wlmmyers
04-11-1996, 03:40 PM
Forwarded from: Micro Credit Summit <microcreditsum@action.org>
$6 billion in Grants
$4 billion in concessional loans
$10 billion in market rate sources
Total funding needed: $20 billion
10.0 Types of Funding Needed
10.1
Microfinance institutions in developing countries, after several
years of operation, can achieve the economies of scale that allow them to
cover their operating and financial costs, sustaining their program
without any additional subsidies. However, the microfinance industry at
present requires seed capital in the form of grants and concessional loans
in order to establish and scale-up the institutions necessary t achieve
the Summit goal. The microcredit campaign therefore will need different
types of financial support, commercial rate lending, and equity
investments by commercial banks and financial institutions.
10.2 Grants and donations are needed to start new microcredit institutions
and to see them through the early years of the growth curve. They are
needed to establish initial loan funds and to subsidize salaries and
training programs for staff until sufficient interest income is generated
to allow the institution to support itself. (See endnote #2) In addition
to the grant monies needed for the microcredit institutions themselves,
there must be funds for creating infrastructure. The most obvious sources
for this type of assistance are multilateral and bilateral aid programs
and national and local governments. Other sources are private donors,
grantmaking organizations, service clubs, schools, religious organizations
and corporations.
10.3
Loans to microcredit programs at subsidized rates (one to three
percent) from international financial institutions (e.g. the World Bank
and the regional developmentbanks) and private socially conscious
investors will be important for fueling rapid growth of loan portfolios in
the early and middle stages of a microcredit institution s development.
These funds help to underwrite a transitional period during which the
young institution will be moving toward sustainability but still in need
of special support. The use of soft loans will provide an environment of
business discipline, along with funds needed to allow the loan portfolios
to grow more rapidly than would otherwise be possible.
10.4
Guarantees are a way for donor agencies and institutions to make
efficient use of their limited resources by stimulating a flow of credit
from financial markets into microcredit programs. Their use is a good
interim measure for microcredit institutions in the process of moving from
the nonprofit sector into the commercial. These microcredit programs
benefit from the assistance of donor extended guarantees while they adjust
to the discipline of financial market requirements.
10.5
Market rate loans to microcredit programs from commercial
sources will be essential for fueling the expansion of those programs who
have achieved sufficient scale to reach economic viability.
11.0
Creating Microfinance Funds
11.1 Key to the mobilization and organization of funding will be a global
system of microfinance funds. The Consultative Group to Assist the
Poorest (CGAP) (see endnote #3), a multi-donor effort headed by the World
Bank to address poverty through microfinance, can play a vital role in
persuading donors and financial institutions to cooperate in creating
microfinance funds on global, regional, national and sub-national levels.
CGAP, paying particular attention to the recommendations of its Policy
Advisory Group (see endnote #4), should develop the organizational
framework and operational guidelines for the funds. A global fund may be
created at the World Bank; regional funds can be created either as
independent entities or as part of regional development banks. These
funds can offer grant and equity financing as well as soft loans to the
national microfinance funds. They can act as guarantors for loans from
commercial sources, and promote various instruments for capital markets in
order to raise funds for the national microfinance funds. National
microfinance funds can then offer similar services to the grassroots
microcredit programs themselves.
11.2
The CGAP's Policy Advisory Group has recommended a set of eligibility
criteria for use in determining which microfinance institutions should
receive CGAP funds. These guidelines may serve as a blueprint for the
microfinance funds to use as well. These eligibility criteria assert that
CGAP discretionary funds should be used to finance:
1. Locally-controlled institutions that have demonstrated the commitment
and the capacity to provide financial services to significant numbers of
people and that have methods in place or to be tested to reach the very
poorest (see endnote #5). Priority will be given to institutions that have
already demonstrated the capacity to reach the poorest.
2. Local institutions that have reached operational self-sufficiency
and that are moving on a path to financial self-sufficiency. (In countries
where constraints have prevented institutions from meeting this criteria,
CGAP could support institutions that are on a clear path to operational
self-sufficiency).
3. Local institutions that are providing savings services to the very
poor or are moving in the direction of providing these services.
4. Governance structures that include ownership and participation in
decision-making by clients will be encouraged.
5. Local institutions with the capacity to mobilize domestic savings,
lending and/or investment resources to expand microfinance operations,
and to utilize external funding to leverage domestic finance will be
encouraged (rather than employing any mechanical matching fund criteria).
12.0
Microfinance and the Commercial Financial Markets
12.1
The access to conventional financial markets that will fuel the
rapid growth of microfinance is a complex process that requires the best
efforts of both experienced practitioners of microcredit and the leading
managers in mainstream finance. The Summit seeks to provide a stage on
which to educate both the natural stakeholders in microfinance and key
leaders of the financial sector about the substantial progress that is
being made toward the marriage of microcredit and conventional financial
markets. The following initiatives, already in existence, are promising
indicators.
12.2
Involvement of national banking systems
Some microfinance programs borrow funds from commercial banks to
on-lend to their clients. Many microenterprise programs currently fund
their portfolios by accessing the local banking markets as corporate
customers, subject to all the normal conditions. In many cases, their
performance has matched or exceeded that of traditional credit. Thus,
microcredit programs no longer rely exclusively on grants or external
donations for their operations.
12.3
Creation of specialized financial institutions within national banking systems
When growth has gone beyond the capacity of local banks to service
the microenterprise program as a client, some of these organizations
have established fully-fledged financial institutions regulated by the
Superintendency of Banks, no different from other banks except for one
thing: they are exclusively dedicated to microenterprise. This has
already happened in Asia (Grameen Bank in Bangladesh, Bank Dagang Bali
in Indonesia); Latin America (BancoSol in Bolivia, Finansol in
Colombia); and is now happening in Africa (K-Rep in Kenya). In some
cases, conventional banks have established successful microenterprise
operations (e.g. Bank Rakyat, Indonesia; Multicredit Bank, Panama; Banco
del Desarollo, Chile).
When microcredit programs make the transition to formal
financial institutions they can have a dramatic impact. For instance,
the entire Bolivian banking system serves a total of 167,000 clients, of
which 63,000 (or nearly 40%) belong to BancoSol. Attractive economic
performance has also been proven, as shown by BancoSol's return on
assets of 2.2% in 1994, the highest in the entire Bolivian banking system.
12.4
Mobilization of savings from the microenterprise population
The enormous potential of savings in this sector has been demonstrated by,
among others, the experience in Indonesia (Bank Rakyat, Bank Dagang
Bali), Bangladesh (Grameen Bank), and Bolivia (BancoSol).
12.5
Issue of debt instruments through national securities exchanges
Successful issue of paper into local capital markets by microenterprise
specialists that are not formal financial institutions has been
demonstrated in 1995 in Paraguay by the NGO Fundacion Paraguay de
Cooperacion y Desarollo, with an issue of $150,000.
12.6
Placement in international markets of financial instruments issued by
microfinance institutions
Certificates of Deposit of BancoSol have been placed in the
U.S. and French markets to premier financial institutions on a strictly
commercial basis. Thus, the world's most sophisticated capital markets
have actually been linked with the promise to pay of a
woman microentrepreneur selling her wares on a street corner in La Paz.
Closing this conceptual loop is a true landmark in the development of
microenterprise finance.
12.7
The securitization of microenterprise loan portfolios
In Ecuador, a model is being deployed to issue into local financial
markets commercial paper backed by microenterprise loan portfolios.
This is scheduled to be implemented by 1997. If successful, this may
constitute an alternative model as powerful as that of formally
chartered financial institutions.
12.8
Establishment of equity and quasi-equity funds to support the
creation of future banks and financial companies that specialize in
reaching the poor
Examples are Pro Fund, a $20 million equity fund in Latin America that
began operations in 1995 with support from various sources, and ACCION's
Gateway Fund, a projected $10 million equity, quasi-equity and lead debt
investment fund.
12.9
To build on these promising beginnings, microfinance leaders and
financial sector specialists must create the necessary facilitating
frameworks and eliminate all obstacles to linking microfinance to
capital markets. Working together, they must identify and resolve key
issues. They must explore issues of regulatory environment, market
imperfections, financial reporting, financial best practices, marketing,
risk management, and credit rating.
