REPUBLIC OF THE GAMBIA
THE NATIONAL STRATEGIC
FRAMEWORK FOR THE
DEVELOPMENT OF MICROFINANCE
IN THE GAMBIA
FINAL REPORT
Consultants:
Sahel Invest Management Intl
Sahel Plaza
Bakau New Town
Tel: (220) 4497950/4497856
Fax: (220) 4497951
Email: sahel@qanet.gm
Client:
Rural Finance & Community
Initiatives Project (RFCIP)
Reuben Thomas Building
Cape Point Tel: (220) 4497343
Fax: (220) 4497353
Email: ruralfin1@gamtel.gm
May 2006
TABLE OF CONTENTS
EXECUTIVE SUMMARY
3
ACKNOWLEDGEMENT
6
ACRONYMS
7
1.0
9
INTRODUCTION
1.1
1.2
1.3
1.4
Poverty Alleviation and Microfinance Programmes
Rationale for the National Strategy Framework Paper for
Microfinance Development in the Gambia
Terms of Reference (TOR)
Methodology
2.0
SITUATIONAL ANALYSIS: MICROFINANCE INDUSTRY IN THE 13
GAMBIA
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
2.3.2
2.4
Structure, Market Size and Governance
Microfinance Actors/Stakeholders and their Distribution
Microfinance Approaches/Types and Services/Products
2.5 Microfinance Interventions and Critical Service Issues
2.5.1
2.5.2
2.5.3
2.5.4
2.5.5
2.5.6
2.5.7
Limitations of Existing Regulatory and Supervisory
Framework
Credit Needs of the Population, Levels of Demand for
Microfinance Services and Framework for Short and
Medium Term Plans to Address the Needs
Microfinance Outreach to Satisfy the Credit Needs
Assessment of Unmet Demand
Microfinance Interest Rates and Spread
Microfinance Capacity Building Needs and Gaps
Integrating Microfinance and the Banking Sector for
Complementarities
1
2.5.8
2.5.9
Ways of Coordinating and Streamlining Microfinance
Actors and Interventions
Microfinance Best/Sound Practices
3
MICROFINANCE OPERATION AND ITS IMPACT ON THE
GAMBIAN LIVES AND THE ECONOMY
37
4
INSTITUTIONAL AND ENVIRONMENTAL ASSESSMENTS (SWOT
AND PEST ANALYSIS)
40
4.1 General Assessment of Microfinance Players
4.2 Assessment of Some Key and Predominant Players
4.3 Environmental Assessment of the Microfinance Industry
4.3.1 Political, legal and regulatory factors
4.3.2 Economic factors
4.3.3 Socio-cultural factors
4.3.4 Technological and Communication factors
4.4 Vision for Microfinance Development in the Gambia
5
PROPOSED MICROFINANCE STRATEGIES FRAMEWORK, 54
INSTITUTIONAL ARRANGEMENTS AND ACTION PLAN
5.1 Strategic Issues
5.2 Institutional Arrangements
5.3 Action Plan
6
CONCLUSIONS AND RECOMMENDATIONS
73
7
REFERENCES
76
8
ANNEXES
79
2
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
3



