Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions

149 Pages·2005·0.75 MB·English

Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Preface & Acknowledgements

Preface

Poverty eradication is an integral component of the United Nations' global mission, and
microfinance is increasingly recognized as an effective strategy towards this goal.
Certainly, poverty is a multidimensional phenomenon, and its solutions (like its causes)
are as diverse as the people and places in which it is found. Consequently, microfinance
is not presented here as a panacea for poverty. However, there is a fundamental linkage
between microfinance and poverty eradication in that the latter depends on the poor
gaining access to, and control over, economically productive resources, which includes
financial resources. When properly harnessed and supported, microfinance can scale-up
beyond the micro-level as an indispensable part of the process of economic
empowerment by which the poor can lift themselves from poverty.

This publication highlights the potential of microfinance initiatives towards poverty
eradication in Africa. It reflects the ongoing United Nations commitment towards
poverty eradication, a key theme expressed in the United Nations New Agenda for the
Development of Africa in the 1990s (UN-NADAF, GA 46/151), at the 1995 World
Summit for Social Development in Copenhagen (A/CONF.166/9), and by the United
Nations resolution (A/RES/50/107) proclaiming 1997-2006 as the First United Nations
Decade for the Eradication of Poverty. It also takes into account and builds upon United
Nations documents pertaining to microfinance in Africa, particularly document A/50/490
of 6 October 1995 on Advancing Financial Intermediation in Africa, and the final report
of the Africa Advocacy Forum: Microcredit and Poverty Eradication.

Acknowledgements

The publication of this document was written by the United Nations Office of the Special
Coordinator for Africa and the Least Developed Countries (UN/OSCAL), with the
invaluable contribution of Scott G. Chaplowe. The useful interaction with, and feedback
by, the United Nations Division for Social Policy and Development (UN/DESPD) and
the Thematic Group on Poverty of the Department of Economic and Social Affairs
(DESA) are also acknowledged.
Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary
Executive Summary

Introduction mission and requires commitment, cooperation,
and cohesion at all levels of development –
Over the last two decades microfinancing has individual, household, community, national, and
emerged as an effective strategy for poverty global. While microfinance alone does not
eradication. Adapting tools and principles of improve roads, housing, water supply, education
traditional finance schemes to the mission and and health services, when properly harnessed
methodology of development finance schemes, and supported, microfinance has made these and
microfinance can contribute to people's other sustainable contributions to the
empowerment, expanding their livelihood community. Perhaps the greatest contribution of
opportunities. This includes providing the microfinance is that it empowers people,
means to save, access credit, and start small providing them with confidence, self-esteem,
businesses, as well as the potential for and the financial means to play a larger role in
community development, and to influence local their development. The potential of
and national policy making. As microfinance microfinance far exceeds the micro-level,
becomes more widely accepted and moves into scaling-up to address macro-problems
the mainstream, the supply of services to the associated with poverty eradication.
poor may likewise increase, improving
efficiency and lowering costs. This study brings together eighty-five factsheets
on microfinance initiatives, to extract, preserve,
The increasing role of microfinance in share, and learn from the various examples of
development is due to several key factors: microfinance in and for Africa. The majority of
• The poor need access to resources if they are the factsheets (63) are examples of
to improve their condition, and appropriate microfinance institutions (MFIs) and
financial services are a key resource. programmes in Africa. These factsheets
• The provision of microfinance services to highlight what is actually working (and not
low-income people by the commercial working) in the African context, ranging from
sector has been and remains relatively local grassroots initiatives to regional initiatives
limited, creating a high demand among the encompassing more than one country. The next
poor for credit and savings services that are category of factsheets summarize MFIs from
appropriate to their needs - fast, friendly and non-African countries (11) that offer lessons
fair. transferable to the African context. The
• Contrary to popular perception, the poor can remaining factsheets summarize MFIs and
save, repay loans, and effectively utilize programmes from international organizations
finances towards income-generation, when (11), providing a sampling of some ways the
provided savings instruments that are global community works with and supports
accessible and appropriate to their needs. African microfinance.

