REVITALIZATION OF COOPERATIVE GROUPS: A Vehicle For Effective Delivery of Rural Financial Services PAPER PRESENTED AT THE LAUNCHING & START UP SENSITIZATION WORKSHOP OF IFAD ASSISTED INSTITUTION BUILDING PROGRAMME (RUFIN), HELD AT THE NICON LUXURY HOTEL, ABUJA ON FEBRUARY 1, 2010 Presented by JONATHAN DANGWARAN Federal Director Of Cooperatives Federal Ministry Of Agriculture And Water Resources

Rural Finance Service Sub sector  The four major providers of rural financial services are  Commercial/universal banks  NACRDB Limited  Micro-finance banks (MFBs)  Micro-finance institutions (MFIs)  Total rural borrower outreach of the banking sector is probably not more than 100,000 and its saver outreach may be more than 1 million  Universal banks have not shown sufficient interest in agricultural/rural financing  A variety of programmes have contributed in improving rural finance without attaining the required impact, partly because they addressed mainly supply issues in credit delivery.  ACGSF,  Community Banks,  Linkage and Trust Fund Programme,  SMIEIS,  Refinancing And Rediscounting Schemes  The new Microfinance Policy, Regulatory and Supervisory Framework for which Nigeria was launched in December 2005, provides an opportunity to address all issues constraining rural microfinance.

Rural Finance Service Sub sector UNIVERSAL BANKS Low MFBS Low NACRDB Medium NGOS Low ROSCAS High SHG,SACAS & SACOS High COOPERATIVES High Rural Financial System Largely Urban and Peri-Urban Largely Rural And Community Based

The Microfinance Policy Framework  The policy objectives are to:  Make financial services accessible to wider segment of Nigerians  Mainstream the informal subsector into the national financial system  Enhance service delivery by MFIs to micro, small and medium entrepreneurs  Promote linkage programmes between universal, specialised and microfinance banks.  The main policy strategies are:  License and regulate the establishment of MFBs  Promote the establishment of NGO-based MFIs  Promote and encourage states and LGA’s participation by devotion of 1% of budget  Promote the establishment of support apex institutions for the microfinance sector and the practice of professionalism, transparency and good governance in MFIs  Mobilise domestic savings and coordinate donor assistance to strengthen the capital base of MFIs Policy explicitly recognizes the existence and services of non-bank MFIs (NGO-or member-based) but is not explicit on supervising them  NGO type non-bank MFIs may therefore opt to either remain as they are; convert into a LGA or state- level MFB or incorporate a subsidiary MFB.  Member-based MFIs have the option of reorganising/restructuring under the Cooperative Act or other law for effective access to MFIs, for the development of micro, small and medium agriculture and rural enterprises.

Some Rural Finance Data  Total population of 140 million people and 87 million adults  72% of adults (63 million) rural based, and access to finance is especially difficult for them.  86% percent of rural adults (47 million) are currently unbanked.  Access to banking services  20m or 23% formal banked  19m or 24% informally,  46m or 53% financially excluded  Rural banking density 1:61,100 Sources: 2008 FinScope Survey

Cooperatives Key to Rural Access  19 million informally banked represents the catchment of the cooperatives, NGOs and other semiformal delivery networks such as government /donor funded development projects with a projected breakdown as follows  NGO-MFIs 1,000,000  Government projects 750,000  Donor projects 250,000  Cooperatives 17,000,000 Source: Author’s Estimate  The number and distribution of cooperatives relative to other forms of MF delivery channels makes them the best suited as the channel with the deepest widest outreach in Nigeria

Current Situation  The cooperative medium has been successfully used to provide the small-holder farmers with credit, agro-inputs and market access. However, policy reforms in the last three decades have rendered these prostate.  low savings,  weak governance,  poor management qualities;  high level of fraud and  non-usage of modern and best practice standards  Technical support programmes such as BLW, NDE, SMEDAN, FEAP, NALDA, NSPFS, FADAMA, NAPEP, NACRDB, IFAD-CBARD, etc have promoted numerous enterprise groups at community levels, to serve as “receiving systems” for their programmes.  Project focused  Fragmented and uncoordinated  Poor institutional linkages  Need consolidation and maturation into viable self-managed and sustainable rural “delivery-cum-receiving” systems  The CRP is an intervention to address these weaknesses.

Cooperative Revitalization Program  Goal is to promote integrated and self managed & sustainable member based, rural organizations that support the 7 point agenda of Mr. President.  The specific objectives are  Promote member-based farmer and rural groups  Develop embedded services e.g. agric extension, inputs, farm machinery, market & financial services  Promote secondary and tertiary structures  Provide regulatory and inspectorate services  Undertake reviews, studies & develop best practices

Cooperatives CURRENT Project  Cooperative Credit Unions Revitalization & Rural Economic Transformation  Modern professional and regulatory systems  Aggressive rural savings mobilization  Improved rural credit delivery structures  operational reform and turn around of credit cooperatives societies, unions and CFAs where they exist.  Promote the growth of existing and viable cooperatives  New cooperatives to serve financially excluded and economically active rural adults  New policy framework for credit cooperatives  Promote and improve vertical integration and linkage with commercial and microfinance banks as source of wholesale finance.  Establish sustainable framework for cooperative data collection and management for effective monitoring and impact assessment.

