeracy

Have experience in facilitating and promoting service delivery for microfinance clients

Some staff are well-trained and competently carry out their duties

Have the ability to mobilize the communities

and supervise their activities

Most do not have countrywide coverage

Limited funding facilities to carry out all necessary capacity building ventures of their clients

Inadequate mobility facilities for staff

Generally, loans are given on a short term-basis and hence are not suitable for capital investment.

Poor financial management and high portfolio at risk of many institutions resulting in loss of loanable funds.

Unnecessary delays in loan disbursement.

Weak governance

their clients can negatively affect service delivery and increase the susceptibility to fraud

Heavy reliance on donor-funding could be detrimental to the development of these service facilitators

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structures of many intermediary funders.

High operational costs due to inefficiencies.

Low literacy levels for some staff

Too much concentration on external loans

Inadequate business planning

Network Institutions Have committed members who work as a team

Command both national and international recognition

Conduct training on best practices for microfinance development

Become important sources for networking and linking with other stakeholders

Performance standards and indicators are not well-defined and are also not followed through

Lack of modern MIS and database for the microfinance services and activities

Limited staff to cope up with operations.

Limited financial and management

Increased client demand for microfinance services, most of which are yet to be met

Increased availability of funds targeting IGAs and microfinance (especially for BDS) by projects/programs

Possibility of political interference in service delivery

Heavy reliance on donor-funding could be detrimental to the development of these networks institutions

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Acting as consulting agencies for microfinance actors

resources

Regulator and Supervisor

CBG has a special department (Microfinance Department-MFD) dealing with microfinance regulation and supervision

Staff are professional trained for the job

GAMFINET’s members have developed a Code of Ethics which could be helpful in self-regulation within the industry

Laws are in place to back the FIA and Cooperative Acts and these take care of the legal aspects for regulation

Prudential

Inadequate staff numbers to cope up with the workload

Inadequate financial resources for effective and efficient operation

Gross mobility problem which limits the number of on-site examination missions

Inadequate and untimely enforcement of sanctions for non-compliance by MFIs

Weak enforcement of rules, agreements and codes of ethics in case of non-compliance in the case of

Numerous unmet client demand for microfinance services

Increased availability of poverty alleviation funds targeting IGAs and microfinance (especially for BDS) by projects/programs

Growing number of apex institutions to delegate supervisor requirement for cost-effectiveness

Some degree of coordination in place (a framework for coordination at national and network levels)

Technical assistance/support for capacity building available from projects, regulators and donors to build the capacities of regulators and regulates

Institutional development capacity to graduate from strict prudential supervision and reducing the regulatory burden

Possibility of political interference in service delivery

Heavy reliance on donor-funding could be detrimental to the development of these networks institutions

Excessive prudential presence in the sector could impair resource utilization and efficiency, and discourage competition”

Grassroots promoter NGOs not committed to playing the

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regulation and supervisory guidelines already in place, while at the level of MFIs, bye-laws exist to support self-regulation as well as external regulation

Regulatory restrictions to enter the microfinance market for non-bank/unregulated institutions as well as for commercial banks and insurance companies.

GAMFINET for self-regulation

Weak institutional capacities to support decentralization of regulatory and supervisory process as CBG and Department of Cooperatives’ direct supervision does not promote cost-effectiveness

Untimely and inadequate submission of returns

intermediary role to facilitate regulation and supervision

Direct donor intervention affecting existence of a level playing field”

Certain actions of some unregulated ‘MFIs’

Multiple supervision required on an MFI/entity

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4.2 Assessment of Some Key and Predominant Players

During the study, another analysis of the strengths and weaknesses of some specific and predominant microfinance players within the country was done and the results are summarized in Table 7 below.

Table 7: Strengths and Weaknesses of Some Key Microfinance Service Providers

SERVICE PROVIDER STRENGTHS WEAKNESSES

NACCUG

At Credit Union level: Close to communities. Use of simple loan and savings procedures. Sense of trust is being consolidated both

amongst its members and staff/volunteers who monitor and provide training.

Provides basic financial services for members who would not get access to formal banks.

Annual business plans in place.At NACCUG level: Quality and experienced staff working as a

team. Strong and committed Board of Directors. Existence of Central Finance Facility

(CFF).

At Credit Union level: Inadequate bookkeeping skills especially in

the rural areas. Absence of standardized accounting

practice and policies. Poor understanding of interest calculation

methodologies. Unskilled managers.

At NACCUG level: Inadequate training in financial

management. Heavy dependence on donor

grants/subsidies. Difficulty in getting members to realize

their roles and responsibilities.

GAMSAVINGS

Close and accessible to the clientele. Has acquired the confidence and trust of

the public. Adequate numbers of competent staff. Timely interest payments on clients’

savings.

High operational cost incurred. Inability to expand beyond the urban and

peri-urban areas.

GAMSEM

Close to members. Small but efficient team. Operating on local initiatives and

resources.

Low financial and human resources capacity.

Inadequate voluntarism among members.

WISDOM Long experience in the market. Deals with self-motivated clients.

Low market share since it is confined to urban and peri-urban areas.

Not yet recognized by CBG as NBFI.

WASDA

Members are of similar ethnic origin and location.

Operates in familiar terrain.

Weak management team with low entrepreneurial capacity.

No recognition by CBG. Inadequate funds outlay. Limited outreach.

GAWFA Very large market share. Country-wide coverage. Well connected with networks and

agencies both nationally and internationally.

Insufficient funds to meet the funding needs of all clients.

Insufficient loan tracking system. Very little capacity building of the

clientele. Inadequate means of transportation leading

to less frequent client visits which leads to poor loan monitoring and hence poor loan repayments.

VISACAs

Close to the communities. Community ownership and management. Use of simple loan and savings procedures. Low administrative expenses because

VISACAs are managed by local people.

Unskilled managers and cashiers. Poor record keeping mainly due to low

literacy of managers. Rigidity of the saving and loan products

makes them less likely to satisfy most clients needs and also limits the VISACAs’ ability to expand and attract new clients.

4.3 Environmental Assessment of the Microfinance Industry

An environmental assessment of the Gambia’s microfinance industry was undertaken during the study using a political, legal and regulatory factors, economic factors, socio-cultural factors and technological and communication factors (PEST) analysis. Details on these are found in the sub-sections below.

4.3.1 Political Factors Potential for political interference in microfinance service delivery is great. In certain cases, people of high authority make sweeping statements by saying interest rates for loans are high and hence they instruct borrowers not to pay back credit owed to practitioners/direct lenders. Nonetheless, the political factor can be used positively in the development of microfinance in the country. Government in its December 2003 Budget Speech, has promulgated a series of incentives measures for priority sectors defined to fall in the areas of health, education, agriculture and agro-tech industries, fishery and processing, aqua culture, new hotels, inland tourism, and development banking / microfinance. The private investors in these sectors can enjoy the following incentives:

1. Provision for accelerated capital allowances on building, premises, structures, plant and machinery.

2. Setting aside of all turnover taxes on new businesses;

3. Reduction of current tax rates for new development oriented businesses which will be taxed only at one-third (1/3 of 35%) of the tax rate in the first 3 years of operation; two-third of the tax rate (2/3 of 35%) for the next 3 years of operation and thereafter at the company tax rate of 35%.

This is an indication that there are some incentives for private investors to venture into the priority sectors of the country, which are dominated by informal activities that microfinance assists.

