DAY 1 - AFTERNOON SESSION

1.0       OBJECTIVE

The aim was to identify pertinent issues from previous sub-regional workshops for
deliberation during the Plenary Session. In this regard, the workshop identified the
following topics for discussion.

   i.     Client focused Approach to the provision of rural credit;
  ii.     Risk Mitigation/Credit Guarantee;
 iii.     Supervision/ Role of Central Banks;
 iv.      Linkage Banking;
  v.      Interest Rates; and
 vi.      Product Development and Market based approach.


      1.1.     Client Focused Approach to the Provision of Rural Credit

             a) preamble:

Profitable banks need profitable clients. In this regard, a question was asked whether or
not the rural finance providers had a responsibility to support clients to be profitable? If
so what could be done to put this into effect.

             b) Discussions:

 Session acknowledged that rural credit providers had a responsibility to support their
clients and observed that this was consistent with research findings. There was need to
integrate the environment through publications, involvement of governments and other

Governments were expected to play an important role in improving the environment
through infrastructure development and marketing, which would go a long way towards
improving the productivity.

             c) Role of AFRACA

   i.     AFRACA should lobby Governments through Apex bodies where they exist;

 ii.      It was suggested that the AFRACA Chairman and/or Secretary General should
          attend the African Union and the NEPAD to articulate issues of concern;

 iii.      Central Bank Forums and industry associations (e.g. bankers, farmers
           associations) could be utilized to lobby and reach out to the Government;

 iv.       AFRACA should encourage Member institutions to form associations that would
           advocate for the necessary environment; and

  v.       In order to improve the relationship between clients and rural finance providers,
           AFRACA as a center of intellectual studies had a responsibility build a
           comprehensive information base that should be disseminated to stakeholders.

       1.2.     Customer Centric Approach: Who are our clients?

              a) Preamble

In order to know their customers, rural credit providers, need to interact with their clients
on a continuous basis. Delegates were challenged to come up with suggestions of how
best to achieve this.

              b) Discussions

To improve communication and better meet customer needs, credit providers need to
involve and understand their customers. In this regard, the following suggestions were

   i.      Consultations with all stakeholders including potential customers at the time of
           developing overall policy;

 ii.       Assisting in group formation and training (e.g. credit management, input
           application, banking, marketing, literacy etc) of customers;

 iii.      Conduct market surveys especially customer satisfaction and exit surveys. Utilise
           questionnaires to seek the perception of customers/potential customers;

 iv.       Include credit course in the curriculum to lay an academic foundation for credit
           and extension officers who will eventually be interacting with customers;

  v.       Employ dedicated regional managers who should interact regularly with

 vi.       Ensure close collaboration at country level amongst all financial institutions. This
           could include the establishment of apex bodies and training institutions funded by
           the financial institutions themselves; and

vii.       A paradigm shift, where rural finance providers shift their attention to their clients
           as a foundation to successful credit provision.

              c) Role of AFRACA

Provide information brokerage – AFRACA should set up a comprehensive knowledge
data base which should include standard customer satisfaction/exit questionnaires.
AFRACA should also provide a web link to other established service providers for ease
of reference by member institutions. In addition AFRACA should facilitate exposure
programmes in line with its strategic plan.

       1.3.     Interest Rates

              a) Preamble

It was noted that rural finance providers charged high interest rates which were some
times higher than those applicable to the rich people. However, a question was raised as
to what constituted a reasonable level of interest rates given that the interest rate was a
price, which should reflect the cost of funding, operating costs, sustainable profit
margins, and an array of risks such as exchange rate risk, long gestation periods, political
risk, contagion risk due to different levels of economic liberalization, weather, etc.

              b) Discussion

Delegates observed that the main problem was access to funding and not the level of
interest rate. Hence, delegates were challenged to conduct transaction cost studies.

Delegates also observed that whenever the issue of interest rate arose, it was important to
identify the players in the determination of interest rates. The key players were identified
as follows:

   i.      Governments – particularly through their fiscal operations such as deficit
 ii.       Commercial Banks – through their costing of capital and determination of their
           profit margins;
 iii.      Central banks – through their monetary policy operations, especially their
           statutory reserve requirements; and
 iv.       Customers – through their credit culture, which determine the individual risk

Social objectives - Governments and Central Banks had a role to play in reducing the
levels of interest rates charged, such as ensuring a stable macroeconomic environment,
reducing statutory reserve ratios, re-channeling tax revenues etc.

The delegates were cautioned that in discussing the delicate issue of interest rate, care
should be taken not to create a dependency syndrome and more important to
acknowledge that AFRICA can not afford to subsidise interest rates.

It was also argued that the type of products was a factor in the determination of the level
of interest rates. In this regard, it was acknowledged that the high interest rate question
was a relative one. Hence it was suggested that a better measure would be to compare the
internal rate of return (IRR) of the projects funded.

Transparency and ensuring that rural finance providers achieved real rate of return was
emphasized. Delegates were called upon to review the cost of intermediation so that apart
from taking account of the risk factors, measures should be put in place to enhance
efficiency mechanisms.

Consumer protection was also identified as a useful tool for advocating the reduction of
interest rate level reduction.

Apply flexible policies to segmented clients

           d) Role of AFRACA

Clearing house for information – collect value adding information and pass on this expert

   1.4.      Linkage Banking

           a) Preamble

Linkage banking provides a window of opportunity for rural finance providers to expand
their loan books and reduce funding cost and could assist the expansion of rural finance
provision. The experience of AFRILAND and the APEX Bank were cited as success
models of linkage banking.

           b) Role of AFRACA

Compile listing of successful linkage models and post on the AFRACA information data
base for dissemination. In addition, arrange exchange programmes amongst member
institutions to promote this novel model in the provision of rural finance.


To top