Linkage Loans to Informal Sectors...

When we talk about access to financial services in developing countries, a nation's population is categorized into three groups:

1. Those who have access to formal financial services
2. Those who have access to informal financial services
3. Those who are excluded from access to any financial services

Based on FinScope data (2008), 52% of Rwandan population is excluded from any financial services. I am sure this number has changed quite a bit. Another FinScope survey is being done in 2012 so I look forward to the new data.

The formal financial services sector includes banks, non-bank MFIs and finance companies. The 2008 data shows that this sector includes 26%, including banks at 14%. Very low.

The informal financial services sector, accounting for 22%, includes people who gather to form a group, save to create a money pool and lend to other members out of the pooled money. These informal groups are called in many different names: VSLA (Village Savings and Loans Association), SCA (Savings and Credit Association), SILC (Savings and Inter-Lending Community) etc. The types of these informal groups are also different based on their purposes. Some are ROSCA (Rotating Savings and Credit Association) and others are ASCA (Accumulating Savings and Credit Association).

UOB has triple bottom lines to pursue: Outreach, Transformation Impact and Sustainability. In other words, UOB pursues the maximum outreach and transformation impact within sustainability.

For the purpose of outreach, UOB aims to reach out to the informal financial services sector to include them in the formal financial services sector. But it was found that they were far too small economically and financially to be included in the formal financial services sector. Thus, UOB has made conscious efforts to providing "Linkage Loans" for the informal groups to 1) enhance their lending capacity for the borrowers and 2) benefit the savers with the difference between interest rates charged to the informal groups by UOB and interest rates charged to the borrowers by the groups. In order to preserve the savings spirit within informal groups, the Linkage Loans are tied to the amounts each group saves.

UOB has been working with CARE International and CRS (Catholic Relief Services) since 2011. Recently we have completed an evaluation with CARE and it has come out to be very positive and favorable. We have agreed to expand the services to the entire Eastern Province and possibly Southern Province. We plan to enhance the program with CRS as well. In addition, UOB is also discussing with other NGOs for the same purposes.

It is my prayer that these informal groups will develop well to be able to access all financial services available from the formal financial services sector. - Jeffrey