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Scaling Up and Stretching Out: Microfinance Activities in the LAC Region

Scaling Up and Stretching Out: Microfinance Activities in the LAC Region. CGAP Presentation Mike Goldberg (LCSFP) Oct. 14, 2004. Understanding “Bankese” – A Basic Dictionary. CAS CGAP ESW FSAP HIPC ICA IDP O.P. PRSC.

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Scaling Up and Stretching Out: Microfinance Activities in the LAC Region

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  1. Scaling Up and Stretching Out: Microfinance Activities in the LAC Region CGAP Presentation Mike Goldberg (LCSFP) Oct. 14, 2004

  2. Understanding “Bankese” – A Basic Dictionary • CAS • CGAP • ESW • FSAP • HIPC • ICA • IDP • O.P. • PRSC

  3. Limitations of Working with Bank Instruments • Debt-based • Rarely use guarantees, grants; never equity • IBRD NOT cheap • currency risk • Interest rate • commitment fees • Regional competition • grants, equity, cheap $ (IDB, CABEI, EU, IFAD, etc) • Legal, regulatory aspects • “deal breaker” technically, not politically • Safeguards: Procurement, Disbursement, Legal • land, resettlement, indigenous peoples, frogs • Painful “Fiduciary” responsibilities! • Risks of documentation • Panama Social Fund, Ecuador ITIP

  4. Limitations of Working with Bank Instruments “Sleeping with the Enemy” * • Ingrained Government solutions Impatient politicians • Pressure of elections • Preference for debt forgiveness • Ministries and second tier FIs can be “old school” on microfinance • Formalize informal sector to generate taxes * Use of “Sleeping” approved by Ombudsman’s Office, O.P. 17.92

  5. Limitations of Working with Bank Instruments La Piñata Effect • Counterpart expectations with Bank (vs. reality of slow disbursement) • Pressure for multi-sectoral programming • Fitting (Fighting?) into the CAS • Resistance to IDPs

  6. Advantages of working with Bank instruments • Legal and regulatory aspects • PRSC, FSAP give you real teeth! (if enforced) • Capacity Building, IDPs possible • Affordable IDA funds - 2% • Sit down with Ministers and Superintendents for “heart to heart” chats on key issues • Donors want to collaborate

  7. Advantages of working with Bank instruments • Multisectoral opportunities (housing, rural electricity) • Overall neutral/positive image of the Bank in LAC • at least we’re not the IMF! • Can avoid credit lines (not always easy)

  8. Getting the Formula Right…in Advance • Downscaling: Must be competitive process, operational manual • Greenfielding: IFC territory • Upgrading: Bank can help with legal and regulatory issues, TA • Linking: Bank can help with legal and regulatory issues, TA

  9. The Rare Stand-Alone Project: Nicaragua Broad Based Access to Financial Services • Financial systems approach • Four levels/four components • No credit line (Effron study; HIPC) • Access indicators (Points of service) • Inclusive approach to credit information systems (OPD ESW helpful) • Donor coordination (PRSC) • $7 million project could leverage up to $125 million in existing donor funds

  10. Stretching Microfinance: Honduras Land Fund • Land matters in LAC! • Commercial banks, NGOs, landless farmer groups • No Government role • Land purchase, working capital (risk of double indebtedness) • Commercial approach, savings incentive • Counter-example is GT Land Fund; heavy-handed Gov’t role, politicization, constitutional right!

  11. Stretching Microfinance: Nicaragua Rural Electrification • Demonstration effect • Bank study – hookups • Matching Grant IDPs • MFIs get access to commercially priced credit • BDS component improves firms’ access to technology & markets--to improve productivity

  12. Small Pilots Can Lead to Large Scale Opportunities Brazil (Banco do Nordeste - CrediAmigo) • Pilot – high admin costs, loan losses; drop in number of clients • CGAP role critical • Training led to changes in institutional culture, incentives, products, staffing Mexico (Nafin – Regional LIL) • Marginal states meant start-ups • Nafin preference for FIs with implicit Gov’t guarantee • Lessons led to national replication US$5 million

  13. Lessons Learned on Strategies • Pilots are fertile learning ground • Donor coordination pays dividends • shared reporting, shared philosophy, crisis management • Cross-sectoral programming can pay dividends and add to overall development impact • With infrastructure, can raise hookup rates, economic dev. • Stand-alones and components can build on best practices

  14. Lessons Learned on Design Philosophy > Expediency • Counterpart philosophy can evolve • Be wary of credit lines • leverage policy change and TA effectively • Do they offer clout? • IDA countries use matching grants for MFI IDPs… • IBRD countries don’t • Transformation is linked to scale • source of funds matters!

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