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MicrofinanceVol 9 Issue 1 2009

The Rise and Rise of AMFIU

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The Microfinance Banker Vol. 9 Issue 1 2009�

The Microfinance Banker

The Microfinance Banker is a professional journal that is published quarterly in April, July, October and January

It acts as a vehicle for dissemination o f appropr ia te and t ime l y information on issues of interest and concern to the Microfinance Industry. It also acts as a forum for the exchange of ideas and views among practitioners, researchers, donors, scholars and other interested parties.

It is published jointly by the Microfinance Competence Centre (MCC) and the Association of Microfinance Institutions of Uganda (AMFIU).

Subscriptions

Subscription to the Microfinance Banker is Ushs. 40,000/= per annum. Correspondences

All correspondences may be addressed to;

The Editor,The Microfinance Banker,P.O. Box 4986, Kampala, UGANDA.

Tel: 256-41- 4255847/8Fax: 256-41-4255396/ 4234259E-mail: [email protected] / [email protected] / [email protected] [email protected]

Microfinance Competence Centre

THE MICROFINANCE COMPETENCE CENTREThe Microfinance Competence Centre (MCC) is a department of the

Uganda Institute of Banking and Financial Services. It was established to help upscale the country’s financial system through the provision of knowledge and skills to the Microfinance Industry, which caters for the hitherto underserved sections of Uganda’s population. The objective of the Centre is to offer high-quality training, consultancy, and information dissemination services in microfinance.

Since its launch in October 2000, the Centre has trained over 3,000 participants representing all levels of management. Although Microfinance Institutions (MFIs) form the majority of its clients, the Centre also serves a range of other stakeholders in the Microfinance Industry, including apex organisations, capacity-building institutions, individuals, software companies, government and non-government organisations.

The Centre offers short-term and long-term training programmes that link experiences from microfinance with professional banking knowledge, which is consistent with the Government of Uganda’s aspiration to promote inter-linkages between the formal and informal financial sectors as enshrined in the Microfinance Outreach Plan. The Centre aims at being a one-stop centre of excellence in its quest to contribute towards the enhancement of professionalism in the Microfinance Industry.

THE ASSOCIATION OF MICROFINANCE INSTITUTIONS OF UGANDA (AMFIU)

The Association of Microfinance Institutions of Uganda, AMFIU (www.amfiu.org.ug) is an umbrella organisation of Microfinance Institutions throughout Uganda. It is a member founded institution that was formed in 1996 and officially registered in 1999 under the NGO Act and as a company limited by guarantee. The creation of AMFIU was triggered by the need to bring MFIs in Uganda together, to share experiences and to promote professionalism in the industry. The drive to form the association was also prompted by the need to create a uniform voice, and to lobby government to create a legal framework that enables the growth and development of Microfinance within a healthy and strong financial sector.

AMFIU’s membership includes banks, credit institutions, NGOs, Savings and Credit Co-operative Societies (SACCOs), government programmes. In order to qualify and be registered as an ordinary member, an organisation has to focus on the direct provision of financial services to the informal, micro or small-scale enterprise sector in Uganda. There is also a provision for individuals or organisations indirectly involved in microfinance (such as consultants, donors etc.) to join as Associate Members.

AMFIU’s goal is to facilitate the creation of a thriving and professional microfinance industry, which contributes meaningfully to urban and rural development in Uganda. The activities of the association are focussed on the following four areas: Lobbying and advocacy, Information collection and dissemination, Capacity building for members on specific needs and Performance monitoring.

ISO 9001:2000 CERTIFIEd

PROFESSIONALCOURSES

Diploma in Banking

Diploma in Microfinance

Certificate in Banking

OPEN AND TAILORED SHORT

COURSES IN

Banking & Finance

Microfinance

ICT LIBRARY FACILITIES

Internet Services

Computer Applications Courses

Continuous Professional Development

CONSULTANCYSERVICES

10 Buganda RoadP.O. Box 4986 Kampala - UgandaTel: 041 4233628 Fax: 041 4234259E-mail: [email protected]

76/78 William StreetBank of Uganda BuildingP.O. Box 4986 Kampala - UgandaTel: 0414255847/8 , Fax: 041 4255396E-mail: [email protected]

The Microfinance Banker Vol. 9 Issue 1 20092

EditorMary Immaculate Tonda

Editorial CommitteeMicrofinance Competence Centre

andCarol Tuhwezeine

Layout, typesetting and designInformation and Membership Services Department, UIBFS

Published by The Uganda Institute of Banking & Financial ServicesPlot 76/78 William Street, Bank of Uganda Building

P.O. Box 4986 Kampala - UgandaTel: 4255847/8, 4233628 / 4349059 / 414 664940,

Fax: 4255396 / 4234259E-mail: [email protected]

DisclaimerThe views expressed in the articles and other features

are the personal opinions of the authors.AMFIU and MCC do not accept any responsibility for

them.

© CopyrightNo articles or photographs may be

reproduced, in whole or in part, without specific written permission from the Editorial Committee.

6Features

11

AMFIU HomeAMFIU Home

Regulars

3

4

5

17

19

24

34

Saving and Credit Cooperative Organisations (SACCOs) in Uganda shun Agricultural Lending- Byamugisha Odomaro

Economic Empowerment of Tachers through Microfinance Services Access - Denis Sekiwu

Small change, big changes: Women and Microfinance

Editorial

From the AMFIU Executive Director

From the MCC Programmes Manager

AMFIU News• The Rise and Rice of AMFIU

MCC News• Basic Banking, Credit Analysis and Appraisal courses

Microfinance Information• Training in Microfinance at the Microfinance

Competence Centre ................................23

• SME Financial /SME Lending - Learn how to grow your Bank’s profits from SMEs ......................................................27

• ILO launches year -long campaign .........31

• Sustainable Microfinance for Women Empowerement .......................................32

Echoes• Skills and Entrepreneurship: Bridging the

technology and gender divide .................34

• The right way to loan money to family members .................................................35

16


MB

EditorialCongratulations and well done to the Association

of Microfinance Institutions of Uganda (AMFIU), the national Umbrella organization

of microfinance institutions (MFIs) throughout the country, for acquiring a permanent home. AMFIU House, located on plot 679, Wamala Road (off Entebbe Road), Najjanankumbi, is a milestone for the association which has come a long way.

There is a dire need of agricultural loan products which have terms and conditions that would make agricultural lending attractive to both the Savings and Credit Cooperative Organisations (SACCOs) and their clients. In addition, SACCOs need to institute proper management of agricultural loans in order to realize better portfolio quality. Byamugisha Odomaro believes that SACCOs in Uganda shun agricultural lending; and he suggests that the microfinance industry should take up this challenge.

The microfinance institutions must extend their operations beyond the gender dimension of micro-credit acquisition to include even the teachers since they are among the most economically vulnerable profession. Through the sector-wide approach and the expanded outreach of micro-credit this can be achieved. Dennis Ssekiwu is of the opinion that having assessed the need to get teachers out of the vicious cycle of poverty, it is imperative to solidify this commitment by putting emphasis to the a good number of policy remedies.

Now that microfinance is at the peak and on every one’s lips, very many financial institutions have come up to embrace it. With the view of carrying on the microfinance business/activities, many have embarked on capacity building by training their staff in Basic Banking and credit analysis and appraisal for the staff to be at least equipped with the basics of lower banking and be able to appraise potential clients who are in need of promoting their products especially credit. It is important for credit officers to appraise well their clients in order to have a good portfolio. That is why MCC at the Uganda Institute of Banking and Financial Services has introduced a range of tailor-made and Skill-based courses to address the gaps.

Women workers throughout the world contribute to the economic growth and sustainable livelihoods of

their families and communities. Microfinance helps empower women from poor households to make this contribution. Microfinance — the provision of financial services to the poor in a sustainable manner — utilizes credit, savings and other products such as micro insurance to help families take advantage of income-generating activities and better cope with risk. The ILO projects have helped identify new economic activities and launch micro enterprises while training poor women in business management and marketing. Women have gained new skills from the training to increase their access to sustainable livelihood opportunities.

What would it take for you to lend profitably to a sector that accounts for more than 90% of African enterprises? It’s possible that your bank, today, doesn’t have the expertise in place to benefit from this, the largest loan market on the continent. Fortunately, that can be fixed. You can acquire the knowledge and tools you need to be a beneficiary on the inside looking out, rather than looking in, enviously, at your competitors from the outside. Later on you’ll learn 3 uncommon practices you can implement in your bank today to improve your SME lending ability.

There is evidence of significant potential for microfinance to enable women to challenge and change gender inequalities at all levels if there is a strategic gender focus. There have also been many important recent innovations in products and services to enable women to better benefit. Nevertheless benefits cannot be assumed and even financially sustainable micro-finance if it is gender blind may seriously disempower women and increase inequality. Women are not a minority, but the ‘marginalised majority’ and gender Best Practice must become a fully integral part of programme design.

Liz Pulliam Weston warns that Loans to your nearest and dearest usually aren’t a good idea. But if you feel compelled, do it formally -- and put it in writing. With three words, you can sum up the most common advice about lending money to your relatives: “Don’t do it.” Financial planners warn that interfamily loans can lead to trashed relationships, shattered finances and even trouble with the Tax bodies.

The Microfinance Banker Vol. 9 Issue 1 20094The Microfinance Banker

from

the

AM

FIU

Exec

utiv

e D

irec

tor David T. Baguma1David T. Baguma1

MB

THE Association of Micro-finance Institutions of Uganda (AMFIU), the national Umbrella organization of microfinance institutions

(MFIs) throughout the country recently acquired a permanent home AMFIU has injected Shs700 million into acquiring AMFIU House ++ ++located on plot 679, Wamala Road (off Entebbe Road), Najjanankumbi. This is a milestone for the association which has come a long way.

When we started in 1996 in an informal way, we never knew, we would grow to this level. We are so happy that what we started has now matured to the level that we are now firmly on the ground. We got our real home, which means we are now sure of our continued service to our members and ensuring professional service delivery in this country –our major function. It is only through sustainable professional financial services delivery that the people we target will benefit.

The acquisition of the home comes after AMFIU members agreed in the 2008 Annual General Meeting (AGM) to pay three times their subscription fee –as a one time off contribution towards the building. AMFIU members pay different subscription fees ranging between Shs225,000 and 1 million annually depending on their size. AMFIU has a total membership of 117 institutions 79 of which are retailers of microfinance business while the rest are associate members.

The acquiring of the home is a manifestation that AMFIU members like what we do. They were ready to contribute to the purchase of this building so that we can continue to offer them services such as lobbying and advocating for them on issues of capacity building –and other services like transparency programmes, consumer financial education –building the

whole foundation of microfinance to continue to contribute to economic and social transformation of this country.

It is an ideal home for all members; we have a well developed vision which we are going to achieve with government, development partners and consultants. Having a home is a bigger achievement. We have for the last 13 years changed locations and it has not been an easy thing as we kept on wasting our time and losing our furniture among others. With the new home, we now have a bigger packing area and sufficient working space for the staff and have a training Centre for all our members and very soon we are planning to set up a resource centre which I think will be the first of its kind not only in Uganda but in the East African region. It will be a one stop centre for information about microfinance.

I wish to acknowledge a number of stakeholders who have contributed/shaped the direction of Microfinance in this country: Visionary Board of Directors (past and present), dedicated staff, Government of Uganda that has given an enabling environment and development partners among whom include: Cordiad, Hivos, GTZ/Sida, ded, EU, Citi Foundation, SEEP, DFID/FSDU, SPEED/USAID, NAD, PSFU, MOP, and others, AMFIU committed management and staff, and most importantly all AMFIU members.

For more information about AMFIU Please contact us atAMFIU HousePlot 679 Wamala Rd (off Entebbe Rd), NajjanankumbiP.O. Box 26056 KampalaTelephone: 256 - 414 – 259 176Fax: 256 - 414 – [email protected]; www.amfiu.org.ug

AMFIU acquires a Home

The Microfinance Banker Vol. 9 Issue 1 20095 Vol. 9 Issue 1 2009

from M

CC Programm

es Manager

Olanya Jimmy Olenge Olanya Jimmy Olenge Olanya Jimmy Olenge Olanya Jimmy Olenge

MB

Uganda is doing fairly well with the number of commercial banks. The already existing banks are also

widening their area of operations. We are seeing banks opening branches all over the country. This is very good for us all.and especially to the financial industry in general, and the microfinance sector in particular.

While appreciating these expansions, we should be willing to accept the reality. The banks are downsizing and venturing into the lower clients which were, according to them “risky”. We are seeing the loan sizes reduced and the loan period adjusted accordingly. In short, the birth of Small and Micro-emprises (SMEs) is the meeting point. Most of the MFIs are also striving to serve the same SMEs.

It is time we all look at bettering our services to the clients by informing them on our products and helping in teaching them the importance of savings. This should start from the lowest level of the society. Gone are the days when the NGOs were entrusted with giving free gifts to the able members of the society.

One of the ways by which we can address this issue is by focusing on the Village Savings and Loan Association (VSLA). Here we shall not only be sure of building our society, but also contributing to the financial market development.

The year 2009 is a year of weeding most sweat by the commercial banks. 2008 was planting. We are therefore most likely going

to see techniques which we have not seen. Remember, Uganda is now having some minerals that attract a lot of good and bad persons. So this is the year of weeding.

As for Microfinance institutions, VSLA and SACCOs are the way forward. We should try to look at promoting the VSLA so that we get good clients in a few months or years before they grow and go off to the commercial banks.

This is a challenge we need to focus out attention to for the betterment of our industry.

As you are all aware, my contract at the Microfinance Competence Center expired in Apri 2009, consequently this is my last issue as MCC Manager.

I take this opportunity to thank all those in the industry, UIBFS Council members, Board members, management and the entire staff. I will not forget the student body. To you all, I say thanks for the support you gave me while in office. Your support has made us bring to the Institute and to install 25 brand new computers fully connected for the industry use at the cost of Euro 55,000.00 (Euro fifty five thousand) only sponsored by gtz, Please endeavor to make good use of this excellent training facility, located at Plot 10 Buganda Road.

Best of luck in 2009 and the future.

Olanya Jimmy Olenge

Better prospects for the Microfinance Industry


Feature

Byamugisha Odomaro1

1 Byamugisha Odomaro, currently operating a microfinance-based consultancy firm (MICROFIN ENTERPRISES CONSULT LIMITED), has a 21 years experience in microfinance, was a senior manager in Centenary Bank, Credit Monitoring Officer under Ministry of Finance, Microfinance Officer under Kigezi Private Sector Promotion Centre and is now completing his Masters Programme in Microfinance.

Introduction

Most SACCOs are located in rural areas of Uganda; which areas are mainly engaged in agriculture. Some of those engaged in agriculture and have accessed agricultural loans to facilitate them in boosting agricultural production and productivity have had difficulty in repaying the loans. The main concern has been the poor performance of agricultural loans in terms of portfolio quality. Lending to agriculture has become costly for SACCOs due to poor loan repayments. It has been realized that like the mainstream large commercial banks, SACCOs tend to shun lending to agricultural projects and lay more emphasis on business loans which are less risky. Agricultural projects are subject to perils of nature such as drought, hailstorms, soil erosion, floods and pests. Financing agricultural projects is therefore a risky venture yet a backbone for survival of both urban and rural areas in terms of supply of food, and other farm products.

