GAP THE CONSULTATIVE GROUP TO ASSIST THE POOREST [A MIICRO-FINANCE PROGRAM | EAR READERS, VILLAGE BANKS IN PAYS DOGON: A SUCCESSFUL PERSPECTIVES ON MICRO- cICS 1wit/ hmiclro-financc inl Vcst HOME-GROWN APPROACH FINANCE IN WEST AFRICA Afliica. Mit ch oJ the literatniz aYln - Renee Chao-Beroff, CIDR - The Secretariat focusecd solcly ont thc hlte7-dles a nd cla 1- lcntqcs to miiicro-fii nance in Afiicn to ta c Whilc thcv have not been widely Thc iitoI SCCtOI providcs exclusion o(f innoiation anyd i aitiatii,cs publicizcd, many\ successfuil m1icro- inconic-gencrating opportmliities for in the ficld. Whilc wc b/r nio mcans dis- finanice operations have bccnl rccord- the majority of economically active couinlt thc siqnificant challcenecs and ed in Sahelian Africa. As the World peoplC in WVCst Africa. It cmplovs an constrainltsfaced by MFIs (prescentcd in Bank's study on micro-finalice in cstimatcd 90 pcrccnlt of thc total thc tljcemlc article bli tlhc Secretarint), iwe West Africa ( Leila Webster ct al., labor force in Sclcnal, 85 perccnit in thogq/it it cqitallv intportant to /car September 1995) demonistratcs, Mali, and 62 pcr-cclnt in Guinca. firon practitionelrs in the elgc ion oil cxpc- thcse operations are comparable to Women are active participants riceICCs in dclivc'iiinjfinancial scr7'ices the phcniomcnia that have emer-ged throughout the Region; they repre- to poor households, despitc these chal- in Asia and Latin Amcrica, in the scnt 66 pcrcenit of the sector in lentjes. Retnce C/no-Ber(ff; Phld/is scnse that they have proven vcry, effi- I3urkina Faso, 80 pecncciit in Cape Waitjiktu Kizbi, Fr-ancis Bcinpito, anid ciciCt in offcring high qualitV finan- Vcrde, and 40 pCIcenlt in Niger. Ibrahiln Scck do thisjiustice. cial services to vcry poor segimenats Low litcracy levels, lack of collatcral ! 9 - f o. of the populatioll in rcgionis that are and crcdit historics, poor informa- -11 T P si. ,. ._, \virtually inaccessible. At the samc tion, and socio-cconiomilic factors time, however, the Ml-FIs of Vest limit access to financial and nion- 6/ D _ Africa secm to bc very differenit fromil finanicial services by infor-imal sector their Asian and Latin Americani participanits. NVomcn face additional couiiterparts. obstacles duc to their minior legal The Self-Managed Village Savings statLus, lack of property rilghts, and and Loan Banks of Pays Dogon in higher rates of illitcracy and poverty. 7 M ; i b t thali provide a very clcar example of Formal financial institLutiolns typically - .- , ~~~~~~~~~~~the specific niatuire ofthec Wecst igniore thliS Client grOuIp, g~ivenl theC _r ~ * ^ Africani systems. pays Dogon is high transactions costs of servicc located in a Sahclian zone that has delivery, the perceived risk, and the suffercd from severe drouglhts fo-r the poverty levels of thc clicits. Thcic past tw\cnty years or so. It is an are, howeveC\cr, an increCasin1Sg numelirbC extremely poor region, accessiblc of mlicro-finalncc institutiolns (NIFIs) !only with the greatest difficulty via a that are responding to the needs of dilapidated network of dirt roads, thliS va,St uInder-served market. and hals one of the eC011ntrvas lowest sclhool enrollimenit rates. How o1 W E S T A F R I C A N M F I S carth was it possible to develop a Credit un1ion1s (cooperatives/ viable and sustainable financial sys- mutuClIsC) anid non-govcirinm tal (cltiiitd on plllc 3. organizations are the two prevalent (Co7ltl11111,d oll1)1 /ljc 1()) CONTENTS ~~MICRO-FINANCE AS A BREAKTHROUGH SERVICE - Elisabeth Rhyne, USAID Successful:Home-Grown Question: What do Grameen Bank, Nordstrom's Department Store, Club Mcd, Approach Federal Express Package Delivery,, and McDonald's Restaurants have in common? Perspetives n Mico-Finace I-int: It's not their social vision. cotne ti2 ContE/7t'9e(;3;;;; pae Answeer: Each of these institutLions is an example of a "breakthrough service."' t ;t tBEreaikthrj;ough Serviite3t 3 L 39 iEach organization provides a service: credit, clothing sales, vacations, package 4-pS Practitioners' Perspectivesdelivery, and fast food. More importantly, every one of these organizations intro- duced breakthroughs in service delivery techniques that surpassed the prevailing amethods, transforming their e ntire industries. Around business schools these days, courses on services analyze the underlving continued on pae 13 =principles exceptionally successful service companies share. The micro-finance field rarely looks to business schools as sources of greater understanding. We Saving an LoanInitiativeeither assume that what works in corporate America wotuld not apply to poor peo- continued on pae 13 Xplc in rural Uganda, or we don't want to listen to people unless they share our 6-S Mf>:;0ember; Do;nor Acti,v3i9tiez5s 3 9 social vision. But perhaps we should. French Assistance for the Micro-finance is about breakthroughs in service delivery. After all, micro- Deve"tS209 lopment o;f Micro-Finance finance offers services the private sector has long believed feasible only on charita- Institutions (MFs} Xble terms. The leading micro-finance