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Integrating Financial Services Into Poverty Reduction Strategies-The Gambia’s Experience

Integrating Financial Services Into Poverty Reduction Strategies-The Gambia’s Experience. A paper presented at the West African English Speaking Sub Regional Workshop held in Abuja Nigeria From the 13 th to 15 September 2005 By Mr S. Bai Senghor Director Micro Finance Department

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Integrating Financial Services Into Poverty Reduction Strategies-The Gambia’s Experience

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  1. Integrating Financial Services Into Poverty Reduction Strategies-The Gambia’s Experience A paper presented at the West African English Speaking Sub Regional Workshop held in Abuja Nigeria From the 13th to 15 September 2005 By Mr S. Bai Senghor Director Micro Finance Department Central Bank of the Gambia

  2. Presentation Outline • Introduction • Poverty reduction strategy in the Gambia • The Gambia’s financial system • Policy and legal framework for financial services • Progress and challenges in mainstreaming micro and rural finance into the financial system (FS) • Conclusion and recommendations

  3. Introduction • The Gambia, small open economy with a population of 1.4million as 2003 census estimate • The 1998 household poverty survey indicated an overall poverty rate of 67% • A major constraint on improving the lot of the poor is lack of access to capital for financing income-generating activities and social services

  4. Introduction(cont’d) • Abundant informal savings and credit schemes but the potential to build upon them too commonly overlooked and they exhibit drawbacks • Which include high interest rates and limited possibilities (usually only short term, rapid turn over investments) • Commercial banks still slow to adapt their financial products to the needs of small, poor and remote clients • Thus have limited interest in rural and micro finances coupled with the disappointing experience of large formal agricultural credit institutions like the Gambia Cooperative Union (GCU) and the Agricultural and Development Bank (ADB).

  5. Poverty reduction strategy in the Gambia • Government launched and prioritized a strategy for poverty alleviation (SPAII) contained in the poverty reduction strategy paper (PRSP) in October 2002 • Above policy instrument continues to improve socio-economic status of the poor • Empowering the poor particularly women, the youth and the vulnerable to initiate undertake and sustain poverty reduction interventions. • Interventions many but paper focuses on those relevant to financial intermediation

  6. Poverty reduction strategy(cont’d) • Support to microfinance institutions (MFIs) amounted to D22.5m as wholesale loans benefiting 60,750 individuals(48,560 females,79% and 12,190 males, 20.1%) affecting 955 groups across the country • More than 40% created employment for themselves or their families • Capacity building assistance to MFIs at least 16 beneficiaries • A total of 1.2m spent on technical assistance to rural and MFIs

  7. Poverty reduction strategy(cont’d) • The Social Development Fund (SDF) to introduce new products of micro insurance and micro health insurance aimed at making medical care accessible to all and sundry • The Taiwanese fund of US $1m for Microcredit is also to kick off in 2006

  8. The Gambia’s financial system • The central bank • 7 commercial banks • 11 insurance companies • Over 65 MFIs • 20 Forex Bureaus • The 7 commercial banks have 15 branches of which only 4 outside Banjul

  9. Financial system (cont’d) • Top 3 banks account for about 86% of the market in terms of loans and 95% in deposits by end 2004 • Insurance operations are small and have constraints limiting their contribution to economic development • Commercial bank lending to the private sector limited, especially to the risky sectors like agriculture

  10. Financial system (cont’d) • The trade sector employing a small and wealthy segment of the urban population receives half of all private sector lending • Personal loans account for ¼ of all loans also serve mainly the affluent members of the urban population • Commercial banks unable to service rural customers due to the absence of a comprehensive branch network outside Banjul

  11. Structure and performance • Dearth of banks in rural areas severely affects their ability to service rural customers and spurred MFIs to operate across the country • Five categories of MFIs: VISACAs, MISACIs, Cofal Bureaus, RUF Bureaus, SCCs/FCs, and FIs • However only three categories MFIs operate (VISACAs, MISACIs, and SCCs/FCS)

  12. Structure and performance (cont’d) • Number of MFIs increased over the years from 50 in 2001 to 65 at end 2004 with increased access to savings and loans, micro insurance and micro health insurance schemes to be available soon • Savings mobilised and credit disbursed by MFIs totalled D81.1m and D96.4 respectively at end 2004 • However weak managerial capabilities, inability to attract and retain competent workers and dull linkages with the formal sector negates performance and sustenance

  13. Policy and legal framework • Policy objectives: financial stability, enhanced depositors’ confidence, sustainability of institutions and protecting quality of loan portfolios • The FIA (1992) revised 2003 • CBG prudential rules and guidelines for NBFIs (1994)

  14. Policy framework (cont’d) • Shift in policy focus from supply-led to demand-driven interventions in micro and rural financial intermediation • Different regulations to banks and MFIs, FIA (2003) consistent with Basle Principles for supervision • Banks have a higher capital requirement

  15. Progress and challenges • Policies created the enabling environment for MFI growth and development • Grassroots and private sector participation in ownership and mgt of MFIs • CBG’s lead role in regulation and its associated impact on the development of micro and rural finance • Framework minimized market distortions

  16. Progress and challenges (cont’d) • Only CBG recognised MFIs refinanced by institutions • Sound coordination framework comprising policy makers, funding agencies, and facilitators/practitioners • However, issues of challenge include: weak grassroots institutions being dominant, moderate savings culture and inability to attract and retain competent personnel etc…

  17. Recommendations • There is the need to further consolidate and expand commercial bank involvement in rural and MF to enhance a progressive integration of rural and MFIs into the formal FS • MFIs must be supported further to play crucial roles in resource mobilization to address poverty • A minimalist and evolutionary application of prudential regulations

  18. Recommendations (cont’d) • Promotion of beneficiary-driven and locally based rural and MFIs • Product diversification to include not only savings and loans but new products especially micro insurance and micro health insurance etc • Continuous training and retraining of MFI workers to provide them the requisite capacity to perform to standards

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