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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 14 / July 2005 |
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Voices of Microfinance
In 2004, donors spent US$117 million on microfinance in the Middle East and North Africa. Q. Has the quality of financial services improved as a result? What more will it take to build inclusive financial sectors in the region? Editor's Note: Respondents were divided on the question of donor effectiveness in the region. Some felt that donor funds had been distributed according to political priorities, and suggested that funding should go directly to local institutions. One thought that accomplishments in the region should be credited to the indigenous microfinance sector, while another called donor impact “minimal” in helping countries broaden their financial sectors. On the other hand, some respondents were positive about improvements in the industry, specifically citing the technical support provided by donors as a cause of “remarkable” development in institutional capacity and calling donor involvement essential to building infrastructure. Suggestions of what more needs to be done included innovative product development, institutional development, and improving information technology systems. What is certain is that whether donor efforts to date are seen as successful or not, US$117 million is a lot to spend on a relatively small number of clients.[1] Expectations and accountability for results should be extremely high. *Thank you to all those who contributed their expertise to provide valuable insight into this question. The amount donors gave to the MENA region for microfinance, which is about US$117 million, was not distributed equally, according to the demographical distribution and levels of poverty, but rather according to the political inclinations and relations between the countries of the donors and target groups. That is why some countries were highly favored without linking the success of these programs in reaching poor people to performance evaluations and impact studies. We suggest that donors give their grants to the indigenous sector, not the governments, and put conditions on the governments to provide more freedom and facilities for the indigenous societies and financial companies to implement in accordance to terms agreed on between the donors, the governments and the target groups. Donors should also develop the legal frameworks in the countries of the region, periodically evaluate performance, and link continuation of support with implementation stages. The primary focus should be on training and qualification programs for rules and regulations of microfinance on all the levels - from decision makers to the technical staff and target groups. They should make use of successful pilot projects in the region, which fit the prevailing cultural, social and religious heritage.
Abdulrazak Duksi
During the past ten years, the microfinance industry has witnessed a remarkable improvement in the institutional capacities of individual microfinance institutions (MFIs), especially for non-governmental organizations across Africa and the Middle East. Technical support from the international community has improved the quality of services offered by MFIs. However, when it comes to building inclusive financial sectors, many challenges arise such as whether the legal regulations for MFIs preclude some of them from offering needed financial services. The sector needs to overcome such a limitation. Other challenges include whether the formal financial system in a given country recognizes how microfinance can benefit a national economy and create a conducive infrastructure for services; whether or not the current services provided by MFIs are customer-focused; and whether the array of services offered are responding to all the financial needs of clients. The above challenges require attention at the policy, legal, and institutional levels and should be well coordinated between local governments and international agencies.
Magdy M. Moussa
There has been some change in the quality of the financial services as a result of the monies spent by the donors in Middle East and North Africa, but a lot more could have been achieved by changing some things. 1. There should be standard guidelines to qualify for the funds. 2. The funds should be dispersed from a common pool and there should be linkages when microfinance funding is made in the recipient countries as a result of bilateral agreements. 3. The recipient countries should strengthen their legal system to ensure that the funds are not abused. The accounts should be audited by auditors from countries independent of the recipient country or the donor countries. 4. The governments of the recipient countries should guarantee all the monies but there should be no interference in the disbursement of funds for political gains. 5. Donors should not use these funds to exercise undue influence over the recipient countries and pressure them into doing or not doing something to suit their global agenda. 6. Microfinance matters should not be in the domain of religious, political or economic groups with strong convictions and used by them as vehicles to propagate their cause, say for conversion, unflinching or covert support and commercial advantage. Overall, much needs to be done by both donors and recipients.