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
4
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 nonfinancial 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
clients/beneficiaries.
11.
Improving and enhancing management information systems (MIS) in the
microfinance sector.
enabling environment
for
MFIs
and
their
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 longterm 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 selfsufficiency with the highest microfinance assets quality.
5
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.
6
ACRONYMS
AATG
ADB
ADB
AEU
AFET
AGOA
AG’S&DOSJ
AGE
AGIB
ANR
ATU
AVU
BDS
CBG
CBOs
CSOs
CS
CRD
DCD
DOSA
DOSFEA
DOSMF
DOSTIE
ECOWAS
ERP
EU
FASE
FFHC
FFI
FIA
FIB
GAFNA
GAIC
GAMFINET
GAMSAVINGS
GAMSEM
GARDA
GAWFA
GCCI
GCDB
GIPFZA
GNIC
GTB
GTTI
GOTG
GREC
IBAS
IBC
ICDF
IDB
IFAD
Action Aid The Gambia
African Development Bank
Agricultural Development Bank
Agricultural Engineering Unit
Association of Farmers, Educators and Traders
Africa Growth Opportunities Act
Attorney General Chambers of the Department of State for Justice
Association of Gambian Entrepreneurs
Arab Gambian Islamic Bank
Agriculture and Natural Resource
Appropriate Technology Unit
Apex VISACA Union
Business Development Services
Central Bank of The Gambia
Community Based Organizations
Civil Society Organizations
Cooperative Society
Central Revenue Department
Department of Community Development
Department of State for Agriculture
Department of State for Finance and Economic Affairs
Department of State for Microfinance
Department of State for Trade Industry and Employment
Economic Community of West African States
Economic Recovery Programme
European Union
Fight Against Social and Economic Exclusion Project
Freedom From Hunger Campaign
Fiduciary Financial Institution
Financial Institution Act
First International Bank
Gambia Food and Nutrition Association
Great Alliance Insurance Company
Gambia 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 Bank
Gambia Investment Promotion and Free Zone Agency
Gambia National Insurance Company
Guarantee Trust Bank
Gambia Technical Training Institute
Government of the Gambia
Gambia Renewable Energy Company
Indigenous Business Advisory Services
International Bank for Commerce
International Cooperation for Development Fund
Islamic Development Bank
International Fund for Agricultural Development
7
IRDP
HIPC
JLG
LGAs
MFI
MFPC
MISACI
NACCUG
NASACA
NAWFA
NBFIs
NCFA
NGOs
NSFM
NYSS
OPEC
PAS
PIA
PAU
PEST
PRSP
PSD
ROSACAs
RFCIP
SACAs
SAP
SBAs
SBG
SDF
SDRD
SG
SHG
SHOs
SWOT
MSEDA
MSEs
SPA
SPACO
TARUD
TBL
TD
TOR
VATG
VISACAs
WAD
WASDA
WB
WISDOM
WTO
Integrated Rural Development Project
Highly Indebted Poor Countries
Joint Liability Group
Local Government Authority
Microfinance Institutions
Microfinance Promotion Centre
Micro Savings and Credit Institutions
National Association of Cooperative Credit Unions of The Gambia
National Association of Village Savings and Credit Association
National Women Farmers’ Association
Non-Bank Financial Institutions
National Cashew Farmers’ Association
Non-Governmental Organizations
National Strategic Framework for Microfinance
National Youth Service Scheme
Oil Producing Economic Countries
President’s Award Scheme
Participatory Impact Assessment
Policy Analysis Unit
Political/legal, Economic, Socio-cultural and Technological
Poverty Reduction Strategy Paper
Programme for Sustained Development
Rotating Savings and Credit Associations
Rural Finance and Community Initiatives Project
Savings and Credit Associations
Structural Adjustment Programme
Small Business Associations
Standard Chartered Bank (Gambia) Limited
Gambia Social Development Fund
Support to Decentralized Rural Development
Solidarity Group
Self Help Group
Self Help Organizations
Strengths, weaknesses, opportunities and Threats
Micro and Small Enterprise Development Agency
Micro and Small Enterprises
Strategy for Poverty Alleviation
Strategy for Poverty Alleviation Office
Trust Agency for Rural Development
Trust Bank Limited
Term Deposit
Terms of Reference
Village Aid The Gambia
Village Savings and Credit Associations
Wuli Association for Development
Wuli and Sandu Development Association
World Bank
Women in Service, Development, Organization and Management
World Trade Organization
8
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 threequarters 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
9
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.
10

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.

