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“Just Say No?” Supporting Microfinance through Non-Financial Sector Operations

“Just Say No?” Supporting Microfinance through Non-Financial Sector Operations. Samantha de Silva, HDNSP Finance Forum, September 2004. Bank Support to Microfinance A significant share of the Bank’s support to MF is in the context of rural, urban and social sector operations.

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“Just Say No?” Supporting Microfinance through Non-Financial Sector Operations

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  1. “Just Say No?”Supporting Microfinance through Non-Financial Sector Operations Samantha de Silva, HDNSP Finance Forum, September 2004

  2. Bank Support to Microfinance A significant share of the Bank’s support to MF is in the context of rural, urban and social sector operations. Total US$1,405 million spent over ten years (1993 – 2002)* Credit Lines 100% = US$ 996 million Revolving Funds 100% = US$ 409 million *Source: OED CGAP Microfinance Credit Line Review

  3. Social Funds – Basic Facts • US$ 3.5 bn in WB Financing (98 operations in 58 countries); • Multi-sector programs run on private sector principles by semi-autonomous government agencies; • Mainly provide small grants (<US$100k) and TA to demand-driven community projects; • Varied objectives depending on context.

  4. Why do Social Funds get involved in Microfinance? • Not many involved in microfinance; • Involved mainly in contexts where there is no MF industry, no commercial banks and poor regulatory environment; • Provides resources and capacity building to MFIs; improves creditworthiness of emerging MFIs.

  5. Review of Social Funds and Microfinance • Performance has been mixed (not all bad!); • Newer generation of social funds concerned with institutional strengthening and sustainability of partner organizations; • SFs have absorbed lessons coming out of the MF industry.

  6. What has worked? • “Phasing Approach” has been very successful; • Phase I – Develop and test methodology, train core staff; • Phase II – Expand in size and scope and develop new products, build staff capacity; • Phase III – “Spin off” program from government/SF control as MFIs reach financial sustainability.

  7. Key Lessons • Explore full range of institutional options; • Do not subsidize interest rates to end users; • Ensure administrative autonomy for the MF component; • Work through MFIs; • Support legal and regulatory framework.

  8. Conclusion • MF clearly best supported through Financial Sector (FS) reform and operations; • When conditions for FS reform are lacking, and where there is no self-standing MF operation, SFs take on MF; • FSD can provide more guidance to non-FS operations. Focus should be on improving client results.

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