Dr. Devendra S. Kunwar
Accomplishments in microfinance are undoubtedly due to the overwhelming success of indigenous microfinance product development, where methodologies and delivery models assume secondary roles. The fact of the matter is that microfinance, by virtue of its substance, is a bottom up approach as opposed to a top down supply driven program, thus indicating that microfinance has to be cultivated as a seed to assume its broader role of delivering true value of financial services to poor people. Most of the microfinance programs designed by donors have multifaceted objectives, even though they focus on the core issues of microfinance. If in-depth impact evaluations are conducted vis-à-vis donor investment in various components of microfinance programs (i.e., management, governance, methodologies and service structure, etc.), one wonders what would be the eventual benefit of such huge investments in delivering the right value to the poor settling at the end of the queue?
Tahir Ali Shah
In the Middle East and North Africa today, we have microfinance institutions that have expanded the quality of services by offering innovative services such as working capital financing, international fund transfers, small infrastructure financing and risk management facilities. To sustain this improvement in the context of a challenging social and economic environment, it is important to further improve information technology systems in order to create internal capacity and to increase collaboration with local social and economic stakeholders. Numbers of future products that can really help MFIs' clients and improve MFIs' profitability need strategic partnerships for their design. For example, new products related to the improvement of health, education, and other small infrastructures need knowledge-sharing from diverse institutions to succeed. Of course, the mainstream financial system in each individual country must understand that its partnership with MFIs is equally important in order to create a viable economic landscape propitious to business.
Placid Dingue
Yes, donor capital has contributed significantly to the improvement of financial services. This injection of resources has funded several critical capacity-building programs, including a credit bureau pilot that will allow MFIs to more closely track loans and manage risk, while allowing clients to build a credit history; the first Grameen Arab Dialogue which took 43 regional practitioners on a training visit to the Grameen Bank; and the new Arabic Microfinance Gateway, which will serve as a hub for microfinance training and resources for Arabic-language speakers. This building up of infrastructural capacity is critical in helping MFIs efficiently absorb the capital. As funding continues to flow into the region, it is critical that donors and practitioners work together. Better coordination will benefit the entire industry by fostering more effective service delivery. Only then, will we have the greatest possible impact on poverty in the region.
Heather Henyon and Sherine Mahmoud
The microfinance sectors established in the Middle East and North Africa have helped people in the region who are struggling to survive the harshest effects of globalization and poverty. Good policies and projects for development have been initiated, especially in North Africa. I believe the people are working their way to the top now.
Henry Ekwuruke
Targeting clients coupled with innovative product development is very important to build inclusive financial sectors. One will need to see which clients are not being reached by other financial service providers such as banks, housing companies, and insurance companies. This will allow the clients who had been left out of the scene the opportunity to come on board. Laws and regulation frameworks have to exist to offer a fair playing field for providers. Capacity building and institutional development is necessary for the operators so that they can profitably operate. This will also help them to think of sustainability mechanisms. Incentives for operating under difficult circumstances will need to be considered as well. Partnerships are also key ingredients in building inclusive financial sectors. This is because various sectors are interrelated and no one sector can be sufficient without the influence of other sectors. Generally speaking, while capital is very important in enhancing provision of financial services to the people, the above factors among others are also key.
Dorothy Nduku
Donors are becoming less successful in helping developing countries broaden their financial sectors. The impact of the assistance has been minimal in most cases. It is high time that donors should revert to direct service delivery, i.e., come and do it for themselves with the direct involvement of the targeted beneficiaries, rather than concentrating on mission evaluations. Donors must realize that the opportunity cost of intermediaries (government/NGOs) to the targeted beneficiaries, especially poor people, is very expensive in many respects. In most cases, what is left over after missions and evaluations is intended to be scrambled by the targeted beneficiaries, which results in the failure of projects and programmes intended especially for poverty alleviation in many developing countries. Thorough impact assessment and involvement of the targeted beneficiaries in the design of projects are fundamental prerequisites for projects to impact on their desired objectives and goals.
Sako Mboge
(1) There were 710,00 microfinance clients in the Arab region at the end of 2003. Brandsma and Burjorjee, “Microfinance in the Arab States: Building Inclusive Financial Sectors,” 2004, p.19.
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