microfinance sectors in two african countries – sudan & ethiopia

26
AEMFI 8 th biennial conference to 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_din [email protected] hotmail.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

Upload: vuongtuong

Post on 01-Jan-2017

247 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Microfinance Sectors in two African countries – Sudan & Ethiopia

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

Page 2: Microfinance Sectors in two African countries – Sudan & Ethiopia

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.

Page 3: Microfinance Sectors in two African countries – Sudan & Ethiopia

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

Page 4: Microfinance Sectors in two African countries – Sudan & Ethiopia

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.

Page 5: Microfinance Sectors in two African countries – Sudan & Ethiopia

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

Page 6: Microfinance Sectors in two African countries – Sudan & Ethiopia

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

Page 7: Microfinance Sectors in two African countries – Sudan & Ethiopia

The regulatory bodies of MF sectors are the Central Banks.

There are MF strategies in both countries. The Sudan’s 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.

Page 8: Microfinance Sectors in two African countries – Sudan & Ethiopia

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.

Page 9: Microfinance Sectors in two African countries – Sudan & Ethiopia

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.

Page 10: Microfinance Sectors in two African countries – Sudan & Ethiopia

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.

Page 11: Microfinance Sectors in two African countries – Sudan & Ethiopia

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

Page 12: Microfinance Sectors in two African countries – Sudan & Ethiopia

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).

Page 13: Microfinance Sectors in two African countries – Sudan & Ethiopia

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 MFI’s 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.

Page 14: Microfinance Sectors in two African countries – Sudan & Ethiopia

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 Sudanese MFIs, Ethiopia MFIs mainly practiced group-lending and have a high clients' outreach than Sudan.

In Ethiopia in addition to saving, other products are offered, particularly the government sponsored programs, as well as money transfers and pension administration.

Sudan MFIs are not deposit institutions and finance come mainly from the wholesale market in addition to self-financial resources. MFIs in Sudan have fewer borrowers/loan officers, and a higher max. loan size compared with Ethiopian MFIs. Islamic micro-insurance is dominant (13 Cos.) and Mobile banking is underway.

Page 15: Microfinance Sectors in two African countries – Sudan & Ethiopia

Microfinance Regulation & Policies. The (EBE) took over the responsibility to license and

organize the working of MFIs. In 1996 (Proclamation 40/1996) issued as a regulatory & supervisory framework to provide licensing for deposit-taking MFIs.

The Licensing & Supervision of Banking Business Proclamation (84/1994) allowed for private FIs.

Requirements to engage in MF activity: (1) obtain license from the NBE (2) formed as a share company owned fully by Ethiopian nationals or by organizations that are wholly owned and registered in Ethiopia. (3) deposit the min. capital, i.e., 200,000 Birr. In 2009 another proclamation allows MFIs to issue MF insurance policy. The NBE issued a directive (25/2013) raising min. initial capital from US$26300 to US$ 104000.

Page 16: Microfinance Sectors in two African countries – Sudan & Ethiopia

In Sudan & in 2007 an administratively independent MF Unit (MFU/CBOS) was established to organize the MF sector. In 2011 the Regulatory Framework to Establish MFIs was issued to regulate both deposit- & non-deposit taking MFIs, Conditions include licensing & its duration, forbidden activities, capital requirements as well as documents required for final license (business plan, market study etc.). The CBOS identified 15 types of guarantees/collateral and modes of finance suitable for this sector. MF is included as a priority sector with a min. allocation of 12% of the banking portfolio & ceiling of (US$ 4000) Nontraditional guarantees include Islamic micro insurance (Takaful) as guarantee (covering: money lend, assets & Takaful- physical disability or death).

Page 17: Microfinance Sectors in two African countries – Sudan & Ethiopia

Institutional Development. The Sudanese experience managed to build smoothly run & coordinate MF institutions, councils &units Each state formed a State Councils of Microfinance. There are also Microfinance Units at the CBOS's regional branches and at each headquarters of commercial banks, and MF Planning Units, MFIs and MF Project Development Centers Consumer protections are different. AEMFI worked with the Smart Campaign, the Social Performance Taskforce & MF Transparency. Sudan only discussed the relevance & the importance of the Smart Campaign’s principles. Majority of Ethiopian MFIs reported financial & operational performance data to MIX Market. In Sudan, with the exception of PASED, MFIs do not report to MIX Market. Some Ethiopia MFIs have gone into ratings. In Sudan none of MFIs is rated whether local or international.

Page 18: Microfinance Sectors in two African countries – Sudan & Ethiopia

Technical Assistance. Sudan MF technical assistance to MFIs, through IDB/BOS

and The CBOS & the Ministry of Finance and National Economy (donors and the World Bank $20 mill. SMDF.

The CBOS/MFU since 2007 was providing MF training awareness programs.