12.10
In many ways microfinance represents the triumph of pragmatic
reality over ideology. It is a strategy for reaching the lowest income
sectors, but instead of charity or a safety net, it is an investment in
people's self-reliance. It sets government's role at the beginning of
the innovation cycle, where it can assist civil society to spearhead
initiatives long before they are commercially viable, not to replace the
role of the private sector but precisely to speed its very involvement.
13.0
BUILDING INSTITUTIONAL CAPACITY IN THE DEVELOPING WORLD
13.1
The goal of reaching 100 million of the poorest families with
microcredit is achievable if the flow of necessary funds can be insured,
and if the world-wide institutional capacity can be built to do the job.
Of these two conditions, the challenge of building capacity is the
greater.
13.2
Capacity building must take place in a variety of ways and in
many kinds of institutions. Existing exclusive microcredit programs
like NGOs and poverty banks must be strengthened and expanded, and new
ones must be created. NGOs are known for their ability to respond
quickly to new challenges. International and regional NGOs can create
local counterparts to undertake the task of dispensing microfinance, while
they themselves can become the source of funds, training, technical
assistance and quality control services. NGOs that are not already
active may be drawn into the new world of microfinance. The many
organizations that have some experience of microcredit will be supported
in scaling up.
13.3
Other kinds of institutions also need to be encouraged and
assisted in delivering microcredit to the poorest, including
cooperatives, savings and loan associations, informal/traditional credit
societies, credit unions, and banks of all kinds (commercial,
agricultural, rural, development, and specialized). Local and national
banks need to be motivated to initiate special microfinance departments
and sub-institutions devoted to this specialized type of activity.
Increasingly, as the success of microcredit becomes more obvious, banks
will seek entry to the field. International and regional financial
institutions must be prepared to provide guidance and to point local banks
to sources of quality advice and training.
13.4
As a starting point to estimate the implications of reaching 100
million of the world's poorest people with credit for self-employment, a
model has been developed to understand the scale and scope of
institutional capacity required. The practical experience of FINCA and
Grameen has been used in the development of the following projections.
14.0
The Social Entrepreneur and CEO: A Key Factor in Creating New Programs
14.1
The key factor in creating a new program is to find a committed
individual who wants to accept the challenge and become a social
entrepreneur. These are individuals who are interested in creating
private sector solutions to social problems and who are committed to
building a private sector institution based both on sound business practices
and incorporating values linking it to its social purpose.
Future social entrepreneurs are everywhere, but they themselves are
unaware of their potential. They are found in all segments of society:
business, academics, arts and culture, bureaucracy, professional groups,
international organizations, religious institutions, political activists,
social workers and many other backgrounds. The social entrepreneur may be
already inspired and waiting for an opportunity to begin. Or, the
situation can be exactly the opposite. The future leader may not even be
aware of the existence of such programs or may even be hostile to the
idea.
14.2
Future microfinance social entrepreneurs most often will
discover the idea from a chance exposure through reading an article,
watching TV, or listening to a conference speaker. The movement needs a
systematic plan for publicity and recruitment through exposure and
dialogue programs in order to find and develop the necessary talent as
efficiently as possible. In addition, a training process needs to be
established that will give each candidate an opportunity, within an
enabling environment, to try out his or her talent.
14.3
Commercial and development banks, along with other financial
institutions such as savings and loan associations, cooperatives, and
credit unions can create and expand microfinance programs of their own.
Instead of social entrepreneurs, they will identify specially trained CEOs
for these programs. Recruitment and training of these private sector
executives and their staff is as important as the development of social
entrepreneurs in the NGO sector.
15.0
A Dramatic Expansion of Leaders and Staff
15.1
The experience of successful microcredit institutions suggests that
an average of 10,000 borrowers can be served by each social
entrepreneur/CEO. Therefore, in order to reach the goal of serving 100
million of the poorest families, something on the order of 10,000 social
entrepreneur/CEOs will be needed (see endnote #6).
15.2 T
he social entrepreneurs/CEOs will need trained managers and field
staff to work at the village level. At Grameen Bank one staff is required
to serve 400 borrowers; in the FINCA system, a staff person is responsible
for 300 borrowers. Taking into consideration demographic, political and
social variations in countries around the world, we may conservatively
assume that one staff member will serve 200 borrowers. Assuming this
staff-client ratio, 500,000 fieldworkers will be needed. If one assumes a
drop-out rate during training of 15 percent (Grameen's drop-out rate is 37
percent), the total number of intakes of trainee fieldworkers should be
575,000.
15.3
Based again on experience, it is possible to assume that one manager
or supervisor will oversee the activities of 8 fieldworkers, and this in
turn means that training must be provided to 71,875 managers/supervisors.
15.4
Over ten years this number can be trained in classes of steadily
increasing size:
Year No. of trainees
Field Workers Managers
1996 2,000 250
1997 5,000 625
1998 10,000 1,250
1999 25,000 3,125
2000 48,000 6,000
2001 75,000 9,375
2002 100,000 12,500
2003 150,000 18,750
2004 160,000 20,000
---------- ---------
Total: 575,000 71,875
15.5
Information about the training experience in one country may help
give a picture of current training capacity. In Bangladesh, at least 150
NGOs are engaged in microfinance programs, serving nearly 2.5 million
borrowers (in addition to Grameen's 2.1 million). One NGO, BRAC, serves
over a million borrowers. These NGO's have all created their own training
facilities to carry out their programs. Grameen Bank reached its training
peak in 1991 when it prepared 2682 staff in one year. In 1995, Grameen
Trust and Grameen Bank jointly trained 650 international staff.
16.0
Organizing the Training
16.1
The training process for social entrepreneurs/CEOs will include the
following stages:
Stage 1: Preparation for launching a start-up project;
Stage 2: Preparation for running a start-up program successfully;
Stage 3: Graduating to run a scaled-up project and create a viable
branch/unit.
16.2
Four types of basic training will be needed:
a. Induction training
b. Refresher training
c. Advanced training
d. Specialized training
16.3
In addition to the basic curriculum, training facilities will
periodically need to organize conferences on special issues. Training for
the social entrepreneurs and business executives will be conducted on a
different track from that provided for managers and line staff.
16.4
The following facilities may be created and supported for training of
staff and management:
a. Training facilities within operating institutions
b. National level training facilities
c. Regional training facilities
d. Global training facilities.
16.5
Training facilities must be located in strategic places. There
should be at least ten well-organized, regionally located training centers
to provide quality training to staff and management in the region. At
least five centers of excellence must be created within local operating
institutions to provide leadership in training and to devise and test
innovative methodologies.
17.0
Training Materials
17.1
Materials in several languages are needed to support the training
programs. The international and regional specialized training centers
will need support for the creation and distribution of materials (videos,
audio cassettes, films, software, manuals, publications, etc), and will
train the trainers from localities in the use of such materials.
18.0
Training Cost
18.1
It is safe to assume that 90 percent of managers and field workers
will be trained in their own country by grassroots microcredit
institutions, and 10 percent will receive training outside of their
country at regional facilities.
18.2
In-country Training Cost
Assuming a cost per fieldworker for six months of in-country training at
$1,000; and a cost per supervisor/manager for six months of in-country
training at $1,300:
1. Cost of training for 517,500 $ 0.517 billion
fieldworkers
2. Cost of training for 64,688 $ 0.084 billion
supervisor/managers ---------------
Sub-Total: $ 0.601 billion
18.3
Training Cost at Regional Centers
Assuming a cost per fieldworker for ten weeks of training at
a regional center of $1,500; and a cost per supervisor/manager for ten
weeks of training at a regional center of $2,000:
1. Cost of training for 57,500 $ 0.086 billion
fieldworkers
2. Cost of training for 7,187 $ 0.014 billion
supervisor/managers ---------------
Sub-total: $ 0.100 billion
Total cost of in-country and
regional training: $ 0.701 billion
18.4
Training costs include all operating costs of the training institutes
during the training of managers and line staff. The figures offered above
do not include capital costs necessary to establish the institutes, nor do
they reflect expenditures on training of trainers, designing and
production of training materials, and costs of action-research to
fine-tune training needs. To cover all these items, the total of $ 0.701
billion should be increased by roughly 50 percent. Thus, total funds
required for the global training program are $1.06 billion dollars.
International donors will need to supply most of this amount to the
grassroots programs that will be conducting the bulk of the training.
** A section on building capacity in industrialized countries will be
circulated to individuals and institutions in industrialized
countries by May 20, 1996.
