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p. 15 of 24 BACK | NEXT Introduction Need for a Development Strategy for Microfinance Microfinance in the Asian and Pacific Region ADB’s Microfinance Experience Other Agencies’ Microfinance Experience ADB’s Microfinance Development Strategy Goal and Purpose Strategy Strategic Focus Implementation of the Strategy

Microfinance Development Strategy : ADB’s Microfinance Development Strategy

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Strategy

A large amount of financial resources is required to provide institutional microfinance services to over 95 percent of the potential clients who are currently outside of formal finance in the Region. Given the amount of resources needed, ADB and other agencies cannot meet the demand individually or as a group. However, without reaching a large number of the poor households on a permanent basis, microfinance is not likely to generate a significant overall development impact. Hence, ADB will catalyze expanding the supply of microfinance and strengthen the capacity of the potential clients to access the services. On the supply side, the strategy focuses on building financial systems that can grow and provide financial services on a permanent basis to an increasing proportion of the poor, and promotion of pro-poor innovations. On the demand side, the strategy supports investments in social intermediation.

To play this catalytic role effectively, ADB must

1. provide and leverage its assistance to bring about policy reforms essential for development of microfinance,
2. support development of critical financial infrastructure,
3. support development of viable MFIs that can set in motion a process of commercialization of microfinance services,
4. support social intermediation required for sustainable microfinance development, and
5. support innovative programs and financial technology to ensure that the poorest of the poor will also have access to the financial services.

ADB needs a broad strategy because of the diversity of microfinance issues in its DMCs and the flexibility required to address these issues in different country contexts. However, the strategy emphasizes selectivity in application due to the constraints on ADB’s resources for microfinance, the various stages of microfinance development in DMCs, and the relative priority of microfinance in the context of ADB’s overall strategy for poverty reduction and country operational strategies. In addition to selecting the appropriate countries in which to focus on microfinance activities and emphasizing the rural sector, ADB will act selectively regarding the type of activities to be supported, modalities of assistance utilized, and the type of institutions eligible to participate in ADB-supported projects in particular countries. The focus on the rural sector is justified mainly by the overwhelming concentration of the poor in rural areas. However, given the increasing recognition of potential for microfinance development in urban areas, ADB will also explore the opportunities in and build its capacity for extending support to urban microfinance.

ADB’s strength for supporting microfinance in general stems from its extensive involvement in agriculture and rural development focusing on low-income groups, urban development involving low-income groups, the institutional knowledge base of informal microfinance operations, and accumulated experience in a wide range of rural and microfinance institutions. The considerable involvement in financial sector reforms also provides ADB with ample opportunities for providing support for microfinance in a coherent manner. These factors, together with the type and extent of involvement of other agencies, will be taken into account in selectively determining ADB's assistance for microfinance.

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