Last week Rwanda’s Central Bank was celebrating the over-subscription to the Rwf15 billion, three-year Treasury bond that it issued on behalf of the government.
On closer look, however, I found it worrying that eight bids out of 23 were subscribed by Umurenge Sacco at 12 per cent. To appreciate what is at stake here, it is necessary to look back at who Umurenge Sacco are, their mission and who their clients are.
The Sacco’s money comes from the deposits of the poorest of the poor, who mainly receive subsidies in Ubudehe: A government-run poverty graduation scheme, aimed at helping people rated category one, two and three of poverty.
Umurenge Sacco is a micro-finance institution that lends to small traders, who make up majority of its members. It was created to circumvent prohibitive requirements that commercial banks demand before issuing loans and which have systemically excluded a big number of the people, namely the poor.
The requirements include collateral, solid employment contracts and viable business plans, none of which can be produced by people in categories one, two, and even three. The Sacco lends to the uneducated, unskilled or landless, who make up 18 per cent of Rwanda’s adult population.
By buying bonds with the government’s subsidised money, saccos are squeezing the poor one more time and benefiting the rich. When the poor old lady comes to ask for a quick loan to trade bananas, she will be told that there is insufficient money, because it was all sent to Kigali.
The thinking of the Sacco I presume, is that when the bond matures, saccos will earn 12 per cent on their investment, and expand their lending equity. This makes financial sense from a macro-economic standpoint, yet I find it highly problematic for micro-finance.
There is nothing new in buying bonds — commercial banks do that all the time — yet saccos were formed in order not to compete with commercial banks and to reach those deemed financially unattractive, the unbankable, the poor, those likely to be left out by the gains of progress.
The Sacco's role was not to grow and make money, they are called ‘micro-finance’ not ‘macro-finance’ for a reason; their role then is to reduce poverty; to remain small and closer to the people at the grassroots.
Thirdly, by buying the Central Bank’s bonds, saccos are taking money that the government took from Kigali city to the rural area — to be spent on rural development, job creation and poverty reduction — only to bring it back to Kigali.
Another financially sound argument is that bonds are “safe” loans, unlike the money lent to the old lady, who’s husband may drink and she ends up not paying… However, since when has safety been the main priority of the lowest level micro-micro finance institutions?
What is the risk margin? Are there no smarter, poor-friendly ways of mitigating it without creating 'Ponzi schemes’? I call them Ponzi, because while the Sacco's board of directors may have approved to buy the BNR bonds, I am not sure whether the thought of taking the old lady’s money to give it to a suit and tie wearing Kigali resident would sit well with the old lady.
Saccos lend at 25 per cent interest rates to its clients. That is extremely high, but all micro-finances do it, and it is one of the reasons poor people struggle to make any profit. Now they have given a loan to the government at 12 per cent. Instead of giving 12 per cent loan facilities to poor citizens —who are their members. This too wouldn’t thrill the old lady, who is pushed to pay interest of 25 per cent.
In any event, since when do sacco shave a macro policy, they were supposed to remain micro, grow at the same pace as their members, at the same level as poverty is reducing.
Sadly they are, like many before them: COOJAD for youth, Duterimbere for women, Urwego opportunity — now Bank, all betraying their mission and the poor people — their members — to become more profitable and much bigger.
In their defence though, by buying the Central Bank bond, the Sacco’s board members’ behaviour is very normal for Kigalians. You see, many in Kigali take a bank loan to have a big wedding at the Serena Hotel, investing in marriage, which is a safe deal between two people, but brings little or no quick returns… well, at least for most of us.
Gatete Thierry Kevin is a Human Rights Lawyer, blogger, and a Senior Advocacy Expert, Centre for Human Rights, Rwanda