Microfinance institutions in rural Gambia: Case study of the village savings and credit associations

Microfinance Institutions was seen as the solution to development problems in earlier days of its inception, however, increasingly recent evidence shows that it is less effective in delivering those solutions if not managed carefully. Providing affordable credit to the rural communities has long been a prime component of development strategy in developing countries. Governments and donors have sponsored and supported supply-led rural finance institutions to mitigate urban-biased macroeconomic policies. However due to the perceived high risks and heavy transaction costs, commercial banks remain relatively absent in rural financing. Microfinance emerged promising to reduce poverty by providing financial services, thus expanding rural economic opportunities and reducing their vulnerabilities (UNCDF 1999:13). The performances of these institutions have varied across countries based on their capabilities to raise adequate equity, mobilise rural savings and the technical skills to efficiently manage resources. In this paper, by using a case study of VISACAs, a saving and credit organization promoted, owned, managed and controlled by rural communities, we provide evidence why some microfinance institutions if policies are not right can be problematic to address development problems. By assessing the performance of VISACAs, we find that the institutions have supported rural economic activities by providing formal financing to remotest areas of the country over the years. However, the findings show that VISACAs with weak capitalisation, inability to attract high skilled personnel, low outreach and weak linkages have limited their sustainability concerns, thus constrain their role in supporting rural economic activities.