Southern Sudan Microfinance Development Facility (SSMDF)

Microfinance Landscape in Southern Sudan

July 2009

Southern Sudan Microfinance Development Facility

Microfinance in Southern Sudan

Background
Micro enterprise development activities were first initiated in Southern Sudan as early as 2000, but serious attempts at sustainable microfinance initiatives were not made until the launching of the USAID funded Agricultural Enterprise Finance Project (USAID/AEFP) in 2002, which led to the establishment of Sudan Microfinance Institution (SUMI), one of the three MFIs in Southern Sudan. The other two main microfinance providers are Finance Sudan (a partnership between ARC International and Micro Africa Limited, an East African holding company); and BRAC Southern Sudan (an enterprise of the world-renowned Bangladeshi based Building Resources Across Communities Microfinance organization). BRAC started a women-only microfinance programme in Southern Sudan in March 2007. It has now eight area offices and a total of 38 outlets in seven states namely the three Equatoria states (Eastern, Central & Western), Jonglei, Lakes, Upper Nile and Western Bahr el Ghazal with a total of about 16,340 clients. Finance Sudan has about 1,150 clients in two branches in Juba (Central Equatoria) and Malakal in Upper Nile State. SUMI has about 8,905 clients spread around its six branches and 13 outlets in four states, Central Equatoria, Western Equatoria, Lakes states and a newly established branch in Western Bahr el Ghazal. Apart from the three existing key players, there are several emerging organizations with the potential and interest to develop into solid microfinance operators in Southern Sudan. These include: AMURT (International) standing for Ananda Marga Universal Relief Team an international NGO established in 2002 with main focus on relief, emergency aid and development. Its Southern Sudan chapter was registered in 2007 as an NGO and it is currently running a microcredit scheme for vulnerable women, women-headed households, and Internal Displaced Persons (IDPs) in Northern Bahr el Ghazal, in addition to relief efforts. AMURT currently has 1,500 women clients and a portfolio of about USD 85,000. SAVANNAH Farmers Cooperative is an indigenous NGO providing micro-leasing of agricultural equipment, farm tools and implements. Savannah is one of the four MFIs registered by the Bank of Southern Sudan along with BRAC, SUMI and Finance Sudan. CDS Community development service is an NGO which plans to provide financial services mainly to vulnerable households and disadvantaged communities in Southern Sudan. JASCO is also referred to as JASCU, the acronyms standing for Jalia Savings and Credit Cooperative or Jalia Savings and Credit Union in the case of the latter. Though it was formally registered with the legal affairs department in 2006, JASCO is yet to start operations and is still grappling with the business planning and identification of appropriate product and services design issues. JASCO plans to target returnees, business community, government and NGO employees in Juba, Yei, Yambio and Mundri. MRDA Mundri Relief and Development Association registered with the Ministry of Legal Affairs as an indigenous NGO to run programs in education, health, and Women and Youth Empowerment (WOYE), under which its microfinance activities fall. The organization is currently serving about 500 clients in Mundri West and East Counties of Western Equatoria State. MRDA hired a consultant to review its microfinance activities and to develop a five year business plan for the microfinance activities. This is meant to set the foundation for separating the microfinance operations from the NGO. RUFI Rural Finance Initiative was registered in September 2008 and started operations in November 2008 in Kajo-Keji County in Central Equatoria State. Unlike the rest of the institutions mentioned, RUFI is a private forprofit company founded by a group of local Sudanese entrepreneurs. It currently has about 200 clients.

