CHAPTER ONE:GENERAL INTRODUCTION
1.0:INTRODUCTION
Microfinance means all loans granted to a borrower, a person,
entity or group of borrowers and solidarityguarantee, for financing activity of
production, commercialization whose principles source of payment comes from
sales and profit generated by such activities, once adequately verified ,for(
Arelis 2000; 9).
A microfinance institution is an organization that offers
finance services to low income operation. Almost all these institutions offer
micro credit and only take bank small amount of savings from their borrowers,
and not from the general public.
1.1: BACKGROUND OF THE
STUDY
Rwanda is the one the poorest countries in the world located
in central Africa. It is landlocked with low industrial production; its economy
is almost based on agricultural productivity since almost 90% of the population
occupies the agriculture sectors.
Since 1991, the existing literature has shown declining trends
of income, employment, resources, savings, high population growth rate and
general drop in the standard of living of population (world bank,1998;1)
Rwanda is faced with the combination of structural problems
arising from bad policies in the past as consequence, Rwanda suffers from a
weak revenue and export base ,vulnerability to price shocks, to low demand,
saving and investment.The genocide in 1994, following by the serious problems
including social, economic, political fabric,disintegrated aggravating the
trends,where up to one million people were killed during the April-July
genocide, where include high number of vulnerable citizens, substantial rural
recapitalization, large population movement, high prison population.
Hence, it lend to destruction of social fabric loss of
people's confidence and trust, increased poverty and vulnerability of Rwandan
people where two millions people fled the country and after the events, around
one million people who had fled in 1959-1994 returned. Since 1994, stability
has been restored and the country has embarked on new path for development
toward the Rwanda's vision 2020which identified long- run seven objectives and
government of Rwanda has done much to meet the short term challenge of
HIV/AIDS, shelter for homeless, demobilization
During the late 1980sand early 1990s
poverty was increasing on national level and rose dramatically in 1994 due to
the genocide to approximately 77.8% of households. In 1999, poverty has fallen
consistently to about 67% of new poverty line created in 2001 estimates that
60% of population are living below it (PRSP2002) Also PRSP shows that although
much has done to alleviate poverty, this shows that there a wide urban-rural
gap, the gap between therich minority and the poor majority become wide,
particularly when rural are compared to urban.
In this context the government's ultimate general objective is
create a new social political and economic framework that must access the
problems of the country. The Rwandan government has developed a policy that
promotes the creation of the alternative ways of attaining income employment, a
policy of setting up micro-finance institution financing organization which
leads to economy development in the country.
According to the inventaire des intervenants en micro-finance
au Rwanda, Funded by Canadian development cooperation May20th
2000:19. Micro-finance institution serve in form of micro-credit and
micro-finance became instrument in favor of rural poor. Micro-finance has taken
to respond to community needs especially windows, foster families and
farmers.They are vulnerable because of their inability to borrow from banks the
highly needed working capital for carrying forward their income generating
activities, because they are not credit worthy, lack security and are faced
with cumbersome loans procedures, those with principal activity in the logic of
durability and financial viability on the other hand or those with secondary
activity and other complementary activities.
Although there are favorable conditions for development in
Rwandan economy,people generally face the problem of lack of access to
micro-enterprise investment credit, this is mostly in an economy being so poor,
and the banking system in its operation lacks many financial credit facilities
for many years.
The government of Rwanda has as of its priorities the
promotion of micro-business through provision of finance and non-financial
activities,many international and local non-governmental organizations trying
to implement micro-finance activities. Those micro-finance or small cooperative
banks provide financial services to the poor, These are dealing client savings
and deposits but delivering loans following the individual lending in such a
way the collateral is necessary, thiscan be in form of security or monthly
salary whereby the employer has to guarantee the applicant.
Micro-finance institutions are institutions that legally
accepted by the government of Rwanda. They refer to savings, loans, insurance
transfer services and other financial products targeted at low profit in bid to
reduce operation income clients.It is against this background that
micro-finance is favored for alleviation poverty in rural areas in Rwanda.
(World bank, 1999:4), this is possible given that actual targeted recipients
are majority poor micro-credit seeks, which cannot be supplied by the
traditional formal finance system.
The research on this area is to investigate the impact of
Microfinance institution credit service in poverty alleviation in rural area in
Rwanda where COPEDU ltd RWAMAGANA branch will be the case study.
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