TOPIC

LEGAL PROTECTION OF MICRO-FINANCE

CLIENTS IN CASE OF BANKRUPTCY
(Case of Depositors)

BY

MUKAKALISA FAITH

Supervisor: Dr. Jean S. Verhadt.

 AGENDA
AGENDA

1. Chapters Layout
2. Introduction & background
3. Short description of the problem
4. Research Objectives
5. Motives of the study
6. Research Questions
7. Research Methodology
8. Limitations
9. Most important findings of the study.
10. Conclusions and Recommendations
 1. CHAPTERS LAYOUT

 Chapter 1: Introduction and Background

 Chapter 2: Literature review

 Chapter
3: Research Design and
methodology

 Chapter 4: Data analysis and findings

2. INTRODUCTION & BACKGROUND

 Term micro-finance (MF) refers to provision

of financial services to lower income earners
Besides, its known to be a powerful tool in
poverty alleviation.
 However, without supportive legal
framework it can never be sustainable.
Evolution:
 MF activities arose worldwide in 1980s as a
response to help the poor to save and to
access loans.
 In Rwanda MF began in a formal way with
the foundation of UBPR in 1975.
 3. SHORT DESCRIPTION OF THE PROBLEM
STATEMENT

 Rwanda has pop. of 9million people & 1/3

suffer from extreme poverty
 Immediately after the war and genocide of
1994, the country experienced uncontrolled
rapid growth of MFIs, with significant influx of
donor funds, just to help the community that
was in turmoil.
 However, in 2005-2006, sector experienced
financial crisis with NPL of 45%, and this
resulted into closure of 8 MFIs & deposits loss
was 3.2 billion frw ($ 5.9 million)
3. SHORT DESCRIPTION OF THE PROBLEM
STATEMENT (con’t)

Therefore, its due to this gap that the

researcher had to carry on such kind of
research through:
 Examining and analyzing existing MF legal
and regulatory framework, then find out
their efficiency & effectiveness in protection
of MFIs’ depositors in case of bankruptcy in
particular and MFIs in general, so that the
resarher can avail conclusions and
recommendations for their future
profitability and sustainability.
 4. RESARCH OBJECTIVES

 General/Overall Objective:
To gain better understanding of legal
and regulatory framework in Micro-
finance sector in Rwanda in regard
to protection of MF depositors, and
propose possible measures and
recommendations to be fostered for
competitive MFIs that motivates its
clients as well as its practitioners.
 5. MOTIVES OF THE STUDY

 This research book will be an additional

documentation to already existing literature
 The findings & Recommendations provided
here will be helpful to researchers & MF
partners for future research projects
 To apply knowledge and theory learnt in
practical situation
 It is in partial fulfillment of the requirement of
the award of the Master’s Degree in Business
Administration.
 6. RESEARCH QUESTIONS

Some of the research questions included:

 How do majority of Rwandans save their
household incomes?
 What could be the reasons for non-
repayment of the loans?
 How are MF depositors legally protected?

 What were the major factors that influenced

bankruptcy situations in MFIs in Rwanda?
 What could be the measures to bankruptcy
situations?
 7. RESEARCH METHODOLOGY

I. Data Collection Instruments:

 Primary source: (Questionnaire,
discussions)
 Secondary source: (T. books,
electronic information
 Own observation and personal
judgment
II. Data analysis and interpretation:
 Findings were organized and
presented in form of tables, figures
and texts for ease of interpretation
and understanding.
 8. LIMITATIONS

 Some of the respondents were

suspicious about the study, regarded
some information as confidential
 Limited time to carry out research on a
bigger area
 Non-availability of some respondents
when required
Therefore, the sighted constraints and
limitations are some of the problems
which might have caused gaps in this
research paper
 9. MOST IMPORTANT FINDINGS OF THE
STUDY
I. Rwandan financial sector Analysis
by June 2007:
 Comprises of 7 commercial Banks,
including 1 MF bank (UBPR)
 There are 233 MFIs and only 35%
were legally regestered at the time
of MFI financial crisis
 Commercial Banks finance the
economy by 76% of total financing,
but provide financial services to
only 6% of the population
 9. MOST IMPORTANT FINDINGS OF THE
STUDY (con’t)
 Commercial banks deposits stood at
198 billion frw ($ 350 million),
 while MFIs accounted for 102 billionfrw

($ 188 million) worthy of deposits and

Loan worthy of 77.2 billion
 The year 2005-2006 characterized by
MFIs financial crisis. NPL stood at 45%
and, 8 MFIs closed down, depositors
lost savings equivalent to 3.2billon frw
 9. MOST IMPORTANT FINDINGS OF THE
STUDY (con’t)
II. Legal Analysis:
Existing Legal framework consists of 3
documents:
1. Law no 08/99 governing banks & other
financial institutions
2. Instruction no 06/2002 of the BNR on MFIs
3. Instruction no 05/2003 governing SACCOs

Others in place:
 Periodic circulars and guidelines
 National Micro-finance policy
 Two draft laws (banks, MFIs laws)
9. MOST IMPORTANT FINDINGS OF THE
STUDY (con’t)
Regulatory gaps:
 Micro-finance policy came in late
 Absence of law that stipulates MF
governance
 MFIs’ BNR Instructions, has no provisions
governing contracts, debt recovery,
compensation and bankruptcy
 The existing legal instruments do not have
binding force like laws
 MFI practitioners & clients did not abide
by regulatory measures in place
 9. MOST IMPORTANT FINDINGS OF THE
STUDY (con’t)
III. Major factors that influenced
bankruptcy
 Lack of MF policy and legal framework
 MFIs targeted clients without business
skills
 Some MFIs had never developed
financial mgt skills to run MF activities
 Dishonest borrowers that led to many
defaulters
 BNR didn’t have resources to supervise
hundreds of emerging MFIs
 9. MOST IMPORTANT FINDINGS OF THE
STUDY (con’t)

IV. Obstacles and challenges

 Poor governance & ownership systems
within some MFIs
 Absence of laws on MF activities
 MF services remain to be in urban areas
 Private Banks hesitate to provide funding
to MFIs
 Country’s weak social and physical
Infrastructure
 Extreme poor people in rural areas who
are rarely reached by MF practitioners
10. CONCLUSIONS & RECOMMENDATIONS

I. Conclusions:
From the study, the researcher is able to
conclude that:
 By considering impact of MF in economic
growth, in asset building, and reduction of
vulnerability; MF is a dual objective in
investment, both for profit generation as
well as a development tool.
 Hence, the researcher calls for building of
MF Industry’s capacity and give it
adequate structure of governance for its
future sustainability.
10. CONCLUSIONS & RECOMMENDATIONS
(con’t)

II. Recommendations:
 Government should set up binding laws
(prudential & non-prudential)
 Government should establish a system of
granting Subsides to certain MFIs
 Government to create MF Guarantee
Fund
 Government to establish Deposit
Insurance plans
 Domestic saving should be encouraged
 10. CONCLUSIONS & RECOMMENDATIONS
(con’t)

 BNR should strengthen off-sight and on-

sight surveillance
 MFI practitioners should observe ethical
standards
 Donors are called upon to support MF’s
policy reform
 Local gov’t and MFIs mgt should develop
good working relationship
Future Research:
1. Impact of legal and regulatory framework
on MF
2. Micro-finance and social protection
THANK YOU FOR YOUR ATTENTION

MAY GOD BLESS YOU

AND

HAPPY NEW YEAR 2008 !!!!