Mr. Chairman, members of congress, distinguished guests.

On behalf of the United Nations Development Programme I am grateful for the honor to place on record our evolving experience in microcredit and microfinance in the area of capacity building and institutional development.

For over 40 years capacity building has been the central theme and mandate of the agency I represent. UNDP’s global network of 134 Country Offices working in over 160 countries is at the forefront of building capacity for poverty eradication, private sector development and the environment. In addition to working with Governments, UNDP is increasingly focusing on Civil Society, NGOs and the private sector. Our work in microfinance and the programme I will be presenting is an example of this.

THE CONTEXT

Before discussing our programmes in this area let me make a few comments on the state of the microfinance sector. First of all, we appreciate and support your work in placing microfinance within the context of basic human rights. Evidence is ample that basic financial services should be available to all people. Certain in this is the basic right to deposit and accumulate small, even miniscule, amounts of capital that remain safe, retain value and appreciate over time. Certain also is that this service should be confidential and respect the equal rights of women to hold these accounts.

Equally important is that all citizens be able to access credit services (microcredit) on terms that are fair and sustainable both to them as well as the institutions vital to the provision of these services. In other words, microcredit should be available to all who have the ability to reimburse their obligations. Moreover, the institutions providing these services need to do this in a way that allows them to be independent, viable and vibrant institutions, valued by their clients and able to survive and grow on the long term.

Many decades of subsidized credit targeted to poor people in virtually all regions of the world have demonstrated how these resources do not reach the intended client, develop "non-repayment" cultures, create state dependent institutions and consequently undermine the establishment of a sound financial sector.

Over the past 20 years, microcredit, small unsecured loans to poor people (starting at values as small as $10 –50) at sustainable rates of interest, has challenged the conventional wisdom on poverty. Most strategies over the past 50 years have been based on an understanding of the poor as "victims"; an understanding used to justify complex endeavors often with heavily subsidized rates of interest. Microcredit can only be sustainable based on treating the target population not as victims or even beneficiaries but as customers; customers who have rights as consumers and need to be respected as such.

Microcredit has opened an entirely new way to envision the poor: as a vast market deserving of service on their terms. The clear and unimpeachable evidence from virtually all corners of the world is that the poorest will pay a reasonable price that can support sustainable financial (in particular credit) services.

In an age of shifting paradigms, the "client paradigm" exemplified by successful microfinance institutions has the potential to reinvent and re-engineer the use of subsidies to leverage private capital in a catalytic and synergistic manner for the eradication of poverty. However, microfinance is in its infancy in most countries and the lack of capacity to provide these services on a scale commensurate to the need is the central challenge we all face.

As has been stated by my colleagues, some estimates show that there are over 7,000 institutions around the world who are attempting to deliver sustainable services in this area. A vast majority of these organizations are incipient microfinance institutions (or Micro Banks) with less than 3,000 clients. To illustrate this it is useful to understand that as few as 20 of the largest organizations working in this sector may represent as much as 80% of all clients benefiting from these services.

Here it is central to note that the vast majority of the 20 well known institutions were at one point zero based start ups who often struggled but were able to learn, adapt and grow with their intended market. Grameen started with a very small amount of capital in 1976. By 1984, the first year it became a bank, there were 60,000 clients. Today, as you know, there are 2.3 million clients. Ten years later on the other side of the world in Bolivia, Banco Sol originated as an NGO which from a zero base in 1986, it now has over $100 million in assets and has been able to issue paper on the international market. So, the expression "great things can have small beginnings" is more than appropriate for microcredit.

With this and the capabilities of our organization in mind we devised our lead programme for institutional development and capacity building in microfinance; MicroStart.

Return to top of page

THE UNDP MICROSTART PROGRAMME

This programme, developed in consultation with donors and practitioners, is focused on incipient microfinance institutions (0-3,000 clients) and seeks to provide capital and technical support to those which have characteristics to become "winners" and achieve breakthroughs.

The central premise driving the programme is two fold:

1. For the microfinance sector : that the daunting challenge of providing services to a potential market of 500 million households living near, at, or below the poverty line requires breakthroughs and innovations from new and start up institutions. Institutions which initiate operations based on the evolving set of best practices in the field and bring new ideas and approaches which become viable products and services to this market.
2. For UNDP: that our organization with its global network, commitment to poverty eradication and established ability to manage capacity building efforts of all sizes, is ideally suited to work for this market niche.

