Microfinance Unit - Central Bank of Sudan

The microfinance Unit is responsible for executing strategy of the Central Bank of Sudan to develop social and economic banking in the field of microfinance with the aim of establishing effective corporations and activities to eliminate poverty in the poorest classes of the society and increase production to achieve balanced economic development according to CPA.

Accordingly, the Unit shall persevere to support banking and non – banking corporations through careful programs to build up technical and human capabilities of these corporations. It shall also find the suitable structures and legislations which provide for development of supportive practices and policies for microfinance corporations like similar international success and according to Islamic and traditional banking.

Microfinance is meant to provide financial and banking services which are in the first range , finance and serving devices which offers services to poor clients who are economically active but unable to obtain the services rendered by official financial corporations, i.e., less than or equal to one million SDD in the first stage.

That is banks and corporations working in this field officially according to specific law identifying them and the nature of their activities.

Those are poor persons who are economically active (not destitute) and neglected poor persons working in law income jobs and who are excluded from the official financial system.

Means expected and unexpected economic and social benefits which result from receiving finance directly or indirectly.

First: The Necessity of establishing a specialized unit for microfinance

Banks which wish to render microfinance services through established branches or opening new independent branches or founding companies with affiliated microfinance units in their head offices to carry out microfinance and draw directions and policies according to the best practices prescribed by the microfinance unit of the Central Bank of Sudan should carry out the following:

· To fix target of quantity for time limited stages in order to measure and review the performance during the different stages according to agreed standards.

· To develop and versify credit products, criteria and procedures of giving microfinance the accompanied guarantees which achieve the microfinance policy.

· To simplify the procedures, methods and standards microfinance services along with technical and administrative supervision to meet the market conditions and the service recipients.

2- To build up the capabilities of the employees and clients of the microfinance banks and corporations by providing suitable training in this stage especially in less developed rural areas with the aim of supplying serviced to microfinance clients.

3- To develop administrative information system to follow up and control the performance and enlist microfinance operations in different outlets and branches as independent centers for making profits.

4- To introduce the latest IT to accelerate branch operations and improve the reports, their regularity and type.

5- To build up capabilities of employees concerned with microfinance through training and acquainting with regional and international experiences.

6- To make use of technical assistance given by local and foreign experts in the field of microfinance and implementation of the best practices.

Banks may offer group finance to non-banking microfinance corporations by the following ways:

- Indirect group finance through NOGs who have microfinance programs (national and international) and/or through legal agents who have credit arrangements with banks.

- Direct finance through self-help groups and societies (NGOs)according to the following organizational principles:

- Joint usage of finance: the self-help groups and societies should use par of their funds (50%) in financing their members and deposit the remainder with banks to form a bases for refinancing by banks.

- Reliance on self-savings as a mechanism of finance: Self-help groups and societies shall not offer finance from their savings to an individual member as it represents a part of the finance guarantee.

- Encourage non-traditional accompanied guarantees: means joint and multi liabilities of the members and they represent a substitute for the traditional guarantee, hence it could be used as a non-traditional guarantee for any member of the group.

- Determine the bases for profit margins: All mediators (banks, organizations, societies) shall determine the profit margins which cover the cost of finance in order to obtain the approval of the microfinance Unit of the Bank.

- Diversification of the finance ceiling for groups: to match the volume of the finance requirements of the members where the available finance for the corporation shall not exceed its total actual needs.

- Quantity of finance for members: the quantity of finance shall not exceed the borrowing ability of the microfinance client which is agreed by the social organizations and the banks fixed on the bases of the client’s personality, volume of business and the economic activity standards in the area taking into consideration the graduation in offering the finance.

- Availability of analytical documents and data: like performance reports based on supervision visits paid by the Bank or other parties concerned with evaluation to ensure that performance is according to their accounts and indications of the finance offered by the organizations to their members and also the annual audit report prepared by an agreed auditor.

- Conformity and flexibility of Finance period: the finance period should conform with the investment cycles stated in the investment controls of the social organizations and should not exceed 18 months in short term finance.

