THE EMERGENT ROLE OF CENTRAL BANKS IN ADDRESSING RURAL FINANCE CHALLENGES THE GAMBIA EXPERIENCE

1. THE EMERGENT ROLE OF CENTRAL BANKS IN ADDRESSING RURAL FINANCE CHALLENGES THE GAMBIA EXPERIENCE BY S. Bai Senghor Director Microfinance Department Central Bank of The Gambia Banjul, The Gambia Presented During AFRACA’s Technical Workshop on Innovations in Addressing Rural Finance Challenges in Africa Date: 23th - 28th November 2008 Venue: Dar es Salaam – Tanzania

2. Introduction • Microfinance has been recognized as one of the most effective tools to alleviate poverty as outlined in the PRSP II and Vision 2020. • About half of the population reside in the rural areas, and • About 80 percent of the household incomes are derived from agriculture with groundnut as the main cash crop.

3. Introduction (cont.) Our goal is to achieve inclusive finance for the entire populace to improve the livelihood of Gambians by enabling people to invest in better nutrition, housing, health and education for their children as well as coping with difficult times caused by crop failures, illness or other calamities.

4. Introduction (cont.) The sector has received and continue to receive enormous support from NGOs and Donor funded projects • Rural Finance Project (RFP) funded by IFAD, a follow up to the Rural Finance Community Initiative Project (RFCIP). • Social Development Fund (SDF) funded by African Development Bank (AfDB). • NGO promoters and Technical Service Providers (TSP).

5. Introduction • The Central Bank of the Gambia continue to play pivotal role in the growth and development of MFIs • renewed the policy guidelines • drafted a Non-Bank Financial Institution (NBFI) Bill • Aimed at creating an enabling environment for building more vibrant and sustainable MFIs. T • facilitating the linkage of the MFIs with the commercial banks to complement each other and enhance building “inclusive finance” as part of efforts to expand and deepen financial services for financial sector development and economic growth. Notwithstanding the above, the microfinance sector is limited in scale and depth of outreach especially in the rural areas.

6. Traditional Informal Financial System Traditionally • USUSUs (resemble rotating savings and credit associations (ROSCAs) • village kafos (community groups) based on neighborhood ties, gender, age, kinship and ethnicity.

7. Traditional Informal Financial System (cont.) The NGOs and government donor sponsored projects also came with mainly credit which was intended to lubricate the process of maximising agricultural production and to play a significant role in promoting rural industrialisation and the service sector.

8. Formal Financial System The Gambia adopted an Economic Recovery program (ERP) as advised by the World Bank in 1985 with the aim of correcting macroeconomic and structural imbalances of the economy. Financial Sector Policies Reforms • Liberalisation and Deregulation • At institutional level • The revision of the Financial Institutions Act (1992) • Operating Rules and Guidelines for both Banking and NBFIs • Legal and Regulatory Framework

9. Category “A” Commercial Banks Insurance Companies Foreign Exchange Bureaus Category “B” (Deposit-taking NBFls) Finance Companies Village Savings and Credit Associations (VISACAs) Cooperative Credit Unions Classification of The Gambia’s Financial SystemFinancial Institutions Act (FIA 1992)

10. The Classification of MFIs

11. Microfinance Sector- Regulated MFIs • No Fiduciary Financial Institution as yet • 5 Finance companies • 70 VISACAs • 67 Credit Unions

12. Summary of Total Savings, Loans, Asets and membership of Finance Companies

13. Performance VISACAs & Credit Unions

14. Innovations in Rural Finance • Innovations in rural finance refer to changes in the technology, the type of financial services offered, the strategic behaviour of institutions, the institutional arrangements, and the structure of incentives that result in improved viability. • These innovations should contribute towards the reduction of the risks of service provision as well as the per unit transaction costs associated with financial intermediation in order to impact on small agricultural enterprises.

15. CBG Reviewed MF Regulatory Policies Minimum Capital Requirement • From D0.5m to D10.0m for Finance Companies • From D10,000 to D300,000 for VISACAs • In addition, maintain Gearing and Capital ratios of 10% and 16% reflecting their high risk exposure • MFD to prepare the manual of Guidelines and Instructions • Task Force created to draft the NBFI Bill to be submitted to the sector for validation Ensure viability and sustainability Ensure stable growth and help neutralise expected and unexpected financial losses

16. Innovations in Rural Finance

17. Innovations in Rural Finance (cont.)

18. Innovations in Rural Finance (cont.) Demand-Oriented Savings and Credit Products with the following features • Low Transaction Costs • Non-Traditional Loan Appraisal and Collateral Substitutes • Peer-lending (group) • Incentive Mechanisms for Timely Repayment

19. Challenges of the MF Sector • MF Institutional Capacity and financial strength • Management talent • Technological constraints • Expanding the scale and depth of outreach • Transforming NGOs (GAWFA) • Integration into the domestic financial system/Linkage Banking • Sustainability

20. Conclusions and Way Forward • Our goal is to create enabling environment and private sector participation in providing financial services in the rural areas. • Increase scale and depth of Outreach • Commercialisation • Apex and Wholesale institutions • Cooperative model and education program • Linkage • Sustainability

21. Thank You