CREATION OF NATIONAL AND SUB-REGIONAL AUTONOMOUS FUNDS FOR THE MICROCREDIT

In order to reach the goal of the Microcredit Summit to reach 100 million of the world’s poorest families [1] by 2005, several measures must be taken to ensure that more resources are directed towards the poorest through effective ways and affordable. The mechanism to channel funds, especially government and donor funds, to microcredit institutions [2] through leading autonomous financing organizations can be efficient, fast and affordable. Therefore, there is a need to create such microcredit funds (FMC) at the national and sub-regional level. FMCs can perform two main functions: serve as financial intermediaries and develop sustainable microcredit institutions. The institutional structure of such microcredit funds must effectively resolve the legal and ownership, management, administration and autonomy issues of the FMC. The ownership structure must include a judicious combination of state, civil society and private sector. In order to keep the fund free from political interference and bureaucratic entanglements, the autonomy of the fund must be recognized by the government and all other interest groups. It must be remembered that autonomy is not acquired as a ‘gift from heaven’; It has to derive from the political commitment of the government. This is a difficult but not impossible task, as evidenced by the case study of the Palli Karma Sahayak Foundation (PKSF) in Bangladesh. A great advantage of autonomous microcredit funds is their ability to select and monitor a large number of microcredit programs (PMC) based on the same standard criteria, in contrast to the inconsistent and ‘ad hoc’ evaluations of individual PMCs conducted by Donors and government agencies. FMC financing sources may include the government, donor agencies, international financial institutions, the central bank and the country’s commercial banks. The ‘necessary’ condition for financing is that the government of a given country must commit its own resources, thus making a firm promise to help the poor through an autonomous fund for microcredit. Microcredit funds must have pragmatic standards and procedures to evaluate partner institutions in areas such as: accounting and auditing, payment default management, administrative information systems, human resources development and sustainability. The PKSF case studies in Bangladesh, the Social Capital Fund (FONCAP) in Argentina and the Department of Local Initiatives (DIL) in Bosnia-Herzegovina highlight the outstanding features of microcredit funds. Both the aspects related to the “process” and the “results” are briefly analyzed in three case studies of diverse geographical nature and scope. However, there are some common features present in the three examples, such as: a commitment to microcredit operations by the government and other interested groups, a certain degree of autonomy of the funds, agile, effective and affordable implementation systems, good administration and reporting systems, and evaluation of partner institutions based on results thereof. No system is perfect and the prerequisites for establishing a system may not be perfect, but the bold decision must be made to introduce an innovative practice such as a microcredit fund, which has proven to be the best practice in some places on the planet. The realities of its direct exercise have already refuted attacks on autonomous funds. These major funds are demonstrating their enormous potential to help the poorest and most forgotten people on earth.

The purpose of this document is to advance the learning agenda of the Microcredit Summit Campaign. The opinions expressed herein belong to the author and do not necessarily reflect the views of the Microcredit Summit Campaign.

[1] The Microcredit Summit Campaign defines “the poorest” as those people or families that belong to the lower half of the group that is below the poverty line in their country.

[2] For the purposes of this document, the 1997 Microcredit Summit and the 9-year campaign to meet the Summit’s goals, any mention of the microcredit should be understood as a reference to the programs that provide credit for self-employment and other financial and commercial services (including savings and technical assistance) to very poor people.

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