4.3.2 Economic Factors

Various economic factors affect the development of microfinance in the Gambia and these include: demand and supply of services, inflation rate, CBG discount rate and other interest rates, domestic prices for goods and services, gross domestic product (GDP) and export potential for

products. The market forces of demand and supply determine how much microfinance activities go on in the country. The inflation rate is one of the determinants of the interest rate to be charged by an MFI on its loans. The higher the inflation rate, the more the interest rates to be charged on loan facilities. Similarly, the CBG discount rate and other interest rates affect microfinance credit interest rates in a proportionate manner. When the CBG discount rate was between 12% and 14% per annum, lending interest rates were also low averaging 15% to 25%, but when the discount rate rose to 31% per annum, the lending rates then ranged between 20% and 40% per annum. The per capita GDP is an indication of how much on average (monetary terms) is an individual able to produce within a year in the domestic market. This indicative figure, together with the domestic prices of goods and services helps MFIs to determine the suitable loan amounts that can be handled by individuals on an average basis. Most important for microfinance is that the average loan size of an institution relative to the per capita GDP is an indication of the extent to which that institution is involved in poverty lending. All other conditions remaining the same, the lower the average loan size is than the per capita GDP, the poorer the clientele are likely to be. The export potential for the products of business ventures is also useful in microfinance operations. The more the export potential for products, the better for microfinance operations centered on that product.

4.3.3 Socio-cultural Factors

There are five main ethnic groups in the Gambia (Mandinkas, Fulas, Wollofs, Jolas and Serahules) with a number of other smaller tribes. The Mandinkas form the largest majority with the Fulas closely following them. About 90% or more of the population are Muslims while the remainders are either Christians or Animists. Most of the Gambian poor who therefore access microfinance funds are Muslims some of whom consider the issue of interest under microfinance as usury and forbidden because Islam feels that “money cannot beget money”. The accepted reward for microfinance programs in Islam is “profit-sharing” as practiced by the Arab Gambian Islamic Bank (AGIB) in the country.

The Gambian society is generally male-dominated with women having limited decision-making power. Yet loan repayments by women for microfinance programs far exceed that of their male counterparts. Traditional beliefs and customs are usually very strong, especially in the rural areas of the country and these could sometimes have an effect on microfinance delivery services.

4.3.4 Technological and Communication Factors

Except for the new coastal road network in GBA and WD and the Barra Kerewan road, all the roads in the Gambia are at the moment in a very bad state. Moving microfinance funds across the length and breadth of the country is currently difficult and could have some associated risks. The River Gambia is highly navigable along its length. Although river transport used to be very popular in the 60s, 70s and 80s, this form of transportation for people, their belongings and economic goods is now almost none existent. Plans are however afoot to resume river transportation but it is not known how soon that will be. Compared to the neighboring countries, telecommunication facilities and services in the Gambia are very good. Most microfinance agencies rely a lot on the countrywide telecommunication services for information to and from their clientele in faraway places.

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4.4 Vision for Microfinance Development in the Gambia.

The global promise of microfinance is that high quality, affordable financial and non-financial services can be made available to all those whom the mainstream sector considers not bankable, particularly to low-income households and micro enterprises. Indeed, to many, the promise of microfinance should go further by beginning with access, but ultimately satisfying the promise of social impact. The National Microfinance Summit of 2003 identified some problems for microfinance viability and sustainability of NBFIs and the following way forward were suggested:

(i) Solving the non–compliance with internal regulations by ensuring confidence through enforcement.

(ii) Discouraging of committee members in MFIs granting loans to themselves without going through the proper channel.

(iii) Avoidance of setting interest rates without paying attention to the operational costs of MFIs.

(iv) Proper training and sensitization of clients, MFIs and other stakeholders on financial prudence.

(v) Issuance of loans using the demand–driven approach with interest rates that borrowers can pay.

(vi) MFIs and other microfinance service providers to recruit, maintain and improve the capacities of competent staff with good incentive package thus avoiding the movement of institutional inefficiencies to the clients through unnecessarily high interest rates

(vii) Strengthening of internal control mechanisms (constitutionals/by laws, codes of conduct/ethics, audits, monitoring, etc.).

(viii) Exploiting linkages and collaborations with comparative advantages and complementarities.

The demand for microfinance services in the Gambia currently exceeds the supply. To meet the high demand for services, microfinance players can no longer rely solely on the limited pool of donor funds. In this regard, the landscape must attract funding from more abundant commercial sources. The way forward there is to move microfinance in the Gambia from donor-dependent to a mature industry capable of growing in a sustainable manner. This could be done through:

Developing and adhering to sound financial standards to gain credibility from commercial investors.

Offering a wider range of services as a package but with specialization by players. Developing client–responsive, flexible financial services for the poor as top priority. Ascertaining how to reach poorer clients and determining which flexible microfinance

products can fully meet their needs.

The vision is “A vibrant microfinance terrain that could help improve living conditions of majority Gambian”.

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5.0 PROPOSED MICROFINANCE STRATEGIC FRAMEWORK, INSTITUTIONAL ARRANGEMENTS AND ACTION PLAN

5.1 Strategic Issues

Based on the identified strengths, weakness/constraints/problems, opportunities and threats facing the microfinance industry, various strategies can be suggested for the development of the microfinance sector of the Gambia. In that regard, the following strategic issues and approaches need to be adopted within the Gambia’s microfinance industry:

A. Strategic Issues Relating to Overall Enabling Environment

1. Improve Coordination at National level the Efficient and Effective Delivery of Microfinance Services

Coordination of the microfinance industry should be one at two levels: Policy and Implementation levels.

Strategic Approach at Policy Level

The GOTG to:

i) Assign a Department of State the portfolio for Microfinance affairs, which would coordinate all broad policy and general activities and interventions before a full Department of State for Microfinance (DOSMF) is created in medium/long term; CBG will focus on its regulatory and supervisory functions.

ii) The Department of State (either DOSTIE or DOSA) to set a Unit or division in the short term with few staff to be responsible for general microfinance policy and coordination until the establishment of DOSMF in the long term.

Some of the functions of the unit will comprise the following:

- Create a centralized management information system (MIS) and database for all microfinance operators in the country at the proposed Microfinance unit.

- To Coordinate the joint support of legal and regulatory reform with other donors

- Ensure that networks and apexes lobby for reform in policies relating to microfinance where necessary, ideally in collaboration with microfinance players.

- Ensure that CBG, GAMFINET and other apex bodies to establish clearly articulated reporting formats and systems

- Ensure the review of the Prudential and Regulatory Guidelines for possible revision

- Coordinate the holding of the annual Microfinance Summit in the country, which should be coordinated by DOSMF, GAMFINET and the apex organizations. A

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mandatory contribution may be requested from each of the microfinance stakeholders for such a national event.

- Improve the co-ordination between business registering agencies (Department of Co-operation, NGO Affairs Agency, Central Bank and Attorney General’s Chamber) or even ensure the creation of a one-stop registration point.

- Issue registration and ‘permits’ to all institutions engaged in microfinance depending upon whether they have more than 50% or less than 50% of their operations covering microfinance. In order words, registering those institutions offering more than 50% of their services as microfinance and permitting through documentation those that have less than 50% of their services as microfinance. Alternatively, such institutions can register as financial entities with an apex organization e.g. the NGO Affairs Agency or other relevant bona fide credit bodies, which can be mandated to guide their operation to conform within the industry benchmarks.