MicroStart was the only major donor initiative launched at the Microcredit Summit on February 2, 1997 by the Head of our organization as a global pilot programme for 25 countries. MicroStart is designed to support as many as 200 start up and fledgling institutions around the world. As of this month, 20 countries are in various stages of implementation and over $30 million is being invested from a broad variety of public and private sources. More importantly, some 50 organizations have been identified or are already receiving financial (microcapital grants of up to $ 150,000 per institution) and technical support and mentoring from more than 10 of the leading microfinance institutions in the world who are our technical partners in this endeavor. I am very pleased to have with me one of these organizations, Save the Children, who is responsible for supporting 5 organizations in Morocco, the first country to become operational under the programme.

Mr. Chairman,

Our practical experience, not only with this programme but with the other activities we have in the area of microfinance, allows me to raise two central concerns because there is a real risk that many will come to see this promising and vital service as a panacea.

1. We must take care that the justified and growing interest in microfinance does not lead to government driven institutions attempting to deliver these services. As successful as such efforts can be on the short term they inevitably succumb to political agendas that run counter to basic principles of sustainability.
2. We must understand that the business of building capacity is a long and expensive process. However, when successful it is more than worth it. Few donors would complain that the well over $100 million in grant and soft loan capital that was invested in Grameen was a poor decision. This seed capital has rotated many times in the billions of dollars of cumulative lending provided. It is vital that all interested parties understand that patient capital is required and that eventually the private sector must play a central role in the future of this evolving industry.

While the MicroStart programme is still in early phases of implementation, some early achievements are very encouraging and worth sharing with this committee.

In Mongolia (the second country to become operational), for example, four organizations supported by UNDP joined forces to create a joint venture which holds great promise to evolve into a sustainable, private and profitable institution. In Bahrain, the programme has played a catalytic role in getting the Government to transfer resources from direct give-aways to investing in sustainable institutions. In Egypt, the government is using the programme as a means to insert best practices in the large Social Fund which currently operates with more politically driven strategies. In Haiti, the programme will seek to incorporate literacy and training appropriate to the poorest segment of the population.

Final considerations

Microfinance has great promise. However, it is an "infant industry" comprised of mostly struggling institutions providing (mostly) credit services. There is growing evidence that perhaps a more important service than unsecured small loans for the poorest would be savings, insurance and even pension systems able to radically improve material and personal security.

These additional financial services combined with the already proven service of unsecured small loans can allow us to progress from microcredit to microfinance where customers have the range of choice and quality which allows them the ability to become full economic citizens in a global economy.

Thank you Mr. Chairman and I would now like to hand the floor to Mark Eddington who will finish the balance of my time with examples of the institutions being supported.

Return to top of page

ANNEX

Special Unit for Microfinance Programme Description

July 1999

Brief summary

According to some sources, there are approximately three billion people in the world who live on less than $2 a day. For these people, the possibility of securing a loan of any kind is virtually impossible. However, in recent years the rapidly evolving field of microfinance has given millions of people access to unsecured loans so that they might undertake moneymaking enterprises of their choosing. Although funding for microfinance projects has been forthcoming, it is widely agreed that the main constraint to its effectiveness is the lack of trained microfinance experts capable of designing and implementing successful microfinance programmes.

 

In 1997, the UNDP established the Special Unit for Microfinance (SUM) which aims to bring together the growing work of UNDP in the area of microfinance with the established credit and microfinance portfolio of United Nations Capital Development Fund.

The UN Capital Development Fund’s (CDF) investments in microfinance focus on rural areas in the poorest countries. CDF seeks to extend the frontier of microfinance to help demonstrate the feasibility of sustainable microfinance in remote and difficult to reach areas, particularly in Africa. The CDF portfolio Since its creation in September 1997, SUM has been supporting CDF microfinance activities. It has initiated or supported project formulation exercises in Palestine, Haiti, Nicaragua, Mozambique, Madagascar, Malawi and Western Africa (Mali and Mauritania).

A large part of SUM’s mandate is the development and support of the MicroStart Global Pilot Programme, a mechanism that supports microfinance institutions that in turn offer small-scale loans of between $50 and $500. MicroStart was developed as a "buy in" programme whereby Country Offices and other partners invest in building the initiative locally to support with capital and technical assistance start up or fledgling organizations providing credit and savings services for the poor. A key element in the programme is a unique partnership with one of the leading organizations in microfinance which functions as a technical service provider (TSP) and which selects, proposes (to a local advisory board for approval) and supports organizations in the participating countries. Organizations currently under contract or in final negotiations include: KREP(Kenya); ABA (Egypt); ASA, BRAC (Bangladesh); SCF, ACDI VOCA, FFH (USA); and Socodevi (Canada).

To date, MicroStart Project Documents have been signed in 17 countries in which over 50 start-up and fledgling organizations have been identified for support. The programme currently has $30 million in resources committed. In all of its activities, SUM is committed to developing training resources to keep UNDP staff abreast of changes in this rapidly evolving field. This includes both intensive, week-long trainings as well as distance learning programmes over longer periods.