19.0
COUNCIL GOALS
19.1
The Microcredit Summit Councils, with the support of the Microcredit
Summit Secretariat, will be responsible for developing strategies for
fulfillment of the Summit goal including, funding, monitoring progress,
and expanding participation from their respective institutions and
constituencies. Members of the first five councils listed below (19.2
through 19.6) have agreed to arrive at the Summit having prepared their
institution's action plan for helping fulfill the Microcredit Summit's
goal. Other council members (19.7 through 19.17) have agreed to announce
their institution's action plan for contributing to the Summit's goal by
February 1998.
19.2
Practitioners
19.2.1
Develop internationally agreed upon definitions, standards, and best practices
Working with representatives of commercial financial institutions,
practitioners will need to define a common accounting language and format
that can facilitate financial analysis of individual institutions and the
industry. Practitioners will need to develop industry standards and a
process for maintaining those standards.
19.2.2
Collaboration to develop training curricula and programs
Practitioners must be the driving force behind efforts to train staff for
new institutions, and build capacity within existing institutions. Funds
for training can be included as part of start up grants that must be
available from public and private funders.
19.2.3
Development of a plan for growth
Practitioners will map out a plan for their institution's expansion that
will contribute to the goal of credit for self-employment for 100 million
of the world's poorest families, especially the women, by 2005.
19.3
Bilateral Donor Agencies
19.3.1
International aid programs of industrialized country governments
will need to provide a significant proportion of the grants required for
the early years of the life of microcredit institutions in developing
countries (including funding the microcredit institutions themselves, the
training centers and the operating costs of the various microcredit
networks). Red tape associated with application for and monitoring of
grants must be diminished, and start up funds will need to flow through
intermediary institutions that reach the poorest. This should be a
coordinated strategy that operates with significant input from
practitioners. Of the $6 billion needed in grant money, bilateral aid
agencies could provide 66% of these funds, or $4 billion over the next
nine years (an average of $440 million per year).
19.4
The United Nations Family of Grant-making Organizations
19.4.1
Many parts of the United Nations system are concerned in one way or
another with the problem of global poverty and its resolution through
targeted development. While each agency has its own area of
specialization, such as health, child survival and development, women s
welfare, food and nutrition, refugees, etc., they are all aware that
grinding poverty is inextricably linked with virtually all the other
issues of human welfare, as both cause and effect.
19.4.2
The United Nations should, as a family of organizations, declare
the goal of reaching 100 million of the poorest families, especially the
women, with credit for self-employment, as an overriding priority for the
next decade. Each agency should be asked to develop a plan for how it
will promote and support microcredit institutions serving the poorest.
This mandate could be expressed through a variety of strategies, including
reducing red tape and making grants to microcredit institutions for early
operating expenses, loan funds and support for network offices. UN
Agencies could also invest in promising microcredit start-up programs
through the "Micro Start" program being developed by UNDP.
19.4.3
The collective commitment of the United Nations should be expressed
in goals for each agency (e.g. UNICEF, UNIFEM, UNESCO, UNDP, WHO, UNFPA)
that can be devised by teams in each agency and submitted for approval to
the collective leadership of the UN.
19.4.4
UN agencies should commit $.5 billion of the $6 billion in grants
that will be needed over the next nine years (an average of $55 million
per year).
19.5
International Financial Institutions (IFIs)
19.5.1
Sources for low-interest, long term loans
Institutions such as the World Bank, regional development banks, and the
International Fund for Agricultural Development (IFAD) have a pivotal role
to play in providing resources for microenterprise institutions through
their programs that offer concessional loans (e.g. loans which are
low-interest and long term) and loan guarantees. It is estimated that $3
billion in concessional loans from IFIs will be required over the next
nine years (an average of 330 million per year).
19.5.2
Consultative Group to Assist the Poorest (CGAP)
Created in 1995 by the World Bank, CGAP has a significant role to play in
mobilizing grant monies and concessional loans for intermediary
institutions that have proven track records in reaching the poorest.
19.6
Banks and Commercial Finance Institutions
19.6.1
Collaboration with practitioners to determine the set of
characteristics microcredit institutions should have in order to be
considered "bankable"
An international committee of financial experts, bankers,
accountants and practitioners should define those characteristics such as
asset size, equity to debt ratios, and length of track record that will
make microcredit institutions bankable. This committee should define
general benchmarks for the growth of microcredit institutions that need to
be reached for increasing levels of credit to be available.
19.6.2
Development and identification of best financial management practices
Banks and commercial finance institutions should collaborate with
practitioners to identify microcredit industry best practices including:
financial reporting, risk management, accounting, and marketing
microcredit programs to financial markets. They should assist
microfinance institutions in becoming more viable clients by transferring
to them relevant commercial banking technologies, including personnel
training programs, information and accounting systems, and other banking
management technologies.
19.6.3
Extending credit to microcredit institutions at commercial rates
Creating credit lines from banks and other traditional financial
institutions to specialized intermediaries with successful track records
in lending to very poor people both in order to enable the specialized
institutions to expand their microlending operations and for on-lending to
microenterprises.
19.6.4
Developing appropriate instruments to tap both commercial and
socially conscious investment in microfinance
19.6.5
Collaborating in liquidity management of microfinance institutions'
cash flows
19.6.6
Advocate for industry regulation reform
The support of commercial banks for the reforms needed by microcredit
practitioners in order to allow their development into self-sustaining
financial institutions will be critical.
19.6.7
Education of industry peers
Those banking professionals and financial industry leaders who have
already joined the microcredit movement have a critical role to play in
educating the larger banking and commercial finance community about
microcredit, and the opportunities for collaboration with, and investment
in, this emerging industry.
19.7
Corporations
19.7.1
Corporations that are not banks themselves can still play an
important role in the campaign. The Microcredit Summit seeks to create a
strong and committed corporate council to coordinate activity within this
sector and to link it closely to the broader movement. Corporations can
provide grants for start-ups as part of the $1 billion commitment from the
private sector. They can lend their expertise (e.g. accounting,
marketing, public relations) to the microcredit movement and the
institutions and the networks seeking to upgrade their infrastructure and
customer services. Corporations should educate employees and customers
(including through advertising budgets) about microcredit, and advocate
its importance to government officials.
19.8
Non-Governmental Organizations and Credit Unions
19.8.1
NGOs and credit unions are the type of organization most likely to
give birth to new microcredit institutions. Many NGOs and credit unions
have launched microcredit programs over the past two decades. Many more
need to be involved in the creation of microcredit institutions, and those
that are already involved need to rapidly expand their existing networks
and coverage.
19.8.2
NGOs should review their program plans and search for ways to
incorporate microcredit into a steadily increasing proportion of their
anti-poverty operations. However, NGOs moving to incorporate microcredit
as part of their program portfolio must commit to building
self-sustaining, business-oriented microcredit institutions.
19.8.3
NGOs and credit unions should link their microcredit projects with
the global network of practitioners and advocates being built around the
Microcredit Summit so that they may participate in plans for standardizing
the industry, and may benefit from the information and technical
assistance available in these networks.
19.8.4
This shift can be enhanced if the national associations of NGOs and
credit unions (e.g. InterAction in the United States, ACFOA in Australia,
FAVDO in Africa, and the World Council of Credit Unions) encourage
microcredit institutional development among their member agencies. In
collaboration with established microcredit networks (e.g. SEEP Network,
CASHPOR), they should develop a regular schedule of training conferences
designed to educate their member agencies as to the best strategies and
techniques for creating new microcredit programs and institutions, as well
as expanding existing ones.
19.8.5
Of the $6 billion needed in grant monies, NGOs should look for ways
to raise and/or reprogram ___% or $__ million from non-governmental
sources.
19.9
Service Clubs
19.9.1
Service clubs are a valuable means of connecting civic-minded
business people on an international basis. FINCA and other organizations
have already successfully linked service clubs in the United States with
village banks in Latin America. Clubs throughout the world can provide
start-up grants, direct technical assistance (e.g. accounting assistance
from a club member) and moral support for microcredit institutions around
the world. Service clubs should create a goal for the number of
microcredit institutions they will help launch each year. Service clubs
could provide $100 million, or __% of the total amount of private sector
grant monies needed by the campaign.
