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| Volume 3, Issue 1: April 2005 | ||||
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In This Issue Plenary Session: Creating National and Regional Autonomous Microcredit Funds Workshop Session: Transformation of Microfinance Operations from NGO to a Regulated MFI Register now for Latin America/Caribbean Microcredit Summit Meeting of Councils Archived Issues
Vol 3 Iss 1 April '05 E-News Information |
Plenary Session: Creating National and Regional Autonomous Microcredit FundsRemarks by Dr. Salehuddin Ahmed
What are the objectives of the [autonomous] microcredit fund? … The objectives basically are: Efficient screening and monitoring of microcredit programs according to standard criteria, unlike ad-hoc steps taken by donors and government agencies. Second, funding based on uniform standard criteria, creating a standard, level playing field. Third, standard monitoring requirements contributing to professionalism in the microcredit fund. [PKSF, the rural employment support foundation] is the world's largest microcredit fund. We have a portfolio of about $350 million dollars and we have lent to about 192 microfinance institutions in Bangladesh. Some of them are quite successful like BRAC, ASA, TMSS, SSS, and WAVE. We have covered more than 5.2 million borrowers through 192 micro finance institutions.Sometimes it is argued that in a small country where the absorptive capacity is low, where the micro-finance institutions are small, …you cannot have a national autonomous microcredit fund. It's not true. PKSF started…with just $3 million. And we tried to identify the few dynamic MFIs and PKSF grew with those institutions. In fact, ASA, one of the biggest microfinance institutions [in the world], grew with us. So, it is not necessary that you start with a big bang approach. You can start with small [ones], and you can really grow with MFIs.
So, there is, in every country, …a possibility of having this microcredit fund. Two major functions of microcredit funds are 1) financial intermediation and 2) development of sustainable institutions. ….You can give funds, but the [MFIs can begin to] …depend on grants and …on subsidized funds.… That should not happen. You should ….aim at financial intermediation, that is, giving funds to the MFIs, as well as to really create financially sustainable institutions. Now, financial intermediation usually includes mobilizing of funds, giving loans and grants and other things and the institution [building] role of this fund is very important. At PKSF, what we do is give lots of emphasis on training, capacity building and also giving funds for institution building; like giving computers, certain software, giving subsidized loans to buy bicycles, motorcycles, computers and other things. So, institutional development is very important. There are certain preconditions for a microcredit fund. First and foremost is the government's promotional role and long term policy for development of the microfinance sector. Without that it would be very difficult for the microfinance sector to grow and for the apex fund to [become] viable. Then, secondly, donors' commitment for development of sustainable microfinance programs is very important. As I argued, donors don't have funding offices in their respective area so they should really have a very special and very efficient conduit to channel these funds to the grassroots level. Sometimes it is argued…that a mature microfinance sector is necessary. As I argued it is not really necessary. You can grow [with the MFIs.] ….you need not sit idle [hoping] that MFIs will be coming forth. I think this is especially relevant for the Arab region.… [I]n many countries the number of MFIs is small, but [an] apex fund can start working around them and gradually expand the activities of both MFIs and [the] apex fund. Now, there's [another] very important issue of [autonomous] microcredit funds - governance. The governance of this kind of fund is based on three principles: 1) autonomy, 2) accountability of stakeholders and 3) efficiency and cost effectiveness in management. Autonomy is the key word. PKSF gets about $250 million from the World Bank, but through the government. But the government doesn't interfere in PKSF. The Chief Executive Officer, myself, has been appointed by a search committee. The chairman of the board is not from the government. Even the finance minister is not on the board. It has an autonomous, very powerful board, but it is accountable to the government. [How do you] keep yourself free from political control? 1) spell out your objective, 2) be transparent in your management, 3) be open in your accounting principles, keep it open to everybody, and bring the private and public sectors on board. ….[Y]ou have to remember that autonomy has to be earned also, by your own work…. Nobody will give you autonomy unless you really prove yourself that you are really efficient and you are really accountable to everybody. Now, autonomous microcredit funds can, if supported by the government, play a constructive role in developing a …rational regulatory framework for microfinance. ….Even in the absence of such a mandate from the government, a microcredit fund can require that [the] MFIs that borrow from it adhere to its code of conduct; that amounts to voluntary self-regulatory supervision. That means it can evolve a system of prudential norms which the MFIs can follow without even the mandate from the government…. …[W]hat the poor need is money in their hands. And an apex fund can deliver money to the grassroots level. In fact, out of [every] one hundred dollars of PKSF funds, ninety-nine dollars reach the poor. [Only] one dollar is kept for the management of PKSF. |