Strategic Approach at Implementation Level:

Enhancing and strengthening GAMFINET’s coordination and networking functions to enable it serve as a platform for improving the policies and self-regulation of the industry, which should be mutually agreed by microfinance actors, as well as establishing common performance standards and operational guidelines for the microfinance sector through the use of appropriate performance indicators as benchmarks. This could be done by:

A strengthened GAMFINET to:

i) Offer continuous advisory services, which are essential to growth and sustainability of microfinance operations. GAMFINET and other apex organizations should develop performance indicators for service providers to monitor effectiveness of the services being provided.

Capacitized MFIs, NGOs and umbrella CBOs to:

ii) Introduce a participatory process in the design, ownership and management of the microfinance operators and beneficiary communities.

iii) Avoid over-concentration of microfinance actors and interventions on some sectors (like agriculture) or regions, but ensuring that there is proportional importance given to interventions for farm and non-farm income generating activities (IGAs) in both rural and urban areas

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B. Strategic Issues Relating to Enhancement of Enabling Environment to Promote Microfinance Market

2. Given the wide divergence of MFIs lending conditions, credit policies, procedures as well as eligibility criteria, CBG in collaboration with GAMFINET to ensure that prudential standards are met

Strategic Approach

a) DOSFEA, in collaboration with CBG and GAMFINET, to ensure the establishment of a national microfinance policy and procedures that would cater for all areas of microfinance and set in place the appropriate eligibility criteria for all categories of microfinance actors. The issue of loan size and amount, repayment periods and interest rates should also be streamlined and rationalized as far as possible within the proposed national microfinance policy framework.

b) MFIs should be encouraged to form strategic networks with relevant partners so as to ensure collaboration, share of common services and adopt microfinance best practices that could help develop the industry. Such would include both national and international networking.

This strategic approach could be pursued through:

i) The DOS responsible for microfinance policy and coordination, CBG and GAMFINET to set key performance standards in line with industry standards as well as provide clear performance benchmark indicators (cost and productivity) in all areas and at all levels to assess institutional performance and employee productivity as well as enforce laws and/punitive measures for non-compliance in the microfinance industry.

CBG (or CBG along with others) to:

i) Allow, on a case by case basis, registered and licensed MFIs (including the SACAs) to be able to extend lines of credits to their clients depending upon experience, recovery of repayments and capacity to handle.

ii) Increasing the number of NBFIs categories from five to six for microfinance service delivery to clients as follows:

Credit-only MFIs (to be permitted) SACAs (to be registered), MISACIs Finance Bureaus Finance Companies (to be licensed), and Fiduciary Finance Institutions (FFIs) (to be licensed).

This would help reduce the entry barriers thus the potential of increasing the number of service providers from which the poor can access microfinance services, while the MFIs would healthily compete with each other to increase their outreach to serve the poor and rural populace.

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iii) Simplify the supervision infrastructure and reduce staff costs.

iv) Review of the performance for operators regularly using strong monitoring systems in the microfinance arena.

3. Encourage healthy Competition Among Service Providers

Strategic Approach

Improving the coordination and streamlining the operations and activities of different microfinance practitioners and encourage specialization of microfinance actors (where possible) and their intervention with a view to ensuring effective and efficient service delivery. This may be done through:

The GOTG to:

i) Transform certain institutions like IBAS, MFPC and FASE into specialized entrepreneurial capacity building agencies, while transforming wholesale microfinance institutions like the SDF into the Fiduciary Financial Institutions (FFI) category, which is currently a missing link in the NBFI hierarchy in the country.

MFIs to:

i) Have management structures within the organizations that are open and able to manage risks.

ii) Avoid cross-lending, overlap of activities and duplications by service providers in the industry.

iii) Harmonize the triple demands of viability, sustainability and affordability in microfinance service delivery by placing emphasis on the mobilization of savings and the use of mobilized own-resources of local savings mobilized.

iv) Take an integrated program approach for microfinance operations and interventions rather than a segmented, sectoral and project approach which would make them be in consonance with the PRSP/SPAII dictates.

v) Trying new innovations to reduce costs and have effective delivery mechanisms by the microfinance organisations. Use innovative approaches of sound practices (i.e. have policies on transportation and travelling, purchasing and procurement, all to be suitable for good performance of the organisation)

The CBG and other regulators to:

i) Create a less restrictive financial system that will allow the formation of different types of actors with each specializing on interventions that it is best at.

ii) Ensuring that microfinance interventions are using the demand-driven rather than supply-led approach

iii) Make sure, through moral suasion, that microfinance service delivery is carried

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out by specialized agencies in the different areas such as commercial banks, professional practitioner savings and credit institutions, intermediary funding agencies, promoters/facilitator technical service providers and BDS and business advisory agencies

iv) Encourage specialization (where possible) in order to help improve efficiency and innovate appropriate policies and procedures for cost reduction where promotion of specialization through moral suasion fails

v) Issue registration/licensing certificates to all institutions engaged in deposit-taking or are in custody of public resources

vi) Redesign the NBFI categorization from five levels to the six levels of:

Permitted SACAs (such as credit-only institutions) Registered SACAs (current registered/licensed SACAs, MISACIs Finance Bureaus) Finance Companies, and Fiduciary Financial Institutions (FFIs)

vii) Register/license each of the practitioners in the appropriate categories that they fit in [i.e. SACAs, MISACIs, Finance Bureaus, Finance Companies or Fiduciary Finance Institutions (FFIs)

Increasing the scale of operation to gain from economies of scale and scope and save costs and establishing quality assurance within the microfinance organizations and for training programs, while focusing on long-term survival and sustainability by covering all costs (i.e. administrative and other costs).

4. Improving the Regulatory and Prudential Framework of the CBG as well as the Self-regulation of the apex organizations

Strategic Approach

a) The regulatory and prudential framework of CBG should be made more flexible and reasonable with regard to the guidelines on eligibility targeting and determination of microfinance credit charges and loan duration and grace periods. The CBG, in consultation with the stakeholders, should design appropriate regulatory and prudential framework and provide adequate supervisory capacity in order to assist in the professionalization of the microfinance sector’s operators.

b) Furthermore, the CBG to ensure the transformation of microfinance actors into sustainable financial institutions within the relevant Non-Bank Financial Institutions (NBFIs) categories (permitted and registered/licensed SACAs, Finance Companies and Fiduciary Financial Institutions) in a flexible manner.

c) The paid-up capital for MFIs should include other non-monetary assets rather than exclusively cash-based. The CBG may look at the source of the capital and proposed ownership structure, and scrutinizing the

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management of the MFI. Over a time period, based on the discretion of the CBG, it may look at capital adequacy regulations as an incentive for good MFIs by using some form of minimum solvency ratio rather than an absolute minimum amount of equity to continue to be in the industry.

d) Due to the circumstantial nature of liquidity requirements (largely seasonal in rural areas), the ratio can remain at the current level (15%-40%), but with the possibility to be reviewed in future depending upon operating environment.