organizations have already redefined the UNOPr initiatives in Micro-Financevway credit and savings services are provided to the poor and demonstrated that USAIDS; Laj0 unhs Microenterpr09 ise A 9 this can be done on a financially viable basis. The current challenge is to under- et Prs S;993 295ttaczatices (NtME P) ;stand hoxv the leading organizations work and to apply those "secrets" to all 1<-1t C -AP Events micro-finance organizations. Every micro-finance organization must seek to be a top-performer if it is to survive, grow, and achieve financial viability. T 32X: i; 3C:ON ;9TttRI B3 R U (y TO 9 B 3Services, including micro-finance, have special characteristics which become apparent when they are compared to manufacturing. Manufacturing firms make Ren4e030 30; Chao30003Fi+N399099-Bxeroff - 3 their products at one time and place and sell them at other times and places. D6veloppement ti de Recherhe Manufacturers therefore focus on control of production at the factory site and on X $;W;anrlCd CGAP Policy Advisor managing the logistics of product movement. Sales are quite separate from CEAP Secretariat Staff production. EiRsabeth Rhyne In service firms the "product" cannot be separated from the customer: it is USAID, Member DonorUA / produced and sometimes even consumed in the moment it is purchased. The 9M';inisft19e dea Cooperatin/aisse production and sales staff are the same front line employees. This simple observa- Francaise de D4veoppemet htion produces several fundamental tenets about service firms: Women;s World Banking * Client satisfaction is an integral part of the product. How clients are treated Francis Beinpuo m~~~~~~iiatters. * Service firms organize all their systems around creating successful interac- Ibrahima Seck tions with clients. X = r IECA * Front line staff have wide discretion over production of services. Firms must Henry Jackelen - ;; af ; 0 Xtrust employees to perform well, independently of constant supervision. 'JNDP, Member Donor * Because production-of services is decentralized and many aspects are not tangible, quality control is difficult. * Front line staff must have both technical and human relations skills- often a difficult combination. These propositions showv an almost uncanny precision in defining chal- lenges micro-finance organizations face. What should micro-finan-ce organizations do if they wish to improve their own service delivery? 1. Think seriously abotut client satisfi2ction. Are loan terms really tailored to support the financial decisions clients face? What are the time and travel costs of participation, and can they be reduced? How frequently do clients drop out, and does the organization know why? Following up on dropouts may be one of the best -though least used ways to find out howT to improve services. 2. Focuts on training and motivation offront line staff Does training give staff a precise understanding of how to carry out their jobs, including how to treat clients? What incentives -tangible or intangible - motivate staff to perform well? How, is staff performance measured and monitored? If "breakthrough" micro-finance organizations are like breakthrough firms in other service industries, the secret of their stuccess may well lie in how they solve these two challenges.E I This terin coimes froiim Breakthrough Services: Changinyg the Rutles of the Gamie (Haskett, Sasser and Hart: MacMillan: 1990). (continffedfrom p,qe 1) tem in such a location? The answer 1986, wx hen the system was first set up, is: by calling on the strength of the loans wvere used by the villagers mainly Dogon villagers - their sense of for small-scale subsistence-level econom- social communitv and value systems ic activitics. As time 1went on, a few that are grounded in mutual help and microentrepreneurs launched larger-scale solidarity (particularly towards the operations. Today, in 1996, loans from The village banks in Pays Dogon offer a savings weakest among them), integrity, dte illage banks are also helping local service that is accessible to all members who honor, and respect for the elders. products from Pays Dogon to penetrate The village banks in Pavs Dogon external markets, thus opening up thie deposit sums as small as CFAF 100 (20 US cents) offer a savings service that is accessible to entire region to economic activity. a week. All of these local savings are reinvested all members wvho deposit sums as small At present, each bank has a varied as CFAF 100 (20 US cents) a week. portfolio comprised of loans from in loans within the village, at the decision of a Interest rates on deposits vary from one CFAF 2,500 (US$5) to women for managementcommittee madeupentirelyofvil- village to another, averaging around 20 cotton-spinning activities, to loans of percent a year, far higher than the rate CFAF 25,000 (US$50) made to lagers elected by their peers. offered by formal banks (5%). All of wvomen and young people wishing to these local saviings are reinvested in loans develop a sheep raising business, as within the village, at the decision of a well as loans ranging from