Southern Sudan Microfinance Development Facility

AMA Assistance Mission Africa is a humanitarian organisation that is considering starting a micro-credit program in Leer County in Unity State. The program would target returnees around the Port of Adok, especially some women groups who are currently engaged in horticulture. A summary of the information for the key players in the microfinance sector in Southern Sudan is provided in the table below. Institution Status Start Date No of Clients % of Women Coverage Branch SUMI MFI 2003 8,905 48%* 6 Branches and 13 outlets 3 8 branches and 38 outlets 1 1 1 States CE, WE, LS, WBG Portfolio Size (000 SDG) 4,895 Average Loan Size (SDG) 558

Finance Sudan BRAC

MFI MFI

2006 2007

1,150 16,340

40%* 100%

CE, UN CE, EE, WE, JS, LS, WBG UN NBG CE WE

1,121 3,133

976 418

AMURT RUFI MRDA * Estimated

NGO MFI NGO

2007 2008 2007

1,500 200 580

100% 62% 62%

277* 32 171

360 N/A N/A

[Key ] CE =Central Equatoria, EE= Eastern Equatoria, JS = Jonglei State, LS = Lakes States, NBG= northern Bahr Ghazal, UNS= Upper Nile State, WE = Western Equatoria, WBG = Western Bahr Gahazal

Other Microfinance Players

In addition to these key players and upcoming new ventures, there is yet another category of long established but localised attempts at different microfinance service provision including village bank models, Accumulative Savings and Credit Associations (ASCAs), SACCOs and NGO based microcredit and livelihood programs that have piggy backed on relief operations. These include: BYDA Bahr Ghazal Youth Development Association BYDA was formed in 1997 and was launched in 1998. It was registered in Kenya and based in Southern Sudan. BYDA seeks to move people out of a relief and dependency into an environment of self-reliance. Their primary efforts include civic education, food security and microfinance targeting women. Their microfinance programme started in 2001 with funding from USAIDs Southern Sudan Transitional Assistance for Rehabilitation (STAR) programme through CRS. Catholic Relief Services (CRS) Savings & Internal Lending Communities (SILC) CRS works with community members who form groups of between 6 - 25 members. They began in April 2005 and grew to about 445 members of whom 332 are women. The members are illiterate to semi-literate, and CRS designed specific programme methodologies for record keeping for each group. CRS mobilized the groups to save money. The groups save their money and use the accumulated savings to give each other rotating internal loans. Loans range from USD 5 - USD 1,000, and are repayable in one to three months. CRS does not give grants or loans, but only provides training in leadership, conflict resolution, and constitution development. Twenty of the
Southern Sudan Microfinance Development Facility

groups were expected to graduate in 2007 meaning they are now mature associations or organizations that can be linked to established MFIs or rural banks where they could leverage their savings and access larger commercial loans and other complex financial products and services. PITA Women Association for Development The Pita association was established in 1996 and has operations in Khartoum and Southern Sudan. Headquartered in Juba, PITA has branches in three states in Southern Sudan namely Jonglei, Eastern Equatoria and Northern Bahr el Ghazal. PITA works with women (widows, women heads of households, young girls who have dropped out of school) and youths to whom it provides training and short and medium term loans. PITA has a total of 2,500 members but the active borrowers are 1,500 with a portfolio of half a million Sudanese pounds. Overall the Southern Sudan microfinance portfolio comprises about 30,000 clients, with a portfolio of about 12 million SDG and covers eight of the ten states through a network of some 60 outlets. Two states, namely, Warrap and Unity still have no or insignificant access to microfinance services.