In Ethiopia most of the technical assistance (training) to is undertaken by AEMFI. AEMFI’s goals and activities have expanded to include training, research, promotion of professional standards, experience sharing, exposure visits, performance monitoring and benchmarking and provision of technical assistance

Page 19: Microfinance Sectors in two African countries – Sudan & Ethiopia

Wholesaling Marketing The wholesale programs in Sudan is dominated by the

CBOS and shared by commercial banks, SMDC, and partnership with IDB. As of May 2014, out of SDG 328 mill. funds allocated for MF by the MFIs, the share of self employed financial resources 14%, the CBOS share 53%, IDB/CBOS partnership18%, SMDC 10%, & banks 5%

Sudan introduces the wholesale lending to MFIs via a governmental agency (Wholesale Guarantee Agency) to siphon banks’ wholesale finance to MFIs with 75% risk-sharing at a cost of 0.5% of the total loan

The Sudanese MF wholesaling includes different MF portfolios shared by banks and the CBOS. (Graduates' Project Financing Portfolio, Linking farmers to market portfolio, AMAN portfolio, ABSUMI portfolio.

Page 20: Microfinance Sectors in two African countries – Sudan & Ethiopia

The CBOS MF experimental wholesale program started 2007 as Musharaka program with eight banks and two MFIs. By 2012 US$ 168 millions were allocated in this program.

One of the successful MF portfolio is the IDB/CBOS portfolio, which provide wholesale lending via restricted Mudaraba to 7 MFIs. Current portfolio is US$11 mill., PaR is 2.49 and more than 25 thousands clients were covered so far with average loan size of only US$ 437.

Despite these achievements, the market is still limited and more efforts are needed. Among these is MFIs performance indicators to help stakeholders in this market to select the appropriate MFIs for funding. More market-oriented policies & more wholesale stakeholders.

Page 21: Microfinance Sectors in two African countries – Sudan & Ethiopia

The wholesale market in Ethiopia is narrow as most of lending is coming from MFIs clients’ saving. There is no role played by the NBE in this market. Some commercial banks lend to MFIs with strong third party guarantee. Most of MFIs started as NGOs with grants and concessional loans from donors, government and international financial institutions.

The major wholesale program in Ethiopia is the Rural Financial Intermediation Programme (RUFIP, I and II, financed by IFAD and AfDB, the World Bank and Ethiopian Government to support MFIs & cooperatives on a wholesale bases & capacity. RUFIP Program is nationwide initiative to reduce rural poverty, through subsidized financial services through a nationwide network of some 31 MFIs and about 5,500 RUSACCOs.

Page 22: Microfinance Sectors in two African countries – Sudan & Ethiopia

Overall Performance &Constraints In accordance with the 3 major criteria to assess the

international best practices of MFIs: innovation, sustainability and impact, we made value judgement of the two countries depending on the information herein.

If we assign points to performance in such a way that the high performance receives 3 points, moderate 2 points and low 1 point, then out of overall points of 27, Sudan scores 19 points (71.4% out of the total points) and Ethiopia scores 22 points (81% out of the total points). This overall result clearly indicates that the overall performances in the two countries are good, and Ethiopian performance is relatively better than Sudan.

Page 23: Microfinance Sectors in two African countries – Sudan & Ethiopia

Sudanese & Ethiopia Microfinance Overall Performance in the Global Best Practices

LowModerateHigh LowModerateHighRating EthiopiaSudanCountries

International Best Practices in:

XX-

--X

---

--X

X--

-X-

InnovationCharacteristics of clients’ chosen Social performance management.Innovative financial systems.

XX--

----

--X X

XX--

--X-

---X

SustainabilityStrategies.Decentralization model. Use of technologies.Design of products.

XX

--

--

--

XX

--

ImpactMonitoring of assessments.Focus of assessment *

612342Overall Performance

Page 24: Microfinance Sectors in two African countries – Sudan & Ethiopia

Constraints & challenges (Sudan): MF is mainly viewed as intervention to reduce poverty & not integrated to the macro-economic objectives/ MF is viewed only as credit-based lending, with little use of micro-insurance, micro-saving, money transfer/ Most clients believe that credit should be before growth./ Most people believe that MF profit margins should be centrally controlled to protect the clients/ some clients viewed MF as a charity lending, not a lucrative business/ some MF providers believe that MF activities do not lead to institutional sustainability/ &Most MF activities are intended to meet local-demand, not export oriented.

Page 25: Microfinance Sectors in two African countries – Sudan & Ethiopia

Constraints & challenges (Ethiopia): limited supervision and technical support by the Government /low interest rates/low technical capacity/ lack of product diversification,/inadequate MIS/ weak awareness, & legal system/ limited capacity of the NB/ limited capacity of MFIs/ poor infrastructure/ lack of access to foreign capital and donor funding,

Common constraints & challenges (both countries), poor MIS and lack of efficient loan tracking and accounting soft-wares/ lack of skilled personnel & means to protect clients/lack of specialized consulting firms and local rating agencies and specialized training institutes/& politicization of microfinance.

Page 26: Microfinance Sectors in two African countries – Sudan & Ethiopia

Means for Cooperation.

Ethiopia can thank of Islamic microfinance via specific branches or windows in geographical areas where Muslim are dominant (Afar and Somali land)

The Sudanese MF experience in diversified & guaranteed wholesale marketing, via the government-owned Wholesale Guarantee Agency is useful to Ethiopia

Sudan can learn from the role and functions of AEMFI., & social management system & documentation of MFIs data, reporting to the MIX Market and compliance with international standards of MFIs rating.