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May 14, 2000
Linking an African microfinance institution
to a formal U.S. banking structure
Small and microentrepreneurs
like this fruit vendor in Mamou play a
crucial role in agricultural and natural
resource management in Guinea.
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When Harry Birnholz, USAID mission
director to Guinea, and Allen Fleming, Natural
Resource Management team leader, first came
to Guinea in September, 1998, they faced an
exciting challenge -- how to convert a largely
untapped $4.7 million fund designed to guarantee
loans of $100,000 or more to agribusinesses
into working capital for microentrepreneurs?
| This is a summary of a longer technical
article, PRIDE/Finance: Linking an
African Microfinance Institution to a
Formal US Banking Structure. Read
the full version. |
Even after the minimum amount
for the agribusiness loans was lowered to $25,000,
it was clear that too few could qualify and
the size of the loans made repayment difficult.
After six years, the agribusiness loan guarantee
fund had supported only six loans, with a total
value of $418,985. In 1997, only one loan had
been repaid, three were in arrears, and USAID
ended up using reserves to cover the losses.
In 1998, an estimated two-thirds
of the economically active population in Guinea
was employed in the informal sector, and 62
percent of Guinea's gross domestic product came
from the informal economy. How could the agribusiness
loan guarantees be used to reach the small landholders,
small and microentrepreneurs in a country still
recovering from the long suppressive and isolationist
rule of Sekou Toure, which had devastated the
once-prosperous agricultural sector. The people
of Guinea were also trying to cope with a swelling
refugee population from troubled Sierra Leone,
Liberia and Guinea Bissau.
USAID had helped create a dynamic
microfinance institution in Guinea, PRIDE/Finance
[1], and had been supporting
it since it began operating in 1991, with long-term
assistance from the U.S. private voluntary organization
VITA since 1993. With just a few years to go
to reach financial viability, PRIDE/Finance
was in dire need of loan capital.
| Financial
Viability Key Indicator Targets
for PRIDE/Finance |
| Indicator |
1998 |
1999 |
2000 |
2001 |
2002 |
| Operational
Self-Sufficiency |
N/A |
54% |
75% |
101% |
123% |
| Financial
Self-Sufficiency |
46% |
40% |
60% |
82% |
103% |
| Loan
Loss Rate |
N/A |
10% |
8% |
5% |
3% |
| Portfolio
at Risk >90 days |
8.7% |
10% |
8% |
6% |
5% |
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PRIDE/Finance, had expanded
throughout Guinea and was operating
16 branches, carrying a loan portfolio
of 9,000 loans valued at $1,255,763,
and was successfully helping resource-poor
families increase their household incomes.
These small and microenterprises play
a crucial role in agricultural and natural
resource management in Guinea. The income
their projects generate provides an
alternative to destructive environmental
practices, such as cutting wood to make
and sell charcoal. Microenterprises
also provide poor people in Guinea's
agriculture-based economy needed money
to invest in improving agricultural
production. The microenterprise loan
programs was reaching those truly at
the bottom of the poverty scale, but
USAID policy aims for financial viability
of such institutions within seven years,
and PRIDE/Finance was behind schedule.
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After months of negotiations with
all of the parties, including the government
of Guinea, an agreement was made to continue
funding VITA, with specific financial targets,
channeling the remaining funds for agribusiness
loan guarantees into microfinance loans that
were successfully alleviating poverty. The arrangement
included forging a unique link with Riggs Bank
in Washington, D.C. to establish a $2.6 million
"U.S. Guinea Trust" to leverage additional
capital. The agreement was signed by USAID,
the government of Guinea and Riggs on Feb 24,
2000. Draw-downs began in April on a separate
trust agreement, the "Guinea Trust,"
so the process is now underway. The timeline
calls for PRIDE/Finance to be self-sustaining
by December 2002.
[1] The acronym "PRIDE"
comes from the French acronym (Programme Integre
pour le Developpement de l'Entreprise) for the
Guinea Rural Enterprise Development. The average
monthly income for all PRIDE/Finance clients
interviewed in a 1998 study was $82, and 50
percent of the clients have incomes of $100
a month or less.
| This is a summary of a longer technical
article, PRIDE/Finance: Linking an
African Microfinance Institution to a
Formal US Banking Structure. Read
the full version. |
Article and photos by Laura Lartigue
Other stories about microfinance in Guinea:
Lifting Women Out of
Poverty
Modest Loans, Big
Changes
Portraits of Microfinance
Clients Throughout Guinea
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