Significance of Agriculture to growth and poverty reduction

As stated in the Poverty Eradication Action Plan (PEAP) (2004/05 – 2007/8), about 86% of the

population lives in rural areas and 77% of the active labour force in rural areas is employed in agriculture. Agriculture is by far the largest employer of Ugandans in rural areas despite a declining share in GDP. Moreover, 96% of those below the poverty line live in rural areas. Hence agricultural growth is critical for poverty reduction and rural development (PEAP, 2004/5 – 2007/8). But in spite of this, smallholder agriculture, on which the bulk of agricultural output is hinged, has not provided a base for improved livelihoods because of the fact that its potential is not fully exploited. Schultz (1980) in his acceptance speech of the Noble prize in Economics stresses the case for understanding the role of agriculture in poverty alleviation and rural development. He states thus:

“Most people in the world are poor, so if we knew the economics of being poor we would know much of the economics that really matters. Most of the world’s poor earn their living from agriculture, so if we knew the economics of agriculture we would know much of the economics of

being poor” Schultz (1980: 639).A number of factors, including limited access to financial services, poor infrastructure, small land holdings, and the nature of land tenure systems, have been identified to limit the full exploitation of the agricultural potential in Uganda and other developing countries.

Few countries will significantly reduce poverty, nor will the world community achieve the Millennium Development Goals (MDG), if agriculture and rural development are ignored. The first MDG to “eradicate extreme poverty and hunger” cannot be reached without addressing the livelihood issues of the 70% of the world’s poor who live in rural areas, and without ensuring access to food of the poorest and most vulnerable. Rural people are also the custodian of much of the world’s land and water resources, and biodiversity, and will be central to achieving MDG on environmental sustainability. Other MDGs such as gender equality (many farmers are women), child nutrition (depends on access to nutritious food), and market access (especially international trade in agriculture which remains

Savings and Credit Cooperative Organistions (SACCOs)

in Uganda Shun Agricultural Lending

There is need of agricultural loan products which have terms and conditions that would make agricultural lending attractive to both the SACCOs and the clients; in addition, SACCOs need to institute proper management of agricultural loans in order to realize better portfolio quality.


Feature

Byamugisha Odomaro1

1 Byamugisha Odomaro, currently operating a microfinance-based consultancy firm (MICROFIN ENTERPRISES CONSULT LIMITED), has a 21 years experience in microfinance, was a senior manager in Centenary Bank, Credit Monitoring Officer under Ministry of Finance, Microfinance Officer under Kigezi Private Sector Promotion Centre and is now completing his Masters Programme in Microfinance.

Introduction

Most SACCOs are located in rural areas of Uganda; which areas are mainly engaged in agriculture. Some of those engaged in agriculture and have accessed agricultural loans to facilitate them in boosting agricultural production and productivity have had difficulty in repaying the loans. The main concern has been the poor performance of agricultural loans in terms of portfolio quality. Lending to agriculture has become costly for SACCOs due to poor loan repayments. It has been realized that like the mainstream large commercial banks, SACCOs tend to shun lending to agricultural projects and lay more emphasis on business loans which are less risky. Agricultural projects are subject to perils of nature such as drought, hailstorms, soil erosion, floods and pests. Financing agricultural projects is therefore a risky venture yet a backbone for survival of both urban and rural areas in terms of supply of food, and other farm products.

Significance of Agriculture to growth and poverty reduction

As stated in the Poverty Eradication Action Plan (PEAP) (2004/05 – 2007/8), about 86% of the

population lives in rural areas and 77% of the active labour force in rural areas is employed in agriculture. Agriculture is by far the largest employer of Ugandans in rural areas despite a declining share in GDP. Moreover, 96% of those below the poverty line live in rural areas. Hence agricultural growth is critical for poverty reduction and rural development (PEAP, 2004/5 – 2007/8). But in spite of this, smallholder agriculture, on which the bulk of agricultural output is hinged, has not provided a base for improved livelihoods because of the fact that its potential is not fully exploited. Schultz (1980) in his acceptance speech of the Noble prize in Economics stresses the case for understanding the role of agriculture in poverty alleviation and rural development. He states thus:

“Most people in the world are poor, so if we knew the economics of being poor we would know much of the economics that really matters. Most of the world’s poor earn their living from agriculture, so if we knew the economics of agriculture we would know much of the economics of

being poor” Schultz (1980: 639).A number of factors, including limited access to financial services, poor infrastructure, small land holdings, and the nature of land tenure systems, have been identified to limit the full exploitation of the agricultural potential in Uganda and other developing countries.

Few countries will significantly reduce poverty, nor will the world community achieve the Millennium Development Goals (MDG), if agriculture and rural development are ignored. The first MDG to “eradicate extreme poverty and hunger” cannot be reached without addressing the livelihood issues of the 70% of the world’s poor who live in rural areas, and without ensuring access to food of the poorest and most vulnerable. Rural people are also the custodian of much of the world’s land and water resources, and biodiversity, and will be central to achieving MDG on environmental sustainability. Other MDGs such as gender equality (many farmers are women), child nutrition (depends on access to nutritious food), and market access (especially international trade in agriculture which remains

Savings and Credit Cooperative Organistions (SACCOs)

in Uganda Shun Agricultural Lending

There is need of agricultural loan products which have terms and conditions that would make agricultural lending attractive to both the SACCOs and the clients; in addition, SACCOs need to institute proper management of agricultural loans in order to realize better portfolio quality.

Savings and Credit Cooperative Organistions (SACCOs) in Uganda Shun Agricultural Lending

highly protected) depend directly or indirectly on pro-poor agricultural growth.

Significance of agricultural credit

Agricultural sector policy analysts identify the sector’s credit needs as part of the required resource inflows (Timmer,1998), to enable the sector to contribute positively to economic development by providing: food security, and as a wage good to keep the cost of labour affordable to emerging non agricultural sectors; raw materials for agro-based industries; foreign exchange earnings for consumer goods, and capital goods to expand the productive capacity of the economy; employment income as a base for purchasing power to raise aggregate demand for non-agricultural output, especially emerging import substitution; and contributions to tax revenue for the treasury.

Challenges in agricultural credit

As cited by Rural Savings Promotion and Enhancement of Enterprise Development (Rural Speed), Agricultural Credit accounts for less than 10% of the total regulated financial institutions loan portfolio in Uganda. These regulated institutions, as well as non-regulated institutions, see agriculture lending as risky and are reluctant to venture into or reintroduce agriculture finance products [(http://www.speeduganda.org/index).

The recent data (MFPED 2003), reflects a small shallow and narrow coverage in number of clients and areas covered by formal financial institutions (commercial banks) rendering financial services to only 10% of the urban and 5% of the rural population. The consequences of a narrow-shallow and urban based financial structure is the crowding agriculture out of the formal credit market (as illustrated in the table below) in favour of non-agriculture,

had just under 1 million members, and a total loan portfolio of Shs.86.5 billion; the average loan size was Shs.262,533. The majority of loans are non-agricultural enterprises in urban or peri-urban areas. ……..Government is seeking to encourage the microfinance institutions to move into less served areas and activities, in particular agriculture” PEAP (2004/5-2007/8, p69-70).

This scenario of MFIs shunning agricultural lending explains the current efforts by Government of Uganda through the Bonna Baggaggawale program providing low interest agricultural loan fund at 9% to MFIs that is being administered by Microfinance Support Centre Limited (MSC).

As else where in the world, most microfinance portfolios include rather few loans which have been taken to finance crop cultivation. The smaller community owned village banks and co-operatives are constrained by their lack of funds (Klein B et al., 1999, p. 8), and few NGOs and MFIs are engaged in crop lending (Coffey E, 1998). MFIs which have ventured into crop financing such as Basix in India have had relatively poor experiences with this kind of loan (DiLeo P, 2003). In the Bangladesh Grameen Bank’s 2003 list of the 25 most popular loan activities, power tillers, for which 217 loans were taken, and

particularly trade and commerce.Despite the focus of MFIs with comparative advantage that can be adapted to provide credit to small holders, agriculture’s share of MFIs credit is only 14%. Agricultural lending is known to be more risky than business loans and hence many microfinance institutions and even commercial Banks rarely give loans to this sector.

More challenges of agricultural credit are encountered in the Uganda government efforts to fight poverty through improvement of access to microfinance services. As expressed in the PEAP (2004/5-2007/8, p69), credit services for the poor have been found to make positive impact on household income for those engaged in short term financing of Micro, Small and Medium Scale Enterprises (MSMEs) because most of them have quick returns and owners can begin to pay back loans in relatively short time. However, with regard to agricultural credit, the story has been different; the microfinance industry has hitherto been less effective at financing agricultural activities.

Despite a considerable growth in microfinance in recent years in Uganda, MFIs continue to shun agricultural lending; as cited in PEAP:

“A survey, by the MFPED in 2002, of over 1,000 MFIs revealed that MFIs

The following table shows the share of MFIs’ credit borrowers by economic activity.

ECONOMIC ACTIVITY SHARE IN MFI CREDIT %

Commerce 72

Services 11

Crops production 9

Animal husbandry 4

Manufacturing 3

Agro processing 1

TOTAL 100

Source: MFPED (2003), from a survey of MFIs in 2 sub-counties per each of the 56 district in Uganda (2003).


shallow tube wells, with 562 loans, are the only farming activities by our definition. By contrast, 18,037 loans were given in the same period for grocery shops, and 12,881 loans for stationery shops (Grameen Bank, 2003).

Another challenge of agricultural credit concerns the terms and conditions of agricultural loans. As cited by Pearce D, (2005, p.32) “Agricultural production often requires staggered cash disbursements to meet production schedules, while allowing for large lump-sum payments at or soon after harvest or the slaughter or sale of livestock.” While borrowing on the basis of anticipated crop production might seem logical, such loans expose the lender and borrower to production and price risk. Conventional micro credit relies heavily on short-term loans with frequent, regular repayments, a model that does not fit well with seasonal crop production or livestock production. Natural disaster, a decline in market prices, unexpectedly low yields, the lack of a buyer, or loss due to poor storage conditions are only some of the factors that can result in lower than expected revenues. Such a fall in revenues can often lead to high default rates on agricultural loans.

Poor performance of agricultural credit as cited by Meyer (2004, p 51) is attributed to internal factors within the SACCOs; he points out that high rate of arrears can be attributed to poor lending practices and collection policies, this is aggravated by lack of strong financial and managerial skills by managers and employees. Meyer points out what he terms as long term management problems in the SACCOs, that often there is lack of commitment on the part of Boards and/or Managers to make necessary changes so as bring in skilled personnel. SACCOs are expected to be having and implementing loan policies and procedures with well designed loan products; lack

of these accounts for high portfolio at risk which discourages further lending to agriculture. The blame, in this case, should be shifted to poor management of the agricultural loans.

Poor management of an agricultural loan scheme can be another challenge as was the case in Uganda in the 1980s; as observed by Mpuga:

“On the part of the government, a number of credit programmes targeting the poor have been implemented. However, the government programmes do not engage in any form of savings mobilisation but rather focus on provision of credit to the poor at subsidised interest rates. Examples of such programmes include the Rural Farmers Scheme, which was launched in 1987 through the UCB. However, its coverage, in terms of amounts of loans disbursed, and number of beneficiaries was limited. It was also constrained by abuse and several loans remained uncollected because of corruption. Many people who borrowed from this scheme used the loans as if they were grants and never wanted to pay back. Other government interventions since then include the Poverty Alleviation Project (PAP), Programme for the Alleviation of Poverty and Social Costs of Adjustment (PAPSCA) and entandikwa credit scheme.” Mpuga (2004,p.8).

What befell the Rural Farmer Scheme in Uganda in the 1980s can happen to a SACCO. Credit to small holder agriculture has had a poor record. The then Uganda Commercial Bank (UCB) Rural farmers Scheme (RFS) failed for a number of reasons, amongst which were poor timing of loan disbursements (in the wrong season), insufficient capacity to analyse credit-worthiness and to recover loans. Loans were also supply driven instead of demand driven – this led to misuse of loans disbursed.

However, cases have been cited where lending to agriculture has been seen to be more attractive. Lessons learnt from Asia by Bank Rakyat Indonesia (BRI) with 20% loans in agriculture, and the Bank for Agriculture and Agriculture Cooperatives (BAAC) in Thailand with 92% of its portfolio to individual farmers shows that agricultural lending is viable. Both institutions serve very many individual borrowers using innovative lending methodologies and are profitable (Yaron 1998). From Latin America, two institutions, amongst others, have operated successfully agricultural lending programmes. Financiera Calpia (El Saivador ) and Caja Los Andes (Bolivia) are examples to mention. Calpia has nearly eight years experience while Los Andes has 6 years of experience (Buchenau 1997). Among reasons why lending to agriculture has been successful in these areas is that the lending institutions always financed agricultural production adopting friendly methodology which takes into account the seasonal nature of farm incomes and expenses, and most significantly by giving a loan repayment plan that matches with the cash flow situation of farm production.

Conditions for good performance of agricultural credit

Lessons can be drawn from PRODEM which is a rural MFI in Bolivia. It designed its lending products by using market research to understand the financial service demands of agricultural clients. Its agriculture loans are based on matching disbursement and repayment to agricultural production cycles. Flexibility in loan disbursement and repayment is needed, with finance made available when farmers need it and repayments matching income from produce sales (Lee, 2000; Rubio 2003) (internal report prepared for CGAP).



Under the Microfinance Outreach Plan (MOP), the Government of Uganda has among its priority actions for credit services to the poor, the strategy of developing and monitoring mechanisms through which MFIs can meet the needs of small scale agriculture (PEAP 2004/5-2007/8, p70). There is provision of capacity building services to enhance incentives and development of innovative agricultural loan products for service delivery in rural areas.

Drawing on a few significant, successful experiences in various developing countries, a CGAP occasional paper (Pearce. D 2005, p 12) offers a model, termed agricultural microfinance, for providing financial services to poor, rural farming households. This model combines the most relevant and promising features forming a hybrid defined by ten main features. The analysis here has found that successful agricultural microfinance lenders rely on various combinations of these features to mitigate the risks associated with lending to farming households. The occasional paper suggests that to be successful in agricultural microfinance, a substantial number of these features seem to contribute to a well-performing portfolio, in diverse combinations, in a variety of circumstances. The following are the said features:

• Repayments are not linked to loan use: The borrower is assessed according to his/her household income not on the expected income from the sale of the crops on harvest.

• Character-based lending techniques: In order to reduce credit risk due to agricultural lending, a lending model is adopted that combines reliance on character such as group guarantee system or close follow up on late repayments

• Savings mechanisms are provided. Compulsory savings or a protection fund is instituted to cater for repayments during lean times.

• Portfolio risk is highly diversified. This looks at lending to a wide variety of farming house, including clients that deal in more than one crop or livestock activity.

• Loan terms and conditions are adjusted to accommodate cyclical cash flows and bulky investments. Cash flows are highly cyclical in farming communities. Successful agricultural micro-lenders have modified loan terms and conditions to track these cash-flow cycles more closely.

