One of the major obstacles that have been identified as impeding the growth of the microfinance sector in Sudan is the stringent demand for sufficient guarantees and securities to cover the risks that can ensue in any business deal. It is well known that small and micro borrowers/entrepreneurs, in general, and women within this category, in particular, have particular difficulty in presenting the needed guarantees simply because they do not possess them.
In recognition of the constraining capacity due to collateralization or lack thereof, the Central Bank of Sudan (BOS) commissioned a study on “Collateralization and Guarantees in the Expansion of Microfinance Services in Sudan”. This was assigned to Unicons Consultancy in July, 2007. The Objective being to define and make recommendations on attributes for successful utilization of alternative collaterals and guarantee systems – at end-user level, as well as at the institutional (MFI) level - needed to stimulate greater provision of microfinance services by MFIs – both banks and non-banks. Greater flexibility in defining the type of collateral that constitutes an acceptable securitization in the provision of microfinance will necessarily entail recourse to unconventional collateral mechanisms as a means to stimulating MFIs, and particularly banks, to expand in their provision of such financial services.
The methodology of the study was set to conduct a market survey in three different states in the Sudan representing different practices in the use of collaterals that vary in accordance with geographical location as well as different social attributes. Based on the findings of the survey - in terms of current practice in collateralization in both the formal as well as informal sectors in Sudan - the study considers the legal, policy and regulatory framework for collaterals and guarantees needed to expand access to microfinance services. Local consultants in partnership with regional expertise formed a strong team to undertake the work. In line with the firm’s policy, the study assimilates international best practice in its recommendations by carefully considering their adaptability to the Sudanese case.
Accordingly, the study first considers, in chapter one, the international experience in collateralization and guarantees before detailing, in chapter two, the experience of Sudan as evidenced from the findings of the field survey. A brief exposition of legal perspectives of such collaterals and guarantees follows in chapter three. The final chapter is allocated to the conclusions and main recommendations emanating from the study. This forms the crux of the study with the recommendations being summarized in the form of an action plan with specific time frames for implementation.