• Microfinance can be viable and sustainable,
MFI selection criteria stressed the diversity
achieving full cost recovery after a
among MFIs and programmes in geographic
reasonable development period.
location, organization size, outreach, and

activities and approaches. Wherever possible,
Microfinance is not a panacea for poverty
factsheets were written to highlight pertinent
and related development challenges, but it
lessons, whether they are successes or failures.
can play a critical role in poverty eradication.
Obviously, these factsheets are only a sampling
Owing to poverty's large scope,
of an extensive field, and the information
multidimensional character, and multiplicity of
presented in them was adapted primarily from
actors, there is no single guaranteed approach to
programme descriptions, without field research
its eradication. Poverty reduction is a complex
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

or outside reviews. Factsheets are presented in households from moneylenders with outrageous
the three above categories – African, Non- interest rates that often reach 100% annually.
African, and International – and are organized Savings and credit services can help people start
alphabetically by country of operation, or by or improve their own small businesses,
MFI/programme title when operating in more providing income generation and employment
than one country or internationally. for themselves and their families. Such services
are vital for low-income Africans, especially the
The remainder of this Executive Summary is large number working in the informal sector and
divided into two parts, each drawing upon and lacking financial services.
summarizing lessons from the factsheets. The
first section summarizes some key contributions In many cases, without credit, low-income
of microfinance for poverty eradication in people work hard but remain materially poor due
Africa. The second section summarizes some to the lack of opportunities and capital. Credit
key strategies for microfinance initiatives in can be used as working capital so that clients'
Africa. Within this general overview, some (and efforts become more productive; for example,
certainly not all) examples from the factsheets clients can buy rice or grains in bulk at
have been used to illustrate points. Clearly, the wholesale prices and resell it at retail prices or
topic of microfinance is extensive, and this study buy a refrigerator to keep produce fresh. As
serves only as a brief overview of some of the clients become more productive, their income
key lessons extracted from and for the African increases and they are able to accumulate
context. savings for other investments and emergencies.
In Ghana, for example, TechnoServe uses
What can Microfinance do for financial inter-mediation with commercial banks
so that farmers receive cash on credit and
Africa?
guarantee it with the harvested produce that is

stored for better prices when demand is high.
When properly harnessed, microfinance offers a
Farmers are able to repay post harvest debt, and
variety of benefits to the African people.
during the lean season (April-June), when prices
Foremost, microfinance initiatives can
have risen to sometimes more than 200%,
effectively address material poverty, the
farmers sell their stored produce to repay their
physical deprivation of goods, services, and the
loans and for household consumption. Training
income to attain them. When properly guided,
in produce storage, crop management, and cash
the material benefits of microfinancing can
management is provided to reinforce the
extend beyond the household into the
operation.
community. At the personal level, microfinance

can effectively address issues associated with
MFIs also provide crucial saving services to
"non-material" poverty, which includes social
lower-income clients. Low-income people want
and psychological effects that prevent people
to save, and have been saving in a variety of
from realizing their potential.
traditional ways, ranging from kinship networks

to Revolving Savings and Credit Associations
Material Benefits
(ROSCAs) - (refer to the factsheets Informal

Financial Practices in Guinea Bissau, and
Microfinance initiatives have a number of
Indigenous Financial Practices by Farmers in
potential material benefits. MFIs can help
Nigeria). Savings serve as reserves for
people become more economically secure. This,
important household expenditures (such as
in turn, has a multiplier effect on people's
school fees and funeral or marriage
standard of living, enhancing basic household
arrangements), and as insurance against sudden
welfare, such as food security, nutrition, shelter,
crises (such as illness, natural disaster, or theft)
sanitation, health and education services. MFIs
that can otherwise result in destitution for people
can help prevent and extricate people from debt.
already living at the poverty line. MFIs can
Oftentimes, they liberate low-income
build upon Africa's traditional savings ethic to
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