19.10
Foundations and Philanthropists
19.10.1
Foundations and philanthropists have had a long history of
leadership in the commitment to reduce human suffering. The field of
microfinance as an anti-poverty tool is a dynamic and yet relatively new
phenomenon. For this reason it remains relatively unknown and underfunded
within the foundation field. Foundations should explore how supporting
microfinance will contribute to the fulfillment of their basic mission,
and look for ways to expand the proportion of microfinance within their
grantmaking. Foundations and philanthropists should educate their peers
to do the same.
19.11
Educational Institutions
19.11.1
>From grade school through graduate schools, educational
institutions provide the foundation for what we know and value as a global
society. Educational institutions at all levels should look for ways to
educate the students, their families, their faculties, and their staff
about the potential of microcredit as an anti-poverty tool and the
opportunity for people at all levels of society to contribute to the
campaign of reaching 100 million of the world's poorest families with
credit for self-employment by 2005.
19.12
Religious Institutions
19.12.1
At the core of all major religions is a deep commitment to serving
the poor. The Microcredit Summit provides an opportunity for religious
institutions to educate their congregations on new ways to assist people
in eliminating their own poverty. Leadership from the spiritual community
has been central in most social movements. This must be no less true of
the microcredit movement.
19.13
Parliamentarians
19.13.1
Parliamentarians have a unique role to play in bringing about
societal change. They have the opportunity to educate and inspire their
colleagues, their constituents and the media. The political will to make
change may start at the top or may start at the bottom, but to be truly
lasting it must involve all sectors of society. Parliamentarians will
have many allies in fulfilling the goals of the Summit, but their
leadership in this effort helping to change laws and the regulatory
environment, ensuring funding, highlighting success stories and educating
their colleagues and constituents may be one of the most important
commitments of their political career.
19.14
Domestic Government Agencies
19.14.1
Regulatory change
Through international committees, model legislative provisions should be
created to allow a more favorable environment for microcredit
institutions. The model laws could open the way for mobilizing savings,
removing interest rate ceilings, guaranteeing the repatriation of capital
from other countries, allowing non- collateralized lending, and easing
licensing of financial institutions. These provisions should both insure
integrity of these programs and minimize the bureaucratic hurdles these
programs face. A goal should be set for adoption of this legislation by
sufficient countries to facilitate the spread of institutions to reach 100
million of the poorest households.
Governments and financial institution supervisory agencies should also
enact legislation and promulgate regulations that will provide for a sound
system of depositor protection and promote confidence in all financial
institutions accepting deposits, including microcredit institutions. Such
legislation and regulation should provide for minimum depositor protection
in the form of rapid reimbursement of deposits in the event a depository
institution is deemed insolvent, or provide assistance to those
institutions that are in danger of insolvency.
Supervisory agencies should work with microcredit practitioners to further
develop and establish common international standards regarding performance
and operation of microfinance institutions, including a common rating for
assessing the safety and soundness of such institutions. Supervisory
agencies should recognize the standards established by the microcredit
industry and insure that all present and future standards and regulations
serve to "add value" to the microfinance industry. Governments and
supervisory agencies should enact legislation and promulgate regulations
that will encourage commercial financial institutions to develop
partnerships with microcredit programs.
19.14.2
National and provincial microfinance funds in developing countries
Governments should contribute to the creation of domestic funding programs
and provide adequate funding for microcredit institutions. These programs
should be capable of providing grant funds, concessional loans, and a
supportive environment for the participation of commercial financial
institutions. Central Banks could stimulate linkages between commercial
banks and microcredit programs by providing a line of credit to commercial
banks for on-lending to microcredit programs.
19.14.3
National and provincial microfinance funds in industrialized countries
Ways must be found to make concessional loan funds available to
microcredit programs in industrialized countries.
19.15
Heads of State and Government
19.15.1 As we move into the 21st century, one of the greatest factors
contributing to national instability and civil unrest is the widening gap
between rich and poor. Fulfilling the goals of the Summit is the greatest
single intervention known for resolving this disparity. During the 1980s,
there was an unprecedented expansion of childhood vaccination rates in the
developing world. The jump from 25 percent vaccination rates in the early
1990s to 80 percent at the end of the decade has helped save the lives of
tens of millions of children. Heads of state and government played an
significant role in this success, launching vaccination campaigns and
getting personally involved.
19.15.2
The direct involvement of governments in administering
microfinance programs has usually led to the politicization of the program
and disastrous results. Governments must be supportive without being
overbearing. Heads of State and Government can educate their nations and
other heads of state and government. They can listen to practitioners and
borrowers and push for the policy changes needed.
19.16
Media
19.16.1
The media have a responsibility to report on the positive
developments in human affairs as well as the catastrophes. While the
steady growth and success of microcredit institutions may not be the stuff
of headlines, it merits regular coverage in print and electronic media.
19.16.2
A committee of media professionals will be organized to develop a
strategy for media coverage of the microcredit movement. This could
include things such as site visits to projects for professionals, reports,
awards for excellent coverage and specialized briefings and seminars.
19.17
Advocates
19.17.1
The primary role of the advocacy movement is to overcome the most basic
constraints: the fear of failure, regulatory restraints, and the
lack of awareness. This can be done through a dramatic presentation of
the programs that have succeeded and the lives that have been transformed
through program participation. The movement will need to develop a media
penetration strategy to greatly increase public recognition of the
importance of microcredit, to raise funds, and to create a favorable
public policy climate. Institutions who are members of the Microcredit
Summit Council of Advocates will be called upon to support the Summit goal
through fundraising, education, advocacy, policy development and research.
20.0
THE ROLE OF THE SECRETARIAT AND THE CAMPAIGN COMMITTEE
20.1
The Microcredit Summit has established councils for each of the above
sectors in order to commit to strategies, monitor progress, and advocate
for change within their respective institutions and constituencies.
20.2
The Microcredit Summit will establish the Microcredit Summit 2005
Campaign Committee. The Campaign Committee will include the chairs of all
councils: practitioners, donor agencies, UN Agencies, international
financial institutions, banks and commercial finance institutions,
corporations, NGOs, service clubs, foundations, educational institutions,
religious institutions, parliamentarians, domestic government agencies,
advocates, media, and heads of state and government.
20.3
RESULTS Educational Fund will function as secretariat for the
Microcredit Summit 2005 Campaign Committee. The Microcredit Summit
Secretariat carries the responsibility for overall organization and
monitoring of the unified effort, and publishing an annual score card to
measure progress made. The Secretariat will recognize those organizations
and individuals who are making outstanding contributions and will point
out areas where progress is falling behind schedule.
ENDNOTES to Plan of Action
1.) World Bank, regional development banks, IFAD
2.) While programs in developing countries will require subsidies
inthe from of grants and donations in the early years of growth, they
will be expected to charge interest rates to their clients sufficient
to allow for self-sufficiency to be reached within seven to ten
years. It remains undemonstrated whether or not microcredit programs
in industrialized countries will be able to reach self-sufficiency.
3.) Launched in June 1995, CGAP currently has over a dozen members
from among donor agencies and the regional development banks. CGAP's
core objectives are to: (i) strengthen donor coordination in the field
of microfinance; (ii)_ increase learning and dissemination of best
practices for delivering financial services to the poor on a
sustainable basis; (iii) mainstream microfinance within World Bank
operations; (iv) create an enabling environment for microfinance
institutions; (v) support microfinance institutions that deliver (or
are capable of delivering) credit and/or savings to the very poor on a
sustainable basis; and (vi) help established providers of microfinance
to assist others start such services in under-served regions.
4.) Policy Advisory Group Members include: Muhammad Yunus, Grameen
Bank (Chair); Kamardy Arief, Bank Dagan Nasional Indonesia; Nancy
Barry, Women's World Banking; Ela Bhatt, Self-Employed Women's Association;
Renee Chao-Beroff, Centre International de Developpment
et de Recherche; Martin Connell, Calmeadow; Klaas Kuiper,
International Agency for Economic Development; Kimanthi Mutua, Kenya
Rural Enterprise Program; Maria Nowak, Caisse Francaise de
Development; Maria Otero, ACCION International; Lawrence Yanovitch,
Foundation for International Community Assistance (FINCA).
5.) CGAP's policy Advisory Group has defined the poorest as those
people inthe bottem fifty percent of the people living below the
poverty line established by each country.
6.) These indicators of scope reflect institutional averages. The
staffing and organizational models underpinning these numbers need
not be interpreted literally. This model is offered as a basis for
determining the dimension of staffing anf organizational needs
required in order to achieve the Summit's goal.
