Establishing commercially-sustainable microfinance in Sudan: Presentation to Oversight Committee

1. Establishing commercially-sustainable microfinance in Sudan:Presentation to Oversight Committee Central Bank of Sudan World Bank Financial and Private Sector Development Consultative Group to Assist the Poorest (CGAP) December 2006

2. The Sudanese private sector exists throughout the country

3. But large firms – and particularly foreign invested firms –highly concentrated in one stateReflects underbanked sector throughout country

4. Microfinance can make a difference – if based on best practices • Microfinance can have a powerful impact on poverty • Financial sustainability is necessary to reach large numbers of poor • Client discipline • Institutional discipline • Government and donor discipline • Microfinance is about building permanent local institutions • Interest-rate ceilings can damage access to credit • Government is an enabler, not a direct provider of services • Donor funding should complement, not replace, private capital • The lack of institutional and human capacity the key constraint • Standardized information and reporting, accountability

5. Lessons of international experience • Clear strategy owned by Government • Donor and Government coordination essential • No over-regulation • Government role limited to regulating deposit-taking MFIs • Promotional functions outsourced to Apex institution • Highly focused Apex Institution • limited to technical/ financial support, outreach and Sudanization over time • Focus on attracting successful international microfinance institutions to Sudan. • MFIs with International track record and support from parent bodies perform better • Take a long-term approach to investing in microfinance • Providers may include NGOs, microfinance and commercial banks (downscaling) • the development of viable microfinance capacity is a slow and costly process • Expect 3-5 years of financing and tech support to MFIs to the point of financial and operational viability.

6. International Examples • MISFA Afghanistan • $62.5 MM program to finance Apex institution supporting primarily NGO MFIs • Three objectives Sustainability, Broad geographic outreach, Afghanization over time • Now three years old • Approximately 15 MFIs, 200,000 clients, one NGO • Ethiopia • Initiated 1997 with policy framework • Supported by Government, donors and strong association • Now 27 MFIs, 1.7 million clients • $229 MM portfolio • Apex institutions operating in Bosnia ($21 MM, Phase 2 $27), Sierra Leone, Bangladesh, Mexico

7. Institutional approach Board of Apex Institution Seven members, Public-private, representing public agencies, Sudanese private sector, civil society and donors CBOS MF Unit BOSS MF Unit

8. Institutional approach Board of Apex Institution Seven members, Public-private, representing public agencies, Sudanese private sector, civil society and donors CBOS Apex Institution Management Contract Director and Staff Transition to Sudanese mgmt over time MF Unit BOSS North Sudan Operations South Sudan Operations MF Unit Financing of New/existing MF providers Technical Assistance to MF providers Demand Creation and Client support

9. Institutional approach Institution Building and Management Contractor for Apex Support on policy framework Board of Apex Institution Seven members, Public-private, representing public agencies, Sudanese private sector, civil society and donors CBOS CBOS Apex Institution Management Contract Director and Staff Transition to Sudanese mgmt over time MF Unit BOSS BOSS North Sudan Operations South Sudan Operations MF Unit Financing of New/existing MF providers Technical Assistance to MF providers Demand Creation and Client support Assistance to MFIs and sector

10. Proposed start up process • IPP presented (Dec) • CBOS to legally establish Apex Institution (Jan) • Government and Donors nominate Board (Jan) • Two government representatives • Two representatives of donors (with international microfinance experience) • Two representatives of Sudanese civil society • One representative of Sudanese private sector • Retroactive funding to start early January • FPP presented end January (virtual review?) • Management team selected by Board • International competitive bidding for management team starts Jan • Output targets specified in RFP (10 MFIs, 200,000 clients, geographic coverage Sudanization) • Selection by end-February

11. Preliminary Budget

12. Original IPP policy obstacles to informal sector Investment climate assessment Informality study Microfinance Policy Downscaling Greenfield Capacity building Linkages to larger firms Outreach and social mobilization Self-help housing Current IPP Streamlined project focused only on: Building regulatory capacity Establishing Apex institution Changes to Since Original Presentation

13. Challenges for Sudan Project • Capacity limitations – clients, MF providers, service providers to sector, Apex institution • Now and with planned transition to Sudanese management • Vast, underserved market • Rural, IDPs, urban informal, pastoralists • Challenge to achieve national coverage • Project is small relative to magnitude of the problem and similar efforts elsewhere • Apex must insist on performance-based funding, avoid disbursement pressure and retain independence • Informality and real economy issues must be addressed for microfinance to thrive

14. The vision • 10-15 microfinance institutions established, serving at least 200,000 clients • Several moving toward commercial viability in four years • At least ten service providers to sector • Vibrant microfinance sector contributes to broad-based growth throughout Sudan • It can be done!