enhance outreach and quality of services. In access, access to and quality of primary
Zimbabwe, for instance, the Self-Help education, creating opportunities for the
Development Foundation focuses exclusively on youth, and empowering women.
savings for development. With over 10,000 • The Small Industries Project of Cairo
savings clubs, it educates members on the promotes industrialization and innovation by
responsibility of saving, promotes group establishing small-scale waste-recycling
solidarity and trust, and organizes training modules through the extension of small
programmes into income generating projects. loans to private garbage collectors. The
Project concentrated on waste management
Community Benefits and the creation of income-generating
opportunities in the settlement. Over half
The benefits of microfinance initiatives are not the loans extended went to recycling
limited to the household, but can be scaled-up activities with the remainder to services.
with sustainable contributions for community
development. Many of the African MFIs The extension of microfinance benefits into the
reviewed offer services that go beyond the community has been experienced elsewhere in
household and directly serve the community: the Non-African context. Probably the most
notable example of this is the Grameen Bank,
• The Agroforestry Project (MAP) of the which hosts a family of enterprises ranging from
Farmers Development Union (FADU) Grameen Energy (to supply renewable energy to
seeks to control land degradation in Nigeria unelectrified villages) to Grameen Telecom (to
while creating income generating bring the information revolution to rural people).
opportunities for project participants. It In Indonesia the Borromeus Credit Union has
provides small loans with appropriate been helping staff at Borromeus Hospital to
training for planting economic trees become homeowners since 1972.
alongside arable crops.
• The Women's Savings and Loan Network Non-Material Benefits
(CECF) in Dakar, Senegal operates a
Savings for Housing Project to purchase Microfinance initiatives offer more than just
plots of land for housing development. material benefits; they can also individually and
• The Credit Guarantee Company's Health collectively empower people, especially women.
Care Providers Programme in Egypt A steady income, a savings account, training,
responds to the widening gap between and the discipline to honor loan repayments
modest public hospital services and the usually raise the self-esteem and status of
quality services offered by private hospitals. clients, in societies where they are often treated
The Programme guarantees loans and credit as second-class citizens. Oftentimes, MFIs
facilities offered by banks to physicians, utilize microfinance groups, which receive
dentists, veterinarians, and pharmacists, training in financial management, their legal
encouraging quality private health care at rights, business management, as well as other
reasonable costs for the majority of support-services. Principles of collective
Egyptians who cannot afford private organization and solidarity have empowered
medical services. people to bargain for higher wages, better work
• The Community Foundation for the conditions, health services, child-care, and
Western Region of Zimbabwe uses co- common forms of insurance to protect their lives
financing to support community initiatives and livelihoods. Participants, especially women,
that extend far beyond the immediate speak out more, assume leadership roles, and
individual benefits. The Foundation builds address issues beyond their workplace, such as
resources and collaboration between the domestic violence. Some participants become
communities and other sectors of society, more active in community activities and
including community agriculture and water planning. In Benin, six months after starting the
first Women's Bank, some women began an
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