This post transferred from the cdb-l mailing list
$6 billion in Grants
$4 billion in concessional loans
$10 billion in market rate sources
Total funding needed: $20 billion
10.0 Types of Funding Needed
10.1
Microfinance institutions in developing countries, after several
years of operation, can achieve the economies of scale that allow them to
cover their operating and financial costs, sustaining their program
without any additional subsidies. However, the microfinance industry at
present requires seed capital in the form of grants and concessional loans
in order to establish and scale-up the institutions necessary t achieve
the Summit goal. The microcredit campaign therefore will need different
types of financial support, commercial rate lending, and equity
investments by commercial banks and financial institutions.
10.2 Grants and donations are needed to start new microcredit institutions
and to see them through the early years of the growth curve. They are
needed to establish initial loan funds and to subsidize salaries and
training programs for staff until sufficient interest income is generated
to allow the institution to support itself. (See endnote #2) In addition
to the grant monies needed for the microcredit institutions themselves,
there must be funds for creating infrastructure. The most obvious sources
for this type of assistance are multilateral and bilateral aid programs
and national and local governments. Other sources are private donors,
grantmaking organizations, service clubs, schools, religious organizations
and corporations.
10.3
Loans to microcredit programs at subsidized rates (one to three
percent) from international financial institutions (e.g. the World Bank
and the regional developmentbanks) and private socially conscious
investors will be important for fueling rapid growth of loan portfolios in
the early and middle stages of a microcredit institution s development.
These funds help to underwrite a transitional period during which the
young institution will be moving toward sustainability but still in need
of special support. The use of soft loans will provide an environment of
business discipline, along with funds needed to allow the loan portfolios
to grow more rapidly than would otherwise be possible.
10.4
Guarantees are a way for donor agencies and institutions to make
efficient use of their limited resources by stimulating a flow of credit
from financial markets into microcredit programs. Their use is a good
interim measure for microcredit institutions in the process of moving from
the nonprofit sector into the commercial. These microcredit programs
benefit from the assistance of donor extended guarantees while they adjust
to the discipline of financial market requirements.
10.5
Market rate loans to microcredit programs from commercial
sources will be essential for fueling the expansion of those programs who
have achieved sufficient scale to reach economic viability.
11.0
Creating Microfinance Funds
11.1 Key to the mobilization and organization of funding will be a global
system of microfinance funds. The Consultative Group to Assist the
Poorest (CGAP) (see endnote #3), a multi-donor effort headed by the World
Bank to address poverty through microfinance, can play a vital role in
persuading donors and financial institutions to cooperate in creating
microfinance funds on global, regional, national and sub-national levels.
CGAP, paying particular attention to the recommendations of its Policy
Advisory Group (see endnote #4), should develop the organizational
framework and operational guidelines for the funds. A global fund may be
created at the World Bank; regional funds can be created either as
independent entities or as part of regional development banks. These
funds can offer grant and equity financing as well as soft loans to the
national microfinance funds. They can act as guarantors for loans from
commercial sources, and promote various instruments for capital markets in
order to raise funds for the national microfinance funds. National
microfinance funds can then offer similar services to the grassroots
microcredit programs themselves.
11.2
The CGAP's Policy Advisory Group has recommended a set of eligibility
criteria for use in determining which microfinance institutions should
receive CGAP funds. These guidelines may serve as a blueprint for the
microfinance funds to use as well. These eligibility criteria assert that
CGAP discretionary funds should be used to finance:
1. Locally-controlled institutions that have demonstrated the commitment
and the capacity to provide financial services to significant numbers of
people and that have methods in place or to be tested to reach the very
poorest (see endnote #5). Priority will be given to institutions that have
already demonstrated the capacity to reach the poorest.
2. Local institutions that have reached operational self-sufficiency
and that are moving on a path to financial self-sufficiency. (In countries
where constraints have prevented institutions from meeting this criteria,
CGAP could support institutions that are on a clear path to operational
self-sufficiency).
3. Local institutions that are providing savings services to the very
poor or are moving in the direction of providing these services.
4. Governance structures that include ownership and participation in
decision-making by clients will be encouraged.
5. Local institutions with the capacity to mobilize domestic savings,
lending and/or investment resources to expand microfinance operations,
and to utilize external funding to leverage domestic finance will be
encouraged (rather than employing any mechanical matching fund criteria).
12.0
Microfinance and the Commercial Financial Markets
12.1
The access to conventional financial markets that will fuel the
rapid growth of microfinance is a complex process that requires the best
efforts of both experienced practitioners of microcredit and the leading
managers in mainstream finance. The Summit seeks to provide a stage on
which to educate both the natural stakeholders in microfinance and key
leaders of the financial sector about the substantial progress that is
being made toward the marriage of microcredit and conventional financial
markets. The following initiatives, already in existence, are promising
indicators.
12.2
Involvement of national banking systems
Some microfinance programs borrow funds from commercial banks to
on-lend to their clients. Many microenterprise programs currently fund
their portfolios by accessing the local banking markets as corporate
customers, subject to all the normal conditions. In many cases, their
performance has matched or exceeded that of traditional credit. Thus,
microcredit programs no longer rely exclusively on grants or external
donations for their operations.
12.3
Creation of specialized financial institutions within national banking systems
When growth has gone beyond the capacity of local banks to service
the microenterprise program as a client, some of these organizations
have established fully-fledged financial institutions regulated by the
Superintendency of Banks, no different from other banks except for one
thing: they are exclusively dedicated to microenterprise. This has
already happened in Asia (Grameen Bank in Bangladesh, Bank Dagang Bali
in Indonesia); Latin America (BancoSol in Bolivia, Finansol in
Colombia); and is now happening in Africa (K-Rep in Kenya). In some
cases, conventional banks have established successful microenterprise
operations (e.g. Bank Rakyat, Indonesia; Multicredit Bank, Panama; Banco
del Desarollo, Chile).
When microcredit programs make the transition to formal
financial institutions they can have a dramatic impact. For instance,
the entire Bolivian banking system serves a total of 167,000 clients, of
which 63,000 (or nearly 40%) belong to BancoSol. Attractive economic
performance has also been proven, as shown by BancoSol's return on
assets of 2.2% in 1994, the highest in the entire Bolivian banking system.
12.4
Mobilization of savings from the microenterprise population
The enormous potential of savings in this sector has been demonstrated by,
among others, the experience in Indonesia (Bank Rakyat, Bank Dagang
Bali), Bangladesh (Grameen Bank), and Bolivia (BancoSol).
12.5
Issue of debt instruments through national securities exchanges
Successful issue of paper into local capital markets by microenterprise
specialists that are not formal financial institutions has been
demonstrated in 1995 in Paraguay by the NGO Fundacion Paraguay de
Cooperacion y Desarollo, with an issue of $150,000.
12.6
Placement in international markets of financial instruments issued by
microfinance institutions
Certificates of Deposit of BancoSol have been placed in the
U.S. and French markets to premier financial institutions on a strictly
commercial basis. Thus, the world's most sophisticated capital markets
have actually been linked with the promise to pay of a
woman microentrepreneur selling her wares on a street corner in La Paz.
Closing this conceptual loop is a true landmark in the development of
microenterprise finance.
12.7
The securitization of microenterprise loan portfolios
In Ecuador, a model is being deployed to issue into local financial
markets commercial paper backed by microenterprise loan portfolios.
This is scheduled to be implemented by 1997. If successful, this may
constitute an alternative model as powerful as that of formally
chartered financial institutions.
12.8
Establishment of equity and quasi-equity funds to support the
creation of future banks and financial companies that specialize in
reaching the poor
Examples are Pro Fund, a $20 million equity fund in Latin America that
began operations in 1995 with support from various sources, and ACCION's
Gateway Fund, a projected $10 million equity, quasi-equity and lead debt
investment fund.
12.9
To build on these promising beginnings, microfinance leaders and
financial sector specialists must create the necessary facilitating
frameworks and eliminate all obstacles to linking microfinance to
capital markets. Working together, they must identify and resolve key
issues. They must explore issues of regulatory environment, market
imperfections, financial reporting, financial best practices, marketing,
risk management, and credit rating.
12.10
In many ways microfinance represents the triumph of pragmatic
reality over ideology. It is a strategy for reaching the lowest income
sectors, but instead of charity or a safety net, it is an investment in
people's self-reliance. It sets government's role at the beginning of
the innovation cycle, where it can assist civil society to spearhead
initiatives long before they are commercially viable, not to replace the
role of the private sector but precisely to speed its very involvement.
