Reducing Poverty through Microcredit at CIDA

Describe the overall strategy of CIDA and where microcredit fits in to that broader strategy.

At CIDA, our goal is to reduce poverty in developing countries [in order] to achieve greater equity, greater security, and greater prosperity. That’s the big umbrella. Out of that we have a number of broad program priorities: basic human needs, where we want to spend at least 25 percent of our resources; overarching issues, including support to women in development and environmental programing; programing to improve governance and infrastructure services; and support for private sector development, and this is where microcredit comes in.

I look at microcredit/microenterprise development as a very important aspect of our work. For me, it is a natural fit with our program priorities, and it is one of the most compelling and powerful tools that we can use in order to meet our overall mandate to reduce poverty. We have become very conscious, as many people around the world have, that women can be a great source of development potential in communities. They already are, and given some minimal support, they will make a huge difference. We see microcredit as one of many tools to reduce poverty – it is not the only one, but it is a very powerful one and one on which we want to continue to build. Our investment thus far is quite substantial. We already have microcredit programing in 42 countries, and we want to add another eight countries during the course of the year as part of our commitment recently made at this year’s Meeting of Councils.

What is our strategy in terms of expanding our microcredit support? First, we are already working with a number of institutions and communities. One of the things we want to do is see how we can expand this existing network to reach a larger number of people, either within the immediate geographic area, in adjacent areas, or in other areas where microcredit is non-existent. The second one is to expand the frame of opportunities. This is where our work in eight additional countries comes in. We are looking for new partners, new communities, and new countries to see where there are major gaps, real opportunities, and readiness.

The second approach is to try to see how we can expand the capital base. Working with financial institutions of different kinds, whether these are commercial institutions, international financial institutions, or banks within countries that already exist, to try to see how they can contribute to expanding the capital base. One of the ideas we have had is to see how we can encourage commercial banks to become wholesalers and retailers of capital — wholesalers to the many NGOs who could be their retailers, and also retailers to microentrepreneurs. As a matter of fact, we are working right now with a Canadian bank in Jamaica, the Bank of Nova Scotia, to try to create a new lending window for microentrepreneurs.

A third one is to work to find additional ways of getting our many partners in Canada, and internationally, to learn from each other, to share information. The Summit has been very important in this regard, and that is one of the reasons we continue to support it and why I’m very pleased to be a member of the Executive Committee. A second important learning vehicle is CGAP, of which Canada is a founding member. We also want to look for additional opportunities, either arising out of these two strong movements, or alternatively, in the work that we do everyday… as we find a new partner or a potential new partner and link them up with some of the well-proven microfinance/microenterprise NGOs in the world, so that they can learn from each other.

Another dimension of our plan relates to information, specifically performance indicators and how to improve them. This has been an issue at CGAP, and we have been discussing this quite a bit at the Donor Council meetings of the Microcredit Summit. This is one unfinished piece of business which we need to accelerate our work on. What we need to do is keep our eye on the goal, which we have all committed to – at least many of us have committed to – of reaching 100 million families by the year 2005. We at least, as a minimum, need to make sure that we find a way of being able to know what our base is, in terms of number of people reached now and their gender, and not make it too complicated, because otherwise we will crumble under the weight of the paper. I think it is important to at least have this first layer worked out so that we know who we are reaching and where and how many… and the success rate, so our plan also includes that.

And the final aspect to our plan is the creation of an enabling environment in developing countries for microcredit to flourish. To a great extent this involves working with national governments to gauge their commitment, improve their banking legislation, and ensure that the framework is highly supportive and even promotional of the work.

How much is funded overall for microcredit each year, and then what funding is specifically targeted toward fulfilling the Summit’s core themes of reaching the poorest, reaching women, building sustainable institutions, and ensuring impact?