- Other finance banks and corporations should seek a kind of coordination or connection with microfinance corporations to enable these corporations to obtain whole finance and partial refinancing in rural areas according to the following:

- The microfinance corporation should have continuously proved sound management of its finances.

Banks shall provide finance and services to individuals according to the following:

- Selection of Client: Banks shall adopt criteria for selection of clients and procedure of nomination used in microfinance .Also recommendation shall be obtained from social organizations since they know well the clients and their personalities.

Finance Guarantees: The most important criteria of qualification is the client’s personality, historical record of finance and the expected revenue from financing the family or business .Due to non-availability of traditional accompanied guarantees for weak classes , the banks may offer finance to individuals if the following guarantees are made:

- The amount of finance: The high limit of the finance amount shall be based on the volume of the small project business in the area. Otherwise, the client shall be treated as a normal client according to the banks commercial procedures. Graduation could also be adopted in offering the finance.

- The Finance Period: The finance periods shall range between short and medium (6-24 months) provided that the finance period shall not exceed three years in the long run according to the finance if it is for assets or operation.

- The schedule of payments: the schedule of payments shall be flexible for various debtors and connected with the client’s cash flow and not to the financed project only where owners of small rural businesses have different sources of income.

- The client’s liability towards the banking system: banks shall ensure that the client’s liability towards the banking system shall not exceed the hugest limit of microfinance and that the client shall submit a certificate of the existing operations.

All units shall adopt the principal of profitability as a basis for any financial and administrative decisions made by the bank or corporation and also the profitability of the working units and others to suit the capital / assets. Banks may calculate the operational revenue according to the best international practices approved by the Consultation Group for the Assistance of the Poor where as the operational cost of every products including the incentives shall be calculated and then dividing the administrative cost of the project according to its historical performance and finally adding the rate of growth required by the bank during the year.

Units shall consider the special nature of microfinance activities and their requirements of economic and social standards to determine a profit margin for each activity. They have also to develop a basis for calculating the actual cost of microfinance activity to facilitate measurement and assessment during the periodical evaluation for revision and promotion of performance.

Banks shall prepare clear detailed manuals to make easy periodical audit of laws and policy of granting them together with selection of clients and other important details.

- Carry out periodical review by specialized employees from the Head Office on the branches performance.

Class of Risk	Days of Delay	% of allocation after deduction of cash Guarantee(if any)
Normal	30 days and more – less than 90 days	Not required
Below level	90 days and more- less than 180 days	20%
Doubtful	180 and more-less than 365 days	50%
Dead	365 days or more	100%

Banks shall submit monthly statements to the Microfinance Unit of the Central Bank of the Sudan including the following information:

- Borrowing from banks or financial corporations, non-financial corporations or individuals.

- Finance granted to microfinance corporations, non-financial corporations, local social organizations, affiliated companies or individuals.

- Financial analysis of performance including the size and nature of different debts.

- Financial indicators related to motivating of savings, operation profits and cost

Units shall adopt horizontal and vertical circulation to ensure the arrival of services to as many of recipients as possible on the light of the available material and technical capabilities of the units. Therefore, the units shall provide a clear plan taking in consideration the principle of graduation and phased circulation with commercial and technical bases in compliance with the units view on rendering the service with regard to geographical variation and priority for the less developed rural areas.

Units shall apply a real incentive system to include the clients where as it shall reward those who pay and penalize those who procrastinate including the employees to reward the creative and diligent and penalize the lazy. In return, the Bank shall apply a mechanism to motivate the units according to performance.

- The Central Bank of Sudan shall encourage the establishment of Funds for microfinance in banks and social organizations based on feasibility studies and within group finance for parties which submit acceptable guarantees.

- Determination of targeted categories, conditions for financing them, their follow up, assessment and polarizing their deposits shall be made according to agreed sound bases marinating the continuity and financial vitality of each party.

- In case of finance through Funds, only whole finance shall be provided to groups and / or Microfinance Corporations.