• Contractual arrangements reduce price risk, enhance production quality and help guarantee repayment. For agricultural traders and processors, contractual arrangements that combine technical assistance and the provision of specified inputs on credit have worked to the advantage of both the farmer and the market intermediary.

• Financial service delivery piggybacks on existing insti-tutional infrastructure or is extended using technology. Attaching delivery of financial services to infrastructure already in place in rural areas, often for non-financial purposes, reduces transaction costs for lenders and borrowers alike and creates potential for sustainable rural finance even in remote communities.

• Membership-based organi-sations can facilitate rural access to financial services and be viable in remote areas. Lenders generally face much lower transaction costs when dealing with an association of

farmers as opposed to numerous individual, dispersed farmers if the association can administer loans effectively. Membership-based organizations can also be viable financial service providers themselves.

• Area-based index insurance can protect against the risks of agricultural lending. Loan insurance schemes have proved successful.

To succeed, agricultural microfinance must be insulated from political interference. Agricultural microfinance cannot survive in the long term unless it is protected from political interference. Even the best designed and best executed programmes wither in the face of government moratoriums on loan repayment or other such meddling in well-functioning systems of rural finance.

Another condition for successful performance of agricultural loan is engaging specially trained staff especially loan officers in agricultural microfinance. For example, Uganda’s Centenary Rural Development Bank trained loan officers in agriculture and agribusiness to help them understand farming as a business and thus more effectively monitor farmer clients (Ayee, 2002a). Such skilled staff can develop sophisticated tools to support the credit decision process. The Economic Credit Institution, a microfinance institution in Bosnia and Herzegovina that holds about half its portfolio in agriculture, uses spreadsheets for key agricultural products compiled by an agronomist. In addition to using this tool to conduct cash-flow analyses of proposed agricultural activities, the Economic Credit Institution uses its experience in various agricultural sectors (cattle breeding, agriculture, apiculture) to evaluate potential loans (Shrader, 2003).


The Microfinance Banker Vol. 9 Issue 1 2009�0

REFERENCES

AYEE, G. 2002a, “Centenary Rural Development Bank: Agricultural Lending”. Consultant report prepared for the Consultative Group to Assist the Poor, Washington, DC.

COFFEY, E. 1998. Agricultural Finance: Getting the Policies Right, Rome, FAO/GTZDILEO, P. 2003. Building a reliable MFI funding base: donor flexibility shows results, CGAP, Washington

Grameen Bank, (2003) Annual Report, Dhaka

GONZALEZ-VEGA, C. 1984. Credit-rationing behaviour of agricultural lenders: The iron law of interest restrictions, in Adams, D.W., D.H. Graham and J.D. Von Pischke, 1984. Eds.) Undermining Rural Development with Cheap Credit. Westview Press, Boulder and London.

KLEIN, B et al. 1999. Better Practices in Agricultural Lending, Rome, FAO/GTZ

LEE. 2000, RUBIO. 2003. (internal report prepared for CGAP)

MEYER L.R, et al. 2004. Agricultural Finance in Uganda. The Way Forward.

MFPED, 2004/5 – 2007/8. Poverty Eradication Action Plan

MPUGA, P. 2004. Demand for Credit in Rural Uganda: Who Cares for the Peasants? A paper presented at the Conference on Growth, Poverty Reduction and Human Development in Africa Centre for the Study of African Economies

MFPED, Microfinance Outreach Programme. 2003. Rural Finance in Uganda: A Brief Assessment of issues, Nature of Microfinance Support to Agriculture and Livestock Strategies

PAXSON, H.C. 1992. .Using weather variability to estimate the response of savings to transitory income in Thailand,. The American Economic Review. 82:1. March 1998.

PEARCE, D. PECK, R. 2005 Managing Risks and Designing Products for Agricultural Microfinance. Features of an emerging model. Washington, DC: Consultative Groupto Assist the Poor (CGAP).Republic of Uganda, Agricultural Policy Committee (1994), Appraisal of Rural Finance and Credit Schemes Vol.2, Bank of Uganda: Agricultural Secretariat.

SCHULTZ, T,W. 1980. Noble lecture: The economics of being poor, Journal of Political Economy. 88:4 pp. 639-651.

SHRADER, L, W. 2003. “Sustainable Expansion Strategies: Case Studies of 18 Regional Leaders in Microfinance”. Research Study. Warsaw: Microfinance Centre.

SSEMOGERERE, G.N. 2003. Financial Restructuring Under SAPs and Economic Development, with Special Reference to Agriculture and Rural Development: A Case Study of Uganda.

TIMER, EP. (1998). Agricultural Transformation. Ed. H.B. Chenery. Hand Book of Development Economics. Vol. 1 Elsevier Science Publishers.

Uganda Bureau of Statistics, Uganda National Household Survey, 2002/03. Socio – Economic Survey.

WIERSMA, W. 1995. Research methods in education: An introduction (Sixth edition). Boston: Allyn and Bacon.

YARON, J. BENJAMIN, M., 1998 A (Rural) Microfinance in Developing Countries: Lessons from other Countries


MB

The Microfinance Banker Vol. 9 Issue 1 2009��

Introduction

The microfinance sector has grown steadily in Uganda from time to time. A few

good policy packages and laws have supported the growth of the microfinance sector in order to expand its vital services to the rural poor. The Microfinance Deposit taking Institutions (MDI) bill, for example, was passed by Parliament in November 2002; a three-year Strategic Plan for the Expansion of Sustainable Microfinance, also called the Outreach Plan, was also developed under the auspices of the Microfinance Forum approved in fiscal year 2003/2004; and a complementary Rural Financial Services Program was appraised and successfully negotiated to assist in capacity building, to provide demand-driven training of microfinance staff and customers, product development and promotion of agricultural finance, achieving increased access to rural financial services by rural people, and building a business culture amongst rural borrowers.

As a result, the steady growth of the Microfinance institution has put many people on the pathway to socio-economic development, by providing low-income people with small loans, micro credits, the saving-investment portfolio and other micro financial services.

Indeed, these services are viewed as an impetus to exploit people’s productivity and develop their businesses so as to improve their livelihoods in order to enable them get out of the vicious cycle of poverty. Because of the need to earnestly empower the people economically, the Ugandan microfinance today is a large and

dynamic industry catering for well over 2 million people throughout the country.

The Gender dimension of the microfinance sector

However as in many developing countries like Uganda, the same microfinance sector has extensively targeted the gender dimension of poverty other than focusing on the sector wide delivery approach. The rural women, for instance, have benefited at length from access to micro-credit and most of the microfinance literature seems to target this class of people more profoundly than other social groupings. But it is important to note that the campaign to utilize the microfinance sector to eradicate poverty should cut across social stratifications. There are still numerous groups of society that still suffer the effects of poverty and economic deprivation, apart from the women who are the majority beneficiaries of micro credit, and these groups have no access to micro-credit. One of the most common of such groups

Economic Empowerment of Teachers through

Microfinance services’ access:

Assessing the possibilities in Uganda

Denis Sekiwu1

1Denis Sekiwu, [email protected] Lecturer at Buganda Royal Institute of Business and Technical Education.Mobile 256 772 356 434

Because of the need to

earnestly empower the people

economically, the Ugandan

microfinance today is a large

and dynamic industry catering

for well over 2 million people

throughout the country.


are the teachers especially those in Universal Primary Education schools.

Rural based teachers in UPE schools are some of the most economically vulnerable groups of professionals that need the assistance of these microfinance institutions. There is strong need to widen the microfinance area of coverage to solidly embrace the teachers as it has been supportive to the rural women. This paper argues for the need to economically empower teachers through the Microfinance credit delivery paradigm so as to tackle the many financially related problems this group faces. Without economic support, teachers lack the morale to double their effort in schools. As highly vulnerable groups, teachers should be given equal consideration to access huge microfinance services in order to jumpstart themselves out of the vicious cycle of poverty. Micro-credit facilitation at low interest rates provides opportunities for economic advancement, which include the development of a savings and investment culture among low-level earners.

A committed team of co-implementers

The effective implementation of the universal primary and secondary education programs requires a committed team of co-implementers with the intensity to achieve. This means that teachers need to be financially motivated in the struggle to achieve educational efficiency. The teaching profession, for example, has the largest number of vulnerable civil servants in Uganda with most teacher earnings not commensurate to

the prevailing cost of living and every rising market prices of goods and services. Many primary school teachers for example earn only 200,000/= as monthly salary much below their monthly expenditure of approximately 300,000/= or even above. In such a case, it is still difficult to enable these teachers to improve their livelihoods amidst an unbalanced household income-expenditure pattern. In addition, teachers can hardly save and invest because of their low-income levels

and the high tax remittances they face.

Indeed the unpleasant economic situation of most teachers is enough to place most of them among the economically under deprived groups that qualify for financial assistance in the form of loans and credit. Micro credit serves as an overall and broad based income growth accelerator to the poverty stricken groups. It raises the volume of savings and investment and it improves the allocation of financial resources at a micro level especially if the financial institution’s administrative cover like interest rates is quite reasonable. Through these routes, microfinance institutions have a positive impact on the economic growth and development of marginal groups. These micro finance institutions provide friendly credit at affordable costs because they have emerged as institutions

applying sound economic principles in the provision of financial services to low-income customers. Therefore, if such services could be extended to the teaching profession at friendly conditionalities, then there is no doubt that this group will massively benefit from the sector.

In many countries, the microfinance sector provides many financial products that match the needs of low-income clients. By using innovative collective monitoring to strengthen repayment performance and charging low interest rates that cover operational costs, the microfinance sector has enabled the poor to benefit expansively. It is important to underline the fact that easy access to credit is more beneficial to the poor borrowers than interest rate subsidy. Targeted public-private sector credit programmes, especially if they are subsidized, benefit the poor teachers the more. The poor want credit that is available on acceptable terms and when they need it. However, there is a general consensus in the literature that access to credit by the poor is necessary but not sufficient to guarantee the success of micro-credit schemes.

Weighing the roles and strength of the microfinance institutions among the teachers.

In Uganda, like other developing countries, the role of the microfinance sector in revamping the poor out of poverty and deprivation cannot be underestimated. Therefore, the same micro credit can be utilized to enable poor teachers start and access individual as well as community based economic projects. However, how best can

Economic empowerement of teachers through microfinance services’ access

There is strong need to widen the

microfinance area of coverage

to solidly embrace the teachers

as it has been supportive to the

rural women.


teachers be better involved in micro credit access? Which method of micro level borrowing is globally acceptable by both the lending institutions and the borrowers? Apart from trying to promote the gender dimension in micro-credit access as the goal of the current global development agenda, it is still true that women have been the biggest micro-credit beneficiaries in the developing world because it has also been easier for in micro credit providers to process group borrowing than individual borrowers especially through the rural women. Women have been easy to organize into group borrowing through the SACCOS and other women economic initiatives at the grassroots level. This is why it is, undoubtedly; true that women access to micro-credit has been increasing from time to time in developing countries.

Therefore, in order to better manage micro-credit access to teachers it is important to encourage a spirit of collective loaning and group micro-credit access. The influence of the poor teachers in the whole process of identifying and managing community based projects that respond to the priority needs of the poor is considered essential if it is critical to ensuring group based local commitments, collective participation and sustainability. It is easier to lend a group than an individual because group loaning increases the capacity for sustainability and increased loan repayment.

In fact, group participation of the poor teachers in the whole process is an integral part of the United Nations Development Program (UNDP) micro-credit strategy, which recognizes the social, cultural and financial considerations that are necessary for any successful scheme. Thus, in order to assist teachers to access micro-credit

and be in position to service it without strenuous compliance, it is important to encourage group based or community based credit acquisition for these teachers. The teachers, especially those who earn little, can join the micro credit scheme by organizing themselves into small self-help programs to be in position to fight poverty in their homes.

Collective participation in micro-credit management further means that teachers can participate in making credit decisions that favor them. Experiments with many community-based credit programmes in which the poor actively participate in the making of lending decisions and, which are subject to peer accountability, have been successful in reaching the target group at reasonable cost. Micro-credit support under the sector-wide approach therefore

leads clearly to the adoption of people and community-centered participatory development approaches in which the community and group involvement and ownership is the basis for building a sustainable micro-credit administration. Therefore, teachers can be enabled to access micro-credit if they accept to form group interventions so as to easily manage borrowing. Collective participation

yields consensus building, mutual sharing and effective decision-making which values are critically vital in economic revitalization.

Can the Micro-finance play a positive role in achieving poverty eradication and sustainable development among the poor teachers?

The microfinance sector in Uganda bears the strongest capacity and facility to eradicate poverty and ensure sustainable development for the poor. This is partly explained after comprehensive test on the capacity of the traditional commercial banks in providing extensive credit services to the poor. It has been observed and concluded that the commercial banks are not very friendly to the poor, as they would do with the corporate world and rich investors. Because of their incapacity to meet the requirements of the poor, the idea of the microfinance came into play. In 2005 for instance, the United Nations (UN) summit campaign on microfinance concluded that while traditional financial institutions tend to lend to the rich, micro-finance institutions lend to the poor. Banks have not been friendly to the teachers because of four reasons: 1. Most banks charge high

interest rates leading to low repayment rates on the side of the borrower.

2. Banks tend to charge collateral security, which is in most cases hard to acquire, which discourages borrowing, saving, so as to earn incomes. It is believed that in most cases many banks ask for land titles luring off intending customers. Not many of the poor customers can afford getting collateral equivalent to land tittles.

3. The same banks tend to fix very stringent credit management


In fact, group participation of

the poor teachers in the whole

process is an integral part of the

United Nations Development

Program (UNDP) micro-credit

strategy, which recognizes the

social, cultural and financial

considerations that are necessary

for any successful scheme.


requirements in the form of lengthy documentation as requirements of a strict bureaucratic system. At the time of finalizing the process customers are already giving up the offer.

4. In most cases, banks prefer dealing with already established businesspersons, which is hard to attain by most low-income customers.

Because of the above misnomers characterizing the process of credit access in most banks, micro-financing institutions have sprung up with a view to bridge the gap. The idea of credit financing to the poor has been greatly suffocated by the unfriendly and unachievable demands of the banks, which is why the micro-financing institution was commissioned as an instrument to provide access to the low-income earners. Microfinance started out with the provision of small credits to the ‘entrepreneurial poor’, but today it is a major ‘industry’ providing micro credit savings, insurance and other financial services to poor individuals.

The way it is institutionalized differs, going from NGOs, donor founded entities to specialized commercial microfinance banks. In the last 30 years, the idea to provide small loans to the poor as part of a poverty reduction process has become one of the most promoted concepts of all time. In its most commercial format – where microfinance institutions are expected to survive by ‘earning their keep on the market’ and thus require no further government or international donor subsidies – the concept was gradually incorporated standard international donor-led poverty reduction programmes.

The overall objective of the Millennium Development Goal is to reduce poverty by half by 2015.

In 2000, the UN micro-credit summit targeted to reach 100 million people by 2009. However, reaching such targets requires flexible credit measures that are affordable by all. Microfinance can indeed be done sustainably with people of very low incomes, but it cannot reach them all if pro-people processes of administration of the credit are not underway. Experience shows that majority of the teachers are poor and need access to financing facilities in

order to begin self help projects in a bid to enjoy from the prosperity for all program.