Commercial Banking Sector

Until early 2008, Juba and several state capitals enjoyed the services of a number of commercial banks, many of which practiced Islamic banking. These banks including Faisal Islamic Bank, Agricultural Bank, Omdurman Bank, Ivory Bank and Bank of Khartoum were required by the Government of Southern Sudan to either practice conventional banking or relocate to Northern Sudan. The banks have since relocated with the exception of Ivory Bank and the Agricultural Bank which recently re-opened their branches in Southern Sudan under conventional banking. Nile Commercial Bank (NCB), a local commercial bank established in 2003 has a network of ten branches in most of the states in Southern Sudan. Nile Commercial expanded rapidly and encountered management problems that saw many of its branches threatening closure for several weeks. The Governor, Bank of Southern Sudan has recently been quoted by local media1 acknowledging that NCB was insolvent. The government has indicated its desire to recapitalise the bank to save it from collapse. KCB Southern Sudan: This is an affiliate of the now regional Kenya Commercial Bank, one of the largest commercial banks in Kenya and with a presence throughout the East African region. KCB opened its doors for business in May 2006 and now has six established branches in Juba (3) and Rumbek (1) Yei (1) and Bentiu (1). KCB plans to open four new branches before end of 2009 in Kaya, Malakal, Wau and Yambio. Buffalo Commercial Bank (BCB): The bank started rather rapidly in the beginning of 2008. Its quick establishment was assisted by the acquisition of Faisal Islamic bank branches in Juba. As a result BCB now has three branches in addition to its Head Office in Juba. BCB plans to expand and open branches in all the 10 state capitals and Khartoum within two years. BCB also promises to provide elaborate services including the latest technology based internet banking and ATMs. Ivory Bank, opened by Southern Sudan economists in September 1994 in Khartoum to serve the interests of Southern Sudanese, has moved its headquarters from Khartoum to Juba, an event marked by a pledge of US$11 million in financing from the Government of Southern Sudan. The bank has its branches in Renk, Aweil, Malakal, Wau and Bentiu, with plans to open other branches in Yei, Kajo-Keji, Torit, Bor, Rumbek and Yambio before the end of 2009.2 Equity Bank of Kenya, a renowned microfinance bank worldwide, has received a licence from BOSS to establish its operations in Southern Sudan and started operations in June 2009. Equitys entry into the market is expected to transform microfinance and the entire financial service sector in Southern Sudan. Agricultural Bank of Sudan the bank has been operating since 1980 with the aim of allowing the government to deliver services to farmers to produce food for the local market in South Sudan. The bank provides loans to small- scale and large- scale investors but they are limited by lack of proper collaterals for the loans.
1

Sudan Tribune, Friday 24 April 2009 www.gurtong.org, 25 June 2009

Southern Sudan Microfinance Development Facility

Exim bank of Tanzania has expressed an interest in establishing operations in Juba and is expected to be another important entrant to the growing Southern Sudan financial sector. The Commercial Bank of Ethiopia is also expected to commence operations in Juba before the end of 2009. Regulatory Environment The Government of National Unity identified microfinance as a viable financial instrument for enhancing access to financial services for the poor, for alleviating poverty, promoting economic development and for empowering women. In 2008 this led to Central Bank of Sudan (CBOS) policies being directed toward creating and supporting the microfinance industry. During 2008 the CBOS issued a draft for a comprehensive regulatory framework for the Microfinance sector in Sudan, covering deposit taking and non-deposit taking non-bank entities. The regulatory framework will make it compulsory for all institutions who want to work in microfinance in Sudan to register with the CBOS or Bank of Southern Sudan (BOSS) in the case of MFIs operating in Southern Sudan. The table below provides a summary of the regulatory requirements.

Deposit-Taking MFIs Rural Minimum Capital SDG 5 million (USD 2.5million) Deposit limits No limit Urban SGD 10 million (USD 5 million)

Non-Deposit Taking MFIs Rural SDG 500,000 (USD 250,000) Urban SDG 500,000 (USD 250,000)

For SACCOs not more than SDG 50,000 (USD 25,000) per depositor and not more than SDG 1,000,000 (USD 500,000) total deposits

Loan limits Other requirements Regulation

Micro loans not to exceed SDG 10,000 (USD 5,000) per person. Monthly reports to BOSS Supervised and regulated by BOSS Annual reports to BOSS Not regulated

Only four MFIs are licensed by Southern Sudans BOSS within the 2006/7 requirements stipulated for licensing microfinance banks and the 2003 Act regulating banking business3. The paid-up capital requirement for non deposit taking MFIs in Southern Sudan have temporarily been waived by BOSS and the licence fees placed at 2,000 SDG to encourage new entrants. Al the licensed MFIs in Southern Sudan are not regulated since they do not take deposits. In a bid to fast-track the implementation of a microfinance regulatory environment, BOSS has established a microfinance unit and has hired a policy advisor to help with the regulatory framework.

