1 An International Conference on Rural Finance Research: Moving Results into Policies and Practice FAO, Rome, 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, 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 ( ): 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; 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 zMali: 70% rural, per capita income $234, HDI rank 174 zMFIs: 41 networks, 752 local MFIs, 614,000 members (2003) zTotal assets €69m, deposits €36m, outstandings €49m (2004) z3 MFI subsectors, in % of total outreach: yCooperatives 70% (88% of deposits, 84% of loans outstanding) yvillage banks/caisses villageoises 20%, ysolidarity credit groups (Grameen type) 10% zRegulation: Parmec law zMonitoring & 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,

8 Kafo Jigenew, a federation of savings & credit cooperatives zEstablished 1987, cotton belt, CMDT area z129 cooperatives, 165,000 members, 25% female (31 Dec 2003) zLinkages mediated through a central fund zTotal assets €23.6m zLoans outstanding €16.7m zClient deposits €12.2m, zBank borrowings €5.5m zROA 0.8% (2003), 2.7 (2002) zROE 5.3% (2003), 16.6% (2002)

9 CEVECA-ON, a network of village banks / caisses villageoises zVillage banks initiated in the early 1980s by CIDR z276 village banks, 120,000 members, 6 networks, 14 unions zKfW main financier since 1986, followed by AFD zCVECA-Office du Niger, est‘d 1994, originally cotton, now paddy z51 village banks, 26,300 members, 35% female (31 Dec 2003) zLinkages mediated through 3 financially independent unions zTotal assets €3.23m zLoans outstanding €2.43m zClient deposits €0.73m, zBank borrowings €1.55m zROA 1.25% (2003), 0.37 (2002)

10 Financial strategies zKafo Jiginew: self-reliance; fund management through a central fund, to be transformed into a bank or finance company in 2008 zCVECA-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) KafoCEVECA-ON Deposit-to-loan ratio73%30% Borrowings-to-loan ratio33%64%

11 Growth dynamics of financial strategies: Kafo Jiginew and CEVECA-ON Kafo JiginewCEVECA-ON Deposits to loans oustanding73%30% Depositors in % of members96%44% Deposits per MF unit in Euro94,70014,300 Deposits per member in Euro7428 Growth of deposits, %-1% Growth of loan portfolio, %17%

12 Questions, no conclusions (after 20 years of linkages) 1.Do donor credit lines for bank linkages undermine savings mobilization, self-reliance and growth? 2.Does donor and gvt financial support for bank linkages crowd out commercial banks? 3.Why are S&Cr coops in Mali working so well, in contrast to other developing countries? 4.Should village banks turn into self-reliant coops? 5.National and regional solidarity banks: what for? 6.With 30% of households in Mali organized in MFIs, why is Mali still one of the poorest countries?