UNCDF Financial Inclusion Practice Area Ranks among Best of Participating Agencies in Global Review

New evaluation measures whether funding agencies are set up to support microfinance effectively

UNCDF is supporting the development of inclusive financial sectors in 30 countries throughout the least developed countries. In Madagascar, for example, where Alphonsine Rasoampamonjy awaits customers in a store she set up with a microfinance loan, UNCDF is working on a national strategy to support broader access to financial services among the country’s poor population. Photo by Adam Rogers

NEW YORK – 02 April 2008: As part of an effort to evaluate how well its internal systems, policies, procedures, and incentives are set up to effectively support microfinance, UNCDF recently submitted itself to an external review coordinated by CGAP – the Consultative Group to Assist the Poor. The result: UNCDF received 83 out of 100 points, ranking consistently high in all five elements necessary to effectively promote inclusive and sustainable financial sectors.

The SmartAid for Microfinance Index (SmartAid) measures whether funding agencies are set up to support microfinance effectively. It scores agencies on a framework of five elements of effectiveness—strategic clarity, staff capacity, accountability for results, knowledge management, and appropriate instruments—that capture the requirements for quality aid management throughout the project or investment cycle. As exemplified in the chart below, UNCDF ranked far above the average of all participating agencies.

At CGAP’s Better Aid for Access to Finance meeting in 2006, 29 development leaders representing the largest microfinance funders adopted a commitment to measure the quality of their aid management in microfinance by developing and piloting this Index. Seven funders—AsDB, CIDA, FMO, GTZ, KfW, Sida and UNCDF—volunteered to participate in the pilot.

The final report identified UNCDF as a “highly focused, flexible grants-based agency with leaders committed to good practices that have built in-house staff skills.” Its greatest challenges are linked to aligning its systems to implement its strategy of addressing all levels of financial systems development and managing the performance of its portfolio.

The review points out that UNCDF has a history of supporting the next generation of sustainable financial service providers that focus on poor and low-income people. Among UNCDF’s strengths, the review highlights its “strong historical focus on retail start-up institutions in least developed and high risk countries in line with UN priorities.” The report also highlighted UNCDF’s strong staff capacity, with technical advisors as well as the “budget, procurement flexibility and network to access well-qualified consultants.”

UNCDF’s accountability for results framework is another area highlighted in the review, singling out in particular the strong emphasis on partners’ transparency by requiring retail partners to report to the Mix Market (an independent review process that measures and tracks the efficiency and sustainability of financial service providers). UNCDF’s knowledge management systems were likewise highlighted as best practices, and its flexibility to work directly with private sector actors of all types, primarily through grants.

While highlighting UNCDF’s strengths, the review also points out some areas for improvement, including a lack of clarity in UNCDF’s comparative advantages at the regional and policy levels. It also questions whether or not UNCDF currently has the expertise and resources needed to achieve its ambitious new strategy (2008-2011), and suggests the constraints and obstacles may be underestimated. The review points out that existing staff levels may be overstretched to sufficiently manage the organization’s rapid geographic expansion and an increasingly complex technical agenda.

The full report is available: [ pdf ]

For more information on CGAP, please visit http://www.cgap.org.