The Approach  Identification and selection of cooperative unions  Due diligence assessment and diagnosis  Guided and focused capacity building and organization development  Performance standards & monitoring, management information system.

The Approach Concept Development finalized Update draft with comments from stakeholders Develop instruments, and work plan Prelominary Work Log Frame, M&E design Baseline Survey & CNA Regulation & Supervision Develop Eligibility Criteria Selection partners Baseline Survey Due dilligence Work Process Review Gap Analysis & Response Road Map & Milestones Regulation & Supervision Capacity Building PEARLS Growth and Outreach Apexes MIS Reports Performance Measurement

Performance Monitoring  R - Rates of Return and Costs  Operating Efficiency <5%  Loan portfolio Profitability >10% or Inflation Rate  Adjusted Return on Assets >5%  L – Liquidity  Liquidity ratio <15%  S - Signs of Growth  Growth in Loans >5%  Growth in # of Clients >5% Adoption of WOCCU developed PEARLS financial performance monitoring system designed to offer management guidance for credit unions and other credit and savings institutions.  P - Protection  E - Effective Financial Structure  Capital Adequacy 10-20%  Deposits/Assets 70-80%  Loan Portfolio/Assets 70-80%  A - Asset Quality  Portfolio at Risk <5%  Loan loss Provision 100%  Loan Loss rate <2%

Growth & Expansion Plan STAGECURRENT PROFILEPROPOSED INTERVENTIONS AND TARGETS 3. State apexes / cooperative finance agencies Cooperation among cooperative unions to promote a cooperative finance agency. 2-3 COSACUs FORMS STATE CFAs  Group expansion into 3000 or more  Promote mergers of 1-2 stage 2 unions  Develop professional management and governance structures to the standard of CFA or similar institution. 2. Association of societies into unions Matured stage 1 association and groups 3-5 SACOs TO FORM COSACU  Group expansion into  Promote mergers of 3-4 societies to form a union  Develop professional management and governance structures.  Training and capacity building of board and management and asset support grant 1. Primary societies and groups low income members, limited savings capacity, yet want credit, donor dependent, or government subsidized credit schemes, weak financial base, poor organizational and management capacity PROMOTE VIABLE SACOs  Group expansion into  Promote mergers  Training and capacity building  Improved savings  Better management

Project Targets in RUFIN States  Target new savers membership of 3,000 per union  2 unions/LGA; 3 LGAs/state = 6 unions/state  A total, 18,000 new savers are projected.  Projected average savings of N48,000/member/ annum  N0.864 billion in rural savings/state/annum  N10.4 billion in rural savings  Interest on deposits is 6%

Cooperative Apex Development  Assess the viability of existing apexes to determine if they can be reactivated  Finance a feasibility study for the establishment of apex organization to demonstrate self sustainability in 3 years  Promotional workshops  Part funding of the seed capital and take off funding including assets acquisition and operational budget subject to a limit of 60% of total requirement in the first three years.

MIS  Front-end Database Management System  Log Frame, M&E design  Baseline Survey & CAN  Automated data management systems  Schedule of periodic returns for Societies Unions State apexes  Back-end Portfolio Management System  Consolidation at national apex and FDC  PEARLS Share data with stakeholders

Stakeholder Roles Federal Department of Co-operatives:  Promoter and anchor for the project  Serve as a base for the implementation of the project  Coordination of the day to day management of the project  Determine the criteria for the selection or development of the state apexes, unions and societies  Design framework to collect analyze and manage data from the implementation of the project.

Stakeholder Roles Commercial & Microfinance Banks:  This project is aimed at improving the internal capacity of cooperatives to serve as effective intermediaries under a guided wholesale lending programme to be financed by interested and pre-qualified commercial and Microfinance banks.  For this project to succeed, we expect that the banks will play the following roles  Provide dedicated loan portfolio to service the credit needs of the certified and technically supported cooperatives unions and apexes.  Provide staff and logistic support for dedicated desk officers to manage the project.

Stakeholder Roles State Cooperative Credit Apexes:  Identification of the unions and societies to participate in the project in their respective states.  Saving and credit administrations including meeting all operational obligations of wholesale and refinancing windows facilitated by the project.  Other responsibilities of the unions are as follows.  Product development and promotion  Monitors unions/societies  Collects and aggregates data from affiliate societies  Savings mobilization  Asset creation and loan recovery

Stakeholder Roles Unions/Societies: The unions and societies are the locations of heavy retail financing, where facility gets disbursed to the terminal beneficiaries. The specific activities of the unions under this project are listed below. Contribute counterpart fund (up to 10% of total loan required for the implementation of the scheme in the affected union or society) Loan recovery from societies and remittance of it to the state apex. Selects the societies Monitors the societies Collection of data Disburse loan to societies In the specific case of societies they will be responsible for the following Disburse loan to individuals Loan recovery from individuals and remittance to the union Collection of data Monitoring of individuals