adult literacy programme, which has had a understood that there is no blueprint for
multiplier effect among Bank members, microfinance initiatives; each initiative must
improving their access to information, their adjust to the specific cultural, political, and
management skills, and their potential to earn economic setting in which it operates. For
revenue. example, in some instances, an income-
generation approach to credit has been
The majority of African MFIs reviewed here successful, in which services are contingent
targeted services at low-income women, for upon entrepreneurial training to enhance
whom the empowerment potential is very high, income-generating activities. In other situations,
particularly with those MFI's utilizing women's a minimalist approach has been successful,
groups. For many women, the group is the first based on the premise that it is better to give
opportunity to meet formally with other women credit to any poor person who is able to repay
to discuss problems and develop joint action. the loan without dictating how and on what the
The groups serve as a channel of information. loan should be used. Allowing for such
For example, members may tell each other about diversity, what follows here is an overview of
counseling services that have been established those strategies that repeatedly characterize
for women victims of violence and drug and effective MFIs and programmes in Africa and
alcohol addicts. Many women's group elsewhere.
participants experienced a change in their
household and community status. Some Build upon Traditional Financial Schemes –
experienced an increase in financial Microfinance initiatives must recognize and
responsibilities when their husbands noticed that utilize traditional and informal African savings
they are involved in lucrative activities. In and loan schemes. By building upon such
Ethiopia, the Sidama Savings and Credit Scheme concepts, microfinance initiatives are more
has helped to relieve domestic tension arising culturally compatible and hence sustainable with
from the husband's inability to pay household the local community. People feel more familiar
expenses, and in many cases, an attitude change and comfortable with concepts that borrow from
regarding the suitability of women engaging in their own tradition; this, in turn, improves MFI
trade has arisen, and some husbands keep their acceptance and outreach. In Nigeria, African
wives informed on profitable trading activities. Traditional Responsive Banking (ATRB) is a
unique loan scheme that draws from the best of
How can Microfinance Succeed in African traditional microcredit practices but
tempered by modern knowledge. At its core are
Africa?
the traditional Esusu and Aajo practices,

combined with a community based institutional
African microfinance is as diverse as the
structure, training and advisory services, and a
continent itself. An array of approaches have
"social banking" model that is traditional and
been used, ranging from traditional group-based
responsive. It successfully empowers poor and
systems, to specialized lending by banks and
rural women economically, socially and
funded by international non-governmental
politically, while creating a sense of belonging
organizations (NGO) financial intermediaries.
and ownership. In contrast, in Saõ Tome and
Consequently, examples of African
Principe, the lack of village tradition and social
microfinance offer an array of lessons of what
structure in farm associations made lending
works and doesn't work. Drawing from these
activities risky, with a repayment rate as low as
lessons, and those from non-African examples as
72%.
well, the following section summarizes some of

the key strategies for MFIs to become more
Strive for Flexibility & Innovation –
ideologically and institutionally sustainable,
Microfinance must be built around people rather
building the capacity for MFIs and programmes
than people around microfinance. Adapting
to better serve the poor while becoming
services to low-income clients is what
financially viable and self-reliant. It is
differentiates MFIs from typical commercial
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

financial services. MFIs must be flexible, increase both the number and volume of loans to
innovative and responsive to the needs of the members.
poor, willing to pioneer and test new ideas
where orthodox approaches have failed. For Charge Interest Rates that Cover Operational
example, in Burkino Faso, Le Projet de Costs – MFIs should charge appropriate interest
promotion du petit crédit rural (PPPCR) tailored rates for credit services, enough to sustain the
its services for a highly illiterate rural population MFI operation without becoming dependent on
(an adult female illiteracy rate of 91%). As the outside funding, but less than what money
rural people have an impressive oral tradition, lenders charge. The administration of many
PPPCR uses this to explain the terms and small loans, including processing and tracking
conditions of the loans in open town meetings, services, is a costly operation. Consequently,
with village leaders intimately involved in the MFIs need to charge higher interest rates than
loan process as monitors, evaluators and what commercial banks charge. In many
motivational leaders. Bank officers are multi- instances, however, the higher interest is re-
lingual in order to communicate effectively with invested into the community via MFI
their clientele. Another innovative approach is community programmes and services. In The
that of Les banquiers ambulants in Togo-Benin, Gambia, the decision of the Caisses villageoises
which offers financial services to disadvantaged d'épargne et de crédit to stress indigenously
peoples via itinerant bankers that travel on mobilized deposits over external funding,
motorbikes to serve the clientele, assisting them resulted in annual interest rates no lower than
to place loans and obtain credit. 40%, and some rates reached as high as 60%.
Villagers themselves meet in village assemblies
Encourage Savings – Savings services not only to decide on these interest rates, the composition
provide a valuable financial assistance to low- and responsibilities of credit committees, and the
income clients, but they also strengthen types of savings instruments. While credit
institutional self-sufficiency, membership interest rates are high, the village banks reward
commitment to microfinance initiatives, and depositors at above-market savings rates
build a sense of discipline, self-esteem, and between 20-30% interest per annum. Credit
wellbeing. When funds are internally generated repayment rates are high; in 1991, the lowest
rather than borrowed from or granted by external repayment rate reported among the six village
sources, MFI members become more invested banks was 92%, and some registered rates of
and participatory in the prudential administration 97%.
of savings towards credit and other MFI
services. If priced correctly, savings instruments Stress Participatory Approaches – MFIs must
can contribute to capital mobilization and wider strive to actively involve their target population
market coverage. The MicroSave-Africa in the financial decisions and actions shaping
programme is an international initiative their lives. As a result people become more
premised on the African potential to save. invested in and committed to the sustainability
Voluntary, open-access savings schemes that are of the microfinance initiatives, assume
flexible and responsive to client's needs can ownership and responsibility for their
generate more net savings (thus greater capital development, and become more self-reliant. In
for the MFI) than compulsory, locked in savings South Africa, Mulva Trust supports local
schemes. In South Africa, the Standard Bank's decision-making, control of finances, and
E-Plan introduced conveniently located E-Banks responsibility for operation, maintenance and
in high-traffic areas in colorful, well-designed, repair of credit payments. The Trust's projects
user-friendly kiosks. Offering single depository all have subsidy ceilings and a cost-sharing
accounts with card-based ATM access for low- component, and in areas of project
income clientele, within the fist year of implementation where communities lack
operation, over 150,000 E-Bank accounts were expertise communities are responsible for sub-
open. As MFIs successfully generate internal contracting project implementation and training
savings, credit expands, enabling them to skills. At a larger scale, the African
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

