Microfinance is booming. Certainly in Rwanda. And the Netherlands is contributing to this 'success story'. Via both the front and the back door.
 
"Very, very many microfinance organisations (MFIs) came to Rwanda after the genocide in 1994," says Aussi Sayinzoga. He is a Rwandan who is researching microfinance in Rwanda and Burundi at Wageningen University in the Netherlands.
 
"Microfinance is a big chance for us," says Sayinzoga. Six million of the ten million inhabitants of his country live below the poverty line. "People have no access to money. Only ten percent of my countrymen have a bank account. In the countryside, the figure's just three percent. That is a big problem."
 
Model country
Western countries are very interested in succeeding in Rwanda. The little Central African country is seen as a model nation in Africa following a series of economic reforms which has seen average economic growth rise to six percent.

 
In a short time more than 200 Rwandan MFIs came into being. Every year they receive more and more money from Western donor nations, destined for farmers and small businesses. Donations increased from 60 million euros in 2006 to almost 80 million euros in 2008.
 
The Netherlands, as one of the first donors after the genocide, is conspicuously present in Rwanda. Every year it gives 25 million euros to the little country, totally separate from the money provided to developing countries by the World Bank, the European Union and the United Nations. Approximately nine million euros goes to the private sector, most of it to MFIs.
 
The success story of Africa
"That's because Rwanda is Africa's success story," says Robert Lensink, senior lecturer in Developing Economies at Wageningen and a professor at the University of Groningen. He recently gave a course about microfinance to employees of the Central Bank in the Rwandan capital Kigali. The topic: How do you regulate microcredit on a large scale?
 
"And indeed, even I was enormously surprised when I arrived there for the first time. Because everything did appear to be so regulated and organised. I think it's because of their war past. I think because of what happened, they want to keep a closer eye on what's going on."
 
Controversial
Despite this, the international 'donor darling' remains controversial. At the end of 2008 Bert Koenders, the Dutch former Minister for Development Cooperation scrapped several million euros in direct budgetary aid to Rwanda. He did it for political reasons: the involvement of the Rwandan government in violence in the eastern region of its neighbour, the Democratic Republic of Congo.
 
"That was a victory for Koenders," says Lensink. "He wanted to show that the Netherlands does not give money to undemocratic countries where human rights don't count."
 
Strange relationship
Professor Lensink thinks the Netherlands and Rwanda have a strange relationship. The vast majority of the development aid does, in fact, continue. "You can see now that our money is reaching Rwanda by another route. For example, via an educational project that I'm responsible for." And MFIs profit indirectly from this.
 
The Dutch Foreign Office is also keeping a close eye on Rwanda. The run-up to the coming elections in August has been accompanied by several controversial arrests of political and military opponents. Critics are calling the government in Kigali dictatorial and undemocratic.
 
Little control
Impoverished Rwanda is heavily dependent on donors. Close to 400 million euros a year - half its total budget - comes from countries such as the Netherlands, the United States, the United Kingdom and Germany.
 
MFIs receive several of those millions a year. But this considerable amount of money appeared to be - at least in the beginning - unverifiable. Several institutions were badly organised, says researcher Aussi Sayinzoga. "There was little control. The National Bank didn't keep a close eye on what happened. Microcredit was confused with development aid."
 
Corruption
This chaos led not only to corruption at the local level but also in the government in Kigali, says Mr Sayinzoga: "I can recall an MP who received a loan of 48 million Rwandan francs (60,000 euros). That's not microfinance! And an MP is not poor!" In 2006, eight MFIs were shut down. Dozens of people were arrested.
 
Professor Lensink thinks corruption can be found everywhere. "Certainly in microfinance. The sector has grown so much in recent years. Microfinance is seen by everyone as the solution to all sorts of problems. Money is pumped in all over the place. But in the end you have to deal with people. And you will find rotten apples among them. That is what happened in Rwanda."
 
See also part 2: Rwanda: microfinance - a way out of the abyss?