The role of MFIs in the Information Market Chain: Wilson Twamuhabwa Head of Operations Pride Microfinance Limited 01, June, 2010

Preamble Microfinance Institutions continue to play a fundamental role in access to financial services globally. MFIs are either regulated (MDIs) or unregulated MFIs The approach has been reorganized the world over as a tool for reduction of rural poverty through stimulation and growth of small business enterprises. Access to finance for the future of most developing economies will be driven for the most part by Microfinance Institutions.

Access to finance: Uganda -A 2007 study reveals that 62% have no access to financial services. -Commercial Banks only serve a very limited portion of the market despite having close to 300 branches all combined across the country. -MFIs contribution to financial access is still low with only 2% for MDIs and 1% for non regulated MFIs

What role can MFIs play? MFIs have a strong rural outreach with an extensive area of coverage; bridging the 62% gap will require further scaling up. The down scaling of commercial bank into Microfinance Operations requires that MFIs to innovate and deliver demand driven financial services to remain competitive. MFIs continue to finance and strengthen the different components of the Agricultural value chain through savings, loans and money transfer services.

Role of MFIs cont..d MFIs provide banking services to the people who could not access financial services before. For example in the very rural areas. MFIs promote culture of Saving, MFIs Mobilise deposits and this has created avenues for customers to get where to deposit their savings. MFIs provide interest on funds deposited with them because they want cheap sources of funding. MFIs provide Group Guaranteed loans where customers do not need to have formal collateral of the money. MFIs have contributed greatly on improving financial literacy levels in the areas they operate from through customer days, workshops and Trainings at Branches.

Role of MFIs cont… Through innovativeness MFIs help customer to acquire assets which may be used to generate revenue. For example ox- ploughs, Rice haulers Through CSR, MFIs have identified themselves with Public e.g. Budduda, Owino MFIs have gone as far as offering Social products that were once viewed as very risky e.g. Education loans, Banking on Health. MFIs offer inclusive financial services to all categories of people, e.g. the youth, women.

Challenges to MFIs The high cost of funds that MFIs use in lending to the public. The high cost of delivering financial services to the rural communities e.g. lack of power, poor infrastructure, no internet which makes services expensive for customers. Mistrust from the public due to some fraudulent MFIs that have disappeared with customer money in the past. Sustainability problems for MFIs considering that in rural areas there is no critical mass to sustain delivery services and lack of regular income on part of the poor rural populations. Perception of low income and less educated people about perceived complexity of financial services.

Thank you and God Bless you all /