Revitalization Programme uses regional, manage all funds, and share a joint loan
national, and continent-wide workshops to repayment guarantee. The maximum amount a
promote participants' learning from each other's client can borrow depends on the amount of
microfinance experiences, disseminate accumulated savings, with loan amounts
information, and develop a sense of ownership increasing with savings. Loans are made at a
of the process and product. non-subsidized interest rate of 3-4% per month,
which permits most FINCA programmes to fully
Target Women – Successful programmes make cover operating and financial costs within three
loans mostly to women, who tend to be more to four years. Participation is voluntary, and the
committed to using their loans for the benefit of average, on-time loan repayment rate is 95%. In
their families, and generally have a stronger the Non-African context, the Grameen Bank
commitment to repay their loans in order to pioneered small group lending, with each person
qualify for larger loans in the future. Economic committing to guarantee the loan payment of the
empowerment of women has a dramatic impact other group members. Regular weekly meetings
on stabilizing the family unit, and women tend are used to reinforce group solidarity, discipline,
to be more effective agents of change than men. and consistent repayments, and small group size
When additional income enters the household ensures that members genuinely know and trust
through women, children's diet, family's health each other.
and nutrition and the state of repair of the house
receive the highest priority. Men, however, are Invest in Training – At the community level,
more likely to spend extra income on self- training reinforces commitment to and
gratifying consumptions. The Uganda Women's sustainability of microfinance initiatives,
Finance Trust Ltd. (UWFT) restricts male empowering people to be more self-reliant and
membership to no more than 20%, and men take initiative in their development. Financial
cannot occupy leadership roles. Operating at the and business training in savings and credit
grassroots level, UWFT assists women in utilization, basic management, bookkeeping, and
gaining greater control over their businesses, marketing ensure that clients effectively invest
income, and assets. It has found that women are microfinance funds into productive income-
a much better credit-risk than men and more generating initiatives. Training in literacy,
responsible managers of meager resources. health, and community development ensure that
However, the most compelling reason for MFIs the benefits of MFIs extend beyond simply
to prioritize women is to assist the poorest first, finances. In Ethiopia, the Africa Village
who are disproportionately composed of women. Academy (AVA) developed a seven step
training programme that guides participants
Utilize Group Solidarity – Collective groups can through the process of creating a business plan.
have several advantages, including improved The training introduces participants to various
loan repayment, educating and awareness types of financial institutions and instruments,
building, networking and information examines local markets to identify potential
dissemination, and collective bargaining. Mutual microenterprises, verifies production and
trust and peer pressure within savings and credit marketing costs, and discusses credit
groups typically ensures participation and arrangements and requirements for business
repayment in microcredit programmes. The start-up, including principal, interest rate,
strategy of the Foundation for International savings rate, repayment schedule, and penalty
Community Assistance (FINCA) uses Village for late payment.
Banking groups consisting of 30 to 50 neighbors
to guarantee each other's loans, administer group At the institutional level, training provides MFIs
lending and savings activities, and provide with skills and information for capacity building.
mutual support. Village Banking prioritizes a Training in business planning, accounting,
participatory approach and clients organize their financial management, loan tracking,
support groups, create their own bylaws, elect delinquency management, the development of
their own officers, keep their own books, savings and credit methodologies, and
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