Failure to administer micro-credit in accordance with best practices like offering subsidized credit can create unsupportable levels of borrower debt among the clients. Micro credit is appropriate for households that already have a discipline in loan repayment. Lending to clients who wont be able to repay the loan, unless their investments proceeds prove successful, is simply too risky both for the client and for the Micro-finance institutions. The micro finance institution has the capacity to finance training sessions that can support better micro-credit acquisition. Through such trainings, borrowers are reminded of their duty of repayment and how to better invest borrowed money.

Poverty: the compelling challenge to teachers

Poverty is one of the most

compelling challenges in Uganda and is more prevalent in rural areas. Government aims at eliminating mass poverty and has the medium term vision of reducing poverty below 10% by 2017. Microfinance has increasingly become a popular option for poverty alleviation with the government currently laying emphasis on the development of SACCOs to improve access to finance and encourage household savings. To this effect, the teaching profession is one of those sections flanked by the need to alleviate poverty among its staff through enjoying from the general micro-credit policy in the country.

Historically, the teaching profession has experienced a number of economic pitfalls. The1970s ushered in a period of a gross economic depression due to bad governance, the 1973 world oil crisis, and the fall of the East African Community in 1979. These historical landmarks in throughout Uganda’s political-economic history greatly impacted on the teacher’s welfare. As a result, many fled the profession for greener pastures. For sometime, teachers have been kept in deprivation to an extent that they now need economic revival to enhance their economic growth through productivity and also improve their livelihoods and incomes.

A Multi-dimensional Perspective to Micro finance: The expanded outreach

In order to encourage and support the strength of the micro financing institution in building a flexible credit environment for the teacher, there is need to recognize the viability of a multi dimensional perspective in credit financing (Expanded outreach). The microfinance industry in Uganda

Failure to administer micro-

credit in accordance with best

practices like offering subsidized

credit can create unsupportable

levels of borrower debt among

the clients.



needs to go beyond financing the rural poor and women alone through the sub-county model to broaden capacity by considering other lending options like the teaching profession. Microfinance is a key strategy in reaching the Millennium Development Goals (MDGs) and in building global financial systems that meet needs of most poor people. Although microfinance has demonstrated the potential to reduce poverty, its impacts have varied. Not all classes of people and sections of society have benefited equally. They would have positive effects everywhere if services respond all social needs.

The way to go into competitive and prudent microfinance is to adopt and kick start an all-bearing approach to credit acquisition. Individual micro financing institutions should be ready to extend their operations beyond to be all embracing. The industry should not be concealed to only the women as the biggest potential borrowers according to their wonderful borrowing record and the recent rhetoric that seem to favor them as a better fit. But in stead, it should spread its “fishing nets” to other horizons as a quest for diversity of market, creating of competitiveness, and the introduction of new products. Embracing an all-round approach mirrors a good image about micro finance as a socio-economic revolution intended to improve every body’s household welfare. Since their aim is mainly economic development of the society through the provision of loans and credit facilities to large sections of the poor, microfinance institutions are supposed to provide a win-win vision through building financially self-sufficient

organizations able to provide financial services, on a permanent basis, to increasing numbers of people and social groups there by expanding capacity and coverage.

The solution to expanding microfinance outreach can be through a remote transaction system (RTS) based on provision of low cost switches by a network of borrowing agents. The extension of the credit and borrowing facility to the teachers is one of such negotiations. In order to uplift the economic, financial, and social status of the poor, it is important to generate desired patterns of overall and broad-based income growth that target poverty groups through sector wide approaches. This can be done through the extension of credit to a number of clients through the strategic plan for the expanded outreach program. But

in order to target the teachers, the terms and conditions should suit the borrowers.

The way forwardHaving assessed the need to get teachers out of the vicious cycle of poverty, it is imperative to solidify this commitment by putting emphasis to the following policy remedies:

1. The microfinance institutions must extend their operations beyond the gender dimension

of micro-credit acquisition to include even the teachers since they are among the most economically vulnerable profession. Through the sector-wide approach and the expanded outreach of micro-credit this can be achieved.

2. Microfinance institutions should consider making their policy requirements friendly so as to fit within the credit portfolio for this group. Interest rates for borrowing and other legal operations should be borrower-led other than institutional-led.

3. Encourage collective borrowing as a roadmap to participative management of the credit system because of the associated benefits like customer-centered decision making, ownership of decisions and mutual sharing.

4. The credit industry should not be concealed to only the women as the biggest potential borrowers but should spread its “fishing nets” to other horizons as a quest for diversity of market, creating of competitiveness, and the introduction of new products.

References

Deninger, Klaus and Okidi, J. (2000). Market participation, Household incomes, productivity and non-farm enterprises, in Coller, P and Reinikka, H (2000) Rural households: Incomes, Productivity and Non-farm enterprises. The Ugandan Banker (2000). Journal of the Uganda Institute of Bankers, Vol. 8, No. 4, December, 2000.

The microfinance institutions

must extend their operations

beyond the gender dimension

of micro-credit acquisition

to include even the teachers

since they are among the

most economically vulnerable

profession.


MB


Over 3,300 microfinance institutions reached 133 million clients with a

microloan in 2006. 93 million of the clients were among the poorest when they took their first loan. 85 percent of these poorest clients were women.

Microcredit Summit Campaign Report 2007

Microcredit plays a critical role in empowering women; helps deliver newfound respect, independence, and participation for women in their communities and in their households.

Juan Somavia, ILO Director-General

Women workers throughout the world contribute to the economic growth and sustainable livelihoods of their families and communities. Microfinance helps empower women from poor households to make this contribution. Microfinance — the provision of financial services to the poor in a sustainable manner — utilizes credit, savings and other products such as microinsurance to help families take advantage of income-generating activities and better cope with risk. Women particularly benefit from microfinance as many microfinance institutions (MFIs)

target female clients.

Microfinance services lead to women’s empowerment by positively influencing women’s decision-making power and enhancing their overall socio-economic status. By the end of 2006, microfinance services had reached over 79 million of the poorest women in the world1. As such, microfinance has the potential to make a significant contribution to gender equality and promote sustainable livelihoods and better working conditions for women.

Women’s empowerment through microfinance is key for promoting the International Labour Organization’s (ILOs) Decent Work Agenda, which acknowledges the central role of work in people’s lives as a means for achieving equitable, inclusive and sustainable development. By increasing women’s access to financial services, microfinance ultimately contributes to ILO core values of greater gender equality and non-discrimination.

Why Target Women?Seventy percent of the world’s poor are women. Yet traditionally women have been disadvantaged in access to credit and other financial services. Commercial banks often focus on men and formal businesses, neglecting the women who make up a large and

growing segment of the informal economy.

Microfinance on the other hand often targets women, in some cases exclusively. Female clients represent eighty-five percent of the poorest microfinance clients reached2. Therefore, targeting women borrowers makes sense from a public policy standpoint. The business case for focusing on female clients is substantial, as women clients register higher repayment rates. They also contribute larger portions of their income to household consumption than their male counterparts. There is thus a strong business and public policy case for targeting female borrowers.

Children of women microfinance borrowers also reap the benefits, as there is an increased likelihood of full-time school enrolment and lower drop-out rates. Studies show that new incomes generated from microenterprises are often first invested in children’s education, particularly benefiting girls. Households of microfinance clients appear to have better health practices and nutrition than other households3 . Positive environmental impact is also achievable as microfinance programmes may support green

1Daley-Harris S. 007 Microcredit Summit Campaign Report 007.1Daley - Harris S. 007. Microcredit Summit Campaign Report 007.3Littlefield E., Morduch J. and Hashemis S. 00. Is Microfinance and an effective strategy to reach the Millennium Development Goals? Focus Note 4, CGAP.4ILO. 007 Green Jobs and global warning: ILO to discuss new initiatives for tackling climate change in the world of work. November 007.

International Labour OfficeGeneva


to page 21

Over 3,300 microfinance institutions reached 133 million clients with a

microloan in 2006. 93 million of the clients were among the poorest when they took their first loan. 85 percent of these poorest clients were women.

Microcredit Summit Campaign Report 2007

Microcredit plays a critical role in empowering women; helps deliver newfound respect, independence, and participation for women in their communities and in their households.

Juan Somavia, ILO Director-General

Women workers throughout the world contribute to the economic growth and sustainable livelihoods of their families and communities. Microfinance helps empower women from poor households to make this contribution. Microfinance — the provision of financial services to the poor in a sustainable manner — utilizes credit, savings and other products such as microinsurance to help families take advantage of income-generating activities and better cope with risk. Women particularly benefit from microfinance as many microfinance institutions (MFIs)

target female clients.

Microfinance services lead to women’s empowerment by positively influencing women’s decision-making power and enhancing their overall socio-economic status. By the end of 2006, microfinance services had reached over 79 million of the poorest women in the world1. As such, microfinance has the potential to make a significant contribution to gender equality and promote sustainable livelihoods and better working conditions for women.

Women’s empowerment through microfinance is key for promoting the International Labour Organization’s (ILOs) Decent Work Agenda, which acknowledges the central role of work in people’s lives as a means for achieving equitable, inclusive and sustainable development. By increasing women’s access to financial services, microfinance ultimately contributes to ILO core values of greater gender equality and non-discrimination.

Why Target Women?Seventy percent of the world’s poor are women. Yet traditionally women have been disadvantaged in access to credit and other financial services. Commercial banks often focus on men and formal businesses, neglecting the women who make up a large and

growing segment of the informal economy.

Microfinance on the other hand often targets women, in some cases exclusively. Female clients represent eighty-five percent of the poorest microfinance clients reached2. Therefore, targeting women borrowers makes sense from a public policy standpoint. The business case for focusing on female clients is substantial, as women clients register higher repayment rates. They also contribute larger portions of their income to household consumption than their male counterparts. There is thus a strong business and public policy case for targeting female borrowers.

Children of women microfinance borrowers also reap the benefits, as there is an increased likelihood of full-time school enrolment and lower drop-out rates. Studies show that new incomes generated from microenterprises are often first invested in children’s education, particularly benefiting girls. Households of microfinance clients appear to have better health practices and nutrition than other households3 . Positive environmental impact is also achievable as microfinance programmes may support green

1Daley-Harris S. 007 Microcredit Summit Campaign Report 007.1Daley - Harris S. 007. Microcredit Summit Campaign Report 007.3Littlefield E., Morduch J. and Hashemis S. 00. Is Microfinance and an effective strategy to reach the Millennium Development Goals? Focus Note 4, CGAP.4ILO. 007 Green Jobs and global warning: ILO to discuss new initiatives for tackling climate change in the world of work. November 007.

International Labour OfficeGeneva


Association of MicrofinanceInstitutions of Uganda (AMFIU) News

From a humble beginning to bringing together microfinance players thirteen years ago, the Association of Microfinance Institutions in Uganda

(AMFIU) has registered a resounding success with a landmark achievement of acquiring a multimillion building as our own home. The three floor storied building named AMFIU House, is located in Najjanankumbi, five miles away from Kampala on Plot 679, Wamala Road, off Entebbe Road.

The evolution of the Association of Microfinance institutions of Uganda (AMFIU) from a small, informal association of 1996 into the national network of MFIs and microfinance industry voice of today with its own building is truly a success story: the story of an initiative that has established firm roots for economic development and poverty reduction in Uganda.

As the microfinance fraternity celebrates AMFIU’s acquisition of its own home, we recognize the role played by the members of AMFIU. Their commitment to adhere to the membership code of practice has kept them

together and the realization that sustainability of their association must be high on their agenda made them to contribute immensely towards buying of the AMFIU House. The change in microfinance orientation from a purely aid-based social development agenda to becoming integrated in the national financial system is by any standard a significant achievement.

The Rise and Rise of AMFIUwww.amfiu.org.ug

Among many achievements is the recognition by the AMFIU members that unity of purpose is strength. AMFIU has successfully championed the cause for professional microfinance service delivery. AMFIU has engaged government, development partners and other stakeholders to acknowledge that proven professional microfinance delivery is the only way to poverty eradication among the economically active low income Ugandans.

AMFIU has lobbied and advocated on behalf of its members on issues that would otherwise have polluted the professionalism in the Ugandan microfinance industry. Among the achievements is the active participation in shaping the MDI Act 2003, possibly the first in Africa. The Lobby Subcommittee of the Microfinance Forum chaired by AMFIU, dissuaded government away from interest caps and direct financial service delivery.

Today, AMFIU is one of the leading national microfinance networks in Africa representing all tiers and categories of institutions, ranging from commercial banks and credit institutions (Tiers 1 and 2, licensed by the Bank of Uganda), to the licensed Microfinance Deposit-taking Institutions (MDIs) in Tier 3 and to the wide variety of Tier 4 institutions (savings and credit co-operative societies, NGOs, companies limited by guarantee, and companies limited by shares). AMFIU’s associate membership includes many non-MFI stakeholders, national and international.

The celebration of AMFIU acquiring its own premises is an opportunity for its members to assure themselves and all other stakeholders that we know where we came from, where we are and where we are going. Sustaining our successes, strengthening our capacity to implement programmes, addressing “hot” issues such as transparency, and regulation of Tier 4 MFIs are but a few of the challenges we face. We remain a strong network and information hub for a sustainable Microfinance Industry. It is indeed a story of rising and rising to greater heights to ensure national social and economic transformation.

We bought the building and the entire land at a cost of sh700m and we have used about sh68m for its renovation in the first phase. We still have two other buildings to renovate and the source of our funds has been members’ savings and a mortgage we acquired from dfcu bank.

Mr David T. Baguma, the Executive Director of AMFIU says the acquisition of the building is aimed at establishing itself firmly to ensure sustainable financial service delivery by its members. “We cannot do this if we are hanging. We had to devise ways of AMFIU sustainability which is also in line with our vision. Having a permanent home and establishing a training center to build the capacity of members has been a long time dream of AMFIU”

“Plans of ensuring this have been on for the last five years because it was a very big project and we did not have the money until we accumulated savings from our members and partners supporting our activities,” Mr Baguma says. “Two years ago, a resolution to find out a possibility and a financing plan came up. “The plan was presented to the general meeting and was approved in the last year’s (2008) Annual General Meeting (AGM) when members made a specific contribution to the procuring of this facility.” “Members agreed to contribute three times their annual subscription fee as one time off contribution towards buying of the building. The plan was to use savings and member contributions but part of the money came from the donors that were paying rent and also from a mortgage from a bank.

“We purchased this building at Shs700 million but since renovation and restructuring we have spent Shs68 million for the first phase and the second phase is estimated to cost us Shs100million. To service the mortgage, we shall use savings from the would be rent fees from our Netherlands based donors Hivos and Cordaid and member subscription” says Mr. Baguma.

He further wishes to assure members that there will be no more threats of movement or eviction and that AMFIU would establish a training unit and a well stocked Resource center that will be a class of its own on microfinance issues after the completion of the second phase of restructuring.

Mr Baguma passionately acknowledges a number of stakeholders who contributed/shaped the direction of Microfinance in this country: Visionary Board of Directors (past and present) , dedicated staff , Government of Uganda that has given an enabling environment and development partners among whom include: Cordiad, Hivos, GTZ/Sida, ded, EU, Citi Foundation, SEEP, DFID/FSDU, SPEED/USAID , NAD , PSFU,MOP AMFIU and others committed management and staff, and most importantly its members.

