microfinance sectors in two african countries – sudan & ethiopia

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  • AEMFI 8th biennial conferenceto be held from October 22 to 25, 2014,

    Hawassa, Ethiopia

    Microfinance Sectors in two African countries

    Sudan & Ethiopia.Prof. Badr El Din A. Ibrahim,

    President, Microfinance Unit,

    Central Bank of Sudan

    badr_el_dinbadr_el_din@@hotmail.comhotmail.com

    Note: This Presentation is a Summary of a Book Note: This Presentation is a Summary of a Book to be Published Soon to be Published Soon

  • Contents

    Introduction

    General Characteristics of MF Sectors in Ethiopia & SudanMF Regulation and Policies.MF Institutional Development, Wholesale Marketing & Technical Assistance.

    Overall Performance &Constraints.

    Means for Cooperation.

  • Introduction The Sudanese Islamic MF model is described by the World Bank's

    Consultative Group to Assist the Poor (CGAP) as:"A laboratory for Islamic MF delivery where developments could shed light on effective Islamic microfinance practices".

    The IMF Article of Consultation, 2013 stated that: the results of (MF) push have been impressive .......In terms of active clients, Sudan and Bangladesh are easily the global leaders in Islamic MF, with Sudan likely to take top spot given current growth rates

    The IDB appraised the outcome of the US$ 60-Mill. MF Partnership with the CBOS & declared its replication in other member states.

    Similarly, the Ethiopian MF experience is also one of the pioneering (and significantly growing microfinance) sector in Africa, in terms of outreach, portfolio, performance and sustainability.

    It is also one of the successful experiences in MFIs networking clients saving-mobilization, building of saving culture

  • General Characteristics of MF Sectors in Sudan & Ethiopia

    Both Sudan &Ethiopia MF sectors are fast growing sectors. The gap between the clients covered & the potential

    clients is still wide. Potential clients- Sudan . 1.5 mill. (around 3 times the

    No. of clients in 2012) to be reached in 2017. Estimates of potential MF clients by the writer are 7.2 mill. (out of 15 mill. estimated poor), & 8% of them were covered so far.

    Potential clients- Ethiopia studies indicating that 85% of rural poor remain without access to finance. 10.4 mill. are expected to receive loans over the next decade.

  • EthiopiaSudanDescription/

    CountriesThe NBECBOSRegulatory

    BodyA regulator (NBE). In addition to the active MF Association.

    HCMF, State CMF, MFU/CBOS, MFU HQ of Banks, MF planning units, & apex co.

    Institutional Support

    No wholesale guarantee Agency, but some commercial banks lend to MFIs with strong third party guarantee (regional governments or donors), in addition to RUFIP subsidized fund. Most of lending is coming from MFIs clients' deposits, some from donations/mother NGO & income from lending activities. The NBE is not part of the wholesale market.

    Funds to MFIs, from CBOS, donors/ foreign sources & CBOS/IDB partnership. Wholesale Guarantee Agency is completed and theAgency will be launched soon.

    Wholesale Market& wholesaleGuarantee

  • Growth & Transformation Plan, & the Five-YearM&S Enterprise Development Strategy.

    One CBOS strategy, 2007-2011) as well as the National Comprehensive MF Strategy (2013-2017).

    MF Strategy

    Non exist.The Sudanese Microfinance Development Company (SMDC). The (MFU/CBOS) & CBOS/IDB partnership are also taking the role of an Apex Institutions.

    Apex Institution/s

    Exist since 1999.Non-exist.Microfinance Association

    Each MFI has a small suitable loan tracking system.

    Unified system exists.Loan Tracking System

    Non-existing.Existing for all MFIs clients.Credit Bureau Through AEMFI.Through the Sudanese

    Microfinance DevelopmentCompany, MFU/CBOS, and CBOS/IDB partnership

    Technical assistance

  • The regulatory bodies of MF sectors are the Central Banks.

    There are MF strategies in both countries. The Sudans strategy is expected to (1) achieve 3% share of MF to GDP, up from 1% (2) increase beneficiaries from 494 thousands in 2012 to 1.5 mill. in 2017, (3) 20% increase in MFIs, & increase in the number of poor clients (18 years +) financed, from 8.2% in 2012 to 24.6% by 2017, (4) increase the female finance from 30% to 50% (5) 100% increase in the MF portfolios (6) 5% reduction of the informal sector.

    the Growth and Transformation Plan & the Five-Year M&S Enterprise Development Strategy, intended to increase financial access by nearly 4 times from 20%. & provide 11 billion Birr to 2.2 million clients, via the development of financial products, enhance saving, enhance the capacity of MFIs and make use of the best international practices in microfinance.

