Basirou Njai, first Deputy Governor of the Central Bank of The Gambia, has stated that The Gambia’s financial sector is under-developed and that the range of institutions is narrow as most people do not have access to even basic payment services savings accounts and the largest part of the productive sector cannot obtain credit. Mr Njai made these remarks yesterday at a one-day sensitization workshop on the New Institutional and Regulatory frame work for the microfinance sector, held at the Paradise Suities Hotel in Kololi.

According to Mr Njai, private sector credit to Gross Domestic Product (GDP), is low even by the standards of sub-Sharan African, adding that the absence of deep and efficient financial markets seriously challenges and constraints policy making.

He added that limited access to finance lowers welfare and hinders poverty reduction and also the emergence of an economically active middle class.

Mr Njai said that empirical studies confirm that countries with better functioning financial systems grow faster. He added that the link between finance and growth operates importantly through overcoming external financial constraints that otherwise hinder expansion.

“Although economic growth that is broad based is the most effective, efficient and enduring way of eradicating poverty, financial development can help reduce poverty in a more direct manner. The mechanisms are wide ranging, from removing constraints so that households can invest in education to insuring against shocks,” he noted.

“The microfinance sector has the potential to reach a wider segment of the population, thus contributing to financial sector deepening. To unleash the potentials of the microfinance sector, the Central Bank of The Gambia is committed to sustaining the benign micro-economic environment. Low and stable inflation is possibly the most crucial prerequisite for effective and efficient domestic resource mobilisation and allocation through the financial sector,” Mr Njie observed.

He revealed that although capital adequacy is dependent on the risk profit of the institution, in the exercise of powers vested under the provisions of the financial Institutions Act (FIA) 2003, the Central Bank has established three minimum capital requirement for finance companies and Village Savings and Credit Associations (VISACAs). He said, “This brought about the introduction of a minimum capital requirement for banks and insurance companies in the amount of D60 million and D15 million respectively”.

“For finance companies, the minimum unimpaired paid-up capital is D5 million to be observed latest end - September 2008 and D10 million by end - December 2009. Capital adequacy ratio is set at 16.0 percent and a gearing ratio of 10. 0 times. Regarding the VISACAs, the minimum capital requirement has been raised to D300, 000 from D10, 000. The capital adequacy and the gearing ratio are set at 16. 0 percent and 10.0 times respectively,” he further revealed.

He added that these requirements are to be observed by the end of March 2009. Mr Njai finally revealed that despite the significant amount of resources ploughed into the VISACAs, most have failed to reach sustainability owing to a number of factors including poor governance, low capital base, poor outreach, dearth of well-trained personal and inadequate support from some of the VISACA promoting institutions.

“To address these challenges, the Central Bank would like to see stronger linkages between VISACAs, finance companies and banks,” he concluded.

The VISACA sensitisation workshop was attended by over 68 participants from all over the country. Seeku Jabbi of the Microfinance Department and Ismaila Faal of Reliance Financial Services all made presentations.