The Evaluation Cooperation Group (ECG), a network of evaluators of multilateral development banks (MDBs), has published a report that finds that the microfinance operations of MDBs have difficulty in reaching very poor borrowers. ECG members include the Asian Development Bank (ADB), African Development Bank (AfDB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter-American Development Bank (IADB), International Monetary Fund (IMF) and the World Bank Group.
The shift to a commercialized model of microfinance has increased microfinance institutions’ (MFIs’) ability to access alternative sources of capital. However, this type of financing may also be shifting the focus of MFIs away from serving the very poor in favor of larger, more profitable loans. There is also concern that aggressive marketing of microfinance may push poor borrowers into taking high-cost or multiple loans.
The report identifies four characteristics of successful microfinance operations: organizational financial sustainability, sound regulation and monitoring, flexibility in product design and high quality consultancy and technical assistance to MFIs as well as to their regulators.
The authors conclude that, in order to reach the very poor, microfinance operations require careful design and a means of preparing borrowers for participation. They recommend that MDBs use microfinance development programs to reach the very poor through “graduation programs” that include immediate non-loan aid and training before integrating them into microfinance programs. MDBs should also provide both credit and technical assistance to MFIs to ensure their efficiency and sustainability. However, MDBs should avoid saturating microfinance markets and should ensure that their funds do not displace private sources.
By Witt Gatchell, Research Associate
About the World Bank Group:
The World Bank Group consists of five closely associated institutions, all owned by member countries that carry ultimate decision-making power. Each institution plays a distinct role in the Group’s mission to fight poverty and improve living standards for people in the developing world. The World Bank Group encompasses the World Bank, which consists of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).
About the African Development Bank (AfDB):
Established in 1964, AfDB is a development bank that provides loans and grants to governments and private companies in Africa. AfDB commits approximately USD 3 billion annually to African countries. Owned and funded by member governments, the bank has a public-interest mandate to reduce poverty and promote sustainable development. Currently, AfDB shareholders consist of 77 member countries, which include 53 African countries. The current president is Donald Kaberuka.
About European Investment Bank (EIB):
The EIB was created in 1958 as the long-term lending bank of the European Union. In addition to supporting projects in EU member states, its main priorities include financing investments in future member states and EU partner countries, principally in the area of small and medium-sized enterprises. In 2008, the EIB raised approximately EUR 60 billion. According to its website, “the EIB operates on a non-profit maximizing basis and lends at close to the cost of borrowing.”
About International Monetary Fund (IMF):
The International Monetary Fund (IMF) is an organization of 186 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote employment, promote sustainable economic growth and reduce poverty around the world. The IMF was created after the Second World War to oversee the international monetary system to ensure exchange rate stability and encourage members to eliminate exchange restrictions that hinder trade. The IMF’s fundamental mission is to help ensure stability in the international system by keeping track of the global economy and the economies of member countries, lending to countries with balance of payments difficulties and otherwise assisting members.
Sources and Additional Resources:
[1] ECG Press Release: “New Evaluations Finds Microfinance Operations Have Had Difficulty in Reaching The Very Poor” https://wpqr1.adb.org/LotusQuickr/ecg/Main.nsf/h_7E6E83714D63FAC34825773…
MicroCapital Universe: World Bank Group
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=The…
MicroCapital Universe: African Development Bank (AfDB)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Afr…
MicroCapital Universe: European Investment Bank (EIB)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Eur…
MicroCapital Universe: International Monetary Fund (IMF)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Int…
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