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Creating Effective Capacity Building Relationships

Written by: United Nations Capital Development Fund

Article Overview: MicroStart's use of TSPs is an experiment in creating a new framework for capacity building. The original design sprang from the recognition that the standard CTA model in use throughout UNDP projects was not the best way to support the development of microfinance institutions.

Creating Effective Capacity Building Relationships

MicroStart's use of TSPs is an experiment in creating a new framework for capacity building. The original design sprang from the recognition that the standard CTA model in use throughout UNDP projects was not the best way to support the development of microfinance institutions. MicroStart's designers wanted to bring in experienced microfinance organizations. They were especially enthusiastic about involving leading retail MFIs for the first time. Other design features emerged from the practical requirements of working within UNDP. Thus, the original MicroStart model contained some features that reflected a particular philosophy about microfinance (e.g., desire to support local initiative and promote South-South exchange), as well as some features shaped by bureaucratic constraints (e.g., three year time frame, $500,000 contract amount).

It is useful to compare the MicroStart model with other ways of approaching capacity building in microfinance. The CTA approach has already been mentioned. The MicroStart approach has the potential to bring in greater institutional backing and accountability for performance than is possible with a separately contracted individual. Another model is represented by such early USAID technical assistance projects as Fondomicro in the Dominican Republic, K-REP in Kenya (during the period in which it was an umbrella organization), and Fundacion Covelo in Honduras. MicroStart resembles these efforts in some important dimensions: each was a joint technical assistance and funding effort, where technical assistance was provided at the same time to several MFIs in a country. Their main lesson has already been discussed, namely that organizations with limited potential are not easily turned around. The experience of these projects led to a view among some experts in microfinance that technical assistance projects do not work. However, MicroStart may have a better chance than those organizations, for two reasons. First, there is today a great deal more specific knowledge about how to do microfinance effectively than there was a decade ago when those projects began. Knowledge transfer may now be a more meaningful process. Second, the MicroStart TSPs that have been selected, unlike the earlier USAID TA providers, have hands-on experience in microfinance. They are probably better equipped to provide relevant, practical suggestions. Nevertheless, one nagging question remains from those experiences -- namely whether the technical assistance framework itself was a limiting factor.

International promoters of microfinance such as ACCION, IPC, FINCA, and others have developed a very different approach to working with MFIs, one which contrasts sharply with the earlier TA project approach and with MicroStart, as shown in Table 2. Most of the international NGOs have concluded that they need to develop long term relationships in which they have substantial influence over the institution or at least over its microfinance operations. Some have chosen to work only with organizations they initiate to ensure compatible vision and strong leadership. One must acknowledge that international NGOs have an element of self-interest in maintaining long term affiliations in which they have significant influence. However, these organizations have come to their current approaches through trial and error, as solutions to some of the central problems involved in capacity building relationships, and their lessons from this experience are important to consider.

The INGO model represents a significant challenge to MicroStart's model, suggesting that effective relationships involve ongoing, rather intensive involvement in operations, management and governance. MicroStart's model is more circumscribed. It implicitly values local autonomy, but it may do so at some cost in terms of concrete achievement.

MicroStart's model can be characterized generally as a limited, low-control model. It will be an important contribution for MicroStart to watch and analyze its TSP model over the next few years, so that it can draw conclusions about the value of the kinds of relationships it is sponsoring.

Meanwhile, we can already begin to draw conclusions about what works best in the kind of TA framework MicroStart sets up, based on low control and lack of long term affiliation by TA providers.

Continuity. All the TSPs have found it crucial to find a way to provide more regular availability of in-country assistance. ASA (Philippines) provides five in-country experts; Socodevi (Ivory Coast) and ACDI/VOCA (Mongolia) each provide one; and Save the Children (Morocco) uses the LTSP to provide on-site continuity. This is because learning a lesson in a workshop is only the first step in a long, iterative process of internalizing and applying that lesson within the organization. TSP support is needed throughout that process.
Doing What They Do Best. MicroStart should let TSPs do what they do best. Most TSPs have varied the plain vanilla MicroStart model to incorporate elements from the model they normally use, and this freedom is important. Freedom from Hunger and ASA, for example, are teaching organizations their lending methodologies rather than attempting to improving existing methodologies. Within the circumscribed area of the implementation of their models (e.g., the ASA pilot branches), they insist on substantial control. ACDI/VOCA in Mongolia has essentially evolved into a modified-CTA model based on a single on-site advisor working with one organization, reflecting ACDI/VOCA's eclectic approach to microfinance. In the case of Socodevi, this issue is at the core of the program -- i.e., whether Socodevi should be required to teach MFIs group lending, a technique with which Socodevi has little experience. It is important to the success of MicroStart for TSPs to have flexibility, so that they can focus on doing what they do best and working in ways that they understand. This is probably especially important for TSPs who are retail MFIs, whose experience is limited to implementation of their own methods.
TSPs Should Not Be Funders. We found in the Philippines and Morocco that TSP involvement in questions about access to funding either has had or threatens to have damaging effects on the TSP/MFI relationships. ASA has made a point of distancing itself from funding decisions (after MFI selection) in order to ensure that the MFIs remain enthusiastic about working with it. The MFIs are only receptive to advice provided by TSPs when they value the advice for the benefit it provides rather than as a ticket to donor funds. This observation has a direct analogy in the lesson that it is counterproductive to require microentrepreneurs to attend training courses as prerequisite to getting a loan.

The hypothesis that MicroStart may wish to test as the program progresses is that in a framework of low control and limited duration, TA is only effective if the local institution values the TA for its own sake. We envision a three-way relationship in which the donor/MFI link is dominated by objective targets of performance, while the TSP/MFI link is dominated by the MFI's conviction that the TSP can provide means of meeting those performance goals. This model is discussed at greater length in Section IV, on the funding relationship.

MicroStart: Finding and Feeding Breakthroughs
Midterm Evaluation
Prepared for UNCDF/SUM
10 December 1999
Elisabeth Rhyne and Jill Donahue

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Article Tags: accountability, better chance, constraints, covelo, cta, design features, designers, dominican republic, kenya, mfis, microfinance institutions, microfinance organizations, microstart, original design, technical assistance projects, time frame, tsps, umbrella organization, undp, undp projects



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