This section is a walk through the MicroStart process, with specific recommendations. It focuses on the key areas of intervention SUM has identified. SUM's goal is to develop simple, efficient, and meaningful procedures, and these suggestions are offered in that spirit.
A. Assessment Stage SUM has treated the assessments as a relatively routine part of the process, seeing them as ways to get the process moving rather than important in themselves. This has been good for developing local ownership, but has done little to help identify good MicroStart strategy. At this point, when the rate of new assessments has slowed, SUM can afford to put more time of its own staff into each one.
Goals of the assessment stage:
Developing ownership of the process on the part of the UNDP country office Identifying options for MicroStart's potential value added, as basis for designing strategy (and prodoc)
The consultants carrying out the assessments have been asked to describe the microfinance scene and to determine whether there are enough institutions to make MicroStart worthwhile (and by implication to name some of them). Instead, they should be asked to look at major trends taking place in microfinance. In particular, they should try to figure out who the major providers of microfinance services are likely to be in the next five years, and which clients they will -- and won't -- be serving. Within that context they should then identify ways MicroStart could add significant value. This will enable everyone involved to start thinking earlier about making breakthroughs. At this stage, SUM should also assess whether the country office has allotted sufficient staff time and expertise to manage the MicroStart process. The assessment may also be a good opportunity to review existing UNDP microfinance activities, to begin a dialogue about changing bad practices within that portfolio.
B. TSP Selection and Agreements SUM has recently revised the format for its request for proposals in a way that takes care of most of the issues raised about TSP selection during the evaluation. The new format focuses more attention on the content and delivery methods the TSP proposes to use. Other points about SUM involvement in TSP selection and about updating the TSP list were discussed above.
One area for further work involves the agreements signed between UNDP and the TSPs. The aim of that work should be to sharpen and clarify the targets for which TSPs are responsible. SUM has tried to implement performance-based contracting, but has ended up with a hybrid that includes elements from old systems as well as new ones. Existing agreements refer to the Program Document, the TSPs own proposal, and workplans, each containing various ways of describing desired targets (i.e. different mixes of indicators) and end of project status. The numbers contained in the targets also differ, as these are continually refined, remaining tentative until the MFIs have been selected and their individual workplans established.
The agreements should be simplified. They should point to one clear source for guidance on operable targets, preferably those contained in the workplan, because those targets are more up to date and reflect the actual project situation, rather than the early attempts at estimation involved in the assessment and the TSP's initial proposal (which are based on very sketchy information). Currently, targets are being set too low, because TSPs want to be conservative, especially in the early stages before they have had a chance to assess the MFIs.
UNDP Country Offices and contracting authorities should not be overly concerned about signing a $500,000 results-based contract without clear results specified in the contract at the moment of signature. The contract clearly state the process for identifying those results, and states that they will be attached to this contract when they are locally approved. The desire to have some interim targets specified (from the Program Document, and the TSP proposal) until the TSP workplan is approved brings in the greater risk that these multiple targets will confuse and undermine a clear focus on the TSP workplan. The existing standard contract should be simplified by referring only to the TSP workplan. Since the risk to UNDP remains only $50,000, while the TSP prepares its workplan, this is an acceptable risk."
Targets for TSPs should include both the combined or, where appropriate, averaged performance targets of the MFIs (see below), and some output targets for delivery of technical assistance.
C. MFI Selection and Agreements 1. Selection MFI selection is the single most important step in the MicroStart process. It determines whether MicroStart will be able to assist breakthroughs or only incrementalists. SUM has a very strong stake in ensuring that it is done well. This will require greater SUM involvement, though it must be done carefully so as not to detract from local ownership.
One straightforward step is to amend the guidance and training for TSPs and advisory boards on MFI selection to emphasize how to identify organizations with breakthrough potential. The message should pervade everything MicroStart says or