Microfinance Assessment Study
Description
The Sohag Rural Development Project aims to a) promote the sustainable development of Sohag rural villages through the participatory approach initiated by the National Program for Integrated Rural Development (SHROUK); b) improve equitable access to credit for the rural poor, unemployed youth, and women; and c) improve income and quality of life in rural communities. The project consists of three components. First, the local institutions strengthening component will support the Local Administration and Line Ministries at the governorate, district, and village levels in assisting local communities to identify, plan, operate, and maintain rural infrastructure through training and technical assistance. Second, the village infrastructure component will support Village Priority Development Plans identified, prepared, and co-financed through the SHROUK participatory process. It will provide grant financing to support community-based social and economic infrastructure sub-projects such as village water supply systems, rural roads, health centers, women’s clubs, etc. Third, the rural finance component will promote increased economic activities and open access to credit for women and the rural poor in Sohag. It will also support on-farm technology improvement and rural-based investment. The component will also finance a special wholesale credit window for nongovernmental organizations and provide institutional support to the Local Development Fund.
The overall aim is to improve income and quality of life of the rural population of Sohag Governorate. The focus of this project is on the Bank for Development and Agricultural Credit of Sohag (Sohag BDAC) and its capacity to deliver micro credits to the rural population. The assessment is based on three elements:
- a survey of the microfinance market, both supply side and demand side,
- the capacity the bank to handle a micro finance product, and following the analysis and integration of the first two elements to design
- a micro finance product that is financially viable for the bank and attractive on the market for end borrowers and with a competitive edge.
To enable an assessment of the demand of micro credit in Sohag Governorate, a questionnaire was developed to use with potential clients of micro credit. The questionnaire included questions regarding basic information on individuals in the informal sector in Sohag Governorate who either previously had taken loans, or who are willing to take loans in the future. The gender distribution in the sample was 51.5% male and 48.5% female. The respondents were randomly selected in 43 villages in seven of Sohag’s 11 Districts. As Sohag Governorate is so poor the focus of the survey was on the informal sector where most of the poorer segments of society operate micro enterprises.
Services
- Assessment of the current supply and estimate the potential demand for micro finance lending in Sohag Governorate.
- Assessment of the institutional capacity (operationally and financially) of the Sohag BDAC to develop a retail micro finance line of business, on an individual borrower basis, on a group-lending basis, and/or as a wholesale to independent micro finance providers.
- Proposed a mechanism for on-lending through existing micro finance providers to final beneficiaries, including defining the roles and responsibilities of each entity in credit provision, marketing, contact with clients, monitoring and overall management of the funds.
- Provide support to Sohag BDAC during implementation of the proposed mechanism
- Determine a suitable interest rate to the end borrowers Identify appropriate collateral acceptable to the Sohag BDAC to secure loan repayment in the proposed credit mechanism.
On basis of the results of this assessment and the recommended on lending mechanism, NSCE has been engaged in a second phase of the project providing TA and on the job training with the aim of improving the bank’s capacity to deliver micro credits to the rural population which included two components; individual lending and lending to NGOs. As a result, NSCE supported the establishment of an internal Microfinance Unit within Sohag BDAC to oversee micro loans to individuals end borrowers and to
NGO borrowers.