The Special Unit for Microfinance is also responsible for the MicroSave Initiative. MicroSave is a programme to promote secure, appropriately regulated, supervised, and flexible savings systems. Through MicroSave Africa, a joint effort of SUM/UNDP Africa and DfID(UK), a regional center of excellence has been established in Kampala, Uganda to provide technical assistance to selected MFIs and savings product development in 11 AFCAP countries, including Botswana, Kenya, Lesotho, Malawi, Mozambique, Tanzania, Swaziland, Uganda, Zambia and Zimbabwe. MicroSave Africa is housed in USAID’s PRESTO Center for Microfinance. MicroSave West Africa is the Francophone arm of the initiative for West African countries.

SUM's learning agenda investigates areas of interest to the CDF and MicroStart Programme's market niche. The focus is on topics that address how better to support start-ups, new products, methodologies for reaching women, and financing requirements of young MFIs, particularly those working in rural Africa. The learning agenda includes the production of publication quality documents and a field test of impact tools in Morocco.

SUM intends to develop new ways to build capacity in the industry through a three-year learning and training agenda which features electronic communication. SUM’s Best Practice Dissemination activities include:

• Working with the Consultative Group to Assist the Poorest (CGAP) to develop a microfinance capacity building programme for UNDP Country Office staff, local institutional partners and staff of other UN agencies.
• Developing a microfinance distance learning programme for new entrants to the field.
• Collaborating with the SURF Referral system in building an effective microfinance electronic technical response capability as part of the SURF network.
• Annual training seminars in microfinance best practice and collaboration with regional bureaux.

Return to top of page

PROGRAMME UPDATE

Africa

COTE d’IVOIRE - There is a full-time staff member on the ground working with the institutions. The Country Office conducted a field visit to the five local MicroStart-supported microfinance institutions during the week of April 18, and is very pleased with the progress and the programme operation to date.

MADAGASCAR - The SUM Technical Advisor conducted a technical review of the Madagascar MicroStart programme in May 1999.

BENIN - The TSP, Calmeadow, completed a mission in the country in Jan-Feb 1999 and has selected 5 local organizations to work with. These organizations were proposed to the Board in May. A local full-time person has been hired for the programme, and has begun work with the institutions.

TOGO - The TSP, ACEP, completed its second mission in the Country earlier this year to develop its strategy for institutional capacity building and to identify potential partners. MicroStart Togo is receiving funding from UNCDF ($700,000), in addition to the TRAC resources ($300,000), and is in the final round of approvals for funding from the Japan Women in Development Fund ($250,000).

GHANA - The Ghana country office has signed a cost-sharing agreement for $500,000 with the AMINA Programme of the AfDB. The CO has received more than 40 applications from local MFIs, and the selected TSP, KREP, started to identify participating organizations in May. The Advisory Board participated in an orientation seminar in April.

KENYA - The MicroStart Advisory Board has been selected, and the Country Office is in the process of reviewing potential TSPs. The programme suffered a setback as the TSP of choice withdrew its bid after a lengthy selection process.

ZIMBABWE - The Country Office has invited Calmeadow to be the TSP in Zimbabwe. Preliminary Advisory Board orientation took place in March. Because of funding problems the programme in Zimbabwe was slow to get off the ground. The TSP/SUM mission took place in May to meet with donors and identify partner organizations.

NIGERIA - There was a positive assessment mission to Nigeria last year. The country has a large market for microfinance services, with a number of young but very large institutions established. ASA from Bangladesh has been selected as the Technical Service Provider.

Latin America and the Caribbean

Haiti - Freedom from Hunger and World Relief have signed the contract to provide technical services. They arrived at the end of May to develop the workplan.

Arab States

Egypt - A project document was signed on April 26^th initiating this $1.65 million project co-financed by the Social Fund for Development. Requests for Proposals have been sent out to Development Alternatives International (DAI), Seed Capital Development Fund and ACDI/VOCA. The Egypt programme was designed and approved in only four months.

Morocco - The project in Morocco is now fully entering its second year and has grown from 1,350 to 10,307 active clients since its commencement in December 1997. Workshops with participating organizations were recently held on MIS and interest rates/pricing.

BAHRAIN - The two local organizations identified by ABA (Children and Mother’s Welfare Society and Awal Woman Society) have received their first MicroCapital Grants and disbursed the fist loans to clients in June.

YEMEN - ABA is in the process of finalizing the selection of participating local organizations and identifying a Local Technical Service Provider. ABA began individual work with participating organizations in June.

