MicroStart Programme :
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About MicroStart
Overview
Together with SUM, 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, which enable them to reach poor clients while operating on a sustainable basis.
Since its inception in 1997, MicroStart has become operational or is being developed in 20 countries, and grants have been approved for 68 microfinance institutions (MFIs).
MicroStart also aims to improve the practice of microfinance within the UN system by establishing guidelines, providing technical assistance, and promoting training and learning opportunities that incorporate best practice in the field. The programme has been developed in response to demand from UNDP Country Offices for a practical and operational product to assist them in the delivery of quality programming to a well-defined niche in the evolving field of microfinance.
A MicroStart
project consists of two integrated components:
- A technical services component to the local recipient organizations. The MicroStart strategy centers on the belief that organizations can benefit from a three-year technical partnership with an experienced practitioner. MicroStart provides technical assistance to start up and young, promising institutions that are entering the field of microfinance, or that develop new products to microfinance clients, even within older and well-established organizations. Providing services to this dynamic market niche takes many forms and requires an equally dynamic but well-established support system for building local institutional capacity. The MicroStart programme contracts the services of experienced microfinance service providers and consulting firms, 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 during the course of a MicroStart project.
- A MicroCapital
grant component in which one or several of the most promising
local organizations receive grants of initially US$ 150,000
per organization in seed capital. Grants are made in tranches
based on MFIs meeting performance standards. 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.
Programme features
- MicroStart has developed innovative ways to assist local organizations and start-ups with tangible tools such as a performance-based online reporting system for the participating TSPs and MFIs, a handbook for TSPs and project partners, and the MicroStart: A Guide for Planning, Starting and Managing a Microfinance Programme (opens in new window). The MicroStart Guide draws upon the lessons of over twenty years of experience of leading microfinance organizations and practitioners from the North and the South. The Guide has been translated to French, Arabic, Chinese, Spanish and Portuguese.
- Another innovation is a simplified process for contracting best practice expertise in microfinance. In an international bidding process, SUM established a shortlist of more than 35 TSPs that are available for contracting at a standard fee of up to US$ 500,000 over a three-year period. This 'one stop shortlisting' process saves each of the participating Country Office and TSPs from having to go through an international competitive bidding process.
- Each MicroStart programme in a country has a MicroStart Approval Committee, established by the UNDP Resident Representative and comprised of representatives of NGOs, the private financial sector, a government focal point, UNDP, and donors working in the country. This advisory board approves the selection of partner MFIs that have been identified by the TSP, reviews and approves the MicroCapital grant proposals, monitors performance of all parties including UNDP and SUM, and contributes to policy dialogue and capacity building in the local microfinance industry by connecting significant players in the local microfinance industry.
The global MicroStart programme was favorably evaluated in a Mid-Term Evaluation in 1999, and based on the evaluation, SUM developed an Action Plan [ pdf ] to implement the evaluation's recommendations. Detailed results through March 2002 are reported below.
MicroStart Partner Organizations
MicroStart's chosen niche is distinct from, and complements that of other donors. MicroStart is aiming at supporting "breakthrough" organizations. A breakthrough is defined as an organization that becomes a major service provider in its geographic area, attaining substantial independence from donors through financial viability and influencing other providers. 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. Worldwide, microfinance institutions have been successful in reaching the very poor by lending to solidarity groups, through village or community banks and directly to individuals. 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.
Financial Support to MicroStart
Financial support to MicroStart has come from a number of sources. UNDP country programmes initially started based on a 'buy-in' from UNDP Country Office funds. More recently, financial support has come a number of additional sources. Investors include Citicorp Foundation, UNDP's regional bureaus (UNDP Africa and Arab States), the United Nations Foundation, the Netherlands Government, the Canadian Government, the African Development Bank, the Finnish Government, the Australian Government, the United Nations Capital Development Fund (UNCDF) and the host governments where MicroStart operates. In June 2002, accumulated resources mobilized total US$ 48,515,121.
UNCDF/SUM is mobilizing additional resources to expand the programme to new countries and to provide funds to top-performing MFIs of existing programmes. Expanding to a new country normally requires a budget of US$1.6 million. Donors may indicate country preferences, and participate in joint country appraisals with UNCDF/SUM staff to assess the viability of an investment.
Results through the end of 2003
Through MicroStart, UNCDF has partnered with UNDP in 20 countries, half of which are LDCs. Collectively, by end-2003 the 73 MFIs that received assistance had increased by over 400,000 their active clients and made significant progress towards sustainability during the period of support. The MFIs have increased from a baseline of 141,414 to 543,733 active clients, an increase of more than 400,000. Women account for 92.7 per cent of these clients.
2003 has also seen an increasing number of 'breakthrough' MFIs (1). Gains in sustainability are also emerging. It is generally accepted that it takes an MFI three to five years to reach operational self-sufficiency. At the end of 2003, for programmes currently active, the length of time operational averaged only two years. Yet it is very encouraging that of the 32 active MFIs, sixty-six percent (66%) demonstrated clear progress towards operational self-sufficiency, of which, 18 MFIs (56%) have already achieved it. In addition, 21 MFIs (66 %) had a portfolio at risk (PAR) at 30 days of less than five per cent.