For more information about AMFIU Please contact us atAMFIU House

Plot 679 Wamala Rd (off Entebbe Rd), NajjanankumbiP.O. Box 26056 Kampala

Telephone: 256 - 41 – 4259 176Fax: 256 - 41 – 4254420

Email: [email protected], Website: www.amfiu.org.ug

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Among many achievements is the recognition by the AMFIU members that unity of purpose is strength. AMFIU has successfully championed the cause for professional microfinance service delivery. AMFIU has engaged government, development partners and other stakeholders to acknowledge that proven professional microfinance delivery is the only way to poverty eradication among the economically active low income Ugandans.

AMFIU has lobbied and advocated on behalf of its members on issues that would otherwise have polluted the professionalism in the Ugandan microfinance industry. Among the achievements is the active participation in shaping the MDI Act 2003, possibly the first in Africa. The Lobby Subcommittee of the Microfinance Forum chaired by AMFIU, dissuaded government away from interest caps and direct financial service delivery.

Today, AMFIU is one of the leading national microfinance networks in Africa representing all tiers and categories of institutions, ranging from commercial banks and credit institutions (Tiers 1 and 2, licensed by the Bank of Uganda), to the licensed Microfinance Deposit-taking Institutions (MDIs) in Tier 3 and to the wide variety of Tier 4 institutions (savings and credit co-operative societies, NGOs, companies limited by guarantee, and companies limited by shares). AMFIU’s associate membership includes many non-MFI stakeholders, national and international.

The celebration of AMFIU acquiring its own premises is an opportunity for its members to assure themselves and all other stakeholders that we know where we came from, where we are and where we are going. Sustaining our successes, strengthening our capacity to implement programmes, addressing “hot” issues such as transparency, and regulation of Tier 4 MFIs are but a few of the challenges we face. We remain a strong network and information hub for a sustainable Microfinance Industry. It is indeed a story of rising and rising to greater heights to ensure national social and economic transformation.

We bought the building and the entire land at a cost of sh700m and we have used about sh68m for its renovation in the first phase. We still have two other buildings to renovate and the source of our funds has been members’ savings and a mortgage we acquired from dfcu bank.

Mr David T. Baguma, the Executive Director of AMFIU says the acquisition of the building is aimed at establishing itself firmly to ensure sustainable financial service delivery by its members. “We cannot do this if we are hanging. We had to devise ways of AMFIU sustainability which is also in line with our vision. Having a permanent home and establishing a training center to build the capacity of members has been a long time dream of AMFIU”

“Plans of ensuring this have been on for the last five years because it was a very big project and we did not have the money until we accumulated savings from our members and partners supporting our activities,” Mr Baguma says. “Two years ago, a resolution to find out a possibility and a financing plan came up. “The plan was presented to the general meeting and was approved in the last year’s (2008) Annual General Meeting (AGM) when members made a specific contribution to the procuring of this facility.” “Members agreed to contribute three times their annual subscription fee as one time off contribution towards buying of the building. The plan was to use savings and member contributions but part of the money came from the donors that were paying rent and also from a mortgage from a bank.

“We purchased this building at Shs700 million but since renovation and restructuring we have spent Shs68 million for the first phase and the second phase is estimated to cost us Shs100million. To service the mortgage, we shall use savings from the would be rent fees from our Netherlands based donors Hivos and Cordaid and member subscription” says Mr. Baguma.

He further wishes to assure members that there will be no more threats of movement or eviction and that AMFIU would establish a training unit and a well stocked Resource center that will be a class of its own on microfinance issues after the completion of the second phase of restructuring.

Mr Baguma passionately acknowledges a number of stakeholders who contributed/shaped the direction of Microfinance in this country: Visionary Board of Directors (past and present) , dedicated staff , Government of Uganda that has given an enabling environment and development partners among whom include: Cordiad, Hivos, GTZ/Sida, ded, EU, Citi Foundation, SEEP, DFID/FSDU, SPEED/USAID , NAD , PSFU,MOP AMFIU and others committed management and staff, and most importantly its members.

For more information about AMFIU Please contact us atAMFIU House

Plot 679 Wamala Rd (off Entebbe Rd), NajjanankumbiP.O. Box 26056 Kampala

Telephone: 256 - 41 – 4259 176Fax: 256 - 41 – 4254420

Email: [email protected], Website: www.amfiu.org.ug

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Microfinance Competence Centre Department News

Whenever I happen to meet two or more people, their conversation is about the credit crunch even when many cannot tell what

it is and lack of money. The advice they give to one another is to go and borrow. Thus, many people flock the financial institutions to borrow with or without security, in groups or individuals. The first places they think of running to for help are their banks –the village banks.

Now that microfinance is at the peak and on every ones lips, very many financial institutions have come up to embrace it. Through formation of SACCOs, Microfinance institutions, and some have even gone far to transform into Microfinance Deposit Taking

Basic Banking & Credit Analysis and Appraisal CoursesNankambo Kisaakye Rebecca, [email protected]

Institutions and Credit institutions, you name it.

With the view of carrying on the microfinance business/activities, many have embarked on capacity building by training their staff in Basic Banking and credit analysis and appraisal for the staff to be at least equipped with the basics of lower banking and be able to appraise potential clients who are in need of their products especially credit. It is important for credit officers to appraise well their clients in order to have a good portfolio. That is why MCC introduced the Basic Banking training course.

Post Bank Uganda started the year 2009 by enabling their staff to attend both the Basic Banking and Credit

Analysis and Appraisal courses conducted by the Microfinance Competence Centre (MCC), a Department in the Uganda Institute of Banking and Financial Services (UIBFS), the leading provider of training and consultancy services for Uganda’s financial sector.

The Basic Banking course

The Basic Banking course is a wide introduction to banks’ operations, designed for those entering or those who have entered the banking industry without any formal training in banking. The course gives participants an understanding of the basic

banking operations and overview of banking business to be able to perform their job in a financial institution. The products and services offered may create risks for financial institutions particularly when big transactions are handled; consequently this course includes an overview of Risks and Risk Management.

By the end of the Basic Banking course the Officers are able to:• Know and handle the range of services provided

by their institution.

• Understand the duties and responsibilities of the banker and customer.

• Know the procedures and requirements for opening and operating the various types of accounts that are available in a financial institution.

• Understand and appreciate the flow of routine work and be able to handle it effectively and efficiently.

• Be able to detect fraudulent tendencies and thereby prevent loss through fraud and forgeries.

• Demonstrate an understanding of processing cheques.

Credit Analysis and Appraisal Course

The Credit analysis and appraisal course is an introduction to credit technology whereby the lender has the ability to evaluate potential clients which is key to financial service delivery. The course reviews commonly applied credit methodologies, basic elements of individual lending credit technology. The main features of micro entrepreneurship upon which a credible credit proposal can be made include:• Explaining the principles of lending

• Describing the characteristics of the institution’s customers

• Accurately appraising individual credit applicants.

• Appreciating the importance of loan monitoring

With this so called credit crunch in our midst, and many more people yearning for loans, I would advise financial institutions to try these two and the best results will be expected.

For Inquiries and Registration:UIBFS Head Office: Plot 10 Buganda Road, Kampala – Tel: 0414 233 628; Fax: 414 234 259

MCC Office: Plot 76/78 William Street, Bank of Uganda Building :Tel: 414 255 847; Fax: 414 255 396Email: [email protected]

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jobs and renewable energy systems4. Microfinance therefore makes a strong contribution to the realisation of the Millennium Development Goals.

Avoiding Undesired Consequences

Although the positive impact of microfinance on women’s empowerment is evident, microfinance providers must also be cautious to avoid possible negative outcomes. Studies have shown that women sometimes have little or no control over their loan, with the husband or male family member making all decisions5. Moreover, differences in literacy, property rights and social attitudes about women may limit impact outside of the immediate household. Residents of rural areas specifically continue to have difficulties in accessing microfinance.

Women may also struggle with the heavier workload created by the responsibility for loan repayment. Changes in the access to finance influence the distribution of working time between men and women in the same household and between activities yielding different returns6. Evidence suggests that up to a point microcredit increases the workload of women and girls, perhaps offset by more equality in household decision-making7.

From an institutional standpoint, MFIs may decrease the percentage of women clients as they move upmarket in search of better financial returns or even transform into commercial banks. The proven business case for targeting female borrowers must therefore be emphasized, while at the same time strengthening MFI strategies for reaching women.

Strategies for advancing gender equality through microfinanceStrategies to facilitate positive impact on women form a basis for tailoring microfinance policies, practices and products to better address gender equality and promote women’s empowerment.

Internal MFI gender mainstreaming• Crucial components of

a proactive women’s empowerment strategy include training on gender analysis for MFI staff members, the utilization of female loan officers and the provision of equal employment and management opportunities for women. MFIs should also incorporate empowerment indicators, such as the proportion of women clients in the loan and savings portfolio, into client monitoring and assessment processes.

Adjusting financial services to better address women’s needs• Microfinance products generate

different outcomes for men and women. MFIs should therefore tailor product specifications, such as loan amounts and repayment schedules, to diverse client needs. Individual loan products designed for women are also important for enabling enterprise growth.

• Savings products designed for women are a fundamental element of risk management. A diversified MFI product offer should also include other financial services that help reduce vulnerability, such as microinsurance.

• Adjusting collateral requirements and encouraging the registration of property in women’s names are other essential components of gendered microfinance.

5Goetz A. and Sen Gupta R. 996. Who takes the credit? Gender, Power, and Control over loan use in Loan Programmes in Rural Bangladesh. World Development, Vol. 4, No. 4-6.6Hossain M. and Diaz C. 997. Reaching the poor with effective Microcredit: Evaluation of a Grameen Bank Replication in the Philippines. International Rice Research Institute.7Mayoux L. 000. Microfinance and the empowerement of women – review of key issues. Social Finance Programme working Paper no. ILO, Geneva

Promoting gender equality and decent work through microfinance in Tanzania

Lazia , 50 years old and 6 children, once worked in the quarries of Mtongani in Tanzania. Through an ILO supported project, Promoting Gender Equality and Decent Work. Throughout All Stages of Life, Lazia joined a women’s cooperative to help build a mushroom and hen house enterprise as an alternative to stone breakage.

The ILO project helped identify new economic activities and launch micro enterprises while training poor women in business management and marketing. Women gained new skills from the training to increase their access to sustainable livelihood opportunities. The socioeconomic empowerment of Lazia and other working mothers also led to direct improvements in overall family welfare, including a reduction in child labour, increased school attendance and improved protection against illness and sudden shocks. By opening up the schooling and training activities to girls and young women, the project helped break the generational transmission and feminization of poverty. Moreover, through microfinance, women previously excluded from the financial sector gained access to credit and effectively learned how to borrow, profit from, and repay loans.


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Non-financial services• Non-financial services with

conditionalities to credit access, such as carefully designed adult literacy and business training programmes, can facilitate women’s access to better jobs and income-generating opportunities and are perhaps the most effective means of promoting gender equality.

External marketing for community awareness• Marketing campaigns directed at

women can positively influence both men and women’s attitudes on women’s status and employment in the community by helping male community members to accept economic opportunities for women, by building women’s self-confidence and by facilitating community approval of women’s projects.

Groups to strengthen women’s networks• MFI women’s groups should

be utilized to promote and strengthen women’s networks and not merely as a means of lowering programme costs. Women’s groups are useful vehicles for non-financial service delivery, such as literacy and health programmes. Groups also encourage linkages between women and other active community associations and the larger civil society network as a whole.

Women, Microfinance and the ILO

Women’s empowerment through microfinance is an essential component of promoting the International Labour Organization’s Decent Work Agenda.

The Social Finance Programme (SFP) is the ILO’s focal point for microfinance. Operating via a Social

Finance Network across all sectors and regions, the SFP contributes to achieving gender equality and women’s empowerment through the promotion of more inclusive financial systems. The SFP’s Microfinance for Decent Work action research aims to reduce vulnerability, invest in job creation and strengthen social partners’ capacity to improve access to financial services. The SFP also works in cooperation with the Gates Foundation to manage the Microinsurance Innovation Facility, an experimental programme designed to improve men and women’s ability to cope and mitigate risk through micro insurance.

The ILO Bureau for Gender Equality supports policies and programmes throughout the organization that promote gender equality and lead to women’s empowerment. The ILO STEP(Strategies and Tools Against Social Exclusion and Poverty) programme researches microinsurance schemes in an effort to develop social protection for the poor. The WEDGE(Women’s Entrepreneurship Development and Gender Equality) team, part of ILO’s Small Enterprise (SEED) programme, works to enhance economic opportunities for women by developing tools and strategies specific to the needs of women entrepreneurs and by working to ensure gender is mainstreamed throughout the programme.

Selected ILO Publications on Microfinance and Women

SFP Working Paper 23. Micro-finance and the Empowerment of Women – A Review of Key Issues. L. Mayoux, 2000.

SFP Working Paper 32. Microfinance et Autonomie féminine. I. Guerin, 2002.SFP Working Paper 35. Property

Rights and Collateral – How Gender Makes a Difference. Bankers Institute of Rural Development. India, 2003.

ELIFID WP03-4. Libéralisation financière et accès au crédit et à l’épargne des systèmes financiers décentralisés: le cas des femmes au Bénin. R.E. Gbinlo, Y.Y. Soglo, 2003.

IFLIP WP01-4. Gender Access to Credit under Ghana’s Financial Sector Reform: A Case Study of Two Rural Banks in the Central Region of Ghana. E.K. Ekumah and T.T. Essel, 2001.

IFP/ SEED. Supporting Growth-Oriented Women Entrepreneurship in Ethiopia, Kenya and Tanzania: An Overview Report. IFP/SEED, 2004.

SEED Working Paper 69. Nepal and Pakistan, Micro-finance and microenterprise development: Their contribution to the economic empowerment of women. M.S. De Gobbi, 2005.

STEP Working Papers, Special Studies. Enabling Women to Address their Priority Health Concerns: The Role of Communitybased Systems of Social Protection. ILO/STEP, UNFPA, 2004.

Bureau for Gender EqualityInternational Labour Office4, route des Morillons1211 Geneva, SwitzerlandTel. +41 22 799 6730Fax. + 41 22 799 6388www.ilo.org/gender

Social Finance ProgrammeInternational Labour Office4, route des Morillons1211 Geneva, SwitzerlandTel. +41 22 799 6410Fax. +41 22 799 6896www.ilo.org/socialfinance


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Non-financial services• Non-financial services with

conditionalities to credit access, such as carefully designed adult literacy and business training programmes, can facilitate women’s access to better jobs and income-generating opportunities and are perhaps the most effective means of promoting gender equality.

External marketing for community awareness• Marketing campaigns directed at

women can positively influence both men and women’s attitudes on women’s status and employment in the community by helping male community members to accept economic opportunities for women, by building women’s self-confidence and by facilitating community approval of women’s projects.

Groups to strengthen women’s networks• MFI women’s groups should

be utilized to promote and strengthen women’s networks and not merely as a means of lowering programme costs. Women’s groups are useful vehicles for non-financial service delivery, such as literacy and health programmes. Groups also encourage linkages between women and other active community associations and the larger civil society network as a whole.

