MFI Performance in Countries Visited: A Few Numbers

Before reviewing the performance of MFIs in MicroStart, it is useful to consider what minimum level of performance would justify the expenditures MicroStart is making. A simple thought experiment can provide us with the roughest order of magnitude. MicroStart programs generally spend $1.5 million per country, covering both technical and financial assistance. Let us assume that the average loan (or deposit, in the case of credit unions) that assisted programs make is $100, which is larger than average in some countries and smaller in others. A further (generous) assumption is that MicroStart can claim credit for all the additional clients of participating organizations. Finally, we assume that UNDP considers it acceptable to spend a dollar to increase the available amount of loan capital to a poor client by the same amount. This ratio falls well below the leverage ratios heralded by Rich Rosenberg when he pointed out the value of leveraging donor resources through licensing of MFIs. However, it is a reasonable or optimistic ratio for working with start-up organizations, and probably exceeds the ratio most donor programs achieve.

In order to achieve this one-to-one ratio, a MicroStart program of $1.5 million would need its participating organizations to add 15,000 additional clients. These new clients could be stretched out over a longer period of time than the three years of direct MicroStart support, but they should be sustained clients, which would require the organizations to be able to prevent the value of their capital from eroding due to operating shortfalls, loan losses, etc. (otherwise additional grants would be needed to sustain benefits). In order to "justify" the expenditure, therefore, MicroStart programs should not only add at least the requisite number of clients, but also score well on indicators of portfolio quality and financial viability.

The following table provides a snapshot of MicroStart MFI performance on two key indicators -- client growth and delinquency control -- in the three countries the evaluators visited. Each set of numbers requires interpretation in its own context.

In Morocco, the longest running program, we can see performance over a year and a half. The results must be interpreted in light of the fact that microfinance is very new in Morocco. These are first generation MFIs. Although all the organizations in Morocco have made internal strides as a result of their participation in the program, the success of the program rides on one breakthrough organization: Zakoura. During its MicroStart participation Zakoura has added nearly 9,000 clients, making it the second largest MFI in Morocco, and it has done so while maintaining close rein on delinquency. Zakoura staff expect to reach operational self-sufficiency by the end of this year. On the strength of Zakoura, MicroStart Morocco looks likely to achieve the hypothetical 15,000 client target by the end of the three years.

The remaining organizations, however, have contributed only 4,000 additional clients, half of whom are claimed by an organization, FONDEP, whose numbers are in dispute due to lack of transparency in reporting. Although these organizations are growing, they are all struggling with delinquency problems. Ismailia, the sole program reporting low delinquency, has no regular delinquency tracking system, and its PAR number is not reliable. These programs add little in terms of client numbers, and they are far from sustainable. Yet they have absorbed four-fifths of project resources.

In Ivory Coast, the picture is less promising. The situation in the Ivory Coast is dominated by the fact that the participating organizations are all credit unions, and that the TSP is a traditional credit union promotion agency. While MicroStart's standard design focuses on credit delivery, the credit unions focus on savings. There is accordingly some confusion among parties regarding the objectives of the MicroStart program in this instance. This issue will be discussed at greater length later. For now it is important only to note that there do not appear to be any organizations in the MicroStart Ivory Coast program that are likely to become major providers of credit, although two may become significant providers of savings services. Perhaps the Ivory Coast program will meet the "target" on the basis of savers (which would be a good outcome).

The MicroStart program in the Philippines has ambitiously selected 17 organizations to work with, only four of which could be visited during the evaluation. As the program is just starting, no results are yet available. However, it is possible to make some observations about the four selected programs. Of the four, only one, Bayan Microfinance, has the attributes that are likely to propel it toward substantial, sustained growth. The remaining organizations are all multi-purpose organizations whose commitments to microfinance are constrained by stronger commitments to other social goals. All are struggling with delinquency, low growth, and leadership turnover. MicroStart is likely to improve their efficiency, but the gains will probably be incremental. These programs represent the stronger among the group of 17, suggesting that the remaining programs will show fewer results. In the Philippines it is likely that the project will meet the "target" because it is working with so many organizations. The incremental gains will add up. One must ask, however, whether the 15,000 figure is an ambitious enough goal for MicroStart in a populous country with long experience in microfinance.

It is important to note that of all 14 organizations listed here, only four are able to provide a reliable portfolio at risk figure showing that they are substantially in control of delinquency. Given that PAR-30 is the only performance indicator widely available for MicroStart, it is the best available window into organizational potential. It appears from this sample that MicroStart is beginning mainly with organizations that have significant delinquency problems to overcome, which is usually a very arduous task.

If the trends suggested by these numbers hold, these three MicroStart programs will have achieved the hypothetical target of 15,000 additional clients by the end of their three year lifetimes, but most of those gains will be concentrated in one or two strong organizations per country. Most of the remaining organizations will have added significant numbers of clients relative to their starting points, but the absolute number will be small and the levels of delinquency and operating losses will mean that additional grants will be needed to sustain the gains in client numbers.

There are several important points to note in the preceding discussion:

MicroStart programs already depend for their success on finding breakthrough organizations. Incremental change is not enough.

Among the existing portfolios in the countries reviewed, only three organizations look like they will be breakthroughs: Zakoura (Morocco), Bayan (Philippines), and XAC (Mongolia).

Most of the resources within MicroStart are going to the low-performing organizations, simply because there are so many of them relative to the strong performers.

These observations suggest that MicroStart could greatly enhance its impact if it found a way to focus its energies more efficiently on finding and supporting breakthroughs.

MicroStart: Finding and Feeding Breakthroughs Midterm Evaluation Prepared for UNCDF/SUM 10 December 1999 Elisabeth Rhyne and Jill Donahue To learn more about this author, visit United Nations Capital Development Fund's Website.

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