Asia and the Pacific

MONGOLIA - The NGOs supported by MicroStart have joined portfolios to set up a financial institution. SUM Technical Advisors conducted a review in June.

CHINA - The Country Office decided to go off the short-list of TSPs and initiate its own competitive bidding process. Developpement International Desjardins (DID) was selected as the TSP and is currently being contracted as the International TSP.

PACIFIC ISLANDS - Once the terms for the country office’s participation have been agreed upon, the CO should be ready to sign the contract with APDC and start implementation.

PHILIPPINES - The TSP, ASA, presented the final workplan in December. The workplan was approved and the programme will now move into implementation starting with 20 organizations.

Return to top of page

Upcoming and Potential MicroStart Countries

ETHIOPIA - An assessment mission to Ethiopia was completed in December with positive results. Efforts are underway to secure funding to enable a MicroStart programme.

MOZAMBIQUE - A recent mission finalized arrangements for a potential launch for the programme in October 1999.

TANZANIA - A SUM mission is scheduled this year to assess programming needs.

EASTERN CARIBBEAN - A positive assessment mission was fielded in January 1999. CIDA is currently reviewing the proposal.

BRAZIL - An international consultant has been selected to field an assessment mission in Brazil in August.

Kyrgyz Republic - An assessment mission in March was positive. The proposal has been sent to the Government of Finland.

Strategic MicroStart Countries

SOUTH AFRICA - MicroStart provides strategic support to the South Africa Country Office and to Khula, the South African institution responsible for building the capacity of MFIs. Assistance is provided through sharing of the learning agenda, and tools for reporting, impact assessment and gender, and training for Khula and CO focal points. The SUM Technical Advisor will be in South Africa on a mission to Khula and its partner MFIs.

CDF Countries

Mauritania - UNCDF/SUM received contracts committee approval in April to collaborate with the Association for the Promotion of Micro-Enterprises (APME), a local microfinance institution, in the implementation of a new microfinance programme in the Assaba region of Mauritania valued at US$352,400. APME will adopt the solidarity group approach inspired by the Grameen Bank with a view to targeting a high percentage of women clients in the region, and is expected to start its operations in June. This initiative will receive technical assistance from UNCDF’s support unit for West Africa, which is located within the West African Development Bank in Lomé.

Mozambique - UNCDF/SUM has agreed to fund a US$1.8m microfinance initiative in the Nampula region of Mozambique. World Relief (WR), a recognized financial operator with a proven track record in the South of the country, has been selected to implement the project and has participated actively in its design. WR will provide financial services to the economically active poor in Nampula through a combination of village banking and solidarity group approaches, and aims to establish a local institution with 100% Mozambican staff at the end of 4 years. The project is expected to start operations during the third quarter of 1999.

MicroSave: Africa - SUM staff involved in the MicroSave: Africa initiative participated in the Women’s’ World Banking conference held in Nairobi from 28-30 April, and made a presentation on savings drawing on experience from East and West Africa. Graham Wright, the Senior Regional Advisor for MicroSave, will make a presentation on savings at the annual CGAP meeting this June.

Madagascar - UNCDF approved in January 1999 an amendment to its US$ 4,8 millions microfinance project in Madagascar, that has re-directed part of its activities towards direct support to one MFI retailer, CIDR (Centre International de Développement et de Recherche). This US$ 1,1 million initiative will help CIDR expand their network of village level savings and credit associations in the Magenga region. It represents an innovative approach to bring financial services on a sustainable basis into remote rural areas, and in that respect reflects directly UNCDF’s new microfinance policy focus.

Malawi - UNCDF launched in December 1998 a Request for Proposals for selecting a microfinance partner for its new program in Malawi. Offers from two international and two national organizations were received in March 1999 and are under review by the Microfinance National Taskforce. The objective of this US$ 3 million initiative is to set up a sustainable microfinance network of village based institutions that will bring simple financial services to the poor, especially into rural areas.

Bhutan - UNCDF approved in March 1999 a US$ million 2,3 microfinance project in Bhutan, to be implemented by the Bhutanese Development Financial Corporation. Based on BDFC’s Business Strategy Plan, the project aims to improve rural household income levels through ready access to adequate financial services. The project will support BDFC’s objectives to reach operational self-sufficiency at project end, strengthen its institutional capacity and deepen its outreach in rural areas through the introduction of group lending mechanisms. This project will be implemented in cooperation with the Dutch cooperation organization SNV, and the Rabobank Foundation.

Special Unit for MicroFinance Programme Funding as of July 1999

Total investments originated and supported directly by SUM:

Global	$ 2,036,606
Regional-based	$ 4,600,000
Country-funded	$28,000,000
UNCDF	$45,000,000
Total investments	$79,636,606

---

Return to top