Since July 2022, the Bank of the Republic of Burundi has been very active in regulating the activities of community financial groups (CFGs). From the legal framework of these to the suspension of their registration, the measures taken by the BRB have not always been understood by everyone. Right or wrong.
Community financial groups (CFGs) experienced a rapid growth years in Burundi, offering an alternative to traditional financial services for many Burundians. They act as informal associations of people who come together to save, invest and lend money to members of the community.
These groups are often created in areas where traditional financial services; those offered by banks, microfinance and apex structures are rare or inaccessible. The GFCs interest all categories of the population in Burundi. They allow community members to set aside money for future expenses, fund small and medium-sized business projects, and meet immediate financial needs.
Although GFCs are not regulated in the same way as banks and other financial institutions, the Bank of the Republic of Burundi (BRB) has put in place a series of measures “ to protect the interests of community members. » Among other things, the recognition of GFCs as a fourth category of financial institutionsl’registration of these with the BRB, the keeping of precise registers of transactions, the compliance with loan limits established by the central bank, without forgetting service pricing rendered by the BRB.
They are many the measurements released by the BRB to regulate these structures of the informal financial system in Burundi. The situation is gradually becoming alarming; the informal financial system insidiously crosses the boundaries that separate it from the formal; which activated the BRB. Right or wrong.
The real issues
GFCs have played an important role in the financial inclusion of many people in Burundi and have also contributed to the economic development of local communities. According to testimonies collected by Yaga, they offered financial services tailored to the specific needs of community members, enabled community members to save and invest for the future, start businesses and grow economically.
In the meantime, ” the BRB regrets that the population remains reluctant to use traditional financial products and services. She is also concerned that the rate of possession of bank accounts is still low and asks everyone to reverse the trend to boost the level of financial inclusion. » ; can we read in a published article on the Burundi Eco newspaper website.
The finding is that most Burundians flock to GFCs than to traditional financial institutions. This inevitably must give rise to a conflict of interest between the two financial systems. Banks and microfinance find in the proliferation of GFCs competition for customers. Lacking sufficient means to afford the luxury of certain banking products, most Burundians turn to GFCs rather than banks and microfinance; a game of pure and simple competition. The BRB has nothing to do with it.
Unfortunately, these are not without risk. Due to their informal nature, they can be vulnerable to fraud and mismanagement of funds. Additionally, community members may be tempted to borrow more than they can repay, which can cause financial problems for the individual and the group. Hence the reason for the activism of the BRB.
It’s not rocket science
To find a balance between the advantages and disadvantages of traditional financial services and community financial groups, it is important to consider the needs and capacities of local communities as well as the regulations in force. Mathematically speaking, this is the case of the three-equation system, in which the only unknown is “community needs and capacities”.
Flashback, May 2012 to 2013. The front page of several media reported a conflict between the general trade union (Sygeco) and the banks. Seen by Iwacu, the two camps are at loggerheads. The first accuses his adversary of applying interest rates that ruin customers and of remaining passive or else of being an accomplice. Accusations which the BRB clears of course.
Far be it from me to interfere in business between banks and their customers. Whether ” nothing is lost, nothing is created, everything is transformed ” and ” The same causes produce the same effects “, the action of the BRB could be called into question.
By working together, formal financial institutions, GFCs, financial regulators and local communities, this would facilitate the development of financial solutions adapted to the needs of local communities, thus contributing to economic recovery and the desired financial inclusion in Burundi.
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