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Plenary Session: Financing Microfinance for Poverty Reduction

Workshop Session: Transparency on the Depth of Outreach – Indicators for Programs Performance and New Efforts to Cost-Effectively Measure Absolute Poverty

Microcredit Summit Director Honored

Asia/Pacific Regional Microcredit Summit Meeting of Councils

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Plenary Session: Financing Microfinance for Poverty Reduction

Remarks by Carlos Cuevas

This paradigm would work for basically any financial institution with any solvency problems. The nationalized commercial banks in the countries I recently visited would love to use this, some of the recommendations the paper proposes, to make their capital adequacy ratios look much better. But that doesn't mean that any self-respecting commercial lender would lend to those banks, just because their capital adequacy looks better on paper.

It seems to me that adequate performance, credible track record in terms of outreach and financial performance, and managerial capacity are still up, further up, in the scale of key constraints to microfinance and development. And related to that, it seems to me that a key constraint is the ability of donor agencies and other sources of funds to identify those promising, well-performing MFIs.

Grants to MFIs, to emerging MFIs, are, as the authors contend, more effective than loans. I fully agree with that, and when grants become scarce, subordinated loans, subordinated debt for MFIs are truly a sensible instrument. But the grounding mechanism the authors propose to capitalize the concessional element of subordinated loans does not provide the cash that would cover the operating deficit, nor does it have any value for senior lenders, as the paper calls them, creditors in the case of an institutional failure.

The less riskiness as argued for MFIs in the paper based on the cream of the crop of the MFIs that reported to the Microbanking Bulletin may be, I would suggest, rather misleading. Those are less than 200 MFIs that voluntarily report to the Microbanking bulletin, and there are about 2,000 others that don't. In fact the survival in the face of delinquency problems depends on having a bigger capital cushion for MFIs. And the recent experience of Bolivia, and I would argue even in the case of the Grameen Bank a few years ago in Bangladesh, the way out, to come out OK after this crisis, resting on a larger capital cushion than they otherwise would have had.

I would hesitate to support taking a lead role in creating regional or national equity funds, given that that may have less of an impact on making microfinance develop than taking other scaling-up approaches that I'm sure you have discussed earlier today when Elizabeth [Littlefield] was here.

Read remarks by David Gibbons