Micro credit summit

micro credit summit


20-21 SEPTEMBER 1996

What happened at the Prepcom?

The Prepcom involved the presentation by organising committee members of different sections of the Draft Declaration and Plan of Action relating to 5 areas detailed below. These areas were then the basis of discussion by panels and participants in two working group sessions. There was a large degree of consensus across the board on what the issues were and that the document should change to reflect them.

A key issue which was raised again and again was that this Summit should be about microfinance rather than micro credit, that credit usually did not reach the very poorest and that the needs of poor people were for a wide range of financial services including savings, insurance and business development services. While a strong case was made for the name of the event to change to "The Microfinance Summit", we understand that the name of the event is now unlikely to change but that there will be a very clearly stated sub-text to the title explaining this agenda.

It was explained by the organisers that the non-negotiable bases of the MCS were two-fold: poverty focus and sustainability.

1. Building capacity in developing countries

There was consensus that financial services rather than credit should be the focus of the document. It was emphasised that the Micro Credit Summit did not need to build a new movement from scratch - rather a range of microfinance institutions and initiatives already exist, so the task is to bring them together. Therefore building capacity can be thought through at three levels (i) expansion of operations of organisations already working in microfinance; (ii) a small number of focussed and strategic startups; (iii) involvement of national banking sectors.

In the document training has been a focus of resources needed as well as funds. The discussions concluded that the intention is not that either training or funding should be centrally organised or controlled and the document needs to reflect this. Rather that the intention here is to build linkages between organisations in order that they can learn from each other what works and what does not.

Emphasis was put on the need for flexibility and responsiveness to the different circumstances and situations in which programmes are developed. Mechanisms for sharing learning were discussed and it was clear that this was not an easy area since ensuring quality of the lessons learnt and disseminated is important. The need was highlighted for a simple and effective information/ communication centre which could make use of electronic media (amongst other things) to put people in touch with each other whether for accessing funding, training facilities, sharing documentation of best practice, discussing how to influence governments or whatever.

It was agreed that sustainability needed to be better focussed on the client as well as the institutional level ie. positive client impact needed to be written in.

NGOs were seen as having roles beyond implementation in advocacy around the issues such as the regulatory environment and need for stability in the macro environment as well as favourable international economic conditions.

2. Building capacity in industrialized countries

One of the issues raised here was the need for funding. A suggestion was raised that USAID/ WB funding was extended to the north which was rapidly refuted.

3. Marrying commercial finance with microcredit

The key point here was a

realisation that the focus on North to south transfers of investment resources should not be the focus of the document and that this in most cases was still a long way in the future. Rather the focus should be on how to develop national banking systems and sources of finance to provide services to the poor.

In this context there was recognition of the need for regulatory reform of commercial banks working in this area, the need to get commercial banks to work together on microfinance, the need to develop greater risk tolerance among the commercial banks and the need to use their experience to help scale up.

Emphasis was put on the development of intermediary organisations and creation of innovative financial mechanisms. Developing and extending loan schemes to recognise the importance of intermediaries was discussed.

The vulnerability of savings and the need for appropriate instruments was stressed as was the critical importance of sound management practices. Elimination of obstacles to institutions achieving financial sustainability was also discussed.

4. Securing grant and concessional monies

Ismail Serageldin of the World Bank commenced by saying that the problem was not of funding but of the capacity to absorb it. While this is true at some levels it was clearly not the case as far as many participants were concerned.

Few bilateral donors have joined the Summit's Council of donors, although more attended the meeting to see how the event unfolded. Those that are attending are not able to promise additional support to this sector. Indeed it would appear that donors are more likely to support the event if pressure on them for additional funding is not present and they can see the additionality that this event has to offer over CGAP's existing operations.

The emphasis of the discussions on working with micro finance operations that are already in place, learning, the role of national banking systems (and how NGOs can work with them) should make the complementarity of this event to CGAP more apparent. The idea for a clearing house for contacts and information rather than a developer of accounting standards, best practice and so on would provide additional informational resources to a wider range of organisations.

5. Beyond microcredit

The importance of financial services beyond credit was clearly stated, as was the need for non-financial services such as business development and client training. Emphasis on the availability of these in the long term and hence their sustainability was strong. A suggestion was made to rename the Summit the "Micro enterprise Summit" to reflect this.

Practitioners speaking from experience expressed the view that credit itself was unable to reach the bottom 25% of the worlds poorest and that microfinance interventions did not tend to engage with this group. Many argued that this reality be accepted, that reference be made to work with the poor rather than the poorest and that other measures need to be considered for this group.

The concern about drawing resources away from related social services such as education and health was highlighted. However, it was pointed out that considerable improvement can be made in improving poverty focus of existing aid programmes by shifting aid which is clearly not poverty focussed to programmes which are, without reducing resources already committed to poverty focussed interventions.

This Prepcom Report was written by Susan Johnson, Economic Policy Analyst ACTIONAID UK - SUSANJ@actionaid.org.uk Hari Srinivas - hsrinivas@gdrc.org

Source: www.gdrc.org

Category: Payday loans

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