computerized management information systems territory can offer effective outreach through
(MIS) generates efficient and effective preexisting networks. This potential, however,
operations, greater outreach, and eventual self- is contingent upon the proper restructuring,
sufficiency. The Private Enterprise Support, guidance, and monitoring of PBSs. The
Training, and Organizational Development introduction of a commercial culture and the
Project (PRESTO) has developed four training adoption of best practices are key for PBS
courses for programme managers and staff in the success as a microfinance provider. Likewise,
African context, covering microfinance best the transformation of PBSs into microfinance
practices, business planning, loan tracking, and institutions will necessitate the introduction of
basic accounting. In West Africa, the appropriate technology and training. For
International Labour Organization (ILO) is example, manual transactions at counters are
working together with the Central Bank of West time consuming and costly, and the introduction
African States (BCEAO), the Consultative of computers can reduce these transaction costs
Group to Assist the Poorest (CGAP), and other and overcome operational inefficiencies.
partners to promote MFI capacity building
through a Training of Trainers Programme, Utilize Pre-Existing Support Organizations –
designed to strengthen the capacity of Utilize pre-existing support organizations, such
microfinance institutions to design, implement as the Special Unit for Microfinance (SUM),
and evaluate training programmes for their staff CGAP, and the World Council of Credit Unions
and members. (WOCCU), and establish linkages with other
NGO networks, bankers' associations, and
Build Microfinance Networks – MFIs should international groups. For example, United Sates
create and reinforce microfinance networks to Agency for International Development's
enhance MFI coordination, monitoring, (USAID) Microenterprise Innovation Project
advocacy, and outreach. Networks allow MFIs (MIP) provides exchange visits and exposure
to integrate approaches to better consolidate and trips for policy makers and MFI senior officers
share and disseminate human and productive to learn from Microenterprise Best Practice
resources, including technical, traditional, and (MBP) models. Women's World Banking
cultural knowledge. Such collaboration widens (WWB) affiliates leverage their successful
the group of stakeholders involved in the experience in direct lending to microenterprise
microfinance dialogue, and provides a legitimate clients and expanding capital bases to negotiate
and accountable vehicle for State and credit lines with local banks, scaling-up their
international actors to channel assistance. The micro loan programmes. The African
Action Research on Sustainable Microfinance Development Fund's Microfinance Initiative for
Institutions focuses on building networks for Africa (AMINA) is working with MFIs, host-
improved delivery of financial services to the country Governments, formal financial sector
poor in sub-Saharan Africa. Using national and actors, and international organizations. Their
subregional workshops, the programme creates goal is to engage in policy reform dialogue and
and strengthens national networks of rural and build appropriate and transparent legal and
microfinance institutions as a forum for mutual regulatory structures that provide a conducive
learning and dialogue. framework for the delivery of microfinance
services.
Transform Public Structures – In many cases,
an effective infrastructure for microfinance Avoid External Dependency – As reflected in
exists within public agencies, such as the postal the UN/OSCAL/DESA publication, Networking:
system. Postal Savings Banks (PSBs) already Directory of African NGOs, if MFIs are to make
exist in countries such as Uganda, Kenya, a lasting impact, they cannot remain dependent
Tanzania, and Cameroon. PSBs have a on donor funding, but must become self-
comparative advantage to develop microfinance sufficient. When MFIs do not heavily rely on
services on a large-scale basis. Their geographic donor funding, employers and clientele tend to
coverage of both urban and rural national be more invested in and committed to their
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Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions
Executive Summary

