By Marjaan Dursma; collaboration of SNV Tanzania, Hivos and FACET.
Poverty in East Africa - as in most other parts of the developing world - is mainly a rural phenomenon. With rural households comprising 80-90% of the poor, the importance of extending the frontier of sustainable microfinance beyond the urban areas is clear. The rural poor constitute both the greatest unmet need and the largest unserved market for financial services. However, to serve this market in a sustainable manner, barriers of costs and risks have to be overcome. This requires technological and methodological innovations.
Facing increasing competition and market saturation in some urban markets, urban based microfinance institutions (MFIs) slowly start to discover that rural areas offer significant business opportunities. However, the challenges of costs, risks and adaptation of products and methodologies, have so far confined the operations of both commercial banks and NGO-type MFIs to the more �urban� segment of rural areas (e.g. market towns, business people).
Beyond the dominant paradigms of microfinance, concepts and methodologies are being developed that aim to reach the rural poor (especially farmers) in rural villages. These concepts centre on building community-based microfinance institutions. They come in many forms and shapes. Some of them as old as history, in their informal forms: the rotating savings and credit associations, and the accumulating savings and credit associations. And in a legally registered form: the Savings and Credit Cooperative Societies (SACCOs). In addition, new concepts are being developed, based on methodological innovations of �old� concepts and experiences in West-Africa and other parts of the world.
In East Africa, over the past five to ten years this has resulted in several new or improved 'models' for rural, community-based microfinance institutions. In this publication, we are using the term Rural Financial Institutions (RFIs), to cover a variety of organisational and legal forms: SACCO, Microfinance Association, Financial Service Association etc. In part one, a brief overview is presented of four selected models from Tanzania, Uganda and Kenya. In part two, the focus is on sharing lessons learned (mainly from Tanzania) in the implementation and promotion of community based microfinance.