Transforming lives through Jesus Christ with the provision of microfinance and health care in His name, incarnationally and holistically
Friday, April 12, 2013
Financial Diaries of Rwanda ...
["Portfolios of Rwanda" represent a deep root survey with Rwandans on their actual financial activities. They are financial diaries of their transactions. "Portfolio of the Poor" is a book that was co-authored by several one of whom is Daryl Colins. As part of Bankable Frontiers Associates, she conducted this survey in Rwanda, sponsored by VISA and Access to Finance Rwanda. I was on the panel after the presentation to respond to questions. The following is an article that CGAP wrote after the presentation and based on the report. - Jeffrey]
New Rwanda Diaries Ask, "Can We Build a Better Goat?"
Much of the work in the financial inclusion community focuses on how to extend reach — how to create access to financial services for the more than 2.5 billion people who remain outside the formal financial sector. But just opening accounts is no guarantee that the services will be meaningful in the lives of consumers or make business sense for providers. In markets like Rwanda, where significant strides have already been made to extend the reach of financial services, the evidence suggests that our challenge is less one of access and more one of relevance.
Photo Credit: Jonathan Kalan
In many cases, even in markets where formal financial services are readily available, individuals continue to utilize a variety of informal mechanisms, such as shop credit, money guards or investing in livestock as savings. These offerings are fulfilling critical financial needs in ways that formal products are not, but when it comes to quality, some are very inadequate. For example, Rwandans told us that borrowing from family and friends can be humiliating and damage social relationships. Goats provide a great cushion against shocks, but are easily stolen, stink up the house, and eat through neighbors’ gardens. In these contexts, the question becomes how can we design services that are equally relevant and convenient but offer greater security and reliability?
According to FinScope Rwanda 2012, a nationwide survey, traditional barriers to access — proximity, identification, cost — are already being tackled. More than 90 percent of adults live within five kilometers of a formal financial institution, 93 percent have a national identification card and only seven percent of the unbanked cite affordability as a barrier to formal services.
Building on FinScope and utilizing the Financial Diaries methodology derived from Portfolios of the Poor, Access to Finance Rwanda (AFR), Visa Inc., Bankable Frontier Associates (BFA) and Ntare Insights recently completed an in-depth analysis of the daily cash flows of Rwandan households to better understand their needs and offer product development insights to the financial services sector. The full report, Portfolios of Rwanda, is available here.
The diaries tracked the daily cash flows and financial activities of 59 individuals from 40 households over a two month period. We found that:
Like their counterparts in Portfolios of the Poor, low-income Rwandans are active money managers, using on average six financial instruments per person and cycling multiples of their income through those devices.
The underserved primarily use informal instruments. Of the six instruments used on average, only two come from formal providers. However, respondents indicate that many informal instruments are not meeting their needs for privacy and reliability.
Respondents view different devices as complements to one another rather than substitutes and seem to select the type of device based on the size of the need that must be fulfilled.
Few respondents cite access as a barrier to formal instruments. Formal services are primarily used for “big money” transactions and are not considered as useful for frequent, smaller-scale needs related to smoothing cash flow.
By recognizing the deep-seated aspirations, fears and habits of the financially underserved, we start to identify the financial jobs that people need their products to help them do. Where there are shortcomings in current strategies, financial providers have enormous opportunity to provide clients better options — options that are meaningful across a wider range of use cases beyond the financing of big investments.
For example, respondents told us that they often face difficulties meeting daily spending needs when hit with an illness that keeps them away, even for a few days, from their casual work or small business. They struggle to hold onto the small kinds of liquid savings that could help them through a period like this and instead tend to borrow from friends and family, which comes at a very high social cost. Power dynamics shift and relationships suffer. But with widespread reach and the efficiencies of mobile technology, formal providers can compete by filling this need with products like quick emergency lending over mobile money and cash benefit micro-insurance.
Similarly, households struggle to save at home for their children’s educations. At times, the temptation to divert that cash is just too strong. While savings groups impose that kind of discipline, payouts do not always coincide with school fee due dates. Despite the importance placed on education, coming up with the cash at just the right time is difficult. Respondents told us they sell off household assets, forego food or simply keep children home until funds are available. By creating more flexible products or, in some cases, more effectively educating clients on existing offerings, service providers can both capture business and help meet critical needs.
Financial service innovations in health, agriculture and insurance — along with the widespread adoption of mobile technologies — demonstrate the sector’s ability to adapt to changing needs and market forces. Continuing to learn from the day-to-day lives of underserved consumers is essential in making sure that the full benefits of expanding access are realized and clients have a wide range of services to achieve their goals for the future.
Jeffrey is a Christian financial entrepreneur. He has been in the industry for more than 35 years, including 17 years as CEO for three banks in the U.S. and Rwanda. Recently, he was CEO for Urwego Opportunity Bank in Rwanda for more than five years until May 1, 2014. In October 2015, he founded SfK Ministries and serves as its CEO. His experiences are diverse from branch banking to project finance, from community banking to corporate banking.
Kristin is a registered nurse. She has been in various departments of nursing for 30 years.
They are happily married and have two daughters, Amanda and Joyce. They live in Rwanda and Thailand.
The Needs in Rwanda
60.3 percent of the population lives on less than $1 a day
87.8 percent live on less than $2 a day.
The life expectancy is 44 years old
5 percent of the population have access to electricity and 3 percent have internet access
In the genocide of 1994, over 800,000 people were killed in 100 days.
A small country of about 9 million people, Rwanda is located between the Democratic Republic of Congo, Tanzania, Uganda and Burundi. Rwanda experienced Africa’s worst genocide in the 1990s, in which the two main ethnic tribes (Tutsis and Hutus) came head to head; over 800,000 people were killed and two million fled to neighboring countries.
Rwanda is now rebuilding its economy, with coffee and tea production among its main sources of foreign exchange. Although economic growth has exceeded 5% since 2001, Rwanda is still highly dependent on foreign aid, and nearly two thirds of the population lives below the poverty line. Only 5% of Rwanda’s population has access to electricity and 3% has internet access.
The microfinance sector in Rwanda is still young, but has grown considerably in a short amount of time. There are over 200 MFIs in Rwanda, many of which emerged after the genocide in 1994. Since 2004, the nation has seen the rapid growth of unregistered and unregulated MFIs. Even with this boom of MFIs in Rwanda, both the informal (moneylenders) and formal microfinance sectors are still weak and have only reached about 30% of the estimated demand for microfinance services.
In the past two years, several MFIs ran out of funds and were forced to shut down. The current irregularities in the microfinance industry have forced the government and National Bank of Rwanda to create more stringent norms and standards to strengthen the sector.