CFAF management committee made up entire- 200,000 to 500,000 (US$400- ly of villagers elected by their peers. In 1,000) for blacksmiths to help them (coetiif ed on pes 12) P R A C T I T I O N E R S P STRENGTHENING MICRO- PROGRESS TO DATE Thirty-threeorganizations FINANCE IN AFRICA To identify leading institutions, among the 81 organizations sampled - Phyllis Wanjiku Kibui, Women's World an inventory xvas conducted during qualified as leading institutions based Banking the second half of 1995, covering all on the following criteria: countries in Africa in which UNDP . private sector institutions, k To improve access to financial has country offices. Seventeen coun- not government-ownied; services among low-income peo- tries were subsequently selected for . loans of US$1,200 or less; ple in Africa, Women's World in-depth assessments, based on com- * at least 500 active clients; 2 Banl7ing (WWB) and the United pleteness of responses, population . a repavment rate of 85 perccnt or Nations Development size, and the importance and devel- commercial-or hig;er than com- Programme (UNDP) are collaborat- opment of the micro-enterprise sec- mercial -rates of interest; and ing to build a network that will link tor. These include: Benin, Burlina . savings incorporated in their lending practitioners at leading micro-finance Faso, Cameroon, Ethiopia, Ghana, methodology. institutions throughout the conti- Guinea, C6te d'Jvoire, ICenya, Mali, P R E L I M I N A R Y nent. The main objectives of this Mozambique, Niger, Nigeria, C o N C L U S I 0 N S initiative are: Senegal, South Africa, Tanzania, While a more comprehensive inven- - To strengthen and expand the client n outreach oTogo, and Uganda. torv of micro-finance organizations in outreach of local institutions provid- ing financial and non-financial ser- An in-depth assessment tool was Africa wvould be desirable, some impor- vices to low-income people, developed by WWVB that was distrib- tant conclusions can nonetheless be especially women; and uted to UNDP offices and sent to drawn from the relatively small sample * To influence changes in government selected institutions. By the end of of institutions presented above. and commercial bank policies, prac- 1995, reliable information had been Clearly, the mvth that "nothing works rices, and resource fiovs in favor of received from 14 countries, covering in Afiica" is not true. A large number 81 institutions. Average loan size of institutions throughout the conti- The strategy for achieving these across the 81 institutions was nent are delivering financial services to objectives includes expanding the US$294, indicating that most of the low-income people. Most of these VVBVI netvork in Africa, establishing institutions in the sample are seeking organizations have managed to incor- collaborative relationships benveen to address the needs of low-income porate a savings component into their existing micro-finance organizations, people. Sixty-four of the 81 institu- credit deliverv svstems, despite the dif- and facilitating best practice workshops tions reported providing savings ser- ferent policy environments in which and policy forums throughout the vices to their clients. At 46 of the they operate. To further expand access region. The initiative is being imple- institutions, women constituted to financial services among Africa's mented in several phases from more than 50 percent of the clients. low-inicome population, donors and 1995-1997. Specific activities include: * Developing an inventory of leading micro-finance institutions and con- ducting in-depth assessments of these institutions; * Establishing dialogue vith eligible instituItions interested in becom-ning affiliates or associates of the WWVB global nectwork; * Faciliratin-g best practice workshops for leading institu-tions, to promote lateral learninig; and * Promoting ongoing exchange of best practice iniformation among network, participants. ER 8 P Ej C T _Ii': v E S other kev players should continue to many of the poor. This obstacle has R I E CA - A N A F R I CA N support local micro-finance insfitutions' compelled many poor people to turn N E TWO R K O F S A VI N G S A N D efforts to build capacity, mobilize capi- to informal savings collectors and LO A N I N IT I AT I V E S tal funds, and improve the policv envi- moneylenders for their banking Ibrahima Seck, RIECA ronment. Preliminary results also needs. suggest that, for such development to Freedom from Hunger (FFH) has Some twoo decades ago, the vast be sustainable, funders and other kev teamed up wvith selectcd Ghanaian majority of Africa's inhabitants players should combine efforts and sup- rural banks to develop an alternative had no access to financial ser- port existing organizations that meet and sustainable model for financial engat * pouctively in to measurable performance standards, services delivery for the rural poor of engage more productively in the rather than promote a multitude of Ghana. This initiative, called "Credit economy. Commercial banks weak programs.l wvith Education," combines