Microfinance Network
In October 2004 AEFP brought together stakeholders (Government departments Agriculture, Finance, Commerce, Cooperatives, Gender, the Bank of Southern Sudan, The Chamber of Commerce and Industry and NGOs) to discuss the future of microfinance in Southern Sudan. The stakeholders realized that:
3

The Bill is obtainable from CBOS-MFU website www.cbos.gov.sd/mfu

Southern Sudan Microfinance Development Facility

There was a critical need for microfinance services Southern Sudan was in a better position as an emerging economy to benefit from experiences of neighbouring countries and come up quickly with a framework for regulation policy so that microfinance services offer the optimal social benefit A framework was necessary to regulate the industry and protect clients and other stakeholders There was a need to educate policy makers and legal bodies about microfinance to minimize the risk of over-regulation by the central bank and other potential regulators. The stakeholders concluded that they needed to establish a forum comprising all stakeholder groups in order to discuss best practices between institutions and lobby policy makers to create an enabling environment for the provision of financial services to the poor. This led to the launching of the South Southern Sudan Microfinance Forum (MFF) in May 2006 with a mission to build a professional microfinance industry in Southern Sudan, and provide guidance as the sector becomes firmly integrated into the financial sector, and to facilitate capacity building of all stakeholders. The MFF is now well established and holds monthly meetings with participation comprising the microfinance operators and some donor agencies, (The Multi Donor Trust Fund (MDTF) and the German Development Cooperation - DED). The project team of SSMDF in Juba has also participated in these meetings. The USAID funded microfinance support program GEMSS Generating Economic Developments through Microfinance in Southern Sudan, which is managed by AED and ACDI/VOCA are also active participants in the microfinance forum activities. The forum has also formed a web-based discussion group to which members can post news, notices, minutes, adverts and debate issues relating to the sector. MFF activities have received funding from Stromme Foundation and Cordaid, mainly for training and the registration of the Microfinance Association of Southern Sudan (MASS), a member-based body of practitioners. Unlike MFF, MASS has a legal structure; its registered as a company limited by guarantee and the five active MFIs namely SUMI, Finance Sudan, BRAC, CDS and JASCO as the subscribers or founding members. In summary, the MFF is a loose entity which periodically brings together all stakeholders in the microfinance sector to deliberate on issues concerning the industry at large whereas the MASS is a member-based association of institutions practising microfinance in Southern Sudan.

Microfinance Sector Support

The microfinance sector in Southern Sudan has and continues to receive support from donors to allow the sector play a leading role providing the low income entrepreneurs with opportunities to improve their quality of life. The table below provides a summary of the major donor support to the sector. Organisation/Time Funders frame SSMDF (Managed by Frankfurt School 2009-2012) GEMSS (Implemented by AED/ACDI-VOCA) 2009/10 Intervention Volume

CBOS, MDTF, GOSS

Loans, and technical assistance grants to MFIs and sector support Initial commitment of USD 6.4 million institutions Operational support and loan USD 6 million capital grants to MFIs and business development service providers as well as support to the Southern Sudan Microfinance Forum. Loan capital and technical TBD

USAID

UNCDF

UNCDF

Southern Sudan Microfinance Development Facility

Organisation/Time Funders frame

Intervention assistance to MFIs

Volume

DED Stromme Foundation SRF

DED Stromme Foundation UNDP

Support to the Microfinance TBD Forum and association Support to the Microfinance TBD Forum Funds for quick recovery impact, peace dividends, and the empowerment of communities affected by conflict and poverty. USD500,000-1,000,000 per state

Challenges Facing the Microfinance Industry

The microfinance sector in Southern Sudan as is the case in other post-conflict environments is faced with a number of challenges. Some of these challenges include the following: Weak financial system with no credit information, collateral registry and functional national identification system. The legal and regulatory framework for MFIs is yet to be developed. Weak contractual laws and enforcement system Limited supply of qualified human resources and high labour turnover Under developed transport and communication infrastructure Very high operational costs Fragile security situation in some locations Limited access to subsidised funds and grants to support MFIs during the development phase.

Southern Sudan Microfinance Development Facility