18 December 2012

Rwanda: From Umurenge Saccos, Vibrant Village Banks Can Be Built


One of the most difficult things to achieve, any economist in the developing world will tell you, is building a financial system that brings on board rural players in the informal sector - peasant farmers and small traders.

Over the past decade or so, commercial banks have developed tailor-made bank products meant to attract customers in these categories but the result has encouraged just a handful of them to seek banking services. Many have preferred to keep their savings at home and borrow from each other if and when need for credit arose.

As a result, most developing countries (especially in sub-Saharan Africa) have up to 80% of their people locked out of the financial sector - where they neither save with nor borrow from formal financial institutions.

Of course the effect of this has been stagnation of the financial sector while lots of money that could be used to spur economic activity remains tucked away under beds at home. Certainly, the old notion that banks are for the rich has had a role to play in this.

On the other hand, sleepy policymakers did not help the situation either. Instead of searching for solutions within the communities themselves, there was a tendency to keep on trying those failed policies again and again.

As has been demonstrated by the success of Savings and Credit Cooperatives schemes (Umurenge SACCOs), the solution to financial inclusion in sub-Saharan Africa did exist within the communities themselves. One only needed to mold a solution along the existing structures - whereby people who know each other well, lend each other money with or without any documentation or agreements.

That is the beauty and power of home-grown solutions. You engage the masses on issues and ideas that they are familiar with, not abstract theories passed on to the next generation from outdated text books.

So, just three years since the idea of Umurenge SACCOs was hatched during Rwanda's annual national dialogue, the result has been stunning. Since 2010, about 406 out of 416 Umurenge SACCOs have gained recognition by the central bank. This means that their activities are regulated, having met all the licensing requirements. And that is not all. The bigger news is that more than half of these SACCOs have already started making profit. This means that a combination of savings and interests earned from money leant to members is now enough to keep them in business and cater for all the financial needs of their members.

According to figures available at the central bank, the number of Rwandans without access to financial services has now drastically reduced to 28%, down from more than half of the population in 2008 - thanks to SACCOs.

Perhaps the most interesting of all is the amount of savings these schemes have managed to mobilize in the short period they have been in existence. It is estimated that even before the end of this year, there were more than 1.5 million active accounts opened and held by SACCOs members with total deposits expected to top a handsome Frw 29.8 billion. Those within the banking sector will attest to the fact that this is indeed awesome.

Yet with outstanding loans to members of about Frw 14 billion, SACCOs have certainly helped mobilize money in form of savings and injected it into economic activity by lending to over 53,000 members.

This is no mean achievement that even commercial banks would not achieve in such a short time.

With SACCOs, the country is indeed on the path to develop vibrant rural banks owned and managed by the members themselves in ways they understand.

That way, meaningful financial inclusion is attainable. With a little more specialized training in budgeting, cash flow management and on how to invest excess funds, there is real opportunity to develop the country into a financial hub for the region.

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