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Central Bank seeks to promote access to Basic Financial
Services by rural and Low-Income Communities
The
Central Bank of Lesotho is in the process of establishing a
Rural Savings and Credit Groups Scheme with the objective of
providing access to financial services to the rural and
low-income communities. This initiative comes upon the
recognition that efforts towards providing assistance to
these groups of people have had limited success, if at all.
Problems with the Current Situation
Most
rural communities do not have access to basic financial
services traditionally offered by formal banking sector.
Banks only accept deposits if the minimum balance on
passbooks is M500.00. There is very little or no lending at
all by these institutions. Faced with these problems, rural
communities have resorted to informal financial institutions
for safe keeping of their funds and for much needed credit
facilities. However, the services offered by these
informal/semi-formal institutions are often at exorbitant
costs particularly the interest rates charged and the funds
available for lending fall far short of the communities’
investment needs.
The Proposed Scheme
The
Central Bank is eager to help overcome these problems. A
key feature of the proposed scheme is Group Banking. In
other words, communities are encouraged to bank as a
group. In this way they will more likely raise the minimum
amounts required by banks, obtain credit, and invest as a
group. The Central Bank shall avail a Guarantee Fund on
behalf of the rural groups when they apply for loans from
commercial banks. Most importantly, there is going to be
training of these groups in order to build on their capacity
on an on-going basis. Distinguishing features between past
efforts and the proposed Scheme are as follows:
Previous Approaches Proposed Scheme
|
1.
Basic Approach |
1.
Basic Approach |
|
Communities
offered services on an individual basis |
Group Banking
|
|
2.
Interest on loans |
2.
Interest on loans |
|
Subsidised
interest rates |
Market-based
interest rates |
|
3.
Lending |
3. Lending |
|
Supply driven
lending |
Savings-based
lending |
Procedures
for Application
Through this Scheme, all groups that meet the eligibility
criteria will apply for a loan to the Central Bank. If
approved, the application will be forwarded to the
commercial banks. The banks will use their discretion to
determine groups that qualify.
Progress Made
|
Stage 1
|
Central Bank
has drawn up a proposed Rural Savings and Credit Groups
Scheme |
|
Stage 2
|
Stakeholders
conference was held at the Central Bank |
|
Stage 3
|
Consolidation
of the views of the stakeholders. This will result in
the production of an Operating Manual |
|
Stage 4
|
Operating
Manual is submitted to Cabinet for approval
|
|
Stage 5
|
Implementation
of the Scheme. |
The first two
stages have been dealt with. The Bank is in the process of
putting together the views of the stakeholders in order to
have an Operating Manual which shall serve as a guide to the
Scheme. This manual shall be presented to Cabinet for
approval before it is implemented.
In
the year 2003, Rural Finance Division in furtherance of the
policy for rural financial intermediation and in fulfilment
of its objectives embarked on the following activities:
(a)
Sensitisation of stakeholders - meetings with stakeholders
were convened as part of the sensitisation efforts to bring
to the forefront all players featuring in rural financial
service provision. Both indigenous and international NGOs
were met with the purpose of mapping together the required
interventions and devise a coordinated approach. In this
regard, all expressed commitment towards ensuring the
successful implementation of the policy through various
means of which, training of Rural Savings and Credit Groups
(RSCGs) was given the highest priority. This was one effort
towards achieving a thorough understanding of the necessary
ingredients in credit training and administration.
(b)
Setting of the Credit Guarantee Fund - the Board of CBL
approved a sum of M2.5 million for the establishment of a
Credit Guarantee Fund (CGF) that will cover the exposure of
banks during the execution of credit by banks to RSCGs. This
is aimed at ensuring implementation of the linkage-banking
programme.
(c)
Launch of the RSCGs scheme - the scheme was officially
launched during the period with further developments
embracing opening of the CGF account with CBL. On the same
breath, a Steering committee, which is representative of
stakeholders, held its first meeting to address salient
issues of the scheme’s take-off.-
(d)
Familiarisation visits to RSCGs - members of the Steering
committee were taken to districts on familiarisation tours
to visit RSCGs within their respective places of business.
The visits facilitated a deeper understanding and
appreciation of the groups’ operations in line with the
requirements for linkage banking programme. Through such
interactions, committee members and groups obtained
knowledge on activities, products and future plans earmarked
for the linkage process. In the same spirit, it can be
deduced that a proactive step towards developing an
institutional underpinning of an effective rural financial
intermediation policy was taken. The year under review has
thus been a period of greater activity in preparing for the
start of events.
The scheme is
on-going and progress will be reported regularly. |
