Assessing the viability of a rural microfinance network: the case of FONGS Finrural

3.4 Leading networking initiatives

As of December 2011, about twenty microfinance institutions networks exist in Senegal. Among these, only thirteen are regulated. Nevertheless, depending on their implementation process and regardless they licensing status, they can be classified in two main categories (SOS-FAIM, 2007):

- The first category is related to networks that have been devised and implemented based on a top-down approach. The creation of new branches is done in the network expansion perspective and those networks are supported or have been supported by international donors, NGOs, public organisms of international cooperation. Belonging to that category, we can name the Credit Mutuel du Sénégal (CMS), the Alliance de Credit et d'Epargne pour la Production (ACEP), and the UM-PAMECAS^14(*). These three networks started their activities as development projects supported and financed by international donors and appear nowadays as the most important stakeholders of the microfinance industry in Senegal. Most of these networks were set up in 1997.

- The second category is related to networks that have been set up based on existing MFIs and Village Banks. MFIs created from local development associations initiatives decided to cooperate and to federate in unions in order to improve their efficiency and viability. As the MFIs were different at the beginning, they need to standardise their procedures and products. Two main subcategories belong to that group depending of the origin of the networking.

Ø The networking initiative may be exclusively endogenous as well as the process of implementation. It is the case of the Inter-Crec Network with 17 savings and credit unions operating in Basse-Casamance in Southern Senegal.

Ø The networking initiative may be partially exogenous and supported by international partners. This is the case of the initiative of creating a network in Louga Region with the support of two international NGOs: Aquadev (from Belgium) and CISV (from Italy). The initiative is funded by the European Commission. This is also the case of FONGS FINRURAL Network, which is a joint initiative of the Fédération des Organisations Non Gouvernementales du Sénégal (FONGS) and its partner SOS-FAIM (Belgium and Luxembourg)

3.5 Why networking?

Even if the new law promotes the networking of individual MFIs, the process is not an easy task as networking implies many challenges and transformations within the MFIs. SOS-FAIM (2007) emphasised five main advantages in networking savings and credit unions:

§ The first advantage underlined is a better liquidity management. Due to the principle of mutualisation, the surplus of cash in some MFIs might be used by others MFIs in need of more cash to face their portfolio growth. The network then operates like a central bank in gathering the cash surplus and in redistributing it to MFIs equitably (fairly, evenhandedly). As MFIs do not usually have the same cash flow cycle, the network management can help at smoothing the cash flows fluctuation between affiliated institutions. In addition, the network could better manage the liquidity through financial investments as it can access to financial markets.

§ The second advantage is the access to external funds such as commercial markets, international donors and Microfinance Investment Vehicles Funds. The individual MFIs do not always have a good accounting system and accordingly lack of support from banks, donors and NGOs. Yet, the access to external lines of credit can be useful in long term for MFIs for a better management of their short and long term liabilities.

§ The networking helps in scaling economies by reducing the cost of a MIS^15(*) for exemple, the staff training cost, the hiring of experts etc...

§ By networking, MFIs offer themselves opportunities and framework for sharing experiences, goods practices, and information. Moreover, the network operates as a Central for Risk Management, thus avoiding multiple borrowings to clients and over- indebtedness through a good credit bureau between affiliated MFIs.

§ The network can also reinforce internal and external controls, from staff of the network headquarters, the hiring of auding experts, on top of the Supervisin of the Central Bank.

However, the same author raised up some drawbacks:

§ The partial loss of independence and autonomy of affiliated organizations. Due to the standards and the requirement of the network, an affiliated MFI might be obliged to transfet part of its comptences to the network (liquidity management for example).

§ The presence of the network can threaten the membership inside MFIs and induce a loss of members control on MFIs especially when more professional staff members should be hired by the network.

§ It becomes mandatory for the network to standardizes the management procedures, the credit policies, the management tools, and data collections.

§ The mutualisation of cash surplus seems to be a key condition for the networking. Affiliated MFIs are therefore jointly financially liable and have to share the same vision in oder to improve synergies between basic units and the social cohesion inside the network (SOS-FAIM, 2007).

* ¹⁴ Union des Mutuelles du Partenariat pour la Mobilisation de l'Epargne et du Crédit au Sénégal

* ¹⁵ Management Information System