Improvement in regulation and prudential framework can further be enhanced by:

i. Establishing a pragmatic, simple and flexible legal regulatory framework

ii. Using differentiated regulation of MFIs, i.e. creating tiers of regulation through cost-effective and apexes creation:

iii. Revision of the FIA using an integrated approach, but by amending it with a section focusing specifically on microfinance issues.

iv. Reviewing the microfinance regulatory framework and the NBFI Prudential Rules and Guidelines and amending them in order to enhance microfinance development and the Cooperative Act and Laws to be in consonance with the Prudential Rules and Guidelines of the NBFIs. The microfinance part under the Cooperative Act should be harmonized with the FIA so that the Registrar of Cooperatives and CBG could jointly regulate and supervise all microfinance operators in a more coordinated manner. NACCUG as the umbrella organization CUs and licensed by the CBG should assume the role of off-site supervisory intermediary that will continue to submit consolidated returns to the CBG on behalf of the affiliated members. In that regard, NACCUG will continuously sensitise CUs to harmonise their reporting period for this purpose to enable off-site supervision by the CBG and occasional on-spot checks were deemed required. The CBG should be seen to be moving away from direct supervision and to start delegating responsibility.

v. Using appropriate apexes to help in non-prudential/self-regulation and internal coordination.

vi. All microfinance stakeholders to have superior documentation and monitoring mechanism in place

vii. Empowering the vulnerable gender, especially women using microfinance as a poverty alleviation tool, which could be done by integrating gender awareness into all microfinance programs for women and men

viii. Enabling women to own and control (i.e. have a choice over use) of productive resources and benefits from microfinance services

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5. Maintenance of a level playing field among economic sub-sectors and enhance competition

Strategic Approach

A level playing field may be achieved by:

i) Ensuring the compliance to prudential and non-prudential regulations as well as enforcing the rules/laws where non-compliance occurs with genuine course.

ii) Ensuring that sustainable interest rates are charged to make the microfinance service provision to MSEs. The CBG will not allow any loan for MFIs to be given at zero percent interest rates that undermines the microfinance market. They will encourage the cultivation of savings culture amongst microfinance clients and service providers and develop mechanisms for deposit insurance for the microfinance clients’ funds and NBFIs’ certificates of deposit.

iii) MFIs, NGOs and Umbrella CBOs pricing their credit products in such a way that all relevant costs are fully covered, while at the same time making it affordable and morally justified for microfinance clients. They will safeguard clients’ savings and investors’ funds, as well as resist the pressure to expand when the methodology does not promote moving the microfinance client out of poverty.

iv) Linking credit volumes for microfinance by ensuring the issuance of credit amounts ranging between two (2) to four (4) times the savings of the applicant clients.

v) Institutions engaged in microfinance to be given freedom to set their own interest rates in a sustainable manner, with no regulated interest rate ceilings, but where interest ceilings apply, then adjustments should be made to ensure that MFIs could fully cover the high costs of making small loans.

vi) Ensuring that no MFI collects an “interest spread” (i.e. percentage points between cost of capital to the microfinance agency and the interest charged to the end-user) of not more than 8%-12% and this spread would be set based on the difference between the sum of the total costs plus a ‘reasonable margin’ and the cost of funds.

vii) Reviewing registration fees for MFIs and MSEs with AG’s Chambers so as to lowering the charges, which the MFI and MSE operators consider high and a disincentive to growth.

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C. Strategic Issues Relating to Enhancement of Enabling Environment to Promote Microfinance Market

6. Provision of adequate outreach and access to microfinance by the poor and rural population

Strategic Approach

a) The strategic approach will be to balance basic poverty constraints of the poor with that of ensuring sufficient returns based on commercial lending. The general strategy should ensure that there is a balance between commercial viability and social welfare of the poor. This way, the provision of adequate outreach and access to all microfinance services in the Gambia should be done in consideration of full cost recovery with some margin of return for the service(s). Such best practice was used by ASA in Bangladesh to move the MFI to efficiency and operational and financial self-sufficiency.

b) Both microfinance access and outreach can be enhanced through the development of new financial products and services suited to the need of the clients. These should include the establishment of microfinance guarantee and funding schemes, micro-insurance, micro health insurance, micro leasing and money transfer services to facilitate the provision of microfinance to the very poor and needy in all areas, particularly the rural areas. In Mali, the use of guarantee funding schemes has helped Caissés Villageoises du Pays Dogon, Nyesigiso and Kafo Jiginew to increase the clients’s access to microcredit facilities as well as increased outreach, while the introduction of micro-insurance and micro health insurance assisted in increasing outreach of MFIs in Senegal (e.g. PAMECAS) and Burkina Faso (e.g. GRADE-FRB).

c) MFIs, NGOs and other CSOs involved in microfinance should be encouraged to establish numerous outreach local branches in the rural areas. MFIs should be organized into national network offering training, monitoring and the self-regulation of functional baseline units.

d) Microfinance service providers should establish formal links with the banking sector to ensure the provision of re-financing facilities.

Outreach and access to microfinance by the poor can be further facilitated through:

i) Creating role models of entrepreneurs that can utilize microfinance resources to effect positive changes in their own lives as well as on the livelihood of other Gambians

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ii) Ensuring both client discipline (regular savings habit and timely repayments) and institutional discipline (i.e. practices that lead to success and sustainability) as well as encouraging savings, investment and entrepreneurial culture with the community.

iii) Government and donor agencies to assist with micro-grants to catalyze the very poor to move out of destitution and be able to operate as entrepreneurs in a market-oriented environment. Such a graduation strategy has worked well for Bangladesh Rural Agricultural Cooperative (BRAC). This will provide complementarity to CDDP, PRP II and other microfinance interventions in the country.

iv) Recognizing the comparative advantage that different microfinance agencies have. For example, credit unions have greater capacity to reach the poor clients in cooperatives while VISACAs and NGO MFIs are better at reaching other poor clients in a greater capacity than the commercial banks. Keeping these differences in mind, one should explore various, potential partnerships or operational relationships with various MFI types, wholesale apexes and commercial banks to increase outreach to underserved markets.

7. Ensure capital adequacy (i.e. encouraging savings mobilization and provision of loanable funds) for MFIs to cater for the Potential demand for development and credit needs

Strategic Approach

a) Facilitate the access of MFIs to lines of credit from external donors, intermediary funders, commercial and development banks and private investors; This would ensure the availability of funds necessary to meet the potential demand for both development and credit activities.

b) Facilitate the development of formal links between MFIs and banks to develop re-financing mechanisms. This may be done through linkage banking.

c) Encouraging the strengthening of Credit Unions and Credit Systems specializing in funding micro-enterprises, e.g. establishing a specialized Cooperative Bank. Such a bank will receive surplus funds from union networks, pay interest and finance cash flow requirements of the union networks during seasonal shortages by extending microfinance services in this market sector. Such an approach can increase the penetration rate of microfinance in the rural areas.

Capital adequacy can be further enhanced by:

i) Providing time-bound direct administrative subsidies to microfinance institutions with specific criteria for the reduction and gradual elimination as market development objectives are achieved.

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ii) Encouraging the commercial banks to make available lines of credit for wholesale lending at affordable interest rates to the microfinance service providers.

iii) The private sector and external donors provision of grants and subsidies where needed in microfinance training and business services since micro credit alone is insufficient. However, these grants and subsidies should be scaled back gradually when private investments can take over in the medium-term.

iv) Private sector and external donors complementing of the informal sector credit programs with those geared to the formal sector as well as taking greater risks with investments to get the social returns desired.

vi) Preparing MFIs to secure commercial-debt financing as part of long-term strategy for growth and sustainability as well as motivating the commercial banks to lend to non-bank MFIs that have demonstrated creditworthiness.

vii) Commercial banks and insurance companies to be encouraged to participate in microfinance service provision through moral suasion and creation of public incentives e.g. tax breaks/heavens or reduced taxes in return for participation into microfinance activities to extend social corporate.

viii) Allowing some licensed/registered MFIs to actively engage in other product/service development initiatives to capitalize on opportunities for a wider scope of operations and optimization of resources.

