Other TSP Issues

1. Local Technical Service Provider The concept of the local technical service provider, although a last-minute addition to the MicroStart framework, is an important part of the whole. However, it needs some modification to make it more workable than the original, overly idealistic concept. Originally, the LTSP was to be a firm, MFI, or individual who would be trained to carry on providing TA to small MFIs after the project ended. This idea was too idealistic because it overestimated the availability of potential LTSPs and underestimated the amount of development that would be required to bring an LTSP to the desired level, especially in countries where microfinance is new. Moreover, it was based on a romantic notion about MFIs helping each other. In Morocco, the idea of stronger MFIs helping weaker ones was built into the design, but has failed, with resulting bad feelings and wasted effort. MicroStart must recognize that most retail MFIs are overwhelmed with the challenges of their own survival and growth, and lack resources to devote systematic effort to assisting other MFIs. Moreover, these other MFIs are potential competitors, and therefore willingness to help will always be constrained. While MicroStart may succeed in involving a few strong MFIs in becoming international TSPs (i.e. mature organizations asked to assist MFIs that will never be their competitors), there is not likely to be an analogue at the local level.

In practice, the LTSP has tended to be an individual, and this person has had to carry quite a burden of logistical support, in addition to learning about microfinance. Nevertheless, these individuals are serving an important function of helping the TSP bridge into the local culture, and often into the local language. In Morocco, the LTSP is the key provider of continuity, given that the TSP operates through intermittent visits. Under this more practical conception of the LTSP's role, the long term role of the LTSP as a service provider is less important than the fact that the person or firm receives a thorough grounding in microfinance. If the LTSP develops credible expertise, local demand for services will be there, and the incentives to use the knowledge gained will be high.

Accordingly, our recommendations for the TSPs are:

Require TSPs to designate a firm or an individual as LTSP, and to provide the LTSP with high quality training.

Allow the TSP latitude in the choice of LTSP, the LTSP mechanism, and the use of the LTSP within the project. The only requirement should be that the LTSP must have a substantive, not just administrative or logistical, role. Country offices must refrain from influencing the choice of LTSP.

2. Cost-Effectiveness MicroStart's designers set the size of the allowable contract for TSPs at $500,000 per country, a level chosen in reference to the cost of providing a three-year CTA. Contracting provisions associated with pre-qualifying a list of TSPs resulted in fixing this amount as a standard across all of MicroStart. Now, however, TSPs worry that the amount is not enough money to bring about the desired changes, while UNDP officers grumble that the amount of technical support is lower than it ought to be given the amount of money required. At the risk of being facetious, if one side thinks the amount is too high and the other thinks it is too small, it must be about right! In fact, the evaluators believe the amount is reasonable: sufficient to operate the program, but not without attention to economizing.

Both sides have an incentive to search for greater cost-effectiveness. It is clear that TSPs able to source their technical assistance from within the region, or locally, have important cost advantages over organizations operating primarily out of a developed country. ASA in the Philippines, with five on-site advisors, leaves all the other TSPs far behind in terms of the number of person-hours of technical support it provides. ASA's advantages include: (a) low salaries by international standards, (b) the fact that ASA is regional, reducing travel costs, and (c) ASA's own motivation to prove its capability as an international technical service provider, thus financing some costs out of its own pocket.

In short, the limit on the amount of funds available to TSPs provides a strong incentive to source assistance as close to the country as possible. Since one of MicroStart's objectives is to foster South-South exchanges and the development of local capacity, it should continue to keep a lid on total budgets.

3. TSP Selection Process The UNDP country offices have -- and should keep -- primary responsibility for the selection of the TSP. However, as most of them have little exposure to the organizations on the TSP list, they rely on assistance from SUM. Two suggestions are made here to improve the selection process:

Provide more detailed information about the methodologies of the TSPs and the strategies they are likely to use in working with MFIs, and use this information in selecting TSPs that have a good fit to local needs. Instead, the selection, at least according to written documentation, seems to have been based more on loan sizes and the cost-effectiveness of the proposed budget. While these factors are important, it is especially important to understand what the TSP is likely to do once it arrives in the country.

In Ivory Coast the UNDP office could have identified Socodevi's lack of experience in providing group loans, negotiating either a credit union development effort without group lending or a strategy for Socodevi to bring in external group lending expertise.

UNDP offices selecting Freedom from Hunger or ASA should know that they work with organizations by teaching them their own systems rather than by offering general institutional development assistance. This has been an issue in Haiti, for example.

Similarly, they should know that Calmeadow will work with a wide variety of methodologies, and has special expertise in MFI transformation, and that SCDF's main strength lies in helping organizations bring in equity investors.

This information should be presented on a case-by-case basis in a format that allows for a frank assessment. As MicroStart progresses, the relevant information for SUM to pass on will include the performance of TSPs in other MicroStart programs.

Clarify SUM's role in the selection process. SUM appears to have mixed motives regarding TSP selection. On the one hand, it has strong opinions about which TSPs are a good fit in which countries. On the other hand, it wants to promote a sense of ownership of the choice by country offices. SUM should acknowledge that it has a legitimate role in informing country offices as much as possible about the TSPs, while refraining from pre-empting country office choices. Its views ought to influence selection, as SUM knows a great deal more about the TSPs than do the country offices. However, in fairness to the pre-qualified TSPs, SUM must also be careful to ensure that country offices have a chance to consider all the organizations that are interested in working in their country.

D. Recommendations on TSPs More time must pass before it will become possible to assess the success of the MicroStart framework as a way of working the MFIs, but preliminary indications show that MFIs are enthusiastic about the help they are receiving and are applying lessons. MicroStart has made important innovations to bring more local and regional expertise into the process. It has appropriately allowed TSPs flexibility to work as they best know how. Thus, at this stage the recommendations concerning TSPs are relatively modest:

1. As MicroStart progresses, continue to study the conditions that make for productive capacity building relationships.

Analysts of microfinance have never adequately examined questions about the effectiveness of technical assistance relationships or performance of technical assistance providers. MicroStart offers a unique possibility to analyze a large number of these relationships both for the benefit of MicroStart and for the microfinance field at large. MicroStart may wish to sponsor research on this issue.

2. Modify the Pre-Qualified TSP List regularly.

The TSP list should evolve as the microfinance field evolves -- i.e., rapidly. New organizations are appearing, particularly regional organizations, while some existing organizations on the list are finding that MicroStart is not a good venue for them. Thus, an ideal TSP list today would already have some important differences from the existing list. A rolling qualification and drop out process would be best.

3. Improve the structure of agreements with TSPs and MFIs to enhance the capacity building process.

This recommendation involves clarifying performance targets for both TSPs and MFIs and protecting TSPs from acting as the donor's policeman, in order to ensure that the TSP/MFI relationship maintains the conditions for a free exchange of knowledge. This recommendation is detailed in the next section, on funding.

4. Consider ways for MicroStart to assist TSPs in improving their ability to provide good technical support.

Given that the provision of technical assistance is a new area for many of the TSPs, and that even experienced providers may have little experience working in MicroStart's framework, SUM may wish to consider ways to encourage TSPs to improve their delivery capacity. Two strategies are suggested. One is to be somewhat more demanding of TSPs during the set-up phase -- such as by requiring that TSPs make visits to any country they plan to bid on or by doing more intensive review of the fit between the TSP's know how and the MFI needs. The other strategy is to provide opportunities for TSPs to discuss together issues involved in delivering technical assistance.

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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