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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 Mona Bishay
I am very pleased to have the opportunity to comment on these papers this afternoon. Not only because it was very interesting for me personally to read but also because the International Fund for Agricultural Development has been a very close partner with PKSF for a very long time….As a matter of fact, the very last project approved in Bangladesh extends support for PKSF through developing a new agricultural funding window in the fund…. I endorse all the evidence provided in your paper and I would also like to reiterate three of these achievements because they are very important as lessons for us when we consider the replicability of this model in our region in particular. The achievement I'd like to highlight is, first, the cost effectiveness of the fund. Because it is nearer to the field and the operators in the field, it has been able to cut cost in terms of money and time. And this actually…flies in the face of the long, sometimes very long, processes of us donors in preparing projects. So unless we come up with other alternative methods of doing business, perhaps we will always be threatened by efficient organizations like this one. The second achievement is promoting more efficient MFIs in the country. I was particularly pleased and struck by the fact that the access that PKSF made to the smaller MFIs encouraged larger MFIs to become more efficient. So, through enhancing competition we have really succeeded, in the case of Bangladesh, in increasing the standard of performance of all the…industry. And the third achievement that I'd like to emphasize is the enhancement of transparency and performance standards. The unification of standards and the harmonization of performance criteria that was introduced by the fund has actually helped comparison between the various institutions and also helped in impact assessment. And that is really a very great step forward in effectiveness and efficiency.
However, having said that, these successes and other successes also that I did not mention that the paper highlights very well are due to some characteristics of the way the fund has operated and has been actually guaranteed to operate in Bangladesh. These characteristics are: the fund pursues simultaneously two objectives; not only the objective of financial intermediation, but also, and this is very important for our region, the objective of capacity building of the retailers in the market. This is really very important and this is something we have always to keep in mind if we ever think of replication of that model. The second characteristic of the fund is…its very strong governance structure and the managerial competence of the fund; particularly, its autonomy in the selection of processes and lending decisions to MFIs. This is a very important thing, despite the fact that government commitment has been very clear to the fund from the very beginning and just a cursory look at the structure of finance of the fund will make it very clear that the government of Bangladesh has provided more than fifty percent of the grant funds…and also provided funds on loan terms. So, despite government commitment in financial terms to the institution, government has not interfered in the day-to-day running of the fund, which is an important aspect. Keeping these characteristics in mind, I would like to read a number of issues for your consideration in the discussion that we will have to examine very carefully when we think about the replicability of this model in our region. The first point is the focus of the microcredit fund. The main importance of the microcredit fund, as comes clear from the paper, is the line of credit; the provision of the line of credit. Now, experience so far in microfinance has shown that the poor need much more than that. They need a wide area of financial services including loans, savings, insurance, transfers of remittances, etc. So this is a point to be kept very clearly in mind. The second point is the diversity of the microfinance landscape. …In addition to the financial NGOs that have been there for a long time, there are new players entering the market especially in our region here. There are financial cooperatives, there are commercial banks, for example the case of La Banque du Caire. There are also old players in the market that have come forward these days and want and show a tendency to innovate and to evolve and to be creative in microfinance. So this model seems not to be as diverse as one would like it to be particularly in a region like ours. And the third point is the inclusivity of financial systems. Again, there seems to be a growing consensus on the need to build inclusive financial systems, comprised of a variety of microfinancial institutional models that can access resources from a mix of external and internal resources.… The role of deposit and the role of saving in the financial model should play a very important role for the effectiveness and the sustainability of the retailer of microfinance. Now, what are the implications of all this for our region, for the Middle East? As you all know the microfinance sector in the Middle East is perhaps in a very young stage compared to other regions like Asia or Latin America. Microfinance started in our region only in the nineties….However, despite the fact that it is still young. we have witnessed a dynamic development of the microfinance industry in the region over the past few years. And what is particularly striking is the diversity of institutions, as I have just mentioned…. The third point that I would like to mention here is that while at the country level I think this model should be considered and assessed, I'm not really, I don't have the data or the information to judge its validity at the regional level…. What I want to emphasize here is that in assessing the replicability of that model we have to contextualize it. We have to be inclusive in the partners we include. We have to be inclusive in the instruments that…we include. And also, we have to consider a high flexibility of the system to cope with the changing conditions. What does this mean for IFAD's future approach to microfinance in the Middle East region? It means the following three basic premises of IFAD's approach in the future. The first premise is a variety of financial services to the poor, not only credit but also saving, insurances, remittances, etc. And support to a variety of rural financial approaches and models suited to the context we are dealing with. And the third point is support to a variety of partners including NGOs, saving and credit institutions, and our long time honored partner the Agricultural and Rural Development Bank that proved [it had] a willingness to change, and innovate and accommodate the needs of the poor. And finally, I'd like to say that IFAD is committed to exploring all kinds of support mechanisms which are within our mandate and instruments to support our rural financial partners. The concept of the microcredit fund is definitely a very worthwhile model in this context, but we believe that its replication in our region should be considered after careful assessment and while addressing some of the issues that I have just put on the table in front of you. |