8. Enhance the Capacity and Enabling Environment for MFIs and their Clients/Beneficiaries

Strategic Approach

a) Increasing trainings in financial and business management skills, microfinance methods, best practices and management with a view to developing self-managed MFIs that are sustainable and socially viable.

b) Encouraging the use of non-financial services (from functional literacy/numeracy to business development services (BDS) training such as advisory services, consulting and advocacy in microfinance operation to help build social capital and basic skills within the community.

c) Creating an enabling institutional and external environment where microfinance activities can flourish within the country. Appropriate legal incentives would also assist to generate security and confidence for investing in microfinance. The need to create effective means of enforcing microfinance contracts, as well as enforcing sanctions on MF staff on actions of risk to the industry is paramount. In this regard the legal arms of government must be a key partners, supported by the law enforcement agencies as well as the CBG and self-regulating apex institutions. Striving for less regulatory influence with subsequent

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relaxation of prudential requirements (reducing the reserve requirements over time) could be useful in such cases.

d) Developing strong synergies between microfinance, BDS and micro-businesses by encouraging collaboration between MFIs and BDS Agencies in the sector based on mutual agreements. Specialized BDS providers will collaborate and link with MFIs for down-streaming to potential business clients of the MFIs through training on business development and management by the BDS agencies. BDS services must be operated, where possible, strictly on market principles so as to remain sustainable and continue to offer services. Government assistance should be restricted to catalysing the process at most in the initial stage of the process.

e) MFIs need to responsibly acquire the capacity to grow strong and compete in a market –oriented environment. MFIs must be weaned from subsidized capacity building supports from donors at the end of a specified time frame. GOTG should create the conducive macroeconomic and financial environment for greater efficiency as well as capacity building in technical advisory services and training of trainers (TOT) and to help graduate MFIs from one level to the other for greater competition and efficiency.

f) Embark on a variety of training activities as well as continuous sensitization campaigns to improvement the financial management knowledge and skills of the clients/beneficiaries

g) Offer incentives for clients/beneficiaries that repay loans before due dates. This may be done by reduced interest rates and offer of higher succeeding loan amounts to clients/beneficiaries who repay loans earlier than scheduled.

Capacity building and enhancement of an enabling environment can be further enhanced through:

i) MFI support organizations to expand MFI training in financial management, performance measurement, and impact assessment.

ii) Developing microfinance training manuals and modules for all knowledge and skills development capacity building programs where possible in the industry.

iii) Ensuring the filtration of all microfinance trainings (where necessary) to the grassroots groups and individuals

iv) Building and maintaining capacity of Boards of Directors of partner agencies and clients, while at the same time preventing fraud and forgeries though internal and external audit systems within the organizations

v) Providing support services in the area of information, dissemination of best practices, technologies and human resource development.

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vi) GOTG, projects/programs and private development agencies to provide support in the form of technical assistance and other incentives to encourage competitive performance of new and existing microfinance providers. Furthermore, innovations and development of appropriate services/products for microfinance operations need to be sought, while at the same time developing and implementing appropriate quality control measures for microfinance operations.

vii) Establishing and/or strengthening appropriate institutions/facilities to enhance extension and business advisory service delivery.

viii) Incorporating functional literacy/numeracy as part of the microfinance services package to enable entrepreneurs keep proper records.

ix) Creating a climate under which the microfinance system operates and becomes conducive environment with adequate incentives for private interventions.

x) Creating an incentives scheme for private sector partners especially the MSE and SME operators that would like to venture into microfinance development in the country. Such incentives may include tax holidays, reduced tariffs and credit guarantee schemes.

xi) Building partnerships between microfinance service providers and private sector, commercial banks, insurers and investors.

xii) Investing in public infrastructure, including roads, river transport facilities, telecommunication networks and education to provide a foundation for self – employment activities.

xiii) Establishing market centers at strategic locations throughout the country with emphasis on improving and strengthening the existing infrastructure, services and range of products/commodities supplied to the markets by microfinance agencies.

xiv) Embarking on intensive road rehabilitation especially the feeder roads connecting communities to local market center and provision of adequate transportation facilities

(river and land) for easy and reliable transportation of goods/services to and from the marketing centers. In this regard, all the major docking wharfs need to be rehabilitated

along River Gambia in order to facilitate the resumption of countrywide river transportation.

xv) Creating incentives in business financing (development loans, guaranteed funding schemes and mutual guarantee schemes, special concessionary loans) as well as enhancing partnership building between foreign and local microfinance operators in order to facilitate the access of both institutions and clients to capital resources. This may be done by raising awareness and forging linkages with support institutions.

xvi) MFIs should try to have a lean organization structure with a small number of staff who are efficient where this is possible and should ensure that non–earning staff in the organization be fewer then the earning staff (or economically productive staff)

xvii) GOTG and other stakeholders to build and strengthen the capacity of GAMFINET to enable it coordinate and self-regulate microfinance operations in the industry.

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xviii) Government giving importance to microfinance as a vehicle for both economic development and poverty alleviation by continuing to recognize the distinct characteristics of microfinance and how it differs from mainstream banking

xix) Strengthening of apex organizations which use cooperative approaches towards savings and credit delivery (such as National Women’s Farmers Association, NAWFA) to assist producers in the informal sector with the marketing of their products.

xx) GOTG to continue providing subvention to MFPC till the point that it achieves at 100% operational self-sufficiency

9. Improving and Enhancing Management Information Systems (MIS) in the Microfinance Sector

Strategic Approach

Ensuring improved access by microfinance players to information and management information systems (MIS) for the development of the industry. The ready availability of information can help improve and enhance microfinance and MSE activities, thus facilitating development of the informal sector. The Grameen Bank used such best practice, when it supplied mobile phones to clients, which facilitated information flow. Improving and enhancing access to MIS and vital information for microfinance operations may be achieved through:

i) Creation of a centralized management information system (MIS) and database for all microfinance operators in the country at the proposed Coordination Unit at DOSFEA and later moved to DOSMF, which will be created by GOTG to oversee the implementation of the Microfinance Strategy and coordinate the industry.

ii) All microfinance operators to have proper systems in place within the organization, especially the installation and implementation of MIS in the organizations and standardize operations

iii) Embarking on intensive promotional campaigns on products/services delivered by micro finance operators through the electronic, print and other media (local theatre groups).

iv) MFIs to pay attention to collecting and analyzing client information on client demographics and impact, as a way of understanding social impact and collecting data with which services and products can be made more effective.

v) GAMFINET to collect performance data and publish performance analysis and benchmarking of MFIs

(vi) Build capacity to effectively create an appropriate MIS (e.g. training on MIS for coordinators)

(vii) Create private sector partnerships e.g. Credit Rating Bureaus and licensed Auditors, etc.

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The proposed strategies could either facilitate access to microfinance services, or enhance institutional development and capacity building of players, or ease the coordination and streamlining of microfinance actors and interventions, or ensure better regulation and supervision of the microfinance industry.

