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"MicroStart: Finding and Feeding Breakthroughs" : Table of Contents
Midterm Evaluation
Prepared for UNCDF/SUM
10 December 1999
Elisabeth Rhyne and Jill Donahue
Foreword
The MicroStart Global Pilot Programme
Context:
Global demand for microfinance services is estimated to be 500 million households. Currently only 2-5% of these households are reached by microfinance programs. Microfinance practitioners agree that the biggest single constraint to reaching this potential market is not capital, but the lack of institutional and human capacity to deliver services. To meet global demand, new institutions must initiate services, and young and promising institutions must dramatically scale-up their activities.
UNDP launched the MicroStart programme in February 1997. The purpose of the MicroStart Programme is to build a new generation of MFIs that have transparent track records and solid institutional and financial performance. Since its inception in 1997, MicroStart has become operational or is being developed in 20 countries, and grants approved for sixty-three [63] microfinance institutions.
MicroStart Country Programmes:
MicroStart provides technical assistance to start up and young, promising institutions by contracting the services of experienced microfinance service providers, most of whom are from the South. These technical service providers [TSPs] are organizations that have achieved a level of success in their own countries, and are contracted by UNDP Country Offices to work in the participating programme countries. TSPs are given the responsibility of identifying the most promising microfinance institutions in that market, preparing business plans, grant proposals, and providing the technical assistance. Grant proposals are approved by a local advisory board comprised of representatives from the private financial sector, NGOs, and donors. UNDP and the Government co-chair the board. These grants, initially up to $150,000 per organization, are provided to MFIs as a complement to technical assistance. Grants are used by MFIs to purchase fixed assets, such as computer and MIS systems, to cover a percentage of operational costs for a limited time, or as a complement to the organization's own loan funds, other donors' grants or as leverage for commercial loans.
MicroStart works with a variety of institutions to establish or strengthen microfinance operations, including specialized NGOs, credit unions, banks, and multi-purpose institutions. When an organization provides other services, the microfinance services are separated from other operations and are treated as a separate cost center.
Young organizations
can institute best practices from the start. Practices that are important
for young organizations to develop from the outset, include setting
interest rates to cover the full cost of delivering the service, maintaining
low levels of delinquency, aiming for "zero default", providing
a streamlined service that minimizes costs, and developing accurate
and transparent reporting systems. Implementation of these practices
will enable young organizations to move toward self-sufficiency.
MicroStart's principles of operation are methodology neutral. World-wide, microfinance institutions have been successful in reaching the very poor by lending to solidarity groups, through village or community banks and directly to individuals.
Financial Support to MicroStart:
Critical initial support to launch this global pilot came from the Finnish Government and UNDP's global resources. Support to build regional linkages has come from the regional bureaus [UNDP Africa and RBAS]. MicroStart country programmes initially started based on a 'buy-in' from UNDP Country Office funds. More recently, financial support has come from the United Nations Foundation, the Netherlands Government, the African Development Bank, the Finnish Government, the United Nations Capital Development Fund [UNCDF] and the host governments where MicroStart operates. Collaborative efforts are underway with other bilateral and multilateral agencies.
The Special Unit for Microfinance [SUM]:
The Special Unit for Microfinance (SUM) was created by the Administrator of UNDP in August 1997 as a co-directed special unit with the aim of bringing together the growing work of UNDP in the area of microfinance with the established credit and microfinance portfolio of UNCDF. During 1999, the SUM joint directorship developed a proposal to formalize this arrangement, and this was endorsed by the UNDP Administrator on 15 September 1999. SUM, as a global unit, will continue to serve UNDP's microfinance portfolio, including those countries outside of UNCDF's geographic focus. SUM's website, located at http://www.undp.org/sum, provides information on microfinance, technical notes and SUM's activities.
SUM's chosen niche is distinct from, and complements that of other donors. Many donors target their investments in more advanced, lower risk organizations that have already developed an institutional capacity to reach scale and have reached, or are on the verge of reaching, operational self-sufficiency. It is here that donor and private capital allows organizations to expand scale and depth of outreach, while reaching higher levels of self-sufficiency. In 1998, SUM made a strategic choice to provide support to the specific market niche of start-up and "young and promising" institutions, including those institutions that aim to develop new products and services. This strategic choice was based on a number of factors including, the views of leaders in the field, Consultative Group to Assist the Poorest [CGAP] members and leading practitioners; and, the resources and capacities of UNCDF and UNDP.
Acting on the Recommendations of the Evaluation:
The evaluation notes numerous recommendations that could sharpen the programme's focus, restructure technical relationships and improve the quality of performance. This mid-term evaluation will serve as both the basis for reorienting current programmes and the foundation for all new programming. We are grateful to the authors, Dr. Elisabeth Rhyne and Jill Donahue for their guidance.
Henry Jackelen
Director, SUM
24 February 2000
