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Thematic Roundtable II/3 Financial Linkages in Mali: Self-reliance and Liquidity Balancing

An International Conference on Rural Finance Research: Moving Results into Policies and Practice FAO, Rome, 19-21 March 2007. Thematic Roundtable II/3 Financial Linkages in Mali: Self-reliance and Liquidity Balancing vs Liquidity Supply and Donor Dependence By Hans Dieter Seibel

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Thematic Roundtable II/3 Financial Linkages in Mali: Self-reliance and Liquidity Balancing

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  1. An International Conference on Rural Finance Research: Moving Results into Policies and Practice FAO, Rome, 19-21 March 2007 Thematic Roundtable II/3 Financial Linkages in Mali: Self-reliance and Liquidity Balancing vs Liquidity Supply and Donor Dependence By Hans Dieter Seibel University of Cologne, Germany 13 March 2007

  2. Background, 1987:Linking formal and informal finance Basic research: Informal finance, upgrading IFI, 1900... Development hypothesis, 1980s: „Financial services to rural populations can be improved by linking informal and formal financial institutions.“ FAO policy: „ ... The modalities of linkages between banks and informal groups are a major priority area of FAO and will remain so during the coming years.“ (Mittendorf, Chief, Marketing & Credit, FAO, 1987) Practice (1988...): Linking banks and SHGs – APRACA/GTZ in Indonesia, Philippines, Thailand, India AFRACA/GTZ in Nigeria, Burkina Faso, Zimbabwe

  3. FAO/Ford Foundation, 2005:A Global Study to Examine Innovative Linkages to Expand Rural Financial Services Focus: Partnerships between banks and MFIs: • overcoming information and enforcement problems • lowering transaction costs • increasing outreach • providing services beyond credit 12 case studies in 11 countries in Africa, Asia, LA Small Enterprise Development, May 2006; www.ruralfinance.org Maria Pagura, ed., Expanding the frontier in rural finance: financial linkages and strategic partnerships. Practical Action Publishing, Bourton on Dunsmore, 2007

  4. Mali:Linkages between banks and MFIs • Mali: 70% rural, per capita income $234, HDI rank 174 • MFIs: 41 networks, 752 local MFIs, 614,000 members (2003) • Total assets €69m, deposits €36m, outstandings €49m (2004) • 3 MFI subsectors, in % of total outreach: • Cooperatives 70% (88% of deposits, 84% of loans outstanding) • village banks/caisses villageoises 20%, • solidarity credit groups (Grameen type) 10% • Regulation: Parmec law • Monitoring & supervision: CAS/SFD, a unit in the MoF

  5. Linkage banks BNDA, a government-owned AgDB, main linkage bank: • backward linkages with AFD, KfW • 2.9% of loans outstanding invested in the MF sector • Two largest borrower-MFIs: Kafo Jiginew and CVECA-ON • Interest rate to networks: 8% (corporate rate: 15%) • Networks to MFIs: 10%, onlending rate to members: 20-25% BIM, a commercial bank: • Refinances MFIs since 1994, focus on 3 networks • linkages with MFIs since 1986; wholesale & corporate lender Banque Malienne de Solidarité, for MFIs, since 2002, 7% interest Banque Régionale de Solidarité Mali, since 2005 Repayment rates at BNDA, BIM: 100%

  6. Overall functions of banks 1st: Seasonal liquidity balancing: • Accepting deposits from MFIs at times of surplus • Refinancing MFIs at times of shortage of funds 2nd: Liquidity supply to MFIs for portfolio expansion 3rd: Channeling donor funds • Banks willing to lend more, lack of effective demand

  7. Semi-annual fluctuations in client loans, deposits and liquidity balances, 2001-03

  8. Kafo Jigenew, a federation of savings & credit cooperatives • Established 1987, cotton belt, CMDT area • 129 cooperatives, 165,000 members, 25% female (31 Dec 2003) • Linkages mediated through a central fund • Total assets €23.6m • Loans outstanding €16.7m • Client deposits €12.2m, • Bank borrowings €5.5m • ROA 0.8% (2003), 2.7 (2002) • ROE 5.3% (2003), 16.6% (2002)

  9. CEVECA-ON, a network of village banks / caisses villageoises • Village banks initiated in the early 1980s by CIDR • 276 village banks, 120,000 members, 6 networks, 14 unions • KfW main financier since 1986, followed by AFD • CVECA-Office du Niger, est‘d 1994, originally cotton, now paddy • 51 village banks, 26,300 members, 35% female (31 Dec 2003) • Linkages mediated through 3 financially independent unions • Total assets €3.23m • Loans outstanding €2.43m • Client deposits €0.73m, • Bank borrowings €1.55m • ROA 1.25% (2003), 0.37 (2002)

  10. Financial strategies • Kafo Jiginew: self-reliance; fund management through a central fund, to be transformed into a bank or finance company in 2008 • CVECA-ON: portfolio expansion through bank borrowings, refinanced by donors; fund management through BNDA Niono „Sans le refinancement, les caisses n‘existeraient pas.“ (A. Cissé, CAREC) Kafo CEVECA-ON Deposit-to-loan ratio 73% 30% Borrowings-to-loan ratio 33% 64%

  11. Growth dynamics of financial strategies:Kafo Jiginew and CEVECA-ON

  12. Questions, no conclusions(after 20 years of linkages) • Do donor credit lines for bank linkages undermine savings mobilization, self-reliance and growth? • Does donor and gvt financial support for bank linkages crowd out commercial banks? • Why are S&Cr coops in Mali working so well , in contrast to other developing countries? • Should village banks turn into self-reliant coops? • National and regional solidarity banks: what for? • With 30% of households in Mali organized in MFIs, why is Mali still one of the poorest countries?

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