(i) Access to Services Strategies

The strategies relating to access to microfinance services are designed to adequately address the following key weaknesses and threats in the SWOT and PEST analyses so as to enable microfinance actors to take full advantage of the opportunities/potentials of the industry, while building on the existing strengths:

Low literacy and capacity levels

The unmet demand and credit needs of microfinance clientele

Capacity inadequacy in terms of savings mobilization and provision of loanable funds

Mobility constraints for enhanced service delivery

Low penetration rate of MFIs to assist the poor

The problem of credit-only institutions for microfinance service delivery, and the need to permit them by way of being registered with a national coordinating body like the proposed Department of State for Microfinance (DOSMF)

The threat of possible political interference, and

Excessive prudential regulation coupled with some donors’ direct intervention into microfinance without regard to regulatory and supervisory guidelines

The main proposed strategic issues for access to services in priority order are:

(a) Developing a National Microfinance Policy (to be done within the short term, i.e. within the next twelve months)

(b) Enhancing the capacity and enabling environment for MFIs and their clients/beneficiaries (should be ongoing)

(c) Improving and enhancing MIS in the microfinance sector (to be done in the medium term i.e. in two to three years)

(d) Provision of adequate outreach and access to microfinance by the poor and rural population (ongoing)

(e) Ensuring capital adequacy for MFIs to cater for the potential, supply and demand for development and loans (ongoing)

(ii) Institutional Development and Capacity Building

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Strategies

The main strategic issues relating to institutional development and capacity building in priority order are:

(a) Enhancing the capacity and enabling environment for MFIs and their clients/beneficiaries (should be ongoing)

(b) Improving the coordination at national level for efficient and effective delivery of microfinance services (ongoing)

(iii) Coordination and Streamlining of Actors and Intervention Strategies

The main strategic issues relating to coordination and streamlining of actors and interventions in priority order are:

(a) DOSFEA to set a Unit in the short term with few staff to be responsible for general microfinance policy and coordination until the establishment of DOSMF, the establishment of which should be done in the medium or long term

(b) Improving the coordination at national level for efficient and effective delivery of microfinance services (ongoing)

(c) Encouraging avoidance of unhealthy competition among service providers (to be done in the short term)

(d) Improving and enhancing MIS in the microfinance sector (to be done in the medium term i.e. in two to three years)

With the following additional strategic approaches:

- Establishment of a centralized MIS database and network- Development of information, extension and communication (IEC)

strategy to dessiminate information through networks like GAMFINET, NACCUG and AVU backed up with a good reporting system

(iv) Regulation and Supervision Strategies

The main strategic issues relating to regulation and supervision in priority order are:

(a) Improving the regulatory and prudential framework of the country and encouraging self-regulation among operators (ongoing).

(b) Regularizing the wide divergence of MFIs lending conditions, credit policies, procedures

as well as eligibility criteria (ongoing).

(c) Provision of adequate outreach and access to microfinance by the poor (ongoing).

(d) Enhancing the capacity and enabling environment for MFIs and their clients/beneficiaries (should be ongoing).

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(e) Improving and enhancing MIS in the microfinance sector (to be done in the medium term i.e. in two to three years).

5.2 Institutional Arrangements and Role of Institutions

The following pragmatic institutional arrangements and specific roles for institutions is being proposed for the NSFM:

DOSFEA/DOSA to establish a Unit in the short term with few staff to be responsible for general microfinance policy and coordination until the establishment of DOSMF.

Setting up DOSMF for general policy and coordination in the medium or long term.

Other partner Departments of State such as DOSFEA, DOSA, DOSTIE and DOSJ.

Apex organizations for self-regulation, coordination, networking and advocacy (GAMFINET, NACCUG and AVU.

Regulatory and supervisory institutions (CBG and Cooperatives Department).

MFIs, promoter/facilitators and intermediary funders. MFIs to have savings and credit management committees for appraisals, approvals, disbursements, monitoring and evaluation and recoveries.

Private sector players (commercial banks, insurance companies and investors)

Note that the Cooperatives Act will continue to govern cooperative activities, but once cooperative organizations get involved in deposit-taking, then they will need to be regulated by the CBG under the Prudential Guidelines.

The role of GAMFINET and apex organizations in coordination and streamlining of actors and interventions include:

Promotion and facilitation of information exchange among players

Creation of awareness on microfinance issues

Carrying out advocacy on microfinance

Promoting effective performance monitoring and evaluation systems to enhance self-regulation

Ensuring compliance to set standards and enforcing rules/constitutions, bye-laws and codes of ethics of members

Providing capacity building to members

Promoting cordial relations among members

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The centralized MIS database should be located in DOSMF (once formed the general policy and coordinating body) to make the database accessible to all stakeholders

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The proposed institutional arrangements is shown in Figure 1 below:

Figure 1: Institutional Arrangements for Microfinance Development in The Gambia

Institutional specialization to help streamline actors and interventions should be based on: Mandate Competence Capacity and moves toward sustainability

IFAD should fund the establishment of a small cell staffed under the new DOSMF with very experienced officers to help with overall coordination and general policy issues.

DOSADOSJ

DOSFEA

DOSTIE

DOSGEA/DOSA Coord. Unit/

CBG

AVUNACCUG GAMFINETIBAS

Promoters/Facilitators

Practitioners Direct Lenders

Intermediary Funders

Department of Cooperatives

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5.3 Action Plan

The action plan for the operationalization of the NSFM is presented below in the form of a way forward to better harmonize plans for finalization and presentation to Cabinet for approval

Consultants incorporation of comments and concerns raised by IFAD and participants of the validation workshop (to be done by April 25, 2006).

Submission of Final Document to RFCIP management and National Taskforce by April 26, 2006.

Preparation of draft Cabinet Paper by RFCIP and DOSA and DOSFEA by May 15, 2006.

Finalization of Cabinet Paper by end of May 2006,

Submission of Cabinet Paper for approval by DOSA by 10th June 2006.

Approval by Cabinet by June 15, 2006.

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6.0 CONCLUSIONS AND RECOMMENDATIONS

The following conclusions can be drawn from the study for the development of a National Microfinance Strategic Framework in the Gambia:

Microfinance is one of the important tools used in poverty alleviation interventions, and it is therefore useful in poor countries like the Gambia where two-thirds of the population are considered to be below the poverty line.

The rationale for this National Strategy Framework Paper for Microfinance development in the Gambia (NSFM) is to holistically streamline the actors and interventions especially through encouragement of sufficient specialization, coordinate activities and help regulate and develop the microfinance industry in the Gambia.

The study was conducted using the following methods: literature review, consultations, FGDs, SWOT and PEST analyses based on the TOR prepared for the consultancy.

Based on the, situational, SWOT and PEST analyses, the main proposed strategies for the development of microfinance in the country include:

A. Overall Enabling Environment

1. Improve coordination at national level for the efficient and effective delivery of microfinance services.

2. Establishing a Department of State responsible for Microfinance in the country to be responsible for overall microfinance policy and general coordination of actors and interventions.

B. Enhancement and Maintenance of Enabling Environment to promote Microfinance Market

3. Regularized (i.e. ensuring that prudential standards are met) the wide divergence of MFIs lending conditions, credit policies, procedures as well as eligibility criteria.

4. Encourage healthy competition among service providers to encourage the provision of sound financial services to the poor.

5. Improving the regulatory and prudential framework of the CBG and encouraging in self-regulation among the operators.

6.. Maintain a level playing field among economic sub-sectors and enhance competition.

C. Direct Micro-Financial Interventions

7. Provision of adequate outreach and access to microfinance by the poor and rural population.

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8.. Ensure capital adequacy (i.e. encouraging savings mobilization and provision of loanable funds) for MFIs to cater for the potential unmet demands for development and credit needs.