13.0
BUILDING INSTITUTIONAL CAPACITY IN THE DEVELOPING WORLD
13.1
The goal of reaching 100 million of the poorest families with
microcredit is achievable if the flow of necessary funds can be insured,
and if the world-wide institutional capacity can be built to do the job.
Of these two conditions, the challenge of building capacity is the
greater.
13.2
Capacity building must take place in a variety of ways and in
many kinds of institutions. Existing exclusive microcredit programs
like NGOs and poverty banks must be strengthened and expanded, and new
ones must be created. NGOs are known for their ability to respond
quickly to new challenges. International and regional NGOs can create
local counterparts to undertake the task of dispensing microfinance, while
they themselves can become the source of funds, training, technical
assistance and quality control services. NGOs that are not already
active may be drawn into the new world of microfinance. The many
organizations that have some experience of microcredit will be supported
in scaling up.
13.3
Other kinds of institutions also need to be encouraged and
assisted in delivering microcredit to the poorest, including
cooperatives, savings and loan associations, informal/traditional credit
societies, credit unions, and banks of all kinds (commercial,
agricultural, rural, development, and specialized). Local and national
banks need to be motivated to initiate special microfinance departments
and sub-institutions devoted to this specialized type of activity.
Increasingly, as the success of microcredit becomes more obvious, banks
will seek entry to the field. International and regional financial
institutions must be prepared to provide guidance and to point local banks
to sources of quality advice and training.
13.4
As a starting point to estimate the implications of reaching 100
million of the world's poorest people with credit for self-employment, a
model has been developed to understand the scale and scope of
institutional capacity required. The practical experience of FINCA and
Grameen has been used in the development of the following projections.
14.0
The Social Entrepreneur and CEO: A Key Factor in Creating New Programs
14.1
The key factor in creating a new program is to find a committed
individual who wants to accept the challenge and become a social
entrepreneur. These are individuals who are interested in creating
private sector solutions to social problems and who are committed to
building a private sector institution based both on sound business practices
and incorporating values linking it to its social purpose.
Future social entrepreneurs are everywhere, but they themselves are
unaware of their potential. They are found in all segments of society:
business, academics, arts and culture, bureaucracy, professional groups,
international organizations, religious institutions, political activists,
social workers and many other backgrounds. The social entrepreneur may be
already inspired and waiting for an opportunity to begin. Or, the
situation can be exactly the opposite. The future leader may not even be
aware of the existence of such programs or may even be hostile to the
idea.
14.2
Future microfinance social entrepreneurs most often will
discover the idea from a chance exposure through reading an article,
watching TV, or listening to a conference speaker. The movement needs a
systematic plan for publicity and recruitment through exposure and
dialogue programs in order to find and develop the necessary talent as
efficiently as possible. In addition, a training process needs to be
established that will give each candidate an opportunity, within an
enabling environment, to try out his or her talent.
14.3
Commercial and development banks, along with other financial
institutions such as savings and loan associations, cooperatives, and
credit unions can create and expand microfinance programs of their own.
Instead of social entrepreneurs, they will identify specially trained CEOs
for these programs. Recruitment and training of these private sector
executives and their staff is as important as the development of social
entrepreneurs in the NGO sector.
15.0
A Dramatic Expansion of Leaders and Staff
15.1
The experience of successful microcredit institutions suggests that
an average of 10,000 borrowers can be served by each social
entrepreneur/CEO. Therefore, in order to reach the goal of serving 100
million of the poorest families, something on the order of 10,000 social
entrepreneur/CEOs will be needed (see endnote #6).
15.2 T
he social entrepreneurs/CEOs will need trained managers and field
staff to work at the village level. At Grameen Bank one staff is required
to serve 400 borrowers; in the FINCA system, a staff person is responsible
for 300 borrowers. Taking into consideration demographic, political and
social variations in countries around the world, we may conservatively
assume that one staff member will serve 200 borrowers. Assuming this
staff-client ratio, 500,000 fieldworkers will be needed. If one assumes a
drop-out rate during training of 15 percent (Grameen's drop-out rate is 37
percent), the total number of intakes of trainee fieldworkers should be
575,000.
15.3
Based again on experience, it is possible to assume that one manager
or supervisor will oversee the activities of 8 fieldworkers, and this in
turn means that training must be provided to 71,875 managers/supervisors.
15.4
Over ten years this number can be trained in classes of steadily
increasing size:
Year No. of trainees
Field Workers Managers
1996 2,000 250
1997 5,000 625
1998 10,000 1,250
1999 25,000 3,125
2000 48,000 6,000
2001 75,000 9,375
2002 100,000 12,500
2003 150,000 18,750
2004 160,000 20,000
---------- ---------
Total: 575,000 71,875
15.5
Information about the training experience in one country may help
give a picture of current training capacity. In Bangladesh, at least 150
NGOs are engaged in microfinance programs, serving nearly 2.5 million
borrowers (in addition to Grameen's 2.1 million). One NGO, BRAC, serves
over a million borrowers. These NGO's have all created their own training
facilities to carry out their programs. Grameen Bank reached its training
peak in 1991 when it prepared 2682 staff in one year. In 1995, Grameen
Trust and Grameen Bank jointly trained 650 international staff.
16.0
Organizing the Training
16.1
The training process for social entrepreneurs/CEOs will include the
following stages:
Stage 1: Preparation for launching a start-up project;
Stage 2: Preparation for running a start-up program successfully;
Stage 3: Graduating to run a scaled-up project and create a viable
branch/unit.
16.2
Four types of basic training will be needed:
a. Induction training
b. Refresher training
c. Advanced training
d. Specialized training
16.3
In addition to the basic curriculum, training facilities will
periodically need to organize conferences on special issues. Training for
the social entrepreneurs and business executives will be conducted on a
different track from that provided for managers and line staff.
16.4
The following facilities may be created and supported for training of
staff and management:
a. Training facilities within operating institutions
b. National level training facilities
c. Regional training facilities
d. Global training facilities.
16.5
Training facilities must be located in strategic places. There
should be at least ten well-organized, regionally located training centers
to provide quality training to staff and management in the region. At
least five centers of excellence must be created within local operating
institutions to provide leadership in training and to devise and test
innovative methodologies.
17.0
Training Materials
17.1
Materials in several languages are needed to support the training
programs. The international and regional specialized training centers
will need support for the creation and distribution of materials (videos,
audio cassettes, films, software, manuals, publications, etc), and will
train the trainers from localities in the use of such materials.
18.0
Training Cost
18.1
It is safe to assume that 90 percent of managers and field workers
will be trained in their own country by grassroots microcredit
institutions, and 10 percent will receive training outside of their
country at regional facilities.
18.2
In-country Training Cost
Assuming a cost per fieldworker for six months of in-country training at
$1,000; and a cost per supervisor/manager for six months of in-country
training at $1,300:
1. Cost of training for 517,500 $ 0.517 billion
fieldworkers
2. Cost of training for 64,688 $ 0.084 billion
supervisor/managers ---------------
Sub-Total: $ 0.601 billion
18.3
Training Cost at Regional Centers
Assuming a cost per fieldworker for ten weeks of training at
a regional center of $1,500; and a cost per supervisor/manager for ten
weeks of training at a regional center of $2,000:
1. Cost of training for 57,500 $ 0.086 billion
fieldworkers
2. Cost of training for 7,187 $ 0.014 billion
supervisor/managers ---------------
Sub-total: $ 0.100 billion
Total cost of in-country and
regional training: $ 0.701 billion
18.4
Training costs include all operating costs of the training institutes
during the training of managers and line staff. The figures offered above
do not include capital costs necessary to establish the institutes, nor do
they reflect expenditures on training of trainers, designing and
production of training materials, and costs of action-research to
fine-tune training needs. To cover all these items, the total of $ 0.701
billion should be increased by roughly 50 percent. Thus, total funds
required for the global training program are $1.06 billion dollars.
International donors will need to supply most of this amount to the
grassroots programs that will be conducting the bulk of the training.
** A section on building capacity in industrialized countries will be
circulated to individuals and institutions in industrialized
countries by May 20, 1996.
