Creating Autonmous National and Sub-Regional
Microcredit Funds
Moderator, John de Wit |
Dr. Salehuddin Ahmed,
Managing Director, PKSF, Bangladesh:
I’ll give you some of the
general highlights of the paper and then go to a few specific issues. First,
the goal of microcredit is to really reach the poorest of the people; this
is the major task of microcredit funds.
 Some
research argues that in the absence of good enterprise, in the absence of
good NGOs, a microcredit fund will not work. I do not think this is true.
You can start with a few, and your job will also be to create some new ones.
I have argued that together with the credit [delivery] component, you must
also have an institutional-development component and a capacity-building
component. This is what we have done.
I have seen many research
papers that say many of the apex organizations in the world have failed,
except PKSF. My answer to that kind of criticism is none of the apex
organizations studied by those researchers were designed as apex
organizations. In fact they were donor-driven, project-based organizations,
which, because of changing roles, became microcredit [funds]. You cannot
expect some fruitful result from an institution not initially designed to be
a microcredit institution. But PKSF, on the other hand, was designed from
the very beginning to be a microcredit [fund]. So, you have to remember
that, in order to create a fund, you cannot change the project overnight
into an MFI. I have seen a big study, conducted by CGAP, where they studied
those apex organizations that failed; but my argument is that those are not
the best organizations. Some give the example of BRI in Indonesia. But
actually, Bank Rakyat Indonesia is not for the poorer people. It is a
banking institution. It mobilizes savings from anyone who comes; it gives
loans to anyone who wants, so you can not give the example of BRI as a
successful microfinance institution for poorer people. So, the argument that
without apex institutions, poor people will be taken care of really doesn’t
hold. This is what I have argued in the paper.
 Sizwe
Tati, Managing Director of Khula Enterprise Finance Ltd., South Africa:
I think by and large, from
Khula’s perspective, we have found the paper to be in line with exactly
how our own organization is structured, starting from the purpose from which
one needs to create an apex or host a funding organization.
Apexes have been established
for many years. There are loud voices talking about how they have failed and
very few voices about how they have succeeded. The quest, at least from
Khula’s perspective, is to see standardized benchmarks of how efficient
apexes run. What are the standards we need to look at from our own
efficiencies, the service to our intermediaries, the impact that we create,
and the relationship to our funders? Surely we can create some fundamental
benchmarks which can be universal. There is usually a conflict where apex
institutions have to render technical assistance but at the same time become
a lender in the market. An apex has to find a very strong, structured way to
deal with that conflict.
The final point is quite
fundamental. An apex must be structured on the basis that it must be
self-sustainable. It cannot afford to set benchmarks of self-sustainabilty
if it itself is not [built] upon self-sufficiency.
 Benedict
Kanu, Senior Economist, African Development Bank:
First I would like to
congratulate Dr. Ahmed for what I believe, and what we from the African
Development Bank believe, is a very well researched, very well-presented
paper on establishing microcredit funds. We subscribe, in general, to all
aspects of the paper.
Second, we believe that the
conditions to be fulfilled for a good national microfinance fund should vary
depending on the size of the country and the existence or absence of a
network of institutions capable of providing the financial and advisory
services proposed. Dr. Ahmed’s paper should make this very clear.
We also feel that, in
addition to the conditions presented by Dr. Ahmed in his paper, it would be
necessary for a microcredit fund to support the establishment of a network
of local and field offices through which the fund would operate. Of course,
this fund would operate in accordance with a measure of autonomy. The
branches should be decentralized to branch managers with regards to project
appraisal, grant, and application assistance to entrepreneurs.
Furthermore, we believe that
the paper presents very good evidence from Asia, Latin America, and Bosnia
Herzegovina. However, it does not present case studies from Africa. We find
this very disturbing because we are here hosting the Summit in Africa. We
have the original African mandate at the African Development Bank and
believe that it would be one-sided to make conclusions or propose strategies
based purely on studies carried out outside Africa. We would want to see Dr.
