Microfinance in Sudan: From Scarce Resources to Financing Recovery (2)

Noaman Yousif Mohammed

If capital is essential for microfinance institutions’ survival, and governance is essential to maintaining trust, then funding enables them to return to the market and build new portfolios.

This brings us to one of the crisis’s most sensitive aspects: how can microfinance institutions obtain the resources they need to rebuild their operations?

Capital Alone Cannot Finance a Portfolio

It is a mistake to regard increasing capital as the end of the financing problem. Capital provides a foundation for solvency and risk-bearing capacity, but it does not automatically enable an institution to finance thousands of clients. Microfinance institutions need funding resources that can be recycled through their portfolios, as well as stable funding sources that let them plan and expand.

For this reason, any policy aimed at rebuilding the sector must treat capital and funding resources as complementary elements, not substitutes.

Banks: Between the Willingness to Lend and the Risk of Default

Commercial banks can be an important source of wholesale funding for microfinance institutions. However, a bank cannot ignore the quality of the institution seeking finance, its credit history or its ability to repay.

This is where the dilemma emerges, and it has become even more acute since the war. A conflict-affected institution needs new resources to rebuild its operations, while a potential lender may see a history of defaults as an obstacle to providing further finance.

Imagine what would happen if all funding channels closed completely. A vicious circle would emerge: no financing without trust; trust cannot be fully restored without resuming operations; and operations cannot resume without financing.

This is not a call to circumvent safeguards, but to design a mechanism that addresses the crisis’s specific nature.

Refinancing Defaults or Financing Recovery?

The position here must be clear. The objective is not to inject new money to cover old losses without addressing their underlying causes. Nor is it to grant new financing to a distressed institution simply because it requests it. At the same time, however, not every default that occurred during the war should be taken as evidence of institutional failure.

Two separate issues must therefore be distinguished: the record of previous losses and defaults, and the prospects for viable new operations.

The legacy portfolio requires classification, remedial action and restructuring in accordance with appropriate rules. New financing, meanwhile, must be tied to a clear recovery plan, a viable new portfolio, and an effective system of monitoring and oversight.

This is where the guiding principle takes shape: we must not refinance default; we must finance recovery.

What Does Financing Recovery Mean?

It means providing eligible institutions with new funding under clearly defined conditions, the most important of which are:

Sound governance.

Adequate capital.

Qualified management.

Verifiable data.

A clear plan for addressing the effects of the war.

An effective risk-management and loan-collection system.

The capacity to build a viable new portfolio.

Measurable performance indicators.

In this way, financing becomes more than a resource available to anyone who requests it. Instead, it is linked to institutional soundness, recovery capacity and performance.

The Role of the Central Bank of Sudan

The issue is not to bypass commercial banks or saddle the Central Bank of Sudan with the risks of microfinance institutions directly. Instead, its most important role is to establish an institutional mechanism that channels funding to viable institutions while preserving regulatory discipline.

Several instruments could be considered, including:

Recovery funding lines for eligible institutions.

Guarantee and risk-sharing mechanisms to encourage bank lending.

Phased financing linked to performance-indicator achievements.

Separate treatment of war-affected portfolios to prevent legacy losses from becoming entangled with new financing.

Channelling resources towards productive sectors and value chains.

Such measures could address the dilemma without turning microfinance into a channel for risk accumulation.

What About Resources Allocated to the Sector?

If resources have been earmarked to support microfinance, the discussion should not stop at whether they exist. The more important questions are: how can they reach eligible institutions, on what criteria, through which instruments, and under what oversight?

Money that exists but fails to reach economic activity cannot fulfil its developmental purpose.

This highlights the importance of having a specialised body capable of pooling resources, assessing institutions, directing financing and monitoring performance.

Wholesale Financing: The Missing Link

The sector needs a genuine wholesale financing market where banks, microfinance institutions, guarantors, investors, development institutions, and government agencies interact within a clear regulatory framework.

Microfinance institutions need capital, funding, guarantees, data, capabilities, systems, and a market to access and recycle resources.

Reforming an individual institution will not be enough if the funding ecosystem remains weak.

Financing Must Reach the Real Economy

The objective is not simply to increase the size of financing portfolios. It is to transform financial resources into production, income, employment opportunities and added value.

For this reason, new funding should be directed towards small-scale farmers and producers, livestock production, crafts and small-scale industries, services, value chains, and enterprises that can help restart local economies.

Only then will microfinance become part of a broader economic recovery programme rather than merely a credit activity.

But Who Will Lead the System?

This brings us to the third question. Even if funding becomes available, safeguards are established, and institutions eligible for financing are identified, one fundamental question remains: in the post-war period, who will lead the development of the microfinance industry, build its institutions’ capacity, connect them to funding sources, and measure their impact?

Should each institution be left to seek funding and partnerships independently? Or do we need a specialised body that operates across the industry as a whole?

This is where the idea of re-engineering the Sudanese Company for Microfinance Development begins to take shape. The intention is not to create yet another financing institution, but to consider how the company could assume a broader role as a national platform leading the development of Sudan’s microfinance industry.

In the next article: How can we re-engineer the company so that it becomes a national platform leading the microfinance industry, rather than merely another institution within it?

Shortlink: https://sudanhorizon.com/?p=19215