9. Enhance the capacity and enabling environment for MFIs and their clients/beneficiaries.

10. Improving and enhancing management information systems (MIS) in the microfinance sector.

It is recommended that microfinance service providers adopt strategies that would ensure their being focused on their core competences and where comparative advantages lie and to adopt strategies that would enable cost optimisation for better performance in the microfinance industry. Donors should promote the growth of the microfinance industry through the following measures:

Technical assistance (TA) for institutional development of MFIs towards viability, self-reliance and outreach;

TA for the establishment of an apex organization for VISACAs (i.e. the AVU) for interest rates articulation and advocacy, training and consulatancy services to member organizations, self-regulation, auditing, and supervision services, treasury services, and access to outside sources of refinance;

Institutional strengthening and reform of supporting agencies such as MFPC, GAMFINET and NACCUG

TA to the regulator and supervisor of financial institutions (i.e. CBG) to provide a more appropriate national strategic as well as policy and regulatory framework, including legal forms for local NBFIs;

All players to help disseminate best/sound practices by supporting training and funding study tours to successful MFIs within the country and in other parts of the world.

The following are further recommendations that would help satisfy the principles and practices for promoting financial institutions in the country that serve the poor:

Encouraging a range of institutions with different legal structures to provide sound financial services to the poor;

Keeping entry thresholds low and developing simple supervisory and reporting requirements for NBFIs that serve the poor;

Allowing MFIs to operate as recognized financial institutions, possibly under separate supervisory and regulatory arrangements;

Encouraging lending institutions that meet the prudential standards to mobilize savings and other domestic resources;

Permitting MFIs that serve the poor to rely on competition rather than GOTG fiat to contain their own on-lending interest rates to clients;

Setting up semi-self and self financing systems.

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Encouraging the integration of microfinance in the overall financial system should also be done by enhancing institutional transformation and commercialisation of MFIs. The Prudential Guidelines and regulatory Framework of the CBG for NBFIs should also be reviewed for possible revision. The long-term goal is to develop the sub-sector within the framework of internationally accepted “sound practices” and principles of no/reduced subsidies, while having operational and financial self-sufficiency with the highest assets quality.

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7.0 REFERENCES

1. ADB Mission, “Aide Memoire of the ADB Mission to the Gambia, May 22 – 30, 2005”, ‘Poverty Reduction Project II (PRP II) Preparatory Mission for the Social Development Fund (SDF), The Gambia

2. AFIM; ‘Microfinance Associations: Their Role in Developing the Microfinance Industry’”, Africa Microfinance Network (AFIM) Conference Proceedings, Accra, November 5-7, 2002, Eschboru 2003.

3. Aliber Alitou Ido, Michael; “Micro-insurance in Burkina Faso”, Social Finance Programme & InFocus Programme on Boosting Employment through Small Enterprise Development, Employment Section, Working Paper No. 29

4. CBG; Prudential Rules and Guidelines of Policies and Procedures, Volumes I and V (SACAs and Fiduciary Financial Institution – FFI), 1994, Banjul, The Gambia

5. Ceesay, Mamadi B, Deen-Touray, Fatou & Ndow, Sirra H;. “An Assessment of the Effectiveness of Revolving Funds for Rural Development in The Gambia”, Department of Planning, Ministry of Agriculture and Natural Resources and Research Department, Central Bank of The Gambia, August 1995.

6. CGAP; “Microfinance Gateway” CGAP website: www.cgap.org, The Consultative Group to Assist the Poorest (CGAP), USA, April 2004.

7. CGAP; “Micro-insurance: Improving Risk Management for the Poor, No.3”, The Consultative Group to Assist the Poorest (CGAP), USA, April 2004.

8. CGAP; “Microcredit:One of Many Intervention Strategies, No.3”, Helping to Improve Donor Effectiveness in Microfinance, The Consultative Group to Assist the Poorest (CGAP), USA, April 2002.

9. Copisarow, Rosalind; “The Application of Microcredit Technology to the UK: Key Commercial and policy Issues” in Journal of Microfinance, Practitioner and Development Perspectives, Vol. 2 No. 1, Spring 2000, Page 24

10. Darke, Deborah & Rhyne, Elizabeth (Editors); “The Commercialization of Microfinance Balancing Business and Development”, Kumanan Press Inc, 2002, Page 155

11. Development Management Consultants International; “A Proposal for Transforming the RFCIP Revolving Fund into an Agricultural Development Fund (ADF)”, Rural Finance Community Initiatives Project (RFCIP), IFAD/Gambia, Department State for Agriculture (DOSA), Prepared by Development

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Management Consultants International, Brikama, Nyambai Ward, The Gambia, June 2002.

12. FASE; “Integration of Microfinance into the Fight Against Social and Economic Exclusion (FASE) in the Gambia”, FASE Programme, ILO/DOSFEA/UNDP GAM/OO/OO2, Cape Point, Bakau, The Gambia.

13. FASE; “The Microfinance Landscape in The Gambia” in ‘Programme to Extend Social Protection to the Informal Economy in the Gambia’, Fight Against Social and Economic Exclusion (FASE) Programme, ILO/DOSFEA/UNDP GAM/OO/OO2, Cape Point, Bakau, The Gambia.

14. FASE; “Report on Situational Analysis of Social Protection in the Gambia and Potentials for the Extension of Social Protection for Healthcare”, A Study commissioned by Fight Against Social and Economic Exclusion (FASE,) UNDP/ILO/GOTG Programme, July 2002

15. FASE and SDF; “Study Tour Report for Micro-insurance and Micro Health Insurance Schemes in Senegal, Compiled by the Study Tour Team, 2004,

16. Giehler, Thorsten; “Sources of Funds for Agricultural Lending, Agricultural Finance Revisited No. 4”, Food and Agricultural Organization (FAO) of the United Nations and Deutsche Gesellshaft fur Technische Zusammenarbeit (GTZ), December 1999.

17. Horton, Francis L.M. & Bangura, Tijan; “A Microfinance Study”, Fight Against Social and Economic Exclusion (FASE), GAM/00/002 Project, UNDP/ILO/GOTG Programme, April 15th to June 15th, 2002.

18. IFAD; “Donor Peer Review”, IFAD Website, Sept. 2005

19. IFAD; “Rural Finance: Overview of Policy, Decision Tools and Strategic Initiatives”, IFAD Website, Sept. 2005

20. IFAD; “Supervision Mission (8th ) Report on Rural Finance and Community Initiatives Project (RFICP)”, June-July 2004, Report No.: GM - 486 – 09/04.

21. IFAD; “Strategy Paper: Regional Strategy for Rural Finance – Western and Central Africa” June 2003

22. IFC; “Mali Microfinance Guarantees: Summary of Project Information (SPI)”, International Fund for Corporation (IFC) Projects, Project No. 9102, from the IFC website (www.ifc.org), March 2005

23. Jammeh, Mohammed E; “ Outreach and Sustainability of Microfinance: Issues and Challenges (L-8)”, A paper presentation at the West African Institute for Finance and Economic Management (WAIFEM) regional course on microfinance and Non-Bank Financial Institutions, Banjul, The Gambia, June 23-July 4, 2003.