Our funding for [fiscal year] 1997-98 for microfinance and microenterprise development was $CDN 101 million [$US 70 million], and this was through various channels, including our bilateral programing channel. Another funding channel is through our Partnership Program, and this is to fund institutions who are in whole or in part in this business. For example, this would include Canadian cooperatives and also organizations such as Calmeadow, MEDA [Mennonite Economic Development Association], Coady International Institute, and Développement International Desjardins. We support them on a multi-year basis and their activities out in developing countries. We also support a number of other development NGOs, where part of their work is microcredit and microenterprise development.

Another mechanism is our multilateral channel where we support the UN, the World Bank, and the regional development banks. In addition, we have a Canada Fund program in over 100 missions around the world. These are small amounts [that] we have regularly utilized to support microcredit and microenterprise development, but which is not counted in our inventory of $CDN101 million [US$70 million]. Canada Funds for Local Initiatives are smaller sums of money. They could be $CDN30K to $CDN40K [US$21,000-US$28,000] to start new microenterprise initiatives. We also have a number of counterpart funds which are co-managed with local governments.

How much of CIDA support to microcredit goes toward fulfilling the Summit’s goal?

The second part of your question was how much of the 101 million goes to different levels. That is the part that we also need to clarify ourselves. That is part of our household improvement, to get to a state where our information systems are better than they are now – where we have a system which allows quicker and more efficient retrieval of information to know more precisely who we are reaching and how many.

How does CIDA measure its success in microcredit?

Well, this is again something that we’re working on, but let me give you my personal opinion at this time. One, in keeping with our approach of being more results-oriented, I think that success could be measured in the numbers of people in developing countries that have been able to have access to credit. Secondly, having been given access to credit, that they have been able to be successful. What we have seen as we have discussed success with our partners — NGOs or others delivering such a project or program — is that you might have 10 to 15 percent of the borrowers who are no longer in business or no longer have an enterprise at the end of a few years. We would want to know why, because in certain cases what we have found is that they were no longer in business because they have decided to go work for a larger enterprise or for the government. They had become more prominent members of their community — they were identified, maybe, to become a mayor or to succeed in a different station in life. We would, of course, not consider this a failure.

Is there anything else you would like to add?

The Microcredit Summit Campaign, and the Meeting of Councils this year, have helped enormously to raise awareness of the issue of microcredit, and the power of microcredit to have a meaningful impact to reduce poverty. It is not often that we have the opportunity to do a great thing in our lives. Building a global network of financial services for the poor and the poorest is a truly great thing and realizable within such a short time frame. I am happy and proud to be a part of this effort.

How would an established microfinance/microcredit institution apply to CIDA for funding?

CIDA operations in microfinance and microenterprise development are conducted through three main channels. Established institutions can apply at CIDA headquarters, in-country at the missions, or through a Canadian partner. To apply directly to CIDA Headquarters, write to your respective regional branch (Africa and the Middle East, Americas, Asia, or Central and Eastern Europe), CIDA Headquarters, 200 Promenade du Portage, Hull, Quebec, Canada, K1A 0G4; fax: 1 819 997 5510.

Bilateral program branches— The geographic branches mentioned above have microenterprise specialists in both country units and technical units. Geographic branches are located at CIDA headquarters. See above for contact information.

Canadian Partnership Branch— Funding is available for microfinance through Canadian institutions working in developing countries. Local organizations can partner with Canadian institutions and submit joint applications to the CIDA Partnership Branch. [The Microcredit Summit Campaign is in the process of producing an information and contact list of donor agency funding requirements. This list will be distributed to practitioners by November 15, 1998.]

Is there any funding available for fledgling microcredit programs?

For fledgling institutions, CIDA must assess the risk of the institution and the governing individuals, which may include whether the institution has considered linking up with experienced partners. Canada Funds for Local Initiatives at the Canadian Embassies or High Commissions is one place to start. Local Embassies and High Commissions can make decisions to provide small amounts of funding for microfinance through the Canada Fund. Microfinance institutions can submit an application for up to $CDN35K [US$24,500] to local embassies. This provides a means to test or pilot a project, and if there is some evidence of success, then to continue support.

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