19.0
COUNCIL GOALS
19.1
The Microcredit Summit Councils, with the support of the Microcredit
Summit Secretariat, will be responsible for developing strategies for
fulfillment of the Summit goal including, funding, monitoring progress,
and expanding participation from their respective institutions and
constituencies. Members of the first five councils listed below (19.2
through 19.6) have agreed to arrive at the Summit having prepared their
institution's action plan for helping fulfill the Microcredit Summit's
goal. Other council members (19.7 through 19.17) have agreed to announce
their institution's action plan for contributing to the Summit's goal by
February 1998.
19.2
Practitioners
19.2.1
Develop internationally agreed upon definitions, standards, and best practices
Working with representatives of commercial financial institutions,
practitioners will need to define a common accounting language and format
that can facilitate financial analysis of individual institutions and the
industry. Practitioners will need to develop industry standards and a
process for maintaining those standards.
19.2.2
Collaboration to develop training curricula and programs
Practitioners must be the driving force behind efforts to train staff for
new institutions, and build capacity within existing institutions. Funds
for training can be included as part of start up grants that must be
available from public and private funders.
19.2.3
Development of a plan for growth
Practitioners will map out a plan for their institution's expansion that
will contribute to the goal of credit for self-employment for 100 million
of the world's poorest families, especially the women, by 2005.
19.3
Bilateral Donor Agencies
19.3.1
International aid programs of industrialized country governments
will need to provide a significant proportion of the grants required for
the early years of the life of microcredit institutions in developing
countries (including funding the microcredit institutions themselves, the
training centers and the operating costs of the various microcredit
networks). Red tape associated with application for and monitoring of
grants must be diminished, and start up funds will need to flow through
intermediary institutions that reach the poorest. This should be a
coordinated strategy that operates with significant input from
practitioners. Of the $6 billion needed in grant money, bilateral aid
agencies could provide 66% of these funds, or $4 billion over the next
nine years (an average of $440 million per year).
19.4
The United Nations Family of Grant-making Organizations
19.4.1
Many parts of the United Nations system are concerned in one way or
another with the problem of global poverty and its resolution through
targeted development. While each agency has its own area of
specialization, such as health, child survival and development, women s
welfare, food and nutrition, refugees, etc., they are all aware that
grinding poverty is inextricably linked with virtually all the other
issues of human welfare, as both cause and effect.
19.4.2
The United Nations should, as a family of organizations, declare
the goal of reaching 100 million of the poorest families, especially the
women, with credit for self-employment, as an overriding priority for the
next decade. Each agency should be asked to develop a plan for how it
will promote and support microcredit institutions serving the poorest.
This mandate could be expressed through a variety of strategies, including
reducing red tape and making grants to microcredit institutions for early
operating expenses, loan funds and support for network offices. UN
Agencies could also invest in promising microcredit start-up programs
through the "Micro Start" program being developed by UNDP.
19.4.3
The collective commitment of the United Nations should be expressed
in goals for each agency (e.g. UNICEF, UNIFEM, UNESCO, UNDP, WHO, UNFPA)
that can be devised by teams in each agency and submitted for approval to
the collective leadership of the UN.
19.4.4
UN agencies should commit $.5 billion of the $6 billion in grants
that will be needed over the next nine years (an average of $55 million
per year).
19.5
International Financial Institutions (IFIs)
19.5.1
Sources for low-interest, long term loans
Institutions such as the World Bank, regional development banks, and the
International Fund for Agricultural Development (IFAD) have a pivotal role
to play in providing resources for microenterprise institutions through
their programs that offer concessional loans (e.g. loans which are
low-interest and long term) and loan guarantees. It is estimated that $3
billion in concessional loans from IFIs will be required over the next
nine years (an average of 330 million per year).
19.5.2
Consultative Group to Assist the Poorest (CGAP)
Created in 1995 by the World Bank, CGAP has a significant role to play in
mobilizing grant monies and concessional loans for intermediary
institutions that have proven track records in reaching the poorest.
19.6
Banks and Commercial Finance Institutions
19.6.1
Collaboration with practitioners to determine the set of
characteristics microcredit institutions should have in order to be
considered "bankable"
An international committee of financial experts, bankers,
accountants and practitioners should define those characteristics such as
asset size, equity to debt ratios, and length of track record that will
make microcredit institutions bankable. This committee should define
general benchmarks for the growth of microcredit institutions that need to
be reached for increasing levels of credit to be available.
19.6.2
Development and identification of best financial management practices
Banks and commercial finance institutions should collaborate with
practitioners to identify microcredit industry best practices including:
financial reporting, risk management, accounting, and marketing
microcredit programs to financial markets. They should assist
microfinance institutions in becoming more viable clients by transferring
to them relevant commercial banking technologies, including personnel
training programs, information and accounting systems, and other banking
management technologies.
19.6.3
Extending credit to microcredit institutions at commercial rates
Creating credit lines from banks and other traditional financial
institutions to specialized intermediaries with successful track records
in lending to very poor people both in order to enable the specialized
institutions to expand their microlending operations and for on-lending to
microenterprises.
19.6.4
Developing appropriate instruments to tap both commercial and
socially conscious investment in microfinance
19.6.5
Collaborating in liquidity management of microfinance institutions'
cash flows
19.6.6
Advocate for industry regulation reform
The support of commercial banks for the reforms needed by microcredit
practitioners in order to allow their development into self-sustaining
financial institutions will be critical.
19.6.7
Education of industry peers
Those banking professionals and financial industry leaders who have
already joined the microcredit movement have a critical role to play in
educating the larger banking and commercial finance community about
microcredit, and the opportunities for collaboration with, and investment
in, this emerging industry.
19.7
Corporations
19.7.1
Corporations that are not banks themselves can still play an
important role in the campaign. The Microcredit Summit seeks to create a
strong and committed corporate council to coordinate activity within this
sector and to link it closely to the broader movement. Corporations can
provide grants for start-ups as part of the $1 billion commitment from the
private sector. They can lend their expertise (e.g. accounting,
marketing, public relations) to the microcredit movement and the
institutions and the networks seeking to upgrade their infrastructure and
customer services. Corporations should educate employees and customers
(including through advertising budgets) about microcredit, and advocate
its importance to government officials.
19.8
Non-Governmental Organizations and Credit Unions
19.8.1
NGOs and credit unions are the type of organization most likely to
give birth to new microcredit institutions. Many NGOs and credit unions
have launched microcredit programs over the past two decades. Many more
need to be involved in the creation of microcredit institutions, and those
that are already involved need to rapidly expand their existing networks
and coverage.
19.8.2
NGOs should review their program plans and search for ways to
incorporate microcredit into a steadily increasing proportion of their
anti-poverty operations. However, NGOs moving to incorporate microcredit
as part of their program portfolio must commit to building
self-sustaining, business-oriented microcredit institutions.
19.8.3
NGOs and credit unions should link their microcredit projects with
the global network of practitioners and advocates being built around the
Microcredit Summit so that they may participate in plans for standardizing
the industry, and may benefit from the information and technical
assistance available in these networks.
19.8.4
This shift can be enhanced if the national associations of NGOs and
credit unions (e.g. InterAction in the United States, ACFOA in Australia,
FAVDO in Africa, and the World Council of Credit Unions) encourage
microcredit institutional development among their member agencies. In
collaboration with established microcredit networks (e.g. SEEP Network,
CASHPOR), they should develop a regular schedule of training conferences
designed to educate their member agencies as to the best strategies and
techniques for creating new microcredit programs and institutions, as well
as expanding existing ones.
19.8.5
Of the $6 billion needed in grant monies, NGOs should look for ways
to raise and/or reprogram ___% or $__ million from non-governmental
sources.
19.9
Service Clubs
19.9.1
Service clubs are a valuable means of connecting civic-minded
business people on an international basis. FINCA and other organizations
have already successfully linked service clubs in the United States with
village banks in Latin America. Clubs throughout the world can provide
start-up grants, direct technical assistance (e.g. accounting assistance
from a club member) and moral support for microcredit institutions around
the world. Service clubs should create a goal for the number of
microcredit institutions they will help launch each year. Service clubs
could provide $100 million, or __% of the total amount of private sector
grant monies needed by the campaign.
