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Fiji Microfinance Policy Review

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Fiji Microfinance Policy Review 69324 Public Disclosure Authorized Fiji Microfinance Policy Review Public Disclosure Authorized Public Disclosure Authorized Final Draft October 2003 * This review was commissioned by the East Asia Financial Sector Group of the World Bank, Washington, D.C. The first draft of the policy review was prepared by Dr. John Conroy, Consultant to the World Bank, following a mission to Fiji in February 2003 which was led by Desiree Green of the World Bank Group. The final draft of the review has benefited from comments from the National Microfinance Unit of the Ministry of Commerce, Business Development and Investment; Robert J. Simms (SPPF); United Nations Development Fund (through the NMFU); and Desiree Green and Sameer Goyal of the World Bank. The mission team and those involved in the finalization of Public Disclosure Authorized this report wish to express their appreciation to the Government of Fiji, in particular, the National Microfinance Unit, for its support and cooperation in this effort. Cooperation received from bilateral donor agencies, the Asian Development Bank, the United National Development Program, and the Microfinance institutions in Fiji is much appreciated and duly acknowledged. ACRONYMS AND ABBREVIATIONS ADB Asian Development Bank MIS Management Information System AMFU Aglow Microfinance Unit NCSMED National Center for Small and Microenterprise Development ANZ Australia and New Zealand Bank NFMU National Microfinance Unit ATM Automatic Teller Machine NGO Non-governmental Organizations CCSLA Cane Farmers’ Cooperative Savings and Loans Association NZODA New Zealand Official Development Assistance CGAP Consultative Group to Assist the Poorest PAR Portfolio at Risk CNB Colonial National Bank PIN Personal Identification Number CUFA Credit Union Foundation of Australia PPTA Project Preparation Technical Assistance (ADB) CU/CUL Credit Union/Credit Union League PSLP Pacific Sustainable Livelihoods F$ Fijian Dollar Program FCO Field Credit Officer RBF Reserve Bank of Fiji FCOSS Fiji Council of Social Services. S&Ls Savings and Loan Institutions FCUL Fiji Credit Union League SMILE Sustainable Microfinance & Livelihoods through Empowerment FDB Fiji Development Bank SEEDS Social and Economic Equity for the FNTC Fiji National Training Council Disadvantaged GoF Government of Fiji SME Small and Microenterprises GDP Gross Domestic Product (Government of Fiji usage) IDL Individual Lending Program (of T/A Technical Assistance NMFU) UNDP United Nations Development IHRDPEP Integrated Human Resource Program Development Program for UNOPS UN Office of Project Services Employment Promotion UNV United Nations Volunteer ILO International Labour Organization WB World Bank ME/MED Microenterprise/ Microenterprise Development WOSED Women’s Social and Economic Development MF Microfinance MFI Microfinance Institution EXCHANGE RATE $F = $0.5060 at February 2003 i Table of Contents EXECUTIVE SUMMARY ........................................................................................................... iv I. Introduction and Overview ......................................................................................................1 The Environment for Microfinance in Fiji ..................................................................................1 Microfinance in the Fijian Context ..............................................................................................2 Microfinance institutions in Fiji ..................................................................................................3 II. Sources of Support for Microfinance in Fiji ............................................................................6 Financial and Capacity-Building Assistance for Microfinance Institutions ................................9 Support for Improving the Policy and Regulatory Environment for Microfinance .......................10 III. Viability of Government Support and Conformity with Good Practice ............................12 A. Assessment of the National Microfinance Unit .................................................................12 NMFU’s “Individual Lending” Program ...............................................................................15 Village ‘Banks’ ......................................................................................................................16 Conclusion .............................................................................................................................16 B. Assessment of a government-supported MFI: Aglow, a Grameen Bank Replication .......17 Performance Summary ..........................................................................................................17 MIS and operational performance .........................................................................................18 IV. Other Microfinance Providers ...........................................................................................20 Commercial Banks .....................................................................................................................20 Fiji Development Bank ..............................................................................................................22 Savings and Loans Cooperatives ...............................................................................................23 Credit Unions .............................................................................................................................23 Informal Moneylenders .............................................................................................................24 Finance and Hire Purchase Companies .....................................................................................24 Registered Moneylenders ..........................................................................................................25 V. The Enabling Environment for Microfinance ........................................................................26 Legal Constraints on Microfinance Providers ...........................................................................26 Government Policies Relating to Microfinance.........................................................................28 Aspects of the Macroeconomic Environment Relevant to Microfinance ..................................29 Poverty in Fiji ............................................................................................................................29 Role of the Reserve Bank of Fiji ...............................................................................................30 National Centre for Small and Micro-Enterprise Development ................................................32 Conclusion .................................................................................................................................34 ii VI. Conclusions and Recommendations ..................................................................................36 Issue: Conformity of Government-Supported Microfinance Operations with Recognized Good Practice .............................................................................................................................36 Conclusions ............................................................................................................................36 Recommendations: Conformity with Good Practice, and Sector Building ..........................38 Issue: Structure and Modalities of Government and Donor Support........................................40 Conclusions ............................................................................................................................40 Agencies with Potential to Take Lead Roles in the Sector ....................................................40 Recommendations Concerning the Structure and Modalities of Support .............................41 Policy Framework for Microfinance in Fiji ...............................................................................42 Conclusions ............................................................................................................................42 Recommendations: ................................................................................................................44 Certain positive initiatives may be taken to loosen constraints on Microfinance: ....................45 Conclusion: An Architecture for the Microfinance System in Fiji .......................................46 Tables Table 1.1: A taxonomy of Microfinance Providers in Fiji………………………………………. 4 Table 2.1: Microfinance in Fiji – Providers and Sources of Support…………………………… 7 Table 2.2: Financial Support to Microfinance Providers by NMFU…………………………… 9 Table 3.1: Capital (Loanable Funds) Budget Allocation for NMFU, 2000-2003……………… 14 Table 3.2: NMFU’s National Microfinance Outreach as at 12/31/2002………………………...15 Annexes Annex A: Basic Assessment Criteria for the NMFU: Key Indicators………………………… 48 Annex B: Microfinance Provider Mechanisms: Aglow, a Grameen Bank Replication………... 60 Annex C: Microfinance Provider Mechanisms: Individual Lending program of the NMFU…. 66 Annex D: Capacity-building Options for the Microfinance Sector…………………………….. 68 iii EXECUTIVE SUMMARY 1. The most appropriate definition of microfinance in Fiji is a broad and inclusive one: the provision of financial services to poor and low-income households that lack access to the services of formal financial institutions. For reasons of low population density and relatively high wage
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