CREATING AUTONOMOUS NATIONAL AND SUB-REGIONAL MICROCREDIT FUNDS

In order to fulfill the Microcredit Summit goal of reaching 100 million of the world’s poorest1 families by the year 2005, several measures must be taken to ensure that more resources reach the poorest in cost-effective ways. The mechanism of channeling funds, especially government and donor funds, to microcredit2 institutions through autonomous apex funding organizations can prove to be efficient, quick and cost effective. Therefore there is a need to create such microcredit funds (MCFs) at the national and sub-regional level. MCFs can perform two major functions: financial intermediation and development of sustainable microcredit institutions. The institutional structure of such microcredit funds has to effectively resolve the legal/ownership issue, governance issue, management issue and autonomy of the MCF. The ownership structure should include a judicious mix of the state, civil society and private sector. In order to keep the fund free from political interference and bureaucratic tangles, the autonomy of the fund must be recognized by the government and all other stakeholders. It must be remembered that autonomy does not come as a ‘gift from heaven;’ it has to be derived from the political commitment of the government. This is a difficult, but not impossible task, as the case study of Palli Karma Sahayak Foundation (PKSF) in Bangladesh shows. A major advantage of autonomous microcredit funds is their ability to screen and monitor a large number of microcredit programs (MCPs) according to same standard criteria, compared to often inconsistent ‘ad hoc’ evaluations of individual MCPs by donor and government agencies. Funding sources of MCFs may include the government, donor agencies, international financial institutions, the central bank and commercial banks within a country. The ‘necessary’ condition of funding is that the government of a particular country should commit its own resources, thereby making a firm pledge to help the poor through an autonomous microcredit fund. The microcredit funds should have pragmatic standards and procedures for evaluating the partner organizations in such areas as: accounting and auditing, default management, management information systems, human resource development and sustainability. The case studies of PKSF in Bangladesh, Fondo de Capital Social (FONCAP) in Argentina and Local Initiatives Department (LID) in Bosnia- Herzegovina bring out the salient features of microcredit funds. Both the “process” and “output” aspects are briefly analyzed in the three case studies that are diverse in nature and in geographical setting. However, there are some common features present in the three case studies, namely: a commitment of the government and other stakeholders to microcredit operations, some degree of autonomy of the funds, quick and cost-effective implementation systems, good management and reporting systems and evaluation of partner organizations based on performance. No system is perfect, and the preconditions to set up a system may not be perfect, but one must make a bold decision to introduce an innovative practice like that of a microcredit fund which has already proved to be the best practice in some places on the globe. The attacks on autonomous funds have already been challenged by realities in the field. These apex funds are proving their enormous potential to help the forgotten poorest people on earth.

Leave a Comment

Your email address will not be published. Required fields are marked *