Ahmed revise his paper such that it would reflect Africa’s experience. We
also feel that the paper should encourage and succinctly state that it would
encourage microfinance institutions to form formal and informal associations
so as to improve their bargaining power with regards to their portions of
input and scale of their output. In addition, we strongly believe Dr. Ahmed
should include some research on how a microfund at the national level could
function as a central controlling authority for microcredit institutions in
any given country.
Mathieu Soglonou, Acting
Manager, Consortium Alafia, Benin:
In general, creating
autonomous funds is necessary for the reinforcement of the role of MFIs in
the reduction of poverty. Dr. Ahmed’s paper is well structured and
well-thought out; however, I have some specific comments that I would like
to make. In my first point, I would say that national funds will be easier
to mobilize and manage than the sub-regional funds. The engagement of the
public authorities will depend on the direct effect that the investments
will be able to have in their respective countries. Secondly, a body should
be created to prevent conflict and act as an arbitrator, for example, an
ethics committee. Also, in order to limit the risks of conflict and to
better distribute the funds, it will be important to implement a system to
promote better practices for MFIs. There could be an evaluation, a rating
system, for those interested MFIs, and the most deserving organizations
would receive the funds.
My third point is that the
large diversity of MFIs configuration and methodology must be taken into
account by creating some type of all-inclusive evaluation, an evaluation for
NGO multi-services, credit mutuals, and direct credit institutions, whether
in urban or rural areas. In our opinion, the three points in common would
be: governing, financial performance, and management information systems.
 Peter
van Rooij, Microfinance Specialist, ILO and UNHCR:
My career relates more to
information regarding the exact advantages of microcredit funds. In the case
of the PKSF we have some insight into the cost of operation as well as the
opportunity cost (i.e., the comparison between the microcredit fund and its
next best alternative).
First inquiry, what are the
alternatives to microcredit funds to make it more of a contribution? I would
suggest we could include a more marketable approach to financial
intermediation as one such alternative. In the executive summary there is a
reference to the need to mix the state, civil society, and the private
sector. Dr. Ahmed mentioned that in his presentation as well with regards to
desired ownership of a microcredit fund. I wonder why a private sector
approach may not be just as good, if not better?
There is also the reference
to rating microcredit institutions at a more mature stage. What would be the
conditions for such functions to start; and do individual microfinance
institutions already qualify for tapping private capital markets?
In addition, microfinance
industries of some countries without an apex body seem to be developing
well, therefore possibly questioning the prerequisite of a microcredit fund.
With respect to government support, I wonder whether it is possible to
classify what types are required, which ones are helpful, and which ones are
counter-productive, or in other words, the shoulds, the coulds, and the
could nots.
Would it be an option to
consider having more than one microcredit fund in one country for reasons of
specializing in different types of microfinance institutions, geographic
location, competition, etc?
In conclusion, I would be
interested to learn more about the weaknesses of microcredit funds, possibly
based on examples from practice.
Question: The major
challenges of government-sponsored MCIs have always been receiving funds
from the government while keeping the institution insulated from the
government involvement. Can you kindly share your experience of managing to
secure funding from the government while keeping government out of your
governing structure?
Salehuddin Ahmed:
I can share PKSF’s experience. Yes,
it is a government sponsor. There was a strong need for microcredit in
Bangladesh, and what was the alternative impact, alternative results of
other funding agencies? The government was really convinced that microcredit
was an effective tool to raise the poorest people [out of poverty]. They had
already experienced getting their hands burned from commercial banks, so the
government was really convinced that there should be an autonomous fund. We
started with a small amount [of money], only $3 million. Then we really
evolved, in four or five years, it was a gradual thing. Up until 1996, the
whole safe of PKSF was only about $25 to $30 million. But after 1996, after
having set up all kinds of standards, we really grew and increased to $180
million. Again, in the next four years, we shot up to $350 million. The
government is now really convinced (although it [was] not easy to get them
to this stage); you have to show by your own performance. But as we have
shown, the government is not always as it is thought to be; they can give
you free hands.
The full text of this
paper is available at www.microcreditsummit.org/papers/fundspaper.htm
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