Through MicroStart, UNDP is making an important contribution to the growth of microfinance around the world, both through its direct support of MFIs and through the processes and ideas it is introducing into countries where microfinance is just beginning. MicroStart effectively uses UNDP's strengths, particularly its decentralized presence in a wide range of countries. By organizing key players MicroStart brings local leaders into direct, often intense, contact with experienced microfinance providers (the TSPs) and local MFIs. Through this process, best practice ideas are tested and modeled (e.g., appropriate roles for donors and government; interest rate policy; funding mechanisms). As one Moroccan observer noted, MicroStart is introducing rigor into the relations between donors and MFIs, often for the first time. The evaluation affirmed the value of the basic structure MicroStart has set up.
By focusing on young MFIs in countries with less developed microfinance activities, MicroStart has chosen a good niche for UNDP. A particular contribution is bringing southern microfinance organizations into the picture as TSPs, and in encouraging northern TSPs to source more support regionally and locally. MicroStart's main tools -- small grants to MFIs and contracts with TSPs -- are effective mechanisms. The grants do not overwhelm organizations, and their modest size conveys the message that the technical support is more valuable than the money. SUM, which developed and manages MicroStart, is to be commended for creating an effective set of tools, and more recently for taking steps to use them flexibly.
The central recommendation of this evaluation concerns how to get the most benefit from the MicroStart structure. Too often in the course of the evaluation, we found all the wonderful resources of MicroStart being applied to organizations with very low potential. MicroStart aims to work with small, young and promising MFIs, but at the local level the idea of promising is sometimes lost. MicroStart should re-orient the country offices and TSPs toward identifying organizations with the potential to grow and become sustainable -- searching for breakthroughs. It must learn the distinguishing characteristics of potential breakthroughs, and it must remove the incentives that still exist to choose low potential MFIs. Where there are few promising organizations, MicroStart will have to work with a smaller number of MFIs, develop strategies for pulling the right people into microfinance, or use MicroStart as a winnowing process.
A second major area of recommendations concerns the structuring of the relationships between the TSP, the MFIs, and the funder. We observed that within the framework MicroStart sets up, capacity building is most effective when the MFI sees the TSP as a partner and values its assistance for its own sake, rather than as a requirement for accessing funding. To enhance this perception, MicroStart should adjust the funding agreements with MFIs to focus clearly on a limited set of objective performance indicators and to base release of tranches on these, rather than on subjective judgments about institutional development. This change will make MFIs more clearly responsible for their own performance while reducing the TSP's role as funding agreement enforcer.
A third important area of recommendations concerns the future activities of SUM. SUM already recognizes that effective MicroStart programs depend on creating ownership within the UNDP country offices and ensuring that those offices have staff knowledgeable to make sound decisions regarding microfinance. This strategy makes SUM a service provider to the rest of UNDP. SUM's planned capacity building program is an important aspect of this strategy of placing tools in the hands of country offices. SUM staff should focus on providing the best possible service, including more staff visits, focused on the key intervention points it has identified, and limiting involvement during other phases. The evaluation also offers a learning agenda for SUM, based in part on the concept of SUM as a center of expertise for the microfinance industry on young MFIs and in part on topics that have arisen during MicroStart implementation. Finally, the evaluation offers a series of specific recommendations for improving key steps in the MicroStart process.
MicroStart: Finding and Feeding Breakthroughs Midterm Evaluation Prepared for UNCDF/SUM 10 December 1999 Elisabeth Rhyne and Jill Donahue
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United Nations Capital Development Fund
(Visit United Nations's Website)
The United Nations Capital Development
Fund (UNCDF) is a UN organization mandated
by the UN General Assembly and its
Executive Board to provide capital
assistance first and foremost to the Least
Developed Countries (LDCs). UNCDF invests
in LDCs in order to support their efforts
to reduce poverty and achieve the
Millennium Development Goals, especially
in its two main product lines - Micro
finance and Local Development. UNCDF is
part of the UNDP-group and hosts the UN
Advisors Group on Inclusive Financial
Sectors.
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