Not captured in these results are the many 'graduate' MFIs that continue to significantly increase their outreach. For example, Zakoura in Morocco grew from 2,000 to 38,000 clients during the period of MicroStart support, yet has since grown to serve over 100,000 active clients in the two years after programme support. More about Zakoura and other 'breakthroughs' follows:
Morocco: The importance of breakthroughs and competition: The MicroStart programme in Morocco invested $1.5 million among seven MFIs. However, of the total outreach of 40,723 new clients achieved within three years of the programme's support, 34,830, or 86% of this added outreach came from Zakoura as it grew from 2,000 to 36,830 active clients while achieving financial self-sufficiency. Moreover, although the monetary value of its assistance from MicroStart was only $215,000, Zakoura had increased the value of its loans outstanding from $300,000 to over $5,000,000 during the course of the programme, financing this growth largely by borrowing from commercial sources. The mid-term evaluation found that "Evidence of MicroStart's influence abounds at Zakoura. Thus, while one would judge Zakoura as a strong organization with good management, it has made productive use of the learning available through MicroStart…In fact Zakoura was far from a top-performing organization at the beginning of MicroStart (and still has a long way to go). The key is to learn to distinguish between 'small and promising' and 'small and weak' (i). A year later, after the end of programme support, Zakoura was serving 80,000 active clients, with plans to continue growing. A key factor helping to drive this growth was stiff competition from Al-Almana, the other leading MFI in Morocco with roughly the same number of clients.
Mongolia: A Pure Start-Up: The programme initially worked with two multi-purpose NGOs that wanted to pilot credit services. However, these two NGOs quickly realized that microfinance would consume all of their internal management capacity, should they continue. Preferring to continue their range of services, arrangements were made with UNDP and UNCDF for these NGOs to divest of the grants received, and to set up a new institution, dedicated to microfinance. The demonstration of 'show how' by XAC, this pure start-up that achieved financial self-sufficiency within a very short period of time, of 18 months with an initial, small investment of $1 million. According to the Central Bank, previous donor programmes with much larger budgets had not succeeded to develop sustainable microfinance. After starting operations in August 1998, by March 2001 XAC's share of total loans of the financial sector of Mongolia reached 28.5 percent. Inspired by the X.A.C. success, the number of other financial institutions involved in micro and small lending increased. The MicroStart technical advisor worked with the Central Bank to develop the initial framework for microfinance institutions to be registered as both a non-bank financial institution, and a commercial bank. After X.A.C was the first MFI ever to be licensed by the Bank Of Mongolia, six (6) more financial companies were licensed by the end of 2000. The expansion of capacity thus came from both the scaling-up of XAC, and new entrants. The increased competition is creating the necessary environment for healthy development of the microfinance industry, driving to improve corporate governance, to increase the variability and quality of financial services. (ii)
Kenya: The importance of product development and a powerful MIS: In Kenya, through support from MicroSave and MicroStart, Equity Building Society increased from 9,033 to 35,076 its active borrowers in just two years, while increasing the number of active savers by 84,981. Understanding the Re-birth of Equity Building Society in Kenya concluded that, "In terms of quantitative and visible impact, perhaps MicroStart's partnership in helping to establish Equity's MIS could have had the greatest impact. This particular development assistance could be seen as a truly strategic contributor to Equity's overall, albeit recent success. It would also be safe to conclude that the recent assistance by MicroSave-Africa and Swisscontact with market research for product refinement and development has played a significant role in strengthening Equity's customer-oriented strategy and focus. However, since this intervention is relatively recent, its full impact cannot be ascertained." See www.microsave-africa.com
Guatemala: Partnerships with Commercial Banks and Technology: In Guatemala, through technical assistance from PRODEM (Bolivia), two commercial banks are reaching further down to a poorer clientele. Banrural has increased its active microfinance clients from 22,469 to 34,261 in just 15 months, and BanCafe from zero to 10,754 in just one year. Banrural's portfolio growth and its continued focus on the micro and SME market have been supported by the project through the introduction of new technology, such as digital fingerprinting and Pocket computers. By introducing the digital fingerprinting system, purchased from and developed by Innova, Banrural has been able to circumvent the illiteracy barrier and expand its outreach to remote areas and offer services to a larger number of indigenous clients. The pocket computer is expected to reap large benefits in terms of cost-efficiency.
The introduction of the technology was first pilot-tested in Zona Paz, an indigenous area in the west of the country that has borne the brunt of the civil conflict. After a successful trial period, the technology is now being rolled out in 190 branches (1st phase), to be followed by application in all 250 branches (2nd phase).
Pakistan: Partnership with CGAP to support a Potential Breakthrough MFI: Based on a country assessment, SUM decided that the strongest potential investment in Pakistan was in Kashf Foundation. Based on the strength of Kashf's management, SUM made available $300,000 in general resources to Kashf to be used to meet specific performance targets jointly negotiated with CGAP. Kashf has increased its active microfinance clients from 10,188 to 62,929 in two years. Kashf has maintained excellent portfolio quality (PAR @ 30 days of 0.1%), and its financial self-sufficiency has increased from 75% to 127% during the project period.
1 A breakthrough is defined as an organization that becomes a major service provider in its geographic area, attaining substantial independence from donors through financial viability, and influencing other providers.
i MicroStart: Finding and Feeding Breakthroughs, Mid-Term Evaluation, UNDP/UNCDF/SUM, Elisabeth Rhyne and Jill Donahue, December 1999, p.13.
ii "The Introduction of Microfinance in Mongolia: XAC", Presentation by former Deputy Governor, Central Bank of Mongolia, to the Global Meeting on Promising MFIs, UNCDF/SUM and UNDP Africa, U.N., NY, June 2001.