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)
11
-
Strengths, Weaknesses, Opportunities and Threats (SWOT) and Political/legal,
Economic, Socio-cultural and Technological (PEST) Analyses
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.
12
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
13
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.
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 selfemployed

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

14

They keep very poor records or none and are well captured through poverty alleviation
programmes.
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 subsector.
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.
15
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
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:
16
a)
b)
c)
d)
e)
A holistic approach to development;
Stronger country ownership;
More strategic partnerships;
Greater accountability; and
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.
17
Table 1: Microfinance Market in the Gambia
Institutional Type
TOTAL
Credit
Total net savings Savings
credit (DAL) Percentage
(DAL)
percentage
Programs/Projects
69,250,000
11.33%
NA
NA
SDF
48,000,000
69.3%
NA
NA
RFCIP
21,000,000
30.3%
NA
NA
AGIB
250,000
0.4%
NA
NA
NGO MFIs
68,569,540
11.22%
63,985,983
5.34%
GAWFA
33,766,169
49.2%
9,700,000
15.2%
NACCUG
34,803,371
50.8%
45,666,983
71.4%
GAMSAVINGs
NA
NA
8,619,000
13.4%
Other NGOs/GOTG
24,696,400
4.04%
514,000
0.04%
AFET
4,180,000
16.9%
NA
GAMSEM
625,000
2.5%
NA
NA
WISDOM
300,000
1.2%
192,000
37.4%
GARDA
1,500,000
6.1%
200,000
38.9%
NASACA
389,400
1.6%
NA
NA
NYSS
300,000
1.2%
NA
NA
PAS
50,000
0.2%
NA
NA
TARUD
250,000
1.0%
100,000
19.5%
AGE
252,000
1.0%
22,000
4.2%
IBAS
10,000,000
40.5%
NA
NA
FACs and ACP
6,850,000
27.8%
NA
NA
52,320,596
8.56%
174,454,810
14.55%
VISACAs
Credit Unions *
34,803,370
5.69%
45,666,983
Kafo CBOs
338,600
0.06%
NS
NS
Total
Microfinance 215,175,136
35.6%
238,954,793
19.93%
excluding commercial
banks
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
18
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 SelfEmployment (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
19
(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 nonfinancial 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-
20
FIMS, NACCUG, NYSS, PAS, RDA, RFCIP, SDF, TARUD and WISDOM.
objectives of GAMFINET are:
The specific

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.
21
Table 2: Distribution of Major Microfinance Actors in The Gambia
Microfinance
Service
Provider
GBA
WD
NBD
Microfinance Practitioners/Direct Lenders
GAWFA
x
X
x
NACCUG
x
X
x
AFET
X
x
GAMSEM
x
x
x
IBAS
x
x
x
WISDOM
x
x
MICRO-FIMS
x
VATG
Cus
x
x
x
CS
x
x
x
VISACAs
x
x
TARUD
x
WASDA
GAMSAVINGS x
x
GAFNA
Microfinance Intermediary Funders
SDF
x
x
x
CSIP
x
x
x
PSIP
x
x
AFDP
x
x
x
RFCIP
x
x
UNDESA Pilot
x
x
Project
NACCUG
x
x
x
Microfinance Facilitators/Promoters
AFET
x
x
FFHC
FORUT
x
NASACA
x
FASE
x
x
MFPC
x
x
microfinance network institutions
GAMFINET
x
x
NACCUG
x
x
x
Regulators and Supervisor
CBG
x
x
x
Department of x
x
x
Cooperatives
Operating LGA
LRD
CRD/N
CRD/S
URD
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
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:
22
a. Wholesale (or Apex) Approach
b. Group Approach
c. 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)
b)
c)
d)
Village-based Approach (VISACAs)
Credit Union Approach
Specialized MFI Approach [GAWFA, NACCUG, and GAMSAVINGS]
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.
23
Table 3: Microfinance Savings and Lending Channels in The Gambia
TYPE
Individual
SIZE
1 person
DESCRIPTION/FEATURES
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
24
(i)
Savings Mobilization
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)
(ii)
Groups may concentrate on repaying the loan, rather than using the funds to
generate extra income and additional savings.
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.
25







