59 Rwanda Targeting 80 Per Cent Financial Inclusion in 2017 Rugazura Ephraim, Ph.D Scholar, Department of Rural Management, Annamalai University, Annamalainagar ABSTRACT Background: In order to achieve the country s economic transformation and poverty reduction, Rwanda has set its goal on increasing financial inclusion to 80 percent by 2017, through deepening and broadening the financial literacy of Rwandans. This will be attained through the second Financial Sector Development Program (FSDP II), a five year program that seeks to develop a stable, sound and efficient financial sector. Methods: The researcher has selected Kigali city, other urban areas, and rural areas of Rwanda on the basis of the highest number of cooperatives Umurenge SACCOs across the country. The primary data were collected and have been selected and administrated through questionnaire. This sample unite constitute the representative size sample of 416 Sectors which constitute the total number of Umurenge SACCO in Rwanda. Findings: The FinScope 2008 and 2012 surveys have revealed that in 2008 21% of Rwandans, 18 years or older, were using formal financial institutions. This percentage has increased to 42% in 2012. The findings further showed that this increase was caused by more people using commercial bank services and products, as well as people opening accounts with Umurenge SACCOs. Keywords: Financial inclusion, Rwanda, poverty reduction, self reliance, banking system INTRODUCTION AND LITERATURE The recently released findings of the FinScope 20121 survey show that Rwanda has also made.significant progress in terms of therefore mentioned FSDP objectives and that the establishment of Umurenge SACCOs played a key role in this regard. Umurenge SACCOs is a Government initiative aimed at increasing the accessibility of financial services to Rwandan citizens. The concept of Umurenge Savings and Credit Cooperatives (Umurenge SACCOs) was based on an understanding that banks and other financial institutions were more concentrated in urban areas whilst the majority of the Rwandan population live in rural areas. Banks and other financial institutions were also not able to provide financial services that were ideal to serve the poor. Establishing a SACCO in every Umurenge was aimed at bridging this gap. FinScope is a research tool which was developed by FinMark Trust2 in an effort to address the need for credible financial sector information to provide guidance in terms of how to respond to some of the challenges policy makers, regulators and financial service providers are faced with. It provides a holistic understanding of how individuals generate an income and how they manage their financial lives. It also identifies the factors that drive financial behaviour and those that prevent individuals from using financial products and services. The first FinScope Rwanda survey was implemented in 2008. This survey showed that 79% of Rwandans, 18 years or older, were not using formal financial institutions. This meant that a large amount of money remained in people s pockets, which not only limited Rwandans ability to build financial security, but also financial institutions capacity to distribute credit because of a lack of liquidity. This finding substantiated the need for an intervention such as the Government s Umurenge SACCO initiative. The FinScope 2008 and 2012 surveys have revealed that in 2008 21% of Rwandans, 18 years or older, were using formal financial institutions. This percentage has increased to 42% in 2012. The findings further showed that this increase was caused by more people using commercial bank services and products, as well as people opening accounts with Umurenge SACCOs. Umurenge SACCOs have, however, been the success story in terms of increasing financial inclusion. In 2008 14% of Rwandans, 18 years or older, were banked. This proportion has shown a significant increase to 23% (approximately one million individuals) in 2012. The Umurenge SACCO programme has, in the three years since its establishment, managed to acquire the same number of members as the number of clients currently served by the more established banking sector. Twenty two per cent (just under one million individuals) of Rwandans, 18 years or older, are currently Umurenge. The FinScope 2012 survey findings further indicate that the Umurenge SACCO programme has the potential to achieve the FSDP objectives of providing Rwandans with better access to financial services and help establish a savings culture amongst Rwandans: 91% of Rwandans, 18 years and older, live within a five km radius of an Umurenge SACCO. A need to save is the most significant driver of Umurenge hip; 42%
60 of members joined to save whilst an additional 9% of members joined to keep their money safe. FinScope 2012 findings also illustrate that with the increased proportion of individuals now saving in formal institutions, there has been a significant decrease in the proportion who keep their savings at home since 2008. The Umurenge SACCO programme therefore also seems to be a successful instrument through which the Government s objective of channelling more money into the formal system can be met. Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products (The Committee on Financial Sector Reforms, Chairman: Dr. Raghuram G. Rajan). Household access to financial services is depicted The essence of financial inclusion is to ensure delivery of financial services which include - bank accounts for savings and transactional purposes, low cost credit for productive, personal and other purposes, financial advisory services, insurance facilities (life and non-life) etc. STATEMENT OF THE PROBLEM About 80 percent of the world s poor adults do not have a bank account or use other formal financial services not only because of poverty but also due to costs, travel distance, and other barriers. Our strategy aims to capitalize on rapid advances in mobile communications and digital payment systems to connect poor households to affordable and reliable financial tools. Poor people do not live in a static state of poverty. Every year, many millions of people transition out of poverty by successfully adopting new farming technologies, investing in new business opportunities, or finding new jobs. At the same time, large numbers of people fall back into poverty due to health problems, financial setbacks, and other shocks. If available at critical moments, effective tools for savings, payment, credit, and insurance can help households capture an opportunity to climb out of poverty or weather a crisis or emergency without falling deeper into poverty. OBJECTIVES The specific objectives are (1) to encourage local citizens to use financial institutions (2) to enable them to save and access loans and ultimately providing them with the opportunity to build financial security that would better enable them to manage financial shocks and (3) to invest in business opportunities and (4) to move out of chronic poverty and improve their livelihoods. METHODOLOGY The researcher has selected Kigali city, other urban areas, and rural areas of Rwanda on the basis of the highest number of cooperatives Umurenge SACCOs across the country. The primary data were collected equally from respondents through questionnaire administrated to representative samples of 416 Sectors which constitute the total number of Umurenge SACCO in Rwanda and was the samples unite of adults who Umurenge SACCOs most, who MFIs most, and who savings groups most of Umurenge SACCOs. Economic status data on main income generating activities, farmers, those who earn an income from piece work, farm labourers, and individuals with salaries from Government/company, Business owners were also considered from respondents. Collected data have been tabulated and analyzed using appropriate statistical tools. RESULTS & DISCUSSION Most (42%) Umurenge joined the SACCO in order to save, an additional 9% to keep their money safe, and 14% to be able to access credit. Twenty six per cent of members joined because they felt they were obliged to. Group discussions with have revealed that there is a sense of ownership amongst members. often refer to SACCOs as our bank. They regard SACCOs as local and accessible and managed by people they know. The perception is that SACCOs provide a faster service, have better customer care and their account handling charges are lower than those of banks. The SACCO programme is regarded as similar to Mutuelle de Sante a Government initiative which has proven to be beneficial to the population. Why do Rwandans become Umurenge? Is there in the Umurenge SACCO programme? FinScope 2012 survey findings (summarised below) indicate that there is amongst Rwandans in the Umurenge SACCO programme. There is however a significant differences between those who live in Kigali City and those who live in other urban or rural areas. In Kigali City commercial banks are more likely to be ed with savings and for lending purposes than SACCOs. In other urban and rural areas however, Umurenge SACCOs are more likely to be ed than commercial banks. The access to the Umurenge SACCO programme is explained in the below tables
61 Table-1: Who do Rwandans s must and access to financial inclusion with their savings? banks most % adults who Umurenge SACCOs Most MFIs most Kigali City 60.3% 29.1% 2.8% 3.1% Other urban areas 33.8% 45.9% 3.3% 9.5% Rural areas 27.5% 53.9% 2.3% 9.5% savings groups most Findings indicate that there is amongst Rwandans in the Umurenge SACCO programme. There is however a significant differences between those who live in Kigali City and those who live in other urban or rural areas. In Kigali City commercial banks are more likely (60.3%) to be ed with savings and for lending purposes than SACCOs (29.1%). In other urban and rural areas however, Umurenge SACCOs are more likely to be ed than commercial banks respectively (45.9%) and (53.9%). Table-2: Who do Rwandans most as lenders? % adults who Umurenge SACCOs banks most Most MFIs most Kigali City 59.4% 30.0% 3.4% 2.3% Other urban 31.3% 45.1% 3.1% 11.6% areas Rural areas 25.4% 54.6% 2.5% 9.9% savings groups most Unlike commercial banks and microfinance institutions that tend to be more likely to serve the employed or those with regular and steady sources of income, the client base of Umurenge SACCOs is not skewed towards a specific segment of the population as can seen in the table-2. Table-3: Who are SACCO clients? Main income generating Activities % of adult population % of Umurenge % of banked Clients % of MFI Clients Farmers 38 40 28 29 Those who earn an income 16 13 0 7 from piece work Farm labourers 14 17 9 10 Individuals with salaries from 8 10 26 26 Government/company Business owners 3 2 7 7 Table-4: Provincial distribution of Umurenge Area Number of Umurenge % of Umurenge Kigali City 102 500 10.3% Other urban areas 96 300 9.7% Rural areas 798 900 80.1% Source: Computer data With 40% of its members being farmers, the Umurenge SACCO initiative has been successful in providing formal financial services to Rwandans who most likely would otherwise not use formal financial services. Umurenge SACCOs are perceived to be for the middle and low income population of Rwanda. Those who are most economically vulnerable are perceived to be unlikely to use a SACCO. With regard to savings, the perception is that it is necessary to have sufficient money to open an account and to have enough to put some aside as savings. With regard to credit, the perception is that either collateral or group membership is a requirement and borrowers would need to have sufficient regular income to repay the loan. FinScope 2012 survey findings indicate
