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Is MicroStart a Successful Microfinance Strategy for UNDP?

Guest post by: United Nations Capital Development Fund

Article Overview: When MicroStart began, its designers were attempting to develop a program that would fit well with UNDP's strengths and weaknesses. They decided to focus on new institutions, recognizing UNDP's presence in many countries where microfinance was still new, as well as the limits on UNDP's ability to provide grants. In order to compensate for the lack of experience of country office staff, they developed a project blueprint that they hoped would prevent some of the most likely errors UNDP offices with little microfinance background might make.

Is MicroStart a Successful Microfinance Strategy for UNDP?

When MicroStart began, its designers were attempting to develop a program that would fit well with UNDP's strengths and weaknesses. They decided to focus on new institutions, recognizing UNDP's presence in many countries where microfinance was still new, as well as the limits on UNDP's ability to provide grants. In order to compensate for the lack of experience of country office staff, they developed a project blueprint that they hoped would prevent some of the most likely errors UNDP offices with little microfinance background might make.

These were good choices. The focus on young organizations in new countries fills a niche that other donors have neglected. Some of the major donors who promote microfinance have chosen to support institutions who already have a proven track record and established client base. Other donors prefer to fully fund and provide technical assistance to an institution they fund from scratch. There is virtually no significant or systematic support for institutions that are "home grown" or young and/or small. This is particularly true in countries new to microfinance. Providing technical assistance via an international technical service provider and a small grant for operating losses and loan capital is an important market niche in such countries. In countries where microfinance is fairly well developed however, MicroStart will have to identify its niche and value-added differently. For example, in the Philippines its main contribution may be in introducing ASA's efficient operating systems.

As for the original blueprint, it was a good way to start, but, as this evaluation has showed, MicroStart is already beginning to outgrow it. Ultimately, SUM must rely on the decision-making capacity of the country offices, simply because of their day-to-day presence. In recognition of the need to allow greater country-level decision making, SUM has already taken steps to increase MicroStart's flexibility.

A. UNDP Country Offices

UNDP country office staff have, by and large, proven themselves capable of managing MicroStart.

Country office staff are especially important for coordinating the various levels of players involved in MicroStart. They have played an important role in ensuring that relationships work and the process moves ahead smoothly. It is doubtful that advisory boards, TSPs, and the executing agencies would have been able to achieve positive outcomes without the significant coordinating efforts by UNDP country office focal points.

Generating a feeling of ownership towards MicroStart is a very important consideration. Facilitating ownership at all levels is something that SUM sees as crucial. In the countries visited, SUM appears to have been successful in this endeavor. Perhaps the most important contribution has been in SUM’s effort to build the capacity of the country office focal person and of the advisory board. Access to capacity building opportunities has been crucial to instilling confidence and generating ownership. Examples of important activities are the various study tours and participation in the Boulder, Colorado courses on microfinance. Increased knowledge and experience enhances ability to make sound decisions. However, this only happens with time, while the most important decision affecting the success of MicroStart happen at the beginning (choice of TSP and MFIs) before the country office and the advisory board have gained sufficient capacity. For this reason, SUM's new capacity building program will be very important.

For the successful oversight of a MicroStart program, the country office should identify a staff person with time to focus on MicroStart. It appears to require a minimum of half time during the planning stage and first few months of implementation, and quarter time thereafter. It is also important that the country office recognizes the need for the TSP to have freedom to make technical judgments -- particularly on MFI and LTSP selection.

Country Offices (especially Resident Representatives) are interested in the bigger picture of their overall UNDP strategy as it relates to the country, particularly as it relates to poverty issues. The information and guidance SUM provides on the role of microfinance in poverty alleviation is especially valuable.

B. The Role of SUM

Like a parent raising children, as MicroStart matures, SUM's role evolves with the increasing capacity of the country offices. At first, SUM was the developer, promoter, and arbiter of MicroStart. Increasingly, however, SUM can evolve into a longer term role as service provider and center of technical expertise. SUM has already done some important things to improve the operation of MicroStart:

Increased flexibility
Identified key areas for SUM intervention
Launched new capacity building program
Identified desire to build learning agenda about how to support local organizations (see box).

A Learning Agenda for SUM/Microstart
SUM has noted that it wishes to be a center for learning about how to support young MFIs. Here are some suggested topics, it may wish to explore, using the Microstart programs as a learning laboratory:


Getting the right people into microfinance. Who starts MFIs? Who should start them? How?
Analysis of the origins and early stages of highly successful MFIs: what are common characteristics of breakthroughs?

What makes technical assistance relationships work? Analysis of various models and of TSP performance.

MIS systems for young MFIs. Is a paper-based system like ASA's the best route for a very new organization? What computerized products are suitable for very small organizations?

Credit unions: should they receive grants?

Best practices and internal procedures for Government financing apexes.

These are in addition to themes SUM has already identified, including impact and gender.




As a service provider, SUM's focus should be on getting its staff into countries developing MicroStart more often, being responsive to needs from the field as they arrive, developing guidance on critical issues (see next section for suggestions) and providing opportunities for exchange of experience among country offices and among TSPs.

As a technical office, SUM's plate is more than full with the capacity building initiative for country offices, the learning agenda, and its information dissemination function.

In the recent stringent budget setting facing UNDP, SUM may also need to take on a larger role in raising funds through other donors.

C. Recommendations

SUM should plan for greater autonomy for MicroStart at the country office level, through the dual strategy of capacity building and of SUM input at fewer, but more critical points in the process.


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

Related Articles
  Does It Make Sense for UNDP to Help Launch Small and New Organizations?
  Overall Conclusions and Main Messages - MicroStart: Finding and Feeding Breakthroughs
  Introduction - MicroStart: Finding and Feeding Breakthroughs
  Can MicroStart Have a Significant Impact on Policy and the Environment for Microfinance?
  II. How Can MicroFinance Succeed In Africa?

Article Tags: asa, designers, flexibility, institutions, level decision, loan capital, losses, major donors, market niche, office staff, operating systems, project blueprint, proven track record, scratch, strengths and weaknesses, systematic support, technical assistance, technical service provider, undp, undp country offices



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