Women, Microfinance and the ILO

Women’s empowerment through microfinance is an essential component of promoting the International Labour Organization’s Decent Work Agenda.

The Social Finance Programme (SFP) is the ILO’s focal point for microfinance. Operating via a Social

Finance Network across all sectors and regions, the SFP contributes to achieving gender equality and women’s empowerment through the promotion of more inclusive financial systems. The SFP’s Microfinance for Decent Work action research aims to reduce vulnerability, invest in job creation and strengthen social partners’ capacity to improve access to financial services. The SFP also works in cooperation with the Gates Foundation to manage the Microinsurance Innovation Facility, an experimental programme designed to improve men and women’s ability to cope and mitigate risk through micro insurance.

The ILO Bureau for Gender Equality supports policies and programmes throughout the organization that promote gender equality and lead to women’s empowerment. The ILO STEP(Strategies and Tools Against Social Exclusion and Poverty) programme researches microinsurance schemes in an effort to develop social protection for the poor. The WEDGE(Women’s Entrepreneurship Development and Gender Equality) team, part of ILO’s Small Enterprise (SEED) programme, works to enhance economic opportunities for women by developing tools and strategies specific to the needs of women entrepreneurs and by working to ensure gender is mainstreamed throughout the programme.

Selected ILO Publications on Microfinance and Women

SFP Working Paper 23. Micro-finance and the Empowerment of Women – A Review of Key Issues. L. Mayoux, 2000.

SFP Working Paper 32. Microfinance et Autonomie féminine. I. Guerin, 2002.SFP Working Paper 35. Property

Rights and Collateral – How Gender Makes a Difference. Bankers Institute of Rural Development. India, 2003.

ELIFID WP03-4. Libéralisation financière et accès au crédit et à l’épargne des systèmes financiers décentralisés: le cas des femmes au Bénin. R.E. Gbinlo, Y.Y. Soglo, 2003.

IFLIP WP01-4. Gender Access to Credit under Ghana’s Financial Sector Reform: A Case Study of Two Rural Banks in the Central Region of Ghana. E.K. Ekumah and T.T. Essel, 2001.

IFP/ SEED. Supporting Growth-Oriented Women Entrepreneurship in Ethiopia, Kenya and Tanzania: An Overview Report. IFP/SEED, 2004.

SEED Working Paper 69. Nepal and Pakistan, Micro-finance and microenterprise development: Their contribution to the economic empowerment of women. M.S. De Gobbi, 2005.

STEP Working Papers, Special Studies. Enabling Women to Address their Priority Health Concerns: The Role of Communitybased Systems of Social Protection. ILO/STEP, UNFPA, 2004.

Bureau for Gender EqualityInternational Labour Office4, route des Morillons1211 Geneva, SwitzerlandTel. +41 22 799 6730Fax. + 41 22 799 6388www.ilo.org/gender

Social Finance ProgrammeInternational Labour Office4, route des Morillons1211 Geneva, SwitzerlandTel. +41 22 799 6410Fax. +41 22 799 6896www.ilo.org/socialfinance

Small change, big changes: Women and MicrofinanceMicrofinance Information

The Microfinance Competence Centre (MCC) is a Department in the Uganda Institute of Banking and Financial Services (UIBFS), a

leading provider of training and consultancy services for Uganda’s financial sector. The Institute’s mission is to be “The centre of excellence for the promotion and enhancement of professionalism and ethical standards of both formal and informal financial institutions.” The Institute works closely with sister bankers’ institutes in East Africa and globally, and is founding member of the Alliance of African Institute of Bankers. UIBFS is ISO 9001:2000 certified and is affiliated to Makerere University.

The Institute reaches the microfinance sector through the Microfinance Competence Centre (MCC). The mandate of the centre is to deliver practical courses to

meet the dynamic needs of the industry.

The centre offers the following training facilities:

a) A Diploma in Microfinance: A professional course developed with various

stakeholders. It focuses on practical skills in the industry.

b) Short Skill-Based Courses: MCC has a number of ready-made short Skills-based course that run from 3 to 14 days. These courses are offered to participants anywhere in Uganda.

c) Tailor Made Courses: Together with the beneficiary institutions we conduct a Training Needs Assessment (TNA). This enables us to develop and deliver courses that address the institutions’ problems.

d) Group Based Certificate: Introduces the microfinance/SACCO industry to the market, right from the ordinary level certificate holders.

Training in Microfinance at the Microfinance Competence Centre (MCC)


e) Consultancy Services in the area of:

i. Institutional assessment ii. Training need assessment iii. Development of manuals iv. Change management

The Diploma in Microfinance

Objective of the course: to create a pool of professionals, with appropriate skills to effectively manage the challenges of growth in the microfinance industry.

Target Participants: This is a professional programme which admits the following categories of participants:• University graduates, in any field of study • Holders of Diplomas from recognized institutions.

Course Modules:• The Business Environment for Microfinance• Management and Organisation for Microfinance• Marketing in Microfinance• Financial Resource Mobilisation and Management• Human Resource Management• Microfinance Risk Management• Accounting and Financial Management• Management Information Systems

Evaluation • Course work and written tests account for 40%• End of semester examinations account for 60%

FeesTuition fee: UGX 250,000 per moduleExamination fee: UGX 70,000 per moduleMembership to UIBFS: UGX 45,000 per year

Mode of delivery The programme is offered in two semesters of approximately four (4) month each. You may take as many or as few modules at one time as you wish – there is no limit.

1) Evening programme: This provides evening oral tuition to members

who are busy working and cannot attend classes from morning hours. The evening classes are conducted from 5.30 p.m. to 8.30 p.m. on week days.

2) The Distance- Learning Programme: The method uses a combination of self study, and

face-face residential training. Appropriate self-

study workbooks have been developed for the programme. Residential training centres are:

• Kampala • Mbale • Arua • Mbarara

3) Private Study: Under this method of study, you can pick your

work books whenever you have time. However, it is a method which demands the greatest self discipline.

Requirements• 3 passport-size photographs• A photocopy of the first page of the applicant’s

identity document.• Certified copies of each academic transcript and

certificate

Short Skill-based Courses 2009

• Financial Management for Non-Accountants Course

Objective: On completion of the training participants will be able to:

Identify and create source documents; Appreciate the underlying principles of FS; Generate FS; Interpret FS and explain industry trends

Target group: Board members, Donors and Operational staff

Dates: 20th – 24th April, 2009 Venue: Gulu

• Branch Management and Supervisory Skills Course

Objective: On completion of the training participants will be able to: Identifying major trends that influence management practices; Understanding human resources; Conduct effective staff performance appraisal; Explain the importance of performance appraisal; Explain the factors that influence savings mobilization in a community; and Understand the major SME credit risks and the respective controls

Target Group: Branch Managers, Mid-level Managers, and Supervisors

Training in Microfinance at the Microfinance Competence Centre


e) Consultancy Services in the area of:

i. Institutional assessment ii. Training need assessment iii. Development of manuals iv. Change management

The Diploma in Microfinance

Objective of the course: to create a pool of professionals, with appropriate skills to effectively manage the challenges of growth in the microfinance industry.

Target Participants: This is a professional programme which admits the following categories of participants:• University graduates, in any field of study • Holders of Diplomas from recognized institutions.

Course Modules:• The Business Environment for Microfinance• Management and Organisation for Microfinance• Marketing in Microfinance• Financial Resource Mobilisation and Management• Human Resource Management• Microfinance Risk Management• Accounting and Financial Management• Management Information Systems

Evaluation • Course work and written tests account for 40%• End of semester examinations account for 60%

FeesTuition fee: UGX 250,000 per moduleExamination fee: UGX 70,000 per moduleMembership to UIBFS: UGX 45,000 per year

Mode of delivery The programme is offered in two semesters of approximately four (4) month each. You may take as many or as few modules at one time as you wish – there is no limit.

1) Evening programme: This provides evening oral tuition to members

who are busy working and cannot attend classes from morning hours. The evening classes are conducted from 5.30 p.m. to 8.30 p.m. on week days.

2) The Distance- Learning Programme: The method uses a combination of self study, and

face-face residential training. Appropriate self-

study workbooks have been developed for the programme. Residential training centres are:

• Kampala • Mbale • Arua • Mbarara

3) Private Study: Under this method of study, you can pick your

work books whenever you have time. However, it is a method which demands the greatest self discipline.

Requirements• 3 passport-size photographs• A photocopy of the first page of the applicant’s

identity document.• Certified copies of each academic transcript and

certificate

Short Skill-based Courses 2009

• Financial Management for Non-Accountants Course


Identify and create source documents; Appreciate the underlying principles of FS; Generate FS; Interpret FS and explain industry trends

Target group: Board members, Donors and Operational staff

Dates: 20th – 24th April, 2009 Venue: Gulu

• Branch Management and Supervisory Skills Course

Objective: On completion of the training participants will be able to: Identifying major trends that influence management practices; Understanding human resources; Conduct effective staff performance appraisal; Explain the importance of performance appraisal; Explain the factors that influence savings mobilization in a community; and Understand the major SME credit risks and the respective controls

Target Group: Branch Managers, Mid-level Managers, and Supervisors


Dates: 18th – 22nd May 2009

Venue: Kampala

• Basic Laws Relating to Banking Course

Objective: On completion of the training, participants will be able to: Explain the principles of banker customer relationship; Describe the role of Credit Officer in relation to customer; Identify strategies for improving Credit Risk Management; Explain the role of banker and customer

Target Group: Managers, Head of Loans, Credit Officers

Dates: 15th – 19th June 2009 Venue: Arua

• TOT Training Methods for Adults Learning Course


Apply methods of identifying, analyzing and relating training policies to their organizations; Identify their organizations specific training needs; Analyse occupational functions for planned training projects.

Target Group: Human Resource Managers, Capacity Building Managers, Training Officers

Dates: 10th – 14th August 2009

Venue: Kampala

• Operational Risk Management Course


Identify the risk areas and develop controls to mitigate them

Target Group: Operational Managers, Risk Managers, Supervisors, Branch Managers

Dates: 14th – 18th September, 2009

Venue: Kampala

• Agriculture and Rural Lending Course Objective: On completion of the training

participants will be able to:

Enable participants appraise credit application for farmers; Introduce the participants to delinquency and default management techniques, cost reduction and risk management strategies

Target group: Field Officers, Credit Managers and Supervisors

Dates: 5th – 9th October, 2009

Venue: Jinja

• Risk, Fraud and Internal Controls Course

Objective: On Completion of the training participants will:

Be conversant with issues of risk fraud and compliance; Appreciate the need for internal controls; Identify the most appropriate controls for their organizations

Target group: Managers Supervisors, and all staffs

Dates: 19th – 22nd October, 2009

Venue: Kampala

• Credit Analysis of SMES Course


Have a deeper understanding the fundamental issues of SME finance; Have skills in cash flow based credit analysis; Be familiar with credit risk scoring principles; Have deeper insight of risk



Management models and early warning signals

Target Group: Operations Managers, Branch Managers, Credit Officers

Dates: 9th – 13th November 2009

Venue: Kampala

• SACCO Management Course


Understand the general accounting principles; Improve the internal control system and loan appraisal process.

Target Group: Board Members, Managers and Operational staff

Dates: 7th – 11th December 2009

Venue: Kampala

Management models and early

Group Based Certificate

This certificate is aimed at:• Building capacities in Microfinance and SACCOs

• Producing cheap labour for the SACCOs and microfinance institutions who can not afford highly qualified and experienced persons.

CoursesThe certificates include:• SACCO Management• Governance (Microfinance)• Risk Management in Microfinance• Finance Management in SACCO/Microfinance• Microfinance Marketing and Customer Care• TOT in Microfinance

Methodology

Each of the short courses are delivered and taken as a single course for which a certificate is awarded. The skilled-based course can be delivered during weekdays, weekend and evenings.

Target GroupOrdinary level or equivalent, and /or one year work experience

Other Short Courses

• Practical Customer Service

• Microloan appraisal

• Legal issues in Microfinance and Banking

• Information Management System

• Introduction to Microfinance

• Risk, frau and internal controls

• Branch Management & Supervisory skills

• Basic Accounting.

For Inquiries and Registration:

UIBFS Head Office: Plot 10 Buganda Road, Kampala – Tel: 0414 233 628; Fax: 414 234 259MCC Office: Plot 76/78 William Street,

Bank of Uganda Building – Tel: 414 255 847; Fax: 414 255 396

Email: [email protected] Private Sector Office – Gulu, Market Street

Other Regional Private Sector Offices


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Your bank can make sustainable profits and grow income for years to

come by learning to lend with low risk to this enormous, barely-touched loan market. But you can’t do it with conventional bankers thinking

What would it take for you to lend profitably to a sector that accounts for more than 90% of African enterprises? It’s possible that your bank, today, doesn’t have the expertise in place to benefit from this, the largest loan market on the continent. Fortunately, that can be fixed. You can acquire the knowledge and tools you need to be a beneficiary on the inside looking out, rather than looking in, enviously, at your competitors from the outside. Later on you’ll learn 3 uncommon practices you can implement in your bank today to improve your SME lending ability.

Traditional loan markets can no longer deliver

The traditional loan markets - corporate and personal loans - used to be exciting, but not any more; especially not for visionary bankers. They’re definitely no longer the source

of growth they used to be, because:• margins are shriking, and • risks are rising. Cut-throat competition among banks for these “safe” markets has squeezed them dry, to the point that you can no longer look to them to meet your growth and profit targets.

SMEs represent the next frontier for finance

The new source of growth and reward for your institution is the SME sector. The IMF puts Africa’s average annual growth for 2004-2008 at more than 6% - Better than any developed economy - And predicts that the continent will buck the global recessionary trend to grow nearly 3.3% this year.

Where is that growth coming from? The SME’s!• Are you contributing to this

growth? • Are you benefitting from it? No need to guess. Check what percentage of your growth and profit on your books has come from SME’s Do you like what you see?

In the March 23 Annual Special Issue of Time Magazine titled : “10 Ideas That Are Changing Our World” , Idea #6 is that

“Africa is becoming a Business Destination.” The CEO of the Corporate Council on Africa, Stephen Hayes concludes, “Africa offers more opportunity than any place in the world.”

Big Corporates = Shrinking Margins

In better times, the safer multinationals and big businesses were the obvious choice. But fierce competition for them has made it a buyers market. Now they only offer you wafer-thin margins that can no longer deliver the targets and profits demanded by your shareholders and investors.

Small is the new gold

Small-time enterprises and companies, previously shunned by banks, are the new source of profits and growth. Yes, it’s risky to rush into accepting many new SME loan applications without caution. The reality is that SME lending is hampered by• Insufficient knowledge of the

sector, • High transaction costs and • Underdeveloped tools and

systems to identify and mitigate the risks.

In fact, perhaps the greatest constraint to successful SME

SME Financing/SME Lending – Learn how to Grow Your Bank’s Profits from SMEs1 Michael Mithika2

1Source http://africasmefinance.org

2Michael Mithika - [email protected]


SME Financing /Lending - Learning how to grow your Bank’s profits from SMEs

lending is the limited expertise banks currently have in dealing with this sector.

But it’s exactly these same reasons that create the opportunity for you!

• Will your bank be one of the first to figure them out?

• Will you be the bank of choice for the best of them?

