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4 TH AFRACA MICROFINANCE FORUM, BUTO RURAL DEVELOPMENT COMPANY . FROM LINKAGE TO CONSOLIDATION A REGIONAL CONTEXT Jackson Wabyona 6 TH JUNE 2005,.
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4TH AFRACA MICROFINANCE FORUM,BUTO RURAL DEVELOPMENT COMPANY FROM LINKAGE TO CONSOLIDATION A REGIONAL CONTEXT Jackson Wabyona 6TH JUNE 2005,
BUTO is a company limited by shares owned by 5 districts managing a credit fund of US$ 1.52mn and locally mobilized funds totaling to 0.831bn (US $0.47m). Our Vision: “Prosperous Rural Communities in Bunyoro-Tooro Region”. Mission: “To provide affordable and sustainable financial services to rural poor through Associated Community based Intermediaries”.
Strategic Objectives · To provide affordable credit to the rural poor. · Encourage savings and investment among the target group. · To build the capacities of associated intermediaries. · To establish a sustainable and viable MFI.
Core Values · Service Oriented · Innovative · Dedicated · Achievements-Focussed
OUR LINKAGE MODEL We operate through a network of 63 SIDAs (Subcounty Integrated Development Associations). Each SIDA delivers services at the parish level (304 parishes). Each SIDA employs one bookkeeper (diploma holder) and one SIDA Assistant per parish.
Meetings held fortnightly savings and credit done. SIDAs retain all their savings which constitute their own portfolio (US 0.47m) BUTO supplements (US$ 1.52m). SIDA submits applications to BUTO for a block amount which is then lent to SIDA members. SIDAs use earned revenue and part of share capital as security (10%) to BUTO.
Recovery rate at BUTO is 90% and 80% at SIDA level. BUTO employs Credit Assistants (in charge of 3-4 SIDAs) and one Branch Manager.
Important Features of Our Model Mix of portfolios - SIDA own savings and share capital (0.47m). BUTO portfolio US$ 1.52m. On their own, each would have its own portfolio. Very low cost of delivery at SIDA level - locally hired staff, on-job training. Existing members mobilisation and recruitment of new members. Flexibility - from weekly meetings at subcounty to forthrightly meeting at parish and monthly repayments.
Savings can be accessed on emergency and notice basis. Clear allocation of tasks but joint action when there is difficulty. Loyalty on both sides SIDAs - solely borrow from BUTO. BUTO solely lends to SIDAs, trains clients and provides assistance with bookkeeping and preparing for audit. Developing together change and reviews include both BUTO and SIDA operations and policies.
Focus on reaching remote rural (rather than easier populist products population e.g. salary loans). We are concentrating in one region population has similar socio cultural background easing language, communication and recruitment of clients.
Challenges Project background - restricted environment. Lack of physical presence at subcounty. Population equates safety of savings with a building (ATM mentality not yet accepted). Cost duplication (loans and staff ) due to 2 lending levels increases cost to client. Increasing volume of financial activity a challenge to SIDAs. SIDA recovery rate not as good as at BUTO level.
Lack of software to link BUTO/SIDA portfolios and improve record keeping and loan tracking. Limited products and product differentiation only short and medium term loans not well defined/developed. Savings mobilisation still weak partly due to lack of buildings/office and also unattractive interest rates paid by SIDAs.
Its hard to stimulate demand - the poorest are still averse to participating, even in savings/meetings. Quality of enterprises low - limited entrepreneurship and business management skills. Men’s participation still low. Marketing opportunities for produce hindered by poor infrastructure - lack of storage and market information.
Financing agricultural on-farm enterprises (appraisal skills, holding funds for longer period, return).
LESSONS FROM THE BUTO MODEL · Savings mobilization should be provided as a product and not a conditionality (need for marketing Vs enforcement). · Every region has specific financial needs · Mutual trust among the players along the link is critical · Clientele clarity-who is your customer.
SIDAs prefer to intermediate savings Vs using them as collateral given the return from the Bank. · Practice genuine customer satisfaction (Not “we are helping them”) Should promote linkage ownership by both parties. Allow the MFI to grow and compete – drop the client graduation mentality.
This leaves MFIs in ever-weaker positions as their good clients join banks. Need for clarity of service by MFIs/NGOs- Financial services as core business. We are competitors with our Bank. Benefits and needs should be clearly spelt out for each party. · Emphasise efficiency by MFIs and linking institutions.
A sense of recognition (reward) - banks do not reward MFIs for savings mobilization. Locality of the MFI and efforts towards its sustainability improves client's confidence and business.
BUTO’S FUTURE Our future is in consolidation! SIDAs preparing to buy shares in BUTO and portfolio will be consolidated (SIDA to BUTO to manage their portfolio alongside BUTO's own). Reduce lending cost (only one level) by merging operations.
Reduce operating cost (staff rationalisation). (SIDA bookkeeper and BUTO Credit Assistant same qualifications but later earns 3 times as much). Each party to concentrate on what they do best i.e BUTO - professional lending SIDA - client mobilizations enhancement of group guarantee and recovery. Computerisation at both SIDA and BUTO levels (reduce time spent on books).
Consolidate our nascent Monitoring and Evaluation system to get regular client feedback. Improve our products start phased office construction Where we shall be in 3 years (2008) To grow from 27,000 to 50,000 clients Savings to loan ratio to reduce from 1:3 to at least 1:1 Recovery 90+ at all levels (SIDA and BUTO).
BUT Retain the region focus, the remote rural niche. Target clients from day 1 (at birth) Expand from our epicenter to adjacent districts. Grow with the clients. Explore becoming regulated.
CHALLENGE FOR US ALL IS LINKAGE AN END OR MEANS? In a market based environment an MFI in the middle you find it difficult to link forever. We look at linkage as a means towards consolidation. Linkage goes with subsidy as has been with NGOs.
Contact: Jackson Wabyona General Manager-BUTO P.O.Box 1002, Kyenjojo Mob: (256) 077 31 41 15 E-mail: jacksonwabyona@yahoo.Com