We are currently residing in an era wherein the critique of humanitarianism has become incredibly topical. Whether it be criticisms levied towards foreign aid, or humanitarian missions within the African continent, the subject attracts a great deal of attention. Is there another method that may prove to be fruitful, or provide a beneficial impact? I believe this may be found within the notion of development finance, a useful tool that enables long-term, sustained development within nations, rather than just short-term.
In order to fully explain the nature of development finance, I interviewed Mr Jean Bosco Iyacu. Mr Iyacu is the country director of the not-for-profit organisation Access to Finance Rwanda, which has incorporated the tenets of development finance into its ethos. Below are the details of our interaction, in which he skilfully details the promising future ahead for the industry with the use of development finance, drawing on his own experiences within the sector.
There’s a tendency for people, particularly in the West, to assume that foreign aid is one of the most helpful economic tools for developing countries, but from your perspective, do you think that there is an issue with foreign aid?
In principle, I think there is no issue with foreign aid. It is indeed a very helpful tool that supports developing countries, however I believe it is very important to ensure that aid is being channelled to the right needs, especially for those countries that are developing, but more importantly their communities that are struggling with their livelihood. With that said, this would require full alignment of strategies with local government structures and civil society. And also, get their involvement—both at design, implementation level and closure of projects to ensure lasting impact is created.
Do you think there is a fine line between foreign aid and development finance? Or are they quite different?
Personally, I believe they are different—I look at aid as a support that is primarily motivated by humanitarian objectives, it would be like supporting displaced people, supporting those affected by climate change effects, and so on. This would take the form of grants—you don’t expect them to be paid back. And this should be done in a short to medium term—to avoid perpetual aid dependency by some developing countries and communities—and provisional grants should be, from my perspective, accompanied by policies that would strengthen domestic economies and institutions. So, when it comes to development finance, that is a flow of financial resources. It would be from development finance institutions, individuals, governments, development partners or bilateral corporation partners. These resources are really channelled to developing countries to support inclusive economy growth and poverty reduction programs. What we have seen in the recent past—they use quite a diverse range of instruments, they use; returnable grants, loans, equity, bonds, guarantees or credit enhancement mechanisms. With most of them, you find that they have a tagline that I would call impact capital or impact investment, and that is quite key. Most of the time these are accompanied with some capacity strengthening of institutions, businesses and individuals, but also technical assistance—a kind of knowhow from those countries where funds are originated from, to the developing communities—so, that is quite different from aid. What we have seen, if I pick on one of the instruments like loans—they come with some preferential rates or terms—we should continue encouraging as such. Especially when they are channelled towards projects that will support productive sectors of economies and the wellbeing of citizens in the long run.
I’ve heard your ideas regarding a market systems approach – I believe your organisation, Access to Finance Rwanda is based upon this philosophy. Could you explain (for readers) this means, and do you think this is something which is being utilised by many NGOs, or is this still a rarity within the field?
A market systems approach, also known as “making the markets work for the poor” or MFP, was introduced about two decades ago. It has been guiding many development partners as they implement their programme. It is an approach that is well known by that community. Some have adopted it fully, whilst others are still struggling with it, because clearly it requires commitment because you may not see impact in the short run, it might come in the medium term or long term, even after you have closed your programme. So, some of the funders, and some of the development partners, might not have that patience to wait, and they want really quick results—and that is really distorting in a way, because if you really want lasting impact you need to use such an approach. So, why did this approach come into place? So, market systems development normally seeks to challenge the way that markets work in different ways, because it is always about the demand and supply interacting in a market, and mainly to understand why the poor people are not being included in the benefits of growth and economy development. That’s really why this approach came about.
So, the aim is to address those market failures, and strengthen the private sector mainly, in a way that creates large scale, lasting benefits for the poor, and the market system approach addresses those that some programs may not address in the short term because we look at the entire ecosystem, and we say: “Why is this system not serving the poor? Why are the poor not included?” and “what can we do to remove those barriers?” So, we work with regulators, policy makers, financial institutions and players in the market but also understand the needs of the low income people—the poor people we are serving—so that creates a difference, because you are looking at the entire ecosystem rather than focusing on the issue and resolving what I would not call root causes, so we need to act, to seek, or deploy solutions that address root causes of poverty.
How can more organisations take heed and become involved in development finance? How can they be convinced that it is the right path forwards?