Only you can answer these questions. It’s your job, as a leader, to find the knowledge and equip your people so they can manage the risks so you can reap the rewards on offer.

How to know you need SME’s

These are some of the characteristics of a bank in need of new markets• Highly liquid • Reluctant to expand credit,

other than to the most creditworthy borrowers

• Holding too much money in safe, low return investments

Does this sound like your bank? As a player in the financial system, how efficiently are you channeling funds from where they’re available to where they’re needed?

Success stories?

There is evidence that small is the new gold. Take a look at these numbers from some of the better known SME-centric institutions ...

Ecobank • 21-years-old, • employs more than 11,000

people in 620 branches in 26 countries!

• Annual profits up 47% to $191mn in 2007, and up 32% to $104mn in Q3 2008 alone!

Equity Bank • Grew its customers 3 times

in 3 years - 3.3mn in 2008 up from 1mn in 2005.

• Annual profits have tripled in the past three years!

If you’re focusing, or intend to focus, on this SME market, you’re definitely in good company. And you too can expect these types of results.What about Prudence?

I’m sure right now your “prudent banker” instincts are buzzing and you have questions running through your head• “Won’t these SME’s bring

my bank certain doom from bad debts in a few years time?”

• “Won’t I build up an unacceptably high charge-off rate?”

• “Is it really possible for my bank to achieve the growth I’m looking for from SME lending?”

The simple answer• “No” • “No” • “YES!”

The Long Answer ...

SMEs - The Solution to Your Growth and Profits

Consider these quotes from various studies and research on SME’s in Africa:

Financing SMEs and investing in microfinance industry can be profitable; typically loans are higher-margined than corporate loans compensating for the perceived higher risk of lending to SMEs.(African Development Bank- Banking for the Future, 2008 - Leila Mokaddem-Manager)

“In Africa, the SME sector accounts for over 90% of all enterprises of which between 70-80% are micro and very small enterprises (MSEs) while medium enterprises account for between 5-15%. They provide the main source of jobs and income for Africans. African Women Entrepreneurs own more than half of African MSMEs, they play an increasing role in diversifying production and services and represents 70% of the active population in rural areas”(African Development Bank - Banking for the Future, 2008 - Leila Mokaddem)

“Lending to SMEs is hampered by insufficient knowledge of the sector, increased/high transaction costs; limited financial institutions staff capacity; poor/limited credit culture among some of target SMEs; underdeveloped tools and systems to identify and mitigate real and perceived risks associated with lending to SMEs”(African Development Bank-

Financing SMEs and investing in microfinance industry can be profitable; typically loans are higher-margined than corporate loans compensating for the perceived higher risk of lending to SMEs.


Banking for the Future, 2008 - Leila Mokaddem-Manager)

“SMEs are the main source of employment in developed and developing countries alike, comprising over 90% of African business operations and contributing to over 50% of African employment and GDP. Many SMEs remain outside the formal and banking sectors”(africapractice - Access to Finance: Profiles of African SMEs, 2005)

“Small business in Africa can rarely meet the conditions set by financial institutions, which see SMEs as a risk because of poor guarantees and lack of information about their ability to repay loans. The financial system in most of Africa is under-developed however and so provides few financial instruments.”(OECD DEVELOPMENT CENTRE - Policy Insites #7- Financing SME’s in Africa - Celine Kauffmann)

“Warehouse-receipt financing (in South Africa, Kenya and Zambia) guarantees loans with agricultural stocks. Other financial instruments, such as leasing and factoring, can reduce risk effectively for credit institutions but are still little used in Africa.”(OECD DEVELOPMENT CENTRE - Policy Insites #7- Financing SME’s in Africa - Celine Kauffmann)

This seemingly tough but huge market holds the answer to your need for better margins and growth? Are you ready to grow your business? Do you have the people and systems to deliver the products and services these SMEs need? Do you have the skills and knowledge to

take on this market? Answers are available at: Africa SME Finance Academy – http://africasmefinance.org

The secret to successful SME lending

I’m about to introduce you to three things you can begin doing to position you and your institution to serve Africa’s greatest economic potential. But it’s going to take you adopting some new and unconventional thinking to succeed in serving this ready market and growing your revenues.

3 things you can start doing today for more profits

Here are the three things that will change your balance sheet and income statement for good and guarantee growth in this huge market. • Using non-bank sales

techniques to find and keep new customers

• Increasingly using cash-flow based lending techniques to complement your collateral-based lending

• Doubling the case load of your relationship officers

Non-bank sales techniques

Are you waiting for customers to come to you in the bank? This approach to sales has two major problems:

1. You don’t decide what quality of client comes to you. Instead of proactively profiling your potential preferred customers are you waiting for them to visit and enquire at your branches?

It’s no surprise that you reject over 90% of the loan inquiries you get from SME’s.

2. You don’t have a sales funnel that’s constantly being refilled with potential clients. You need a reliable system that delivers your ideal clients when and where you want them.

For some reason, probably the historically conservative nature of banking, banks do not employ sales techniques that other industries have found to bring in a constant flow of good customers. The Coca-Cola Company is one of the most effective marketing machines in the world. Show me almost any market and I’ll show you a place to buy Coke. This company follows the market!• Have you profiled your ideal

SME customer?

• Do you know what marketing methods will reach these ideal customers?

• Do you have a sales process that ensures your bank is one of the options your ideal customer is looking at when they’re ready to borrow?

If you’ve read this far, then your definitely ready to implement the first powerful secret of successful SME lending.

Cash-flow based loans

Microfinance has come of age. With a Nobel Peace Laureate in 2007 and the year 2006 having been declared the UN Year of Microfinance, the microfinance is today mainstream and growing. However, according to estimates by CGAP more



Banking for the Future, 2008 - Leila Mokaddem-Manager)

“SMEs are the main source of employment in developed and developing countries alike, comprising over 90% of African business operations and contributing to over 50% of African employment and GDP. Many SMEs remain outside the formal and banking sectors”(africapractice - Access to Finance: Profiles of African SMEs, 2005)

“Small business in Africa can rarely meet the conditions set by financial institutions, which see SMEs as a risk because of poor guarantees and lack of information about their ability to repay loans. The financial system in most of Africa is under-developed however and so provides few financial instruments.”(OECD DEVELOPMENT CENTRE - Policy Insites #7- Financing SME’s in Africa - Celine Kauffmann)

“Warehouse-receipt financing (in South Africa, Kenya and Zambia) guarantees loans with agricultural stocks. Other financial instruments, such as leasing and factoring, can reduce risk effectively for credit institutions but are still little used in Africa.”(OECD DEVELOPMENT CENTRE - Policy Insites #7- Financing SME’s in Africa - Celine Kauffmann)

This seemingly tough but huge market holds the answer to your need for better margins and growth? Are you ready to grow your business? Do you have the people and systems to deliver the products and services these SMEs need? Do you have the skills and knowledge to

take on this market? Answers are available at: Africa SME Finance Academy – http://africasmefinance.org

The secret to successful SME lending

I’m about to introduce you to three things you can begin doing to position you and your institution to serve Africa’s greatest economic potential. But it’s going to take you adopting some new and unconventional thinking to succeed in serving this ready market and growing your revenues.

3 things you can start doing today for more profits

Here are the three things that will change your balance sheet and income statement for good and guarantee growth in this huge market. • Using non-bank sales

techniques to find and keep new customers

• Increasingly using cash-flow based lending techniques to complement your collateral-based lending

• Doubling the case load of your relationship officers

Non-bank sales techniques

Are you waiting for customers to come to you in the bank? This approach to sales has two major problems:

1. You don’t decide what quality of client comes to you. Instead of proactively profiling your potential preferred customers are you waiting for them to visit and enquire at your branches?

It’s no surprise that you reject over 90% of the loan inquiries you get from SME’s.

2. You don’t have a sales funnel that’s constantly being refilled with potential clients. You need a reliable system that delivers your ideal clients when and where you want them.

For some reason, probably the historically conservative nature of banking, banks do not employ sales techniques that other industries have found to bring in a constant flow of good customers. The Coca-Cola Company is one of the most effective marketing machines in the world. Show me almost any market and I’ll show you a place to buy Coke. This company follows the market!• Have you profiled your ideal

SME customer?

• Do you know what marketing methods will reach these ideal customers?

• Do you have a sales process that ensures your bank is one of the options your ideal customer is looking at when they’re ready to borrow?

If you’ve read this far, then your definitely ready to implement the first powerful secret of successful SME lending.

Cash-flow based loans

Microfinance has come of age. With a Nobel Peace Laureate in 2007 and the year 2006 having been declared the UN Year of Microfinance, the microfinance is today mainstream and growing. However, according to estimates by CGAP more



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than 2.5 billion still don’t have access to financial services. Microfinance has demonstrated that tiny loans can be made and delivered profitably to a variety of people, and more importantly repaid with astonishing success. Many microfinance institutions have realized repayment rates as high as 99% all the while maintaining excellent portfolio quality.You’re a bank, regulated financial institution, or perhaps even a large microfinance and you must be wondering why I’m talking about microfinance in a letter to banks. Well, who is your corporate of tomorrow? The Microfinance customer of today will grow into an SME and the SME of today will grow into a corporate. So there must be some similarities between customers in these three sectors. The question is, what has microfinance figured out and almost perfected that traditional banks have yet to learn?

The Answer - a focus on cash-flow lending! Think about it …

The SME sector is the single largest employer and fastest growing sector in the West. According to a 2008 IMF Working Paper on SME Finance in Canada there were more than 1 million SMEs in Canada in 2007 employing 64% of payroll workers [a figure slightly higher than the US]. Similarly, in Africa the SME sector is also the fastest and largest growing sector. The only difference is, it’s growth is constrained by the inability to access formal finance. So, why aren’t banks

lending to what is obviously a large growing market?

The Problem - Lack of collateral. It’s a “problem” because most banks have no capacity to profitably provide non-collateral based loans. They have no cash-flow based products. Does your bank have this expertise? Do you know how to do cash-flow based lending to reach this market?

Doubling the caseload of your Relationship Officers

How many SMEs have you made loans to and currently manage? What is the average caseload or loans per officer in your institution? And here I’m not talking about poor management of your customer relationships. I’m talking quality management where:• Risks are identified early

when useful action can be taken

• Up-sells and cross-sells are being made to good low-risk clients

• Loyalty is being developed • Your input is helping your

clients business thrive which means more revenue for you

Did you know that an increase

the caseload of SME lending officers by 10 to 20% cans double your profits? It’s fairly straightforward math. If you’re able to increase your productivity, in other words ‘do-more-with-less’, the effect on your bottom line is geometric!

Consider this simplistic exa-mple:

How do you achieve these sorts of results? - By changing the way you look at your SME officers. They are probably the most valuable and productive asset you own in your bank. Do recognize this and treat them as such. Perhaps you do … but there is always more that you can do.• Have you equipped them

adequately?

• Have you provided them with the training they need?

• How do you measure their performance?

• Are they motivated?

One Guaranteed way to build your SME lending competence is to get in touch with: Africa SME Finance Academy – http://africasmefinance.org

Interest Income = 100,000,000Costs = 80,000,000Profit = 20,000,000An increase in sales of 20% without an increase in costs

Interest Income = 120,000,000Costs = 80,000,000Profit = 40,000,000Productivity gains or increase in your ‘sales’ doubles your profits in this example.


GENEVA (ILO News) - The International Labour Organization is launching a one-year global campaign to highlight the central role of gender equality in its Decent Work Agenda and in the work of its constituents – governments, employers’ and workers’ organizations.

The campaign is built around 12 different Decent Work themes. These themes will be looked at through a gender lens to illustrate how various issues in the world of work may affect women and men in different ways, particularly in their accessing rights, employment, social protection and social dialogue.

“Mainstreaming gender equality is central to the ILO’s Decent Work Agenda,” said ILO Director-General Juan Somavia. “Although progress is being made, gender equality is still lagging behind in the rapidly changing world of work. By increasing overall awareness and understanding of gender equality issues, we can actively contribute to securing Decent Work for all women and men.”

For the past decade the ILO has had an active gender mainstreaming strategy to redress gender-based inequalities in policies, programmes and projects, and to promote the empowerment of women so that they may participate in – and equally benefit from – development efforts.

The awareness-raising campaign will be effective for one year and will lead into a general discussion on gender equality at the heart of decent work at the International Labour Conference in June 2009. Delegates from governments, employers’ and workers’ organizations of the ILO member States will then have the

opportunity to study the issues and draft a roadmap to promote gender equality for the decade to come.

“During the next 12 months we will actively reach out to our constituents and other international partners, provide information on different themes and facilitate access to a body of material that the ILO has developed on gender equality around the world”, explains Evy Messell, Director of the ILO’s Bureau for Gender Equality.

The campaign will produce an information brief for each theme, accompanied by a poster and

postcard. A specific campaign website has been developed and during the one-year campaign new materials on different themes will be uploaded regularly.

For more information on the campaign, please visit: http://www.ilo.org/gender/Events/Campaign2008-2009/lang--en/index.htm or contact the ILO Bureau for Gender Equality at +4122/799-6730, [email protected] Media can contact the ILO Department of Communication at +4122/799-7912. [email protected]

ILO launches year-long campaign “Gender Equality at the Heart of Decent Work”

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The Association of Microfinance Institutions of Uganda (AMFIU),Plot 679 Wamala Road (off Entebbe Road)NajjanankumbiP.O. Box 26056 Kampala, UgandaE-mail: [email protected]: 256 41-4259176Fax: 256 41 4254420

The editorial committee of The Microfinance Banker invites articles for possible publication in the forthcoming issues of the Journal. We would like to encourage the Microfinance practitioners, researchers, students, donors and intellectuals to contribute articles. We wish to use the Journal as a medium of expression of ideas, challenges, opportunities and experiences from the field and the academia, so as to share them among our readers.

Guidelines for contribution

1. Articles may be written on any topic related to Microfinance services (current issues and trends in the industry), poverty alleviation, rural development and development in general. The articles should be between 2000 and 3000 words in length, although longer or shorter articles will be considered, depending on the subject matter as well as the availability of space. Photographs, illustrations and other graphics add value to the articles and should therefore be presented.

2. Articles should satisfy one of the two criteria; either present an analysis of a problem and give recommendations OR evaluate the impact and results of a certain policy, principle, or professional practice OR explore the ramifications of a philosophy, concept or principle.

3. In view of the fact that the Journal is published in March, June, September and December every year, articles should be submitted in good time to allow for proof reading and editing.

4. In appreciation of Authors’ efforts, we shall pay an honorarium of between UGX 50,000/= and UGX 100,000/=, depending on whether it is a feature or not.

Send your contributions to:The Editor,The Microfinance Banker,Information & Membership ServicesThe Uganda Institute of Banking and Financial ServicesBank of Uganda Building, Plot 76/78 William Street,P.O.Box 4986, Kampala,UGANDA. E-mail: [email protected] Tel: 256 41-4255396, 4255847/8, 041 4664940Fax: 2456 41-4255396

CALL FOR ARTICLES


Microfinance programmes not only give women and men access to savings and

credit, but reach millions of people worldwide bringing them together regularly in organised groups. Although no ‘magic bullet’, they are potentially a very significant contribution to gender equality and women’s empowerment, as well as pro-poor development and civil society strengthening. Through their contribution to women’s ability to earn an income these programmes have potential to initiate a series of ‘virtuous spirals’ of economic empowerment, increased well-being for women and their families and wider social and political empowerment. Microfinance services and groups involving men also have potential to question and significantly change men’s attitudes and behaviours as an essential component of achieving gender equality.