(ii)
Advisory services, technical assistance and credit as initial capital
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).
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
Framework
of
Existing
Regulatory
and
Supervisory
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.
26
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.
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
Type I: Those who want to start microenterprises
Type II: Those who want to expand, or
diversify their micro-enterprises
Type III: Entrepreneurs who want to graduate
from a group to individual entrepreneurship
Source: Integrating Microfinance into the Fight
UNDP/ILO, Banjul, June 2002
CREDIT NEED
Credit for working capital to start business on
small scale
Credit for fixed and working capital for
expansion/diversification needs
Credit for fixed and working capital
Against Social and Economic Exclusion (FASE),
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:
27

Suitable loan terms (short, medium or long)

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
28
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.
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 sixtyseven (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.
1
The Income Generating Activities (IGA) and Rural Finance Study for Community Driven Development
Project (CDD), September 2005
29
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
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
1
2
3
Microfinance
Service
Provider
GAWFA
Type
Institution
of Interest
Savings
yr.)
Practitioner/Direct 5%
Lender
NACCUG
Practitioner/Direct 15%
Central Finance Lender,
Facility (CCF)
Intermediary
Funder
&
Facilitator
Credit Unions
Practitioner/Direct 5-10%
30
on Interest
(per Loans
year)
35%
22.5%
10-20%
on
(per
Lender
GAMSEM
Practitioner/Direct
Lender
VISACAs
Practitioner/Direct
Lender
GAMSAVINGS Practitioner/Direct
Lender
MICRO-FIMS
Practitioner/Direct
Lender
IBAS
Practitioner/Direct
Lender
AFET
Practitioner/Direct
Lender
&
facilitator
WISDOM
Practitioner/Direct
Lender
WASDA
Practitioner/Direct
Lender
SDF and partners Intermediary
Projects (CSIP, Funder
PSIP and AFDP)
RFCIP
Intermediary
Funder
GAFNA
Practitioner/Direct
Lender
TARUD
Practitioner/Direct
Lender
VATG
Practitioner/Direct
Lender
4
5
6
7
8
9
10
11
12
13
14
15
16
(Dividend)
-
18-25%
20%
30-40%
5%
30%
-
30%
-
18-25%
-
17-25%
-
30%
-
25%
-
12-14%
-
15%
-
25%
-
25%
-
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
31

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
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 /
32
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
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
Commercial Banks
US $ Equivalent
Total Credit Credit
(DAL)
Percentage
396,187,650
64.80%
13,661,643.10
Total
Net Savings
Savings (DAL)
Percentage
960,148,000
80.07%
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
33
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
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)
34

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 nonclients 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).

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)





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)



Institutional Development and Capacity Building
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
35
(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
36
3.0
MICROFINANCE OPERATIONS AND THEIR
GAMBIAN LIVES AND THE ECONOMY .
IMPACT
ON
THE
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.
2
SDF Effect Study by Sahel Invest International, 2001 and the Beneficiaries Impact Assessment of the SDF
by Karafa Manneh, 2002.
37
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
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:





3
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)
Impact Assessment cum Baseline Survey, Final Report, Social Development Fund (SDF), May, 2005
38


