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

 Chapter 5: Conclusion and Recommendation

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 !!!!