The Consultative Group To Assist the Poorest

1. The Consultative GroupTo Assist the Poorest ‘Microcredit in ECA: Linkages with Community-Driven Development’ Doug Pearce CGAP April 10, 2001

2. Microcredit – a basic definition • Microcredit refers essentially to methodologies for making very small loans to low-income households • Microcredit can be offered through formal financial institutions or informal financial institutions • Microcredit is only one aspect of Microfinance, which includes a range of financial services.

3. What is CGAP? The Consultative Group to Assist the Poorest was formed in 1995 by the major donors and MFIs to set standards, develop & disseminate technical tools and training, and help build the microfinance industry.

4. CGAP: Service Center for MFI Industry

5. Technical Tools & Services MFIs • Series of handbooks and software on topics in financial management • On line ‘consumer report’ service on MIS software Member Donors • Appraisal and Monitoring Service • Global Donor Portfolio Database • Disclosure guidelines for MFI financial statements • Tool for measuring poverty levels of MFI clients MFI Industry • On-line MFI Audit services • Fund for ratings/appraisals of MFIs

6. Strategic and Technical Advice/Exchange MFIs • TA in business planning, financial modeling • Strategic advice to banks entering micro-finance Member Donors • CGAP staff -donor relationship managers: support, advice, referrals • Stimulating national level donor coordination MFI Industry • Work with rating agencies, regulators, supervisors • Study of West Africa legal frameworks for MFIs

7. Training and Capacity Building MFIs • 6 capacity building hubs and partners - building local markets of service providers Member Donors • Donor staff training • CD rom distance learning courses for field staff MFI Industry • Capacity building and certification of external auditors in microfinance audit • Boulder, Microfinance Training Program

8. Microfinance Gateway: a CGAP service to the industry • On-line library of thousands of documents and technical tools • Simple browse by 5 keytopics leading to recommended reading • Simple and easy search by topics, keywords, authors • Industry information hub • Forum to share knowledge and information. • Job Marketplace

9. Building Local Markets for Training services in ECA Microfinance Center, Warsaw • 4 CGAP courses available, plus 2 ‘own’ courses • 21 courses delivered to date • 342 MFI staff trained • 33 countries have sent participants to courses • 15 certified trainers • Courses translated into Russian and Bosnian/Serbian/Croatian

10. Microcredit in ECA • ‘New’ emerging industry • Fewer MFIs • Higher-end clientele • Focus on enterprise lending • Microfinance sector development varies by country

11. Microcredit at the Community-level in ECA • Community-level, but not community-owned or managed: Includes: • Branches of commercial banks and microfinance banks • National or regional Credit Unions • International, national or regional NGOs • Community-owned or community-managed: • Village Banks • Informal Savings and Loans mechanisms • Community NGOs • Community-level Credit Unions • Savings and Credit Associations (SCAs)

12. Microcredit at the Community-level in ECA • Formalization of community-owned or managed institutions may be the way forward in ECA • Informal financial institutions limited by legal and capacity issues • Formal financial institutions can offer a wider range of services • Credit Unions/Cooperatives offer a formal sector model with scope for community representation and relevance

13. Microcredit at the Community-level in ECA • How can the World Bank and other donors assist informal financial institutions to formalize, without losing community-relevance? • Key legalrole for the Bank to play in the interim period as an informal model formalizes • Institutional strengthening of a second tier entity.

14. Community-level responses in challenging situations for Microcredit • Other interventions may need to precede or accompany microcredit, such as: • Entitlement payments (grants, termination payments…) • Training and capacity-building • Infrastructure investment and maintenance • Institution-building

15. Community-level responses in challenging situations for Microcredit: Examples • Depressed industrial/mining regions: • Skills training and employment reorientation • Termination payments instead of microcredit • Isolated rural areas with low levels of economic activity: • Community-level infrastructure can help open up access to markets and facilitate economic activity. • Productive/Commercial infrastructure should be financed through a loan • Where past experience with subsidized credit has accustomed the population to poor repayment behavior: • General response: microcredit done on a sustainable basis, by a specialized (formal or informal) financial institution

16. Conclusions/Points for Discussion • Microcredit has great potential to unleash economic potential, but other interventions may be required first. • Improved linkages between microcredit and CDD needed, including inter-linked programming responses • Scope for informal financial institutions may be more limited in ECA than elsewhere. Therefore: • assist informal financial sector to formalize, and • build-on the existing cooperative/credit union system and tradition