62 that 57% of are from households of Ubudehe Category 3, 21% from Category 2 and less than 3% from Category 1 (i.e. those judged most vulnerable in their own community).do actively use their accounts? Active use of Umurenge SACCO accounts is high. Only 12% of members did not use their accounts during the period January to June 2012. Comparing account usage of with that of bank clients indicated that SACCO products are more likely to be actively used than bank products especially in rural areas. In rural areas almost half (47%) of used their SACCO products in the month prior to the FinScope 2012 survey (June 2012) whilst 80% of used it during the period January to June 2012. Fifty per cent of rural bank clients on the other hand did not use their bank products in the period January to June 2012. The FinScope 2012 findings revealed that non-usage of bank products is more likely to be due to products not meeting consumers needs than non-usage of SACCO products. Irrespective therefore of whether the higher likelihood of usage of SACCO products is due to better accessibility or better functionality (i.e. being more appropriate in terms of meeting the needs of SACCO clients) than bank products or both, these findings seem to indicate that SACCOs are proving to be more successful in terms of providing formal financial services to Rwandans in a manner that meets their needs. Products and services provided by Umurenge SACCOs.All Umurenge SACCO members have savings accounts and 11% have a loan. Discussions with indicated that they perceive the low uptake of credit to be due to two reasons: Firstly, the inability of many to meet the criteria for a loan, and secondly, the loans offered by SACCOs not meeting their specific needs. In general, credit needs of SACCO clients are short-term consumption and emergencies being the most significant drivers of need. Quick access is key in many instances and SACCOs cannot meet this demand. There is also a perception that the maximum amount that an Umurenge SACCCO can lend is often insufficient for those wanting to start a small business. Proportional to the provincial adult population, the highest uptake of hip has been in the Eastern Province (26% of adults) although most are in the Southern Province. Challenges facing Umurenge Sacco s.the establishment of Umurenge SACCOs has significantly changed the landscape of access to formal financial services in Rwanda. This intervention has been successful in providing these services to Rwandans who would otherwise not use formal financial services in a manner that seems to address their needs. The challenge for Umurenge SACCOs to continue to be perceived as the people s bank lies within their ability to ensure their sustainability and to harness the that currently exists amongst Rwandans especially in rural areas to build on the current membership base. Key challenges include: Strengthening SACCO management in terms of functions such as administration, governance and accountability. Ensuring that SACCOs have the facilities and equipment needed to facilitate their activities. Providing a broader base of products and services specifically designed to meet the needs of middle and lower income Rwandans. Putting in place measures aimed at consumer protection. The establishment of Umurenge SACCOs has significantly changed the landscape of access to formal financial services in Rwanda. This intervention has been successful in providing these services to Rwandans who would otherwise not use formal financial services in a manner that seems to address their needs. REFERENCES [1] Jump up^ Geoffrey Muzigiti, Oliver Schmidt (January 2013). "Moving forward". D+C Development and Cooperation/ dandc.eu. [2] Anand Sinha (2012), Financial Inclusion and Urban Cooperative Banks, edited transcript at the launch of the financial inclusion program of COSMOS Bank at Pune. [3] Chakrabarty K.C (2011), Financial Inclusion and Banks: Issues and Perspectives, RBI Bulletin, November, 2011. [4] Chakrabarty K.C (2012), Empowering MSMEs for Financial Inclusion and Growth Role of Banks and Industry Associations, address at SME Banking Conclave 2012. [5] Chakrabarty K.C (2013), Financial Inclusion in India: Journey So Far And the Way Forward, Key note address at Finance Inclusion Conclave Organised by CNBC TV 18 at New Delhi. [6].Sarkar A.N (2013), Financial Inclusion: Fostering Sustainable Economic Growth in India, The Banker, Vol. VIII, No.4, pp.44-53. [7] Mira Mendoza (2009), Addressing Financial Exclusion through Microfinance: Lessons from the State of Madhya Pradesh, India, The journal of International Policy Solutions, Vol 11, pp 25-35. [8] Narayan Chandra Pradhan (2013), Persistence of Informal Credit in Rural India: Evidence from All- India Debt and Investment Survey and Beyond, RBI Working Paper Series, WPS (DEPR): 5/2013
63 [9] Radhika Dixit and M. Ghosh (2013) Financial Inclusion for Inclusive Growth of India A Study, International Journal of Business Management & Research, Vol.3, Issue 1, pp. 147-156. [10] Sadhan Kumar Chattopadhyay (2011), Financial Inclusion in India: A Case-study of West Bengal. RBI Working Paper Series, WPS (DEPR): 8/2011. [11] www: Technical report access to finance Rwanda, January 2013 [12] www: Mapping the Financial Sector in Rwanda