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.
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
39
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 STRENGTHS
WEAKNESSES
OPPORTUNITIES/POTENTIALS THREATS
INSTITUTION
Practitioners/Direct
 Most operate close
 Few well-trained
 Increased client demand for
 Inadequate
Lenders
to
the
staff
microfinance services, most
specialization
communities
of which are yet to be met
by many may
 Inadequate
served
lead to poor
capital to meet
 Many
projects/programs
quality
 Most have own
the
funding
with microfinance funds
services that
offices where they
needs of all their
existing (e.g. SDF, CSIP,
could
retard
operate from
clients
PSIP, AFDP and RFCIP)
the growth of
 Most are well
 Insufficient
 Increased availability of
the industry
connected
to
management
funds targeting IGAs and
 Poor recordnetworks/agencies
information
microfinance
keeping by the
that support them
systems (MIS)
 There is the opportunity to
institutions and
for
tracking
 Most use simple
have large market shares for
their
clients
loans
and
loan and savings
each of the institutions if it
can negatively
savings
procedures
and
can increase outreach
affect service
transactions
records
 Potential
to
create
delivery and
coupled
with
 Membership drive
employment opportunities
increase
the
inadequate
is strong for most
and improved access to
susceptibility
access
to
of
these
education and good health
to fraud
information,
institutions, which
for the clients
training
and
 Theft
is potential for the
refinancing
(especially
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 selfconfidence
Providing some
form of training
for clients







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
recordkeeping due to
low
literacy
levels
Operations are
mostly localized
Weak
subproject
appraisals done
by staff
Limited
loan
sizes
that
negatively affect
the development
of MSEs
Inadequate
product
41


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






diversification
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
42







many MFIs
resulting in
excessive
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
43
management
skills of players
Intermediary Funders





Facilitators/Promoters

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

Are capable of
providing training
to
clients
in
various areas like
business
and
financial
management,



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.
Few specialist
staff
to
the
different areas
that
are
necessary
for
comprehensive
capacity building
44




Increased availability of
funding
for
poverty
alleviation interventions to
meet the MDGs
Potential
to
create
employment opportunities
and improve access to
microfinance
funding
facilities.

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
Sectoral
approach
to
community
development (a
thought
of
some players)
can be counterproductive in
the
development
of
microfinance
in the country.
Inadequate
specialization
by many may
lead to poor
quality
services that
could
retard



skills in tie-dye,
soap-making,
weaving, pottery,
beekeeping
and
food processing,
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






of those that
need
their
services
Limited
field
staff to monitor
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
45


the growth of
the industry
Poor recordkeeping by the
institutions and
their
clients
can negatively
affect service
delivery and
increase
the
susceptibility
to fraud
Heavy reliance
on
donorfunding could
be detrimental
to
the
development
of
these
service
facilitators






Network Institutions



Have committed
members
who
work as a team
Command
both
national
and
international
recognition
Conduct training
on best practices


of loanable
funds.
Unnecessary
delays in loan
disbursement.
Weak
governance
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
Performance
standards
and
indicators
are
not well-defined
and are also not
followed through
Lack of modern
MIS
and
database for the
46


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
donorfunding could
be detrimental


Regulator
Supervisor
and




for microfinance
development
Become important
sources
for
networking
and
linking with other
stakeholders
Acting
as
consulting
agencies
for
microfinance
actors
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






microfinance
services
and
activities
Limited staff to
cope up with
operations.
Limited financial
and management
resources
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 onsite examination
missions
Inadequate and
untimely
enforcement of
sanctions for
non-compliance
47
to
the
development
of
these
networks
institutions





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



Possibility of
political
interference in
service
delivery
Heavy reliance
on
donorfunding could
be detrimental
to
the
development
of
these
networks
institutions
Excessive
prudential
presence in the
sector could
impair
resource
utilization and


Acts and these
take care of the
legal aspects for
regulation
Prudential
regulation
and
supervisory
guidelines already
in place, while at
the level of MFIs,
bye-laws exist to
support
selfregulation as well
as
external
regulation
Regulatory
restrictions
to
enter
the
microfinance
market for nonbank/unregulated
institutions as well
as for commercial
banks
and
insurance
companies.