So, what I’ve seen from my experience in this domain, is that most developing countries now have a thriving business community, and even governments are working hard to ensure that structures are in place, and that support functions and rules are there to ensure that different economic agents can work and participate in the growth that is there. So, this therefore requires or calls for development partners to start channelling their financing tools to business communities and the government—that will spark innovation, mainly, and growth but also economic development. That is quite key, so this is exactly what we are doing in Rwanda, in Access to Finance Rwanda, to ensure that we catalyse lasting change within the financial sector, which we believe is an engine for desired economic growth. I see other sectors also in need of such kinds of funds as well—for development partners to do the same. So, I would encourage them to do so. But once again, and very importantly, ensure that the market systems development approach is deployed, otherwise the change might not be seen—it might be seen in the short run, but not in the long run.
What do you think is the importance of financial inclusion, and what obstacles do you think stand in the way of the unbanked becoming banked?
From the literature, clearly there is no economic development without greater access to appropriate financial services and products, especially by the mass market, or low income people, across developing countries. That’s how we see financial inclusion—making sure that the cap is closed, and those who are not actively participating in the financial sector come into the net. These are women, small holder farmers, youth, people with disabilities, refugees, and others. So, how do we bring them into that ecosystem, so that they also participate? So, there are some obstacles for financial inclusion, and these were picked from a full decade of implementation experience—so learnings that we have collected.
The first things are the low literacy levels—and I will say financial literacy level—of most of the low-income people. But also, there is a symmetry of information between the supply and the demand. So, you will find that the supply side has products that the demand side doesn’t know, and it is quite hard to serve when you do not have the right information. There is also limited client centric products and services. So, products that are available are probably not addressing the needs of the low-income people. So, how as a financial institution, when investing to understand your clients (especially the low-income people) and know what they need as products—because they have needs and they have a certain income (it’s not huge but it is there)—how do you adapt your products to ensure that they get the right proposition? But also, income levels—say for those communities that are still poor, or they don’t have income generating activities; it is quite hard for them to interact within the financial sector because they aren’t going to have the financial means. So those are particularly some of the barriers, but when you look across the globe there are other barriers, like certain regulations and laws, or the entire environment. But once again, in Rwanda, we have now hit 93% financial inclusion, which is quite good and we look forward to looking at those segments that are still under-supported and see how to support them—but also ensure that there are quality products on the market, and meaningful financial inclusion. Financial inclusion that improves the livelihoods of those people.
Do you think entrepreneurs are part of the foundation of Rwanda’s future, and how can this entrepreneurial spirit be nurtured?
Absolutely, entrepreneurs are part of the foundation of Rwanda’s future, and clearly they need to be supported to continue supporting the desired economic growth, but also the economic transformation that is desired by 2024. So, I believe entrepreneurship should be nurtured by creating a framework that supports innovation. In Rwanda, we are quite lucky that we have set up Kigali Innovation City which is a concept that looks at different innovations and supports them to go to the next level. This framework really looks at how to shape ideas to turn into actual projects or products; how do we give business and technical skills to these entrepreneurs, how do we support them with some legal structures and financial management schemes—but most importantly, most of them don’t have seed capital, or growth capital, for them to shape those promising ideas, and that is very key. As part of the Kigali Innovation City, they are thinking of that kind of seed funding, and I believe that growth funds also are there to ensure that they can be put to use. I give the example of Israel—I think they have a very good model where they really nurture such entrepreneurs. But we also need to have a conducive legal regulatory and taxation environment, to ensure that entrepreneurs have that support, and I have some examples. The Rwandan Development board has put in some measures that would support entrepreneurship, and currently we are advising some of the rules and regulations to ensure that we have a business community that is thriving—so those are the few that I would share.
Can Rwanda’s successful initiatives, and economic growth that it has been experiencing, be replicated elsewhere in Africa or is it down to the unique economic conditions that Rwanda has (e.g Made in Rwanda)?
Yes, these successful initiatives can be replicated in other African markets. There is a big “but”, which is really—I think—the local market conditions. It’s not just a one size fits all, you need to look at the innovation that is coming from Rwanda, and you need to think: “how can this be customised to the local market?”. Looking at the beliefs, looking at the environment, and looking at what it has, and I must say that already some countries have been coming to Rwanda to learn, and that is a very good sign that cooperation is taking shape and that is what we want to see happening across Africa.
This interview with Mr Iyacu was incredibly insightful—he has clearly emphasised that longevity is the name of the game. Short-term solutions cannot form the basis of sustained growth, and new long-term ideas must be embraced if we wish to pursue long-standing, fruitful development for the future.
Many thanks to Mr Jean Bosco Iyacu, and his colleague Mr Emile Ndayambaje, for participating in this interview.
By Shereece Linton-Ramsay