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24. Ledgerwood, Joanna; “Microfinance Handbook: An Institutional and Financial Perspective”, Sustainable Banking with the Poor, The World Bank, Washington DC, 1999, Pages 73, 113 – 114 and 137

25. Manneh, Karafa; Beneficiary Impact Assessment (BIA) of the SocialDevelopment Fund (SDF), 2002,

26. Muenzel, Thomas, Jammeh, Mohammed and Sowe, Cherno; “ The Gambia Community Development Project (CDP) Study on Income Generating Activities and Rural Finance Schemes”, September 2005

27. Njie, Sering Falu, Jammeh, Mohammed E, et al; “Report on the Mapping out of Microfinance Institutions in the Gambia”, Rural Finance Community Initiatives Project (RFCIP), November 2003, The Gambia.

28. Sahel Invest International; “The Credit Market Study for Oikocredit in The Gambia”, Sahel Invest International Consultancy, Bakau, March 2004.

29. Sahel Invest International; “The Effect Study of The Gambia Social Development Fund (SDF)”, Sahel Invest International Consultancy, Bakau, June 2001.

30. SPACO; “Strategy for Poverty Alleviation II, (SPA II): Volume I (Poverty in The Gambia) and Volume III (SPA II Priority Poverty Reducing Actions), Strategy for Poverty Alleviation Coordinating Office (SPACO), Department of State for Finance and Economic Affairs, December 2003, The Republic of The Gambia.

31. The World Bank Group; “Region Profile: The Gambia”, August 2003 Updated, World Bank website (www.wb.org) data.

32. USAID; “Paving the Way forward for Rural Finance: Synthesis Paper and Conference Proceedings”, An International Conference on Best Practices, Washington, D.C, June 2-4, 2003 Copyright © 2004

33. Versluysen, Eugene; “Defying the Odds: Banking for the Poor”, Kumarian Press Inc., 1999, Pages 195-204

34. Wasielewski, John and Lord, Stavely; “Guarantees for Rural Financing: A Guide to USAID’s New Mechanism, Case Study”, Presented at the International Conference on Best Practices titled: ‘Paving the Way Forward for Rural Finance’, WOCCU, Washington D.C., June 2-4, 2003.

35. World Bank; “Annual Report 2001: The Bank’s Strategic Framework for Poverty Reduction”, The World Bank Group Website, Sept. 2005

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8.0 ANNEXES

Annex I

TERMS OF REFERENCE FOR THE PREPARATION OF A NATIONAL STRATEGIC FRAMEWORK PAPER FOR THE DEVELOPMENT OF MICROFINANCE I THE

GAMBIA.

1. Microfinance is being used as a tool to support the improvement of the living conditions of the mass population the world over and in particular in The Gambia. For the past several years efforts have been made in developing and experimenting different approaches to provide financial services to the poor.

2. Today despite the presence of so many players at various levels in this small country the penetration rate of microfinance services is far from adequate. Various fora and reports suggest that the proliferation of different practitioners operating under different delivery technologies and environment without a common vision is counter- productive to the development of rural finance. Finance. This situation led to.

(i) conflicting goals,(ii) some areas that over-serviced while others have few services(iii) some program have liquidity deficits and allow delinquent borrowers

continued access to credit by being able to skip from one program to another.

3. In addition to the above lessons and constraints in the industry various IFAD supervision mission and in particular the Mission led by the IFAD Director for West and Central Africa Region had recommended for the preparation of a national strategy for the development of microfinance in the country.

4. In pursuance of this recommendation, the Department of State for Agriculture has constituted a Technical Team to spearhead the development of a National Framework Document for consideration of IFAD prior to the termination of the Rural Finance Project (RFCIP). The initial step has been the development of the following Terms of Reference.

A. OBJECTIVES

The objective of the Study is as follows:

To develop a national strategic framework paper for the development of microfinance in the country by paying particular attention to:

a) Existing institutions/systems in terms of varieties of service providers as well the products offered

b) Existing regulatory policy provisionsc) Current international best practices

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B. THE SCOPE OF WORK

The following constitute the main items for this task:

Study and provide adequate information on the different approaches in the provision of credit and microfinance, with or without government involvement

Detail out the limitations of the existing regulatory and supervisory framework by paying particular attention to what is applicable in the Gambia based on condition of best practices

Detail out the credit and microfinance needs level of the Gambian population in the short and medium terms

Detail out the capacity building needs and gaps in the sub-sector and provide a framework for the enhancement of the capacity and the enabling environment

Update and provide strategies for the implementation of the strategic framework for better coordination at the national level

Provide a framework for the streamlining of the various actors and interventions

Provide a framework for the institutionalisation of microfinance interventions

Provide a framework for short and medium term plans to address the microfinance needs of population and expected impact on the lives of the people and the national economy

Recommend a way forward consisting of additional consultations, studies and workshops as needed to build consensus on how to better harmonise the plans in order to finalise a national strategic framework for microfinance for presentation to Cabinet for consideration and approval.

C. TIMEFRAME

The duration of the study is expected to be ten (10) weeks from the award of the contract

D. QUALIFICATIONS

Candidate(s) should preferably hold a Masters level Degree in Economics, Rural Finance, Banking or a relevant and related field with focus on Microfinance and SMEs development. Familiarity with the microfinance landscape of the sub-region and knowledge of the various forms of financial instruments for microfinance institutions including knowledge of regulation and supervision of MFIs and SMEs would be an added advantage.

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Annex 2

(QUSETIONNAIRE / DISCUSSION GUIDE FOR MEETINGS/CONSULTATIONS AND FGD)

1) What microfinance service(s) does your agency offer?

2) What microfinance product(s) is/are offered by your institutions?

3) What microfinance products/services can improve service delivery in the Gambia?

4) Which existing regulatory policy provisions for microfinance do you know of in the Gambia?

5) Which microfinance regulatory policy provisions need to change/be added to help improve microfinance service delivery in the Gambia?

6) What strategies need to be adopted for the above changes/additions to be done in order to help development of microfinance in the country?

7) What are the key limitations of the existing microfinance regulatory framework in the Gambia? How can these be overcome?

8) What are the key limitations of the existing microfinance supervisory framework in the Gambia? How can these be overcome?

9) How would you assess the credit and microfinance service needs for the Gambian populace?

10) What current microfinance best practices for service delivery does your agency have?

11) What microfinance best practices need to be adopted to help develop microfinance in the Gambia?

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12) What capacity building needs/gaps are to be addressed so as to help develop microfinance service delivery in the country?

13) What impact has the services of microfinance agencies done on the lives of Gambian people and on the economy?

14) How can we streamline the various microfinance actors/interventions in the Gambia?

15) What should be the involvement of the Gambia Government in microfinance operations in the Gambia?

16) What strategies would you suggest for the implementation and coordination microfinance policies and practices in the Gambia?

17) What role(s) would your institution/agency play in the implementation and coordination of microfinance policies and practices in the Gambia for improved service delivery?

ADDITIONAL FGD QUESTIONS FOR VISACAs AND BENEFICIARY KAFOs

a) Are you satisfied about the services provided by microfinance service providers (MFIs, NGOs, Umbrealla CBOs, Promoters/facilitators and technical service providers, business development service agencies, regulators, etc.)? If no, why not?

b) What strategies should be in place to increase access to microfinance services in order to increase outreach to the poor clients/beneficiaries?

c) How do see the interest rates for microfinance services/products (savings/deposits and loans)?

d) What strategies should be adopted to improve governance for microfinance operators in the Gambia?

e) What strategies should be in place to improve the accounting of microfinance operations in your organization and in the Gambia?

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