  • Sudan: The Sudanese MF experience is fully-Islamized with a role played by Islamic insurance (takaful- solidarity). The wholesale market & technical assistance are wide A role of the apex institutions, but it is still limited. The credit registry of MF clients, national support, as well

    as the wholesale guarantee agency are credit to Sudan. The No. of total MF clients increased from 244 thousands in 2011 to 494 thousands in 2012, further to 970 in mid-14.Likewise, banks finance from SDG 1060 mill to SDG 1670.

    Sudan financial inclusion indicators, were far below other developing countries' groupings.

  • Ethiopia The active loan portfolio increased from 589 mill. Birr in 2003 to 11.2 bill. Birr in 2013. Average loans increased from 789 Birr to 4 thousands Birr, and the total savings from 324 mill. to 6.7 bill. (cover 60% of outstanding loans). The outstanding portfolio in Q1, 2013 is 10 million, saving is 7 mill. Birr. MFIs, according to the 5yrs Dev. Strategy are expected to provide loans of about 11 bill. Birr during 2011-2015, and attract saving of 8.8 mill. Birr. MFIs mobilized half of that amount by mid-2012.. The Ethiopian MF has a strong government backing and emphasis on social aims, the promotion of both credit and saving products and on sustainability of MFIs. The sector outreach is impressive & the financial performance is good, although the profitability are low.

  • Ethiopian MFIsSudanese MFIsDescription6 months to 5 years.One year or less.Duration (finance)Monthly, quarterly or semi annually.

    Monthly.Repayment.

    10-25% flat rate; average 14%

    15-18% -declining rate -per year (Murabaha; sale-based margin).

    Profit Margin (interest/Murabaha margin

    Mainly group lending via associations.

    Individual (sometimes group lending).

    Type of finance.

    31, deposit-taking institutions. (mostly NGO-transformed, few regional government supported MFIs andprivately-owned MFIs.More than 1000 branches

    27, non-deposit-taking MFIs (private, cooperatives credit union, foreign NGO-transformed, federal states-supported MFIs,women /youth associations MFIs, commercial banks-affiliated MF Cos. More than 170 branches of MFIs.

    Number of MFIs.

  • Ethiopian MFIsSudanese MFIsDescriptionAgriculture, housing, petty trade, general purpose, input, staff loans, M&S enterp. trade,services, consumption loan.

    Agricultural, livestock loan, crafts, petty-trade, services, commerce, industry.

    Sectors financed (types of loans).

    On small scale and by someMFIs (crop, health & home).

    Existing (Islamic micro Takaful).

    Micro-insurance

    Provided by the clients and reviewed by an MFI

    Provided by the clients and reviewed by an MFI.

    Feasibility study

    Max. 1% of capital, Between US$ 50-600; US$ 212.

    Max. SDG 20 (approx. US$ 4000).

    Average loan size.

    individual & mainly group guarantee: leased land, third party, fixed asset, semi-blocked saving A/C, salaries, municipality, individual, own/third party asset, donors group & peer pressure, group

    Individual guarantee, third party, mortgage, civil society, monthly salary, savings, incomes and pensions, keeping documents in custody & group lending

    Collateral

  • Ethiopian MFIsSudanese MFIsDescription2.5 million (2011), female clients 33%.

    970 thousands (mid-2014), female clients30% (target is 50% by 2017).

    Outreach

    Deposit taking institutions (compulsory and voluntary saving products). Deposit/loan ratio is 42% (2011).

    Non-deposit taking MFIs.

    Saving mobilization/product.

    262 borrowers / loan officer (individual lending); 504 borrowers per loan officer(group lending).

    250 borrowers /loan officers (individual lending).

    Efficiency.

    2% (> 30 days).2%.Portfolio at risk, PaR(average).

  • The Ethiopian MFIs are dominated by few large MFIs In Sudan the sizes of MFIs are different, and so the date of

    establishments. Most of MFIs were established in 2013 on ward. A government owned MFIs in all states.

    In Sudan the CBOS set a reference to Murabaha margin around 15%. In 2014 MFIs and banks are required to set their own rate. The rate is still between 15-18%.

    In Ethiopia and until 1996 interest rates were set by the NBE, and capped at 12.5%/yr. The cap was removed in 2002 & interest rates is determined by MFIs BODs

    In Sudan trade and commerce are the dominant sectors, and agriculture comes next, the craft sector is the least favorable sector. In Ethiopia, agriculture is the main sector. Loans for M&S enterprises also feature + housing loans, consumption loans & equipment loans.

  • There are many similarities, mainly in (PaR), profit margin, collaterals, & the number of MFIs, but all Ethiopian MFIs are deposit-taking, with more than 5 times numbers of branches compared with the

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