Targeting women became a major plank of donor poverty alleviation and gender strategies in the 1990s. This was the result of a number of factors:

• Women’s human rights: official commitments to gender equity and gender mainstreaming on the part of most governments, donor agencies, NGOs and the Microcredit Summit Campaign itself.

• Poverty reduction: increasing evidence that not only are women overrepresented amongst the poorest people, but are also more likely than

men to spend their incomes on the welfare of children and dependents. Therefore poverty reduction programmes which target women are likely to be more effective.

• Financial sustainability: increasing evidence in microfinance of much higher repayment and savings discipline among women than men.

Not only reaching, but also empowering women, is the second stated goal of the Microcredit Summit Campaign. Literature prepared for the international and regional Micro-credit Summits from 1997, many donor statements on credit and NGO funding proposals present an extremely attractive vision of increasing numbers of expanding, financially self-sustainable microfinance programmes reaching large numbers of poor women borrowers.

Donor funding for microfinance has generally been conditional on

compliance with some variant of CGAP’s Guidelines for Best Practice aiming at financial sustainability. Although gender equality and women’s empowerment can significantly contribute to financial sustainability, gender impact has not been a consideration in choosing between the different policy options for financial sustainability. Worryingly also, funding for programmes which place prime emphasis on women’s empowerment continues to decrease.

There is evidence of significant potential for microfinance to enable women to challenge and change gender inequalities at all levels if there is a strategic gender focus. There have also been many important recent innovations in products and services to enable women to better benefit. Nevertheless benefits cannot be assumed and even financially sustainable micro-finance if it is gender blind may seriously disempower women and increase inequality. It is clear that most microfinance programmes have a long way to go before they make their full potential contribution to gender equality and empowerment. Many of the strategies promoted for financial sustainability may exacerbate the negative impacts of debt, because of overrapid expansion, rigid product design inappropriate to women’s economic activities, cutting of necessary support services and lack of attention to local economic contexts.

Sustainable Microfinance for Women’s Empowermentwww.genderfinance.info

Microfinance services and

groups involving men also

have potential to question and

significantly change men’s

attitudes and behaviours as

an essential component of

achieving gender equality.


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Rethinking ‘Best Practice’: Core Elements of a Gender Strategy

If microfinance programmes are to fulfill their very significant potential, evidence indicates there is a need to rethink current ‘Best Practice’ to ensure that women have equal access to all types of financial services. Gender ‘Best Practice’must also be integral to microfinance design rather than a marginal and marginalised add-on to financial sustainability or poverty reduction. There is also a need for innovation to ensure that access translates into a significant and sustainable contribution to women’s empowerment. Different women have very different needs, even though they are often subject to similar forms of discrimination and disadvantage. Some are extremely successful businesswomen, others are labourers struggling to raise a family on their own or with a violent husband but still capable with support to improve their situation with appropriate savings and credit. There is a need for a whole spectrum of service provision from private sector banks giving large loans to established female entrepreneurs on an equitable basis with men to small local community-based organisations with savings and credit for the very poor.

There is no ‘one-size fits all’ and there are many possible strategies to increase gender equality and women’s empowerment can be increased. The precise forms a gender policy should take will depend on the particular microfinance model and particular client groups being targeted and the context in which they operate. However gender policy does need

to go further than a few ‘female products’ and a bit of gender training. In the sector as a whole there is a need for:

• Greater clarity in the underlying gender and empowerment vision of microfinance programmes.

• Building on the organizational base provided by micro-finance (both individual lending and group-based) to promote wider organization to challenge gender inequality.

• Innovation in product design to respond to women’s needs and change rather than reinforce gender inequalities.

• Innovation in cost-effective provision of non-financial services.

• Commitment to internal gender policy to ensure organizational capacity to realize the full potential of micro-finance to empower women.

• Mainstreaming gender concerns in policy advocacy by the micro-finance sector and the financial sector in general.

Women are not a minority, but the ‘marginalised majority’ and gender Best Practice must become a fully integral part of programme

design. This is not only a women’s human right, but necessary for any serious agenda for poverty reduction, economic growth and civil society strengthening.

About this website

This website brings together resources which can inform such a rethink and innovation. The website complements more detailed discussion and weblinks for development concepts, gender, livelihood development, participatory methods and other material for empowerment-focused NGOs to be found on Lindaswebs. This website is intended as ongoing resource which will grow over time to enable gender experts and micro-finance specialists to work together to develop realisable ways forward.

The material builds on work on gender, empowerment and micro-finance by Linda Mayoux since 1997 for Open University UK, Action Aid, Hivos, Icco, Novib, One World Action, DFID, UNIFEM, ILO, Care-India, Cameroon Gatsby Trust, CODEC Bangladesh, SHDF Zimbabwe, ANANDI India, PASED_LEAP Sudan, KRC Uganda. It also includes material produced for a gender training for NGO-MFIs in Pakistan in 2004 and 2005: ‘Sustainable Micro-finance for Women’s Empowerment’ supported by Aga Khan Foundation Canada and the Canadian International Development Agency through the Pakistan Social Institutions Development Program (SIDP) and coordinated and organized by Aga Khan Foundation Pakistan.

There is evidence of significant

potential for microfinance to

enable women to challenge

and change gender inequalities

at all levels if there is a strategic

gender focus.

Sustainable Microfinance for Women’s Empowerment


Echoes

With an estimated 500 million people entering the global workforce over

the next decade, coming to grips with the technological challenge is crucial. Without being “plugged in”, millions of women and men risk being left behind. Since women represent a significant majority of these who do not have access, there is a clear gender dimension to the technological divide. Therefore the technology divide is multifold. It refers to a gap between countries that have or do not have easy access to technological advances. Within countries, the divide is between the socio-economic strata of societies that have access to technology and those that do not (particularly in rural areas). In addition, there is a gender gap across and within most countries: almost everywhere women lag behind men either in access to training or in the application of technology.

Why is there a wide gap in some parts of the world and not in others? It is more a question of encouragement, pervasive gender roles and attitudes rather than aptitudes, according to the OECD. Girls are far less likely than boys to study engineering or computer or physical sciences. Though women earn more than half of the university degrees in the OECD countries, they receive only 30 per cent of degrees in science and technology. The percentage of female graduates advancing to research is even smaller, representing less than 30 per cent of science and technology researchers in most OECD countries and only 12 per cent in countries such as Japan and the Republic of Korea.

Another element to look at is the degree of access women and men around the world have to information

and communication technologies. Even though women hold more than 60 per cent of Information and Communication Technology (ICT)-related jobs in OECD countries, only 10 to 20 per cent are computer programmers, engineers, systems analysts or designers. The large majority of women are in secretarial, word processing or data-entry positions, requiring rather routine, low-level skills or limited technical training.

Education and skills training increase the ability of women and men to apply new techniques, thus enhancing their employability as well as the productivity and competitiveness of enterprises. Effective skills development systems –connecting education to technical training, technical training to labour market entry and labour market entry to workplace and lifelong learning - can help women and men benefit from existing and emerging opportunities.

Technological “catching up” is also supporting the transition from the informal to the formal economy. In some countries, the growth in women-owned businesses is greater than for private firms as a whole. Supporting women entrepreneurs to introduce new technologies in their enterprises enhances the potential to increase productivity, create employment, reduce poverty, and promote local development. Women go into business in a variety of forms, including self-employment, SMEs, social entrepreneurship, cooperatives and many more. For women to recognise their entrepreneurial potential, it is important to promote role models that coincide with their realities and aspirations. Women also need to overcome other barriers when deciding whether to start a

business, such as limited access to credits or traditional patterns preventing women from taking part in income-generating activities or controlling financial resources.Further Reading1. ILO – Women’s Entrepreneurship

Development and Gender Equality Programme (WEDGE)

2. ILO – Boosting Employment through Small Enterprise Development Programme (EMP/SEED)

3. ILO – Skills and Employability Department (EMP/SKILLS)

4. ILO – Cooperatives Branch (EMP/COOP) on gender and cooperatives

5. ILO – Sectoral Activities Action Programme on skills and employability in telecommunications services

6. ILO – Bureau for Workers’ Activities (ACTRAV)

7. ILO – Bureau for Employers’ Activities (ACT/EMP)

8. International Labour Standards on Employment Promotion

9. C122 Employment Policy Convention, 1964

10. C159 Vocational Rehabilitation and Employment (Disabled Persons) Convention, 1983

11. R168 Vocational Rehabilitation and Employment (Disabled Persons) Recommendation, 1983

12. R189 Job Creation in Small and Medium-Sized Enterprises Recommendation, 1998

13. R195 Human Resources Development Recommendation, 2004

14. Resource Guide - Gender equality in the world of work

15. Gender Equality and Decent Work - Selected ILO Conventions and Recommendations Promoting Gender Equality - [pdf 703 KB]

“Skills and entrepreneurship: Bridging the technology and gender divide”1 www.ilo.org/gender

1November 2008 theme of the Gender Equality at the Heart of Decent Work Campain 2008-2009


Loans to your nearest and dearest usually aren’t a good idea. But if you feel

compelled, do it formally -- and put it in writing.

With three words, you can sum up the most common advice about lending money to your relatives: “Don’t do it.” Financial planners warn that interfamily loans can lead to trashed relationships, shattered finances and even trouble with the IRS. People who’ve lent money to family members often complain about ingratitude, missed payments and strained holiday dinners. Even the borrowers grumble, especially when their benefactors start quizzing them about their spending. “Suddenly, (the lender) is looking at the vacation they took and saying, ‘They owe us money, how can they go on vacation?’” said financial planner Karen Ramsey, author of “Everything You Know About Money is Wrong.” “The borrowers pick up on that judgment, and they get resentful.”

Drawing up a contract

Yet still we lend. Why? The answer is contained in four words: “They needed the money,” said Sharon Conway,

a Newburgh, N.Y., mother who, with her husband, lent $24,000 to their 30-something daughter and her husband. “They really got themselves into some debt, and they asked for help.” But the Conways’ experience -- at

least so far -- shows family loans don’t necessarily have to be an unmitigated disaster.

The Conways hired Virgin Money US, based in Waltham, Mass., to administer the loan. After deciding on the terms -- “the kids insisted on paying interest,” Conway said -- Virgin Money US drew up the contract for a five-year loan at 4% interest and arranged to have the monthly payments whisked from the kids’ checking account to the Conways’. The cost for this service: a $199 one-time fee, plus $9 a month. Given the monthly cost, it would be uneconomical to do this for loans where the monthly payment amount was small. “We didn’t want to be the cops when the loan was due,” Conway said. “Now, the money comes like clockwork.”

Daughter Terri Garrison said she’s grateful her parents were willing to help, since some of the debt she and her husband, Christopher, had accumulated was piling up interest at rates in excess of 20%. Garrison also agreed with the Conways’ assertion that the younger couple treats the loan more seriously than they might have otherwise because a third party is involved. “Money gets tight and you think about wanting to skip a payment,” Garrison said, “but the payment comes directly out of our checking account.”

Do friends cause debt?

Sometimes it can be downright stressful trying to balance your friendship and your bank account, says Stacy Johnson of Money Talks.

Virgin Money US also allows loan payments to be reported to the Equifax credit bureau to help borrowers build their credit rating. Virgin Money US is, in effect, formalizing the world of “informal loans” between family members and friends, said CEO Asheesh Advani.

A former employee of the World Bank, Advani said he saw how such transfers help people worldwide buy homes and start businesses. In fact, the World Bank says informal loans and

The right way to loan money to family membersLiz Pulliam Weston1

Loans to your nearest and dearest usually aren’t a good idea. But if you feel compelled, do it formally -- and put it in writing.


gifts between family members, friends and employers total more than $300 billion and account for up to 41% of household income in some Third World countries. Of course, you don’t need to hire a company to help you set up a family loan. And we’ll leave aside the question of whether such lending in the industrialized world is “good” for either side. I trod that particular ground in “Should you bail out spendthrift parents?”.Don’t lend it if you can’t afford to lose it

For right now, we’ll just focus on the mechanics of doing it right. Setting clear terms and communicating them is essential, said financial planner Victoria Collins, co-author of “Best Intentions: Ensuring Your Estate Plan Delivers Both Wealth and Wisdom.” Among the items you should cover:

Be clear (to the borrower, at least) that you expect to be paid back.

This is particularly important if previous loans turned into gifts, inadvertently or otherwise. You should discuss how much the payments are to be and when you should expect them. You also might talk about what will happen if the borrower is late or misses a payment. Regardless of what you tell the borrower, though, Ramsey believes you should be prepared in your own mind for default. Most of the time, she said, “they wouldn’t be asking you for money if they could manage money in the first place.”

Get good tax advice.

Interest paid on family loans is taxable to the lender. But not charging interest may not

be the right solution, since there’s a tax bugaboo called “imputed interest” that can cause headaches for people who lend money to relatives. If you don’t charge interest, or don’t charge enough, the IRS can essentially decide to tax you on income you didn’t actually receive from the loan, said Mark Luscombe, an analyst for tax research firm CCH Inc. Also, loan amounts you forgive may be considered taxable income to the borrower. There are loopholes big enough for most families to get through,

but if the loan is for more than $10,000 or your family has made other gifts or loans recently, you’ll probably want a tax pro’s advice.

Draw up a contract.

You can find contracts for promissory notes in stationery stores, or you can download forms from suppliers like Nolo Press for a fee. (Nolo also publishes a book, “101 Law Forms for Personal Use.”) Or you can just type up a statement that discusses how much you’re lending, at what interest rate, the due dates for the payments and the other details you worked out. Make sure both parties get and sign copies.

Consider recording a mortgage debt.

If you’re lending money to buy or refinance a home -- particularly if it’s a large amount -- consider having the debt officially recorded with the county clerk as a

mortgage against the house. That will allow the borrower to deduct the interest on the loan, since the debt would be secured by the home, and gives the borrower the option of foreclosure.

Do friends cause debt?

Sometimes it can be downright stressful trying to balance your friendship and your bank account, says Stacy Johnson of Money Talks. Recording fees vary by country, but are usually somewhere around $200. Your county clerk’s office should have information on how to record a mortgage debt, although many people hire attorneys to do the work. (Virgin Money’s fee for setting up and recording a basic mortgage is $649.) Finally, and perhaps most importantly: Don’t lend money you can’t afford to lose.

Let’s face it, even if you had the option of foreclosure, you probably wouldn’t use it. That means you should avoid loaning money you can’t live without, and you shouldn’t let the rather healthy possibility of default ruin your relationship with the borrower.

Get the latest from Liz Pulliam Weston. Sign up to receive her free weekly newsletter.” You could have a loving and deep relationship, and all of a sudden you’re not speaking,” Ramsey said. “The chances of it going sour are much higher than not . . . be prepared for that.”

Liz Pulliam Weston’s latest book, “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life,” is now available. Updated March 4, 2009

The right way to loan money to family members

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Sometimes it can be downright stressful trying to balance your friendship and your bank

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