19.10
Foundations and Philanthropists
19.10.1
Foundations and philanthropists have had a long history of
leadership in the commitment to reduce human suffering. The field of
microfinance as an anti-poverty tool is a dynamic and yet relatively new
phenomenon. For this reason it remains relatively unknown and underfunded
within the foundation field. Foundations should explore how supporting
microfinance will contribute to the fulfillment of their basic mission,
and look for ways to expand the proportion of microfinance within their
grantmaking. Foundations and philanthropists should educate their peers
to do the same.
19.11
Educational Institutions
19.11.1
>From grade school through graduate schools, educational
institutions provide the foundation for what we know and value as a global
society. Educational institutions at all levels should look for ways to
educate the students, their families, their faculties, and their staff
about the potential of microcredit as an anti-poverty tool and the
opportunity for people at all levels of society to contribute to the
campaign of reaching 100 million of the world's poorest families with
credit for self-employment by 2005.
19.12
Religious Institutions
19.12.1
At the core of all major religions is a deep commitment to serving
the poor. The Microcredit Summit provides an opportunity for religious
institutions to educate their congregations on new ways to assist people
in eliminating their own poverty. Leadership from the spiritual community
has been central in most social movements. This must be no less true of
the microcredit movement.
19.13
Parliamentarians
19.13.1
Parliamentarians have a unique role to play in bringing about
societal change. They have the opportunity to educate and inspire their
colleagues, their constituents and the media. The political will to make
change may start at the top or may start at the bottom, but to be truly
lasting it must involve all sectors of society. Parliamentarians will
have many allies in fulfilling the goals of the Summit, but their
leadership in this effort helping to change laws and the regulatory
environment, ensuring funding, highlighting success stories and educating
their colleagues and constituents may be one of the most important
commitments of their political career.
19.14
Domestic Government Agencies
19.14.1
Regulatory change
Through international committees, model legislative provisions should be
created to allow a more favorable environment for microcredit
institutions. The model laws could open the way for mobilizing savings,
removing interest rate ceilings, guaranteeing the repatriation of capital
from other countries, allowing non- collateralized lending, and easing
licensing of financial institutions. These provisions should both insure
integrity of these programs and minimize the bureaucratic hurdles these
programs face. A goal should be set for adoption of this legislation by
sufficient countries to facilitate the spread of institutions to reach 100
million of the poorest households.
Governments and financial institution supervisory agencies should also
enact legislation and promulgate regulations that will provide for a sound
system of depositor protection and promote confidence in all financial
institutions accepting deposits, including microcredit institutions. Such
legislation and regulation should provide for minimum depositor protection
in the form of rapid reimbursement of deposits in the event a depository
institution is deemed insolvent, or provide assistance to those
institutions that are in danger of insolvency.
Supervisory agencies should work with microcredit practitioners to further
develop and establish common international standards regarding performance
and operation of microfinance institutions, including a common rating for
assessing the safety and soundness of such institutions. Supervisory
agencies should recognize the standards established by the microcredit
industry and insure that all present and future standards and regulations
serve to "add value" to the microfinance industry. Governments and
supervisory agencies should enact legislation and promulgate regulations
that will encourage commercial financial institutions to develop
partnerships with microcredit programs.
19.14.2
National and provincial microfinance funds in developing countries
Governments should contribute to the creation of domestic funding programs
and provide adequate funding for microcredit institutions. These programs
should be capable of providing grant funds, concessional loans, and a
supportive environment for the participation of commercial financial
institutions. Central Banks could stimulate linkages between commercial
banks and microcredit programs by providing a line of credit to commercial
banks for on-lending to microcredit programs.
19.14.3
National and provincial microfinance funds in industrialized countries
Ways must be found to make concessional loan funds available to
microcredit programs in industrialized countries.
19.15
Heads of State and Government
19.15.1 As we move into the 21st century, one of the greatest factors
contributing to national instability and civil unrest is the widening gap
between rich and poor. Fulfilling the goals of the Summit is the greatest
single intervention known for resolving this disparity. During the 1980s,
there was an unprecedented expansion of childhood vaccination rates in the
developing world. The jump from 25 percent vaccination rates in the early
1990s to 80 percent at the end of the decade has helped save the lives of
tens of millions of children. Heads of state and government played an
significant role in this success, launching vaccination campaigns and
getting personally involved.
19.15.2
The direct involvement of governments in administering
microfinance programs has usually led to the politicization of the program
and disastrous results. Governments must be supportive without being
overbearing. Heads of State and Government can educate their nations and
other heads of state and government. They can listen to practitioners and
borrowers and push for the policy changes needed.
19.16
Media
19.16.1
The media have a responsibility to report on the positive
developments in human affairs as well as the catastrophes. While the
steady growth and success of microcredit institutions may not be the stuff
of headlines, it merits regular coverage in print and electronic media.
19.16.2
A committee of media professionals will be organized to develop a
strategy for media coverage of the microcredit movement. This could
include things such as site visits to projects for professionals, reports,
awards for excellent coverage and specialized briefings and seminars.
19.17
Advocates
19.17.1
The primary role of the advocacy movement is to overcome the most basic
constraints: the fear of failure, regulatory restraints, and the
lack of awareness. This can be done through a dramatic presentation of
the programs that have succeeded and the lives that have been transformed
through program participation. The movement will need to develop a media
penetration strategy to greatly increase public recognition of the
importance of microcredit, to raise funds, and to create a favorable
public policy climate. Institutions who are members of the Microcredit
Summit Council of Advocates will be called upon to support the Summit goal
through fundraising, education, advocacy, policy development and research.
20.0
THE ROLE OF THE SECRETARIAT AND THE CAMPAIGN COMMITTEE
20.1
The Microcredit Summit has established councils for each of the above
sectors in order to commit to strategies, monitor progress, and advocate
for change within their respective institutions and constituencies.
20.2
The Microcredit Summit will establish the Microcredit Summit 2005
Campaign Committee. The Campaign Committee will include the chairs of all
councils: practitioners, donor agencies, UN Agencies, international
financial institutions, banks and commercial finance institutions,
corporations, NGOs, service clubs, foundations, educational institutions,
religious institutions, parliamentarians, domestic government agencies,
advocates, media, and heads of state and government.
20.3
RESULTS Educational Fund will function as secretariat for the
Microcredit Summit 2005 Campaign Committee. The Microcredit Summit
Secretariat carries the responsibility for overall organization and
monitoring of the unified effort, and publishing an annual score card to
measure progress made. The Secretariat will recognize those organizations
and individuals who are making outstanding contributions and will point
out areas where progress is falling behind schedule.
ENDNOTES to Plan of Action
1.) World Bank, regional development banks, IFAD
2.) While programs in developing countries will require subsidies
inthe from of grants and donations in the early years of growth, they
will be expected to charge interest rates to their clients sufficient
to allow for self-sufficiency to be reached within seven to ten
years. It remains undemonstrated whether or not microcredit programs
in industrialized countries will be able to reach self-sufficiency.
3.) Launched in June 1995, CGAP currently has over a dozen members
from among donor agencies and the regional development banks. CGAP's
core objectives are to: (i) strengthen donor coordination in the field
of microfinance; (ii)_ increase learning and dissemination of best
practices for delivering financial services to the poor on a
sustainable basis; (iii) mainstream microfinance within World Bank
operations; (iv) create an enabling environment for microfinance
institutions; (v) support microfinance institutions that deliver (or
are capable of delivering) credit and/or savings to the very poor on a
sustainable basis; and (vi) help established providers of microfinance
to assist others start such services in under-served regions.
4.) Policy Advisory Group Members include: Muhammad Yunus, Grameen
Bank (Chair); Kamardy Arief, Bank Dagan Nasional Indonesia; Nancy
Barry, Women's World Banking; Ela Bhatt, Self-Employed Women's Association;
Renee Chao-Beroff, Centre International de Developpment
et de Recherche; Martin Connell, Calmeadow; Klaas Kuiper,
International Agency for Economic Development; Kimanthi Mutua, Kenya
Rural Enterprise Program; Maria Nowak, Caisse Francaise de
Development; Maria Otero, ACCION International; Lawrence Yanovitch,
Foundation for International Community Assistance (FINCA).
5.) CGAP's policy Advisory Group has defined the poorest as those
people inthe bottem fifty percent of the people living below the
poverty line established by each country.
6.) These indicators of scope reflect institutional averages. The
staffing and organizational models underpinning these numbers need
not be interpreted literally. This model is offered as a basis for
determining the dimension of staffing anf organizational needs
required in order to achieve the Summit's goal.
This post transferred from the cdb-l mailing list