services. Furthermore, MFIs that are not international NGO, designed a tool
dependent on external funding are better able to (MicroAssess) that guides microfinance
maintain their identity, autonomy, and mission. institutions through a self-assessment process to
Likewise, MFI staff is typically more sustainable identify and quantify an organization's relative
when it employs local people who are not only strengths and weaknesses. The findings
more familiar and likely to remain in the target generated by this participatory process inform
culture, but more affordable than the cost of and structure Pact's training and mentoring
employing outside assistance. Some of the most programmes. In Uganda, the Life in Africa
successful microfinance examples, such as the Foundation is assisting the Ugandan
Grameen Bank, are designed so that ownership Microfinance Union (UMU) in the design and
and control remain in the hands of the very implementation of an internal assessment tool to
people it serves. Appropriate interest rates, better track the impact of credit and savings
savings deposits, training, morale, and other services on clients as they graduate to higher
microfinance tools can be used towards self- loan amounts. This will allow for the generation
sustainability. For example, the Self-Managed of systematic information to identify and address
Village Saving Banks of Pays Dogon, Mali, do weaknesses in their services and management
not receive lines of credit or grants for on- systems, streamline procedures, and improve the
lending from donors, but rely upon savings as user-friendliness of their programmes.
their principal financial resource. Villagers must
become members of the village banks to benefit Confront Problems – Problems are inevitable,
from the savings and loans services, which but, ideally, proper planning and infrastructure
entails paying a membership fee, and opening development (i.e. training) can prevent or defuse
one of three available savings accounts. In problems before they become serious. This
contrast, the Maradi Microenterprise entails developing performance standards,
Development Project of Niger depends monitoring tools, and institutional integrity to
completely on external funding for its credit identify and address weaknesses and problems
pool. Without a local source of funding via in their infancy. However, when a problem does
savings deposits, Niger government subscription escalate, it is imperative to identify it and
of capital or sale of shares, the project can never respond immediately. Challenges associated
become an independent, self-sustaining with scaling-up operations often create problems
institution. for MFIs. For BancoSol in Bolivia, scaling-up
operations from an NGO to a commercial bank
Develop Standards & Assessment Tools – MFIs was accompanied by increasing financial
need to develop performance standards to help pressures and changing demands on
define and govern the microfinance industry management, which eventually led to
towards greater outreach and sustainability. restructuring management and loan services.
Microfinance standards include organizational, Similarly, the Columbian NGO Finansol
operating, financial and reporting standards that encountered major performance deterioration
will lead to the recognition of microfinance as a when it scaled up services from an NGO to a
legitimate sector in the financial services commercial finance company that was
industry. In the Philippines, the Coalition for eventually resolved by a rigorous and
Microfinance Standards was formed specifically uncompromising return to microfinance basics,
to develop and promote standards for MFIs. A institutional restructuring, and recapitalization of
complementary goal to setting standards is the its portfolio. In the African context, the Get
development of credible and reliable Ahead Foundation (GAF) of South Africa
mechanisms to monitor and evaluate MFI spread itself too thin trying to impress USAID
standards. Reliable assessment tools for MFI and other donors with the expanded outreach.
standards foster accountability, raise the Severe operational and sustainability problems,
investment attractiveness of MFIs, and including a portfolio risk of 60%, forced GAF to
encourage MFIs to improve institutional conduct a major critical review of its operations,
efficiency and effectiveness. Pact, an which resulted in major institutional
8