by MFIs
Weak
enforcement of
rules,
agreements and
codes of ethics
in case of noncompliance
in
the
case
of
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
costeffectiveness
Untimely
and
inadequate
submission
of
returns
48

regulators and regulates
Institutional
development
capacity to graduate from
strict prudential supervision
and reducing the regulatory
burden




efficiency, and
discourage
competition”
Grassroots
promoter
NGOs not
committed to
playing the
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
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
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
NACCUG
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).
 Close and accessible to the clientele.
 Has acquired the confidence and trust of
the public.
GAMSAVINGS
 Adequate numbers of competent staff.
 Timely interest payments on clients’
savings.
 Close to members.
 Small but efficient team.
GAMSEM
 Operating on local initiatives and
resources.
 Long experience in the market.
WISDOM
 Deals with self-motivated clients.
WASDA
GAWFA
 Members are of similar ethnic origin and
location.
 Operates in familiar terrain.
 Very large market share.
 Country-wide coverage.
 Well connected with networks and
agencies both nationally and
internationally.
WEAKNESSES
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.
 High operational cost incurred.
 Inability to expand beyond the urban and
peri-urban areas.
 Low financial and human resources
capacity.
 Inadequate voluntarism among members.
 Low market share since it is confined to
urban and peri-urban areas.
 Not yet recognized by CBG as NBFI.
 Weak management team with low
entrepreneurial capacity.
 No recognition by CBG.
 Inadequate funds outlay.
 Limited outreach.
 Insufficient funds to meet the funding
needs of all clients.
 Insufficient loan tracking system.
 Very little capacity building of the
clientele.
VISACAs
4.3




 Inadequate means of transportation leading
to less frequent client visits which leads to
poor loan monitoring and hence poor loan
repayments.
Close to the communities.
 Unskilled managers and cashiers.
Community ownership and management.
 Poor record keeping mainly due to low
literacy of managers.
Use of simple loan and savings procedures.
 Rigidity of the saving and loan products
Low administrative expenses because
makes them less likely to satisfy most
VISACAs are managed by local people.
clients needs and also limits the VISACAs’
ability to expand and attract new clients.
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 subsections 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 agrotech 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; twothird 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,
50
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.
51
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.
52
The vision is “A vibrant microfinance terrain that could help improve living conditions of
majority Gambian”.
53
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.
56
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
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iii)
Make sure, through moral suasion, that microfinance service delivery is carried
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 deposittaking or are in custody of public resources
vi)
Redesign the NBFI categorization from five levels to the six levels of:






vii)
Permitted SACAs (such as credit-only institutions)
Registered SACAs (current registered/licensed SACAs,
MISACIs
Finance Bureaus)
Finance Companies, and
Fiduciary Financial Institutions (FFIs)
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 NonBank Financial Institutions (NBFIs) categories (permitted and
registered/licensed SACAs, Finance Companies and Fiduciary Financial
Institutions) in a flexible manner.
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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
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 costeffective 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 onspot 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 selfsufficiency.
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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7.
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.
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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8.
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.
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 microbusinesses 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.
65
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.
66
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)
67
(ii)
Institutional Development and Capacity Building
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 selfregulation 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
68
(should be ongoing).
(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 selfregulation

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
69
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
70
The proposed institutional arrangements is shown in Figure 1 below:
Figure 1: Institutional Arrangements for Microfinance Development in The Gambia
DOSA
DOSTIE
DOSJ
DOSFEA
DOSGEA/
DOSA
Coord.
Unit/
DOSMF
Department of
Cooperatives
CBG
NACCUG
AVU
GAMFINET
IBAS
Practitioners
Direct Lenders
Intermediary
Funders
Promoters/
Facilitators
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.
71
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.
72
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.
73
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, selfreliance 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;
74

Setting up semi-self and self financing systems.
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.
75
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
76
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.
77
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 Social
Development 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
78
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 counterproductive to the development of rural finance. Finance. This situation led to.
(i)
(ii)
(iii)
conflicting goals,
some areas that over-serviced while others have few services
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 provisions
c) Current international best practices
79
B.
THE SCOPE OF WORK
The following constitute the main items for this task:









C.
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.
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.
80
Annex 2
(QUSETIONNAIRE
/
DISCUSSION
MEETINGS/CONSULTATIONS AND FGD)
GUIDE
FOR
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?
81
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?
82