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p. 9 of 24 BACK | NEXT Introduction Need for a Development Strategy for Microfinance Microfinance in the Asian and Pacific Region ADB’s Microfinance Experience Review Development Impact Lessons Learned Other Agencies’ Microfinance Experience ADB’s Microfinance Development Strategy Implementation of the Strategy

Microfinance Development Strategy : ADB’s Microfinance Experience

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Review

ADB recently reviewed its microfinance operations for 1988– 1998.¹⁹ A number of observations can be drawn from the review.

1. ADB has engaged in an increasing amount of microfinance activity over time. The number of projects and the total amount of loans for microfinance have increased since the first project was approved in 1988. Six of the 15 microfinance loan projects and 2 of the 6 microfinance component projects were approved during the last 3 years. These eight projects accounted for 49 percent of the total amount approved for microfinance during the last 11 years. ADB's microfinance loan assistance has been concentrated in a few countries. Two countries (Bangladesh and Indonesia) received about 62 percent of the total loan amount for microfinance projects; Philippines and Nepal, 33 percent; Kyrgyz Republic, 4 percent; and Mongolia, 1 percent.²⁰

2. Technical assistance has been an important element in ADB’s microfinance activities.²¹ ADB approved 35 technical assistance between 1988 and March 1999, covering a wide array of activities. Project preparatory technical assistance have effectively helped to develop a pipeline of bankable projects. Advisory technical assistance have been used primarily for social mobilization of the poor, training of potential clients, and institutional strengthening of MFIs. Recent advisory technical assistance also address supervisory and regulatory issues. However, the technical assistance suffer from a number of drawbacks: (i) most project preparatory technical assistance lack adequate sector analysis, (ii) most advisory technical assistance are based on insufficient institutional analysis and lack a coherent long-term approach to institutional development, (iii) most technical assistance are designed with only limited stakeholder ownership and participation, and (iv) technical assistance lack measurable and monitorable indicators to assess performance.²²

3. Policy dialogue and sector work have received increasing attention.²³ While microfinance policy issues did not figure importantly in the general policy dialogue on the financial sector in the late 1980s and early 1990s, ADB has recently been paying more attention to these issues. In countries where the policy environment was unfavorable (particularly where interest rate policies were repressive), ADB has refrained from assisting microfinance but has continued policy dialogue to improve the environment. ADB’s microfinance operations include sector work in selected countries. The work has included studies of microfinance markets in Cambodia, Papua New Guinea, and Vanuatu and a study of urban microfinance in Bangladesh.

4. ADB’s microfinance projects have improved over time. The early projects in general (a) focused on microcredit delivery, (b) allowed subsidized interest rates, (c) paid little attention to financial viability, and (d) were poorly targeted.²⁴ The lending operations in recent years support a wider array of institutions, go beyond credit services to promote voluntary savings on a limited scale, emphasize market-oriented interest rates, and pay more attention to financial viability than did earlier projects. The projects have shown a distinct bias toward reaching women in poor households and most included social mobilization components to enhance women’s capacity to access financial services delivered through project supported mechanisms. More recent microfinance projects, such as the Rural Microfinance Project in Nepal,²⁵ have been designed to encourage greater participation of the private sector in microfinance.

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