provision formal sector, and, lacking the appro- of financial services with an overall education program in health, nutri- priate tools, simply passed over the RURAL BANKING IN GHANA tion, and 'survival slkills' that is target- entire informal economy, xvhich, Francis Beinpuo, F'eedom from Hunger ed exclusively to poor, rural women. although remote and barely visible, C O N T E X T FFH decided to work wvith the rural was very much alive. In the early eighties, wvhen Africa As in most countries, Ghana's banks because they alreacd have an established presence throughout the experienced a widespread economic banking system does not serve country an Irn be apparent that the financial needs of the poor n ave expeiene in col- crisis, it bean to r the financial needs of the poor. ~~rural and urban microentrepreneurs In 1976, the Bank of Ghana cre- lecting savings. It is believed that pro- rurcs nd an mmense anert ated a network of 125 rural viding these banks with a sustainable represented an immense and hitherto banks Icnrlending and savings technology will untapped potential, and that failure banks to increase the poors help bride h to br tm ito the conomic access to financial services. The mainstae gap In the demand form o e m financial services mainstream could seriously hamper : 275 bank branches are located all efforts to promote development. primarily in the major towns of IMPLEMENTATION AND Togivefreereitothoseentrepre- Ghana and do not srve rural P R O G R E s s neurial capacities, it was necessarv to households. These small, com- munitv-owned rural banks havTe The first step toxvards implement- increase poor households' access to nor entirely fulfilled their mis- ing this initiative was to identifv 'part- financial services. ncr banks' xvith *vhich FFH would Within this context, a multitude sion. For example, although bThe Bank of Ghana and of Self-managed Savings and Loan December 1995, 90rk. ruralnkbanksa .a.an Dccmmber 1995, 90 rural banks Association of Rural Banks joined Initiatives [Initiatives d'Epargne et had moblized a total of 31 b,l- deCei uoG&s-IC]cm lion cedis (US$20) million) in FFH in this cxercise to identifr banks de Cr6dit Auto-Gerces - IECA] caie savings, the demand for savings that vcrc strong enough to effectively being in Africa. The IECAs t w s ehave developed clent-responsive services remains largely unmet, manage a credit program. This was r r not easv because about half the rural and innovative approaches to provid- Oveuts0 perccnt of savkings are held banks (65 of them) xvere rated as ing financial services at a dcccntral- outsidc of the banlung; sector, andizdlv. Ghanians pay informal saving,s (susu) mediocrc or distressed. Starting in ized level. collectors 4 percent a month on their SeptemIcr 1992, three rural banks- INSTITUTIO NAL deposits for safe-keeping even xvith Lowver Pra (WVestern region), Brakwva ENVIRONMENT OF inflation at 70 percent per annum. Breman (Central region), and T H E I E CA S On the credit side, like commercial Nandom (Upper West region)- It is important to emphasize that banks, the rural banks use collateral- were re-licensed as community banks every IECA had to develop in a hos- based lending, thereby excluding to wvork in partnership wvith FFH. tile economic, legal, political, and FFH provides the lending methodolo- (conitinued on page 13) (con1tinuz1ed oen page 13) a H a. i FRENCH ASSISTANCE FOR THE NEW FINANCIAL INTERME- DEVELOPMENT OF MICRO- DIATION OPTIONS FINANCE INSTITUTIONS To cope wvith this situation, dur- (M F I S) ing the late eighties the Ministere de Xinst~re de Ia /Clp&ationlC e .Ia la Cooperation and Caisse Francaise Ministere de la Cooperation/Caisse E>& 'a.-. Francaise de Developpemende Developpement (CFD) embarked on promoting new projects designed BACKGROUND O to establish a minimum level of finan- d In the wake of the economic crisis cial intermediation in rural areas, ,, that affected all of the countries essentially as a means of supporting ,~ ~ ~ ~~~~~~~~~~~~setai as a men of .S.por=tA:=g @m: of Sub-Saharan Africa in the and promoting local entrepreneurs. eighties, the adoption of certain Between 1987-1994, this policy led k adjustment mechanisms became a to the financing of 19 projects for a K- -a Rt X "a aZ a:' ma g matter of urgency. In the rural total of approximately 450 million sector, the curbing of public francs (USS90 million), including expenditures under the Structural technical assistance furnished by the Adjustment Programs (SAPs) and the Ministere de la Cooperation.2 These gradual privatization of many services projects fall into two groups: formerly delivered bv the government (supply of inputs, storage, marketing, * those based on the principles of and extension) undermined the stabil- "mutualism and membership" ity of the socioeconomic environment where access to loan funds are of rural communities. subject to the establishment of a An essential service in the rural savings account;3 and areas, access to credit, was weakened as a number of the Agricultural * those based on the principle of 0. a;F; ff- - 3O g