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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

Questions and Answers for Plenary Panelists

Question #1, read by plenary Chair Jaques Attali: …How do we see the possibility to convince mainstream banking institutions, commercial banks, to become involved in either the funding of microcredit themselves or funding of microcredit institutions, or having microcredit branch arms as a subsidiary of commercial banks?

David Gibbons: I think that can be very helpful. How to attract commercial banks-there's only one answer to that: we have to convince them this is a potentially profitable business. Now they're not going to make much marginal profit but if they can give bulk loans to MFIs-bulk loans, big loans-then they can do quite well. And we hope over the next five years to convince several commercial banks in India that this is a profitable business. And we can only convince them of that by helping to make profits.

Question #2: A very blunt question has been raised for the authors of the paper. From whom and how do we raise quasi-equity?

David Gibbons: I think you have to be creative in this. There are a number of potential sources-development-oriented foundations, development banks, indeed perhaps even international or multilateral banks, like the World Bank might at some stage bless this with its approval. But the Asian Development Bank is way ahead of the World Bank in this respect. They have established funds, national level funds, in the Philippines, in Nepal, which are making quasi-equity available to MFIs. So there are a number of sources, but it's our hope that out of the Microcredit Summit, out of the discussions, more funders will want to develop products in this field.

Question #3: Thank you. In many questions we see ideas about new sources of capital for microfinance. I mentioned savings, and I'd be happy to see if the panelists are interested in commenting on the possibility of microfinance institutions to become savings institutions, more than they are, in order to develop microfinance resources.

Normand Lauzon: As we know it's quite difficult for microfinance institutions to transform themselves into deposit-taking organizations…and very often the regulatory environment in a country does not allow for it. Nevertheless there are examples in the world that I think are very convincing and that should be studied maybe in more depth in order to learn from these experiences and see what can be done. Let me mention three examples: the ACLEDA Bank in Cambodia, the BancoSol in Bolivia, and the BRI in Indonesia.

There are tremendous possibilities with regard to savings, not only for the microfinance institutions themselves, but because the poor people are looking for an outlet for their own savings, so I think that this is an area that should be given a lot of attention in the next three years.

For most of the MFIs that we are talking about, the small ones that we hope will become bigger ones, they are struggling with capital adequacy. How on earth can they take savings, how can they protect the savings of poor people if they themselves are struggling with capital adequacy? I don't think it's very helpful to recommend to such MFIs that they try to take more savings. Those savings are at risk, and those people cannot afford to lose their savings.

Carlos Cuevas: Grameen Bank is financing a large chunk of their lending with deposits. The main difference is that most of the clients of Grameen Bank are net debtors to the institution, so technically they don't have their savings at risk. So we can get a long way financing lending with deposits, until we hit the net saver syndrome.

How do we define an MFI, a microfinance institution? I think we can broaden the definition to include institutions that cater to small depositors. Even if they're not heavy lenders, and there's large networks of cooperative financial institutions all over the world that do have very low-income depositors, and they're providing a service. And there, we need to be careful again of depositor protection, because they are net savers, and that requires oversight when institutions grow beyond a certain scale.

Question #4: A lot of questions are about the fact that there is clearly a need for soft loans or subsidies or whatever kind of public money. And some people are mentioning in their questions that public money exists, which is already distributed through bilateral or multilateral aid for large global programs, and that maybe one could suggest to the international financial institutions as well as to the bilateral donors to reorient their assistance from large programs, such as large dams or whatever, to microfinance programs subsidizing or helping capacity building in the microfinance sector instead of financing global large infrastructure programs. Would you comment on this request for a switch in priorities in the international assistance?

Carlos Cuevas: I think this is really quite a switch. …The World Bank over the last several years has gone from heavy infrastructure and large public investment programs to social development…and primary lending for social sector-health, education-and Microfinance has gone from nothing…to quite a few loans including rural finance [and] other projects in recent years.

I think our emphasis is switching more and more to capacity building, technical assistance, training, creating managerial capacity in MFIs. We have a limited successful experience with apex institutions, and that's another intention of the question. We have had quite a few failures and a few good examples to show, but therefore we're careful in using that kind of model.

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Financing Microfinance for Poverty Reduction