Catalog

	Table of Contents
p. 19 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 Implementation of the Strategy Mainstreaming Microfinance Better Use of Existing Modalities Enhancing ADB’s Private Sector Operations Building ADB’s Capacity Coordination Among Funding Agencies Monitoring Implementation Review of the Strategy

Microfinance Development Strategy : Implementation of the Strategy

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Better use of existing modalities

A major effort is needed to improve the effectiveness and efficiency with which ADB uses its modalities of assistance—policy dialogue including sector work, loans, TA, and equity investments. These modalities provide significant potential capacity and a sufficiently broad framework and flexibility for ADB to assist microfinance development in its DMCs. To achieve this objective, ADB will

1. base assistance on a thorough financial sector review and a country-level sector development strategy;

2. provide assistance through long-term partnerships rather than as one-time project operations;

3. emphasize the catalytic effect and the potential development impact in considering assistance;

4. take into account the conditions under which microfinance can play a significant role in promoting pro-poor, broad-based economic growth;

5. consult major stakeholders including NGOs and potential clients of microfinance projects extensively, and coordinate closely with other funding agencies;

6. focus on development of sustainable institutions within an enabling environment, and appropriate financial infrastructure;

7. systematically monitor the progress of MFIs toward achieving their sustainability, and insist that they adopt best practices; and

8. specify how ADB will stop supporting MFIs that do not clearly comply with conditions for assistance, and effectively cease such support as appropriate.

ADB will introduce measures to improve country programming in microfinance. Poverty analysis of DMCs will cover microfinance. The country operational strategy (COS) will identify whether ADB can meaningfully contribute to the development of the microfinance sector in a given country. Based on country-level poverty analysis, COSs, sector studies, and operations of other funding agencies, the country assistance plans may propose a medium-term plan of assistance for the countries chosen for intervention in microfinance. In using the modalities, ADB will pay special attention to the specific problems of small Pacific economies where the small scale of financial system calls for different approaches, and to the transitional economies where the shift to market-based financial systems needs to be gradual.

Policy dialogue and sector

Given its critical importance, ADB will pay more attention than in the past to policy reforms to create a better policy environment for the development of sustainable sources of microfinance. Once the countries that may receive microfinance assistance are identified through the COSs, country programming missions will discuss major policy issues in the subsector with the stakeholders (such as the central banks, ministries of finance, MFIs, and civil society). Comprehensive subsector studies will underpin these discussions. The policy dialogue will be a continuing process through which a country moves from a less enabling to a more enabling policy environment. In countries where sustainable growth in microfinance is constrained by nonfinancial policies, the dialogue will encompass a broader agenda to include such policies. Because effective implementation of policy reforms requires substantial involvement and ownership from the major stakeholders, ADB will bring on board the major stakeholders during the process of policy dialogue. For this purpose, ADB will promote establishment of high level rural finance policy groups and workshops, in close coordination with other funders and in consultation with major stakeholders at the country level, where such a mechanism is deemed relevant.

Financing modalities

Loans will continue to be important in ADB's assistance for microfinance. However, the emphasis of loans will shift from providing funds for onlending to developing sustainable microfinance systems that can efficiently mobilize domestic resources to expand the outreach of services. Among other things, ADB’s loans will be used to (i) catalyze needed policy and institutional reforms; (ii) promote domestic savings mobilization and insurance services; and (iii) develop cooperatives and link community-based, autonomous savings and loans associations with sustainable formal and semiformal financial institutions to expand the services. ADB loans will not be used to support institutions that are not prepared to implement meaningful reforms to move toward market-based systems and achieve financial viability, or to subsidize interest rates to the clients of MFIs.

To improve project design, systematic use of the financial system development approach and incorporation of best practices into project design will be ensured. ADB will carry out extensive consultations with the poor and other potential stakeholders. The consultations will be held at the project design stage to ensure project quality at entry and that projects are client-focused, demand-driven, and designed to reach the poor and the poorest effectively. To improve project administration, the focus of microfinance project administration will be shifted to monitoring (i) institutional sustainability; (ii) extent of leverage; (iii) the extent to which project services reach the poor, poorest, and women; and (iv) the development impact of assistance from current practices focusing on a narrowly defined set of project inputs and activities.

To enhance the effectiveness of microfinance technical assistance, ADB will:³⁰ (i) ensure that technical assistance are prepared based on a longer term perspective than in the past; (ii) design advisory technical assistance based on comprehensive institutional analysis and in partnership with concerned institutions, and ensure their focus on capacity building and policy reforms; (iii) increase effective stakeholder participation and ownership in designing technical assistance; and (iv) use measurable and monitorable indicators to assess performance.

The strategy also supports (i) the use of the technical assistance cluster approach for microfinance where this approach is more suitable to promote microfinance development; (ii) wider use of technical assistance for pilot testing in microfinance; and (iii) innovative use of technical assistance to provide direct small grant assistance to MFIs and other relevant institutions to finance microfinance activities such as development of new products and services for the poor, workshops and training on thematic issues such as governance and development impact assessment, and research on key issues in microfinance. To augment resources for technical assistance for microfinance development, ADB will make a concerted effort to enhance cofinancing from its donor member countries. ADB will also explore possibilities for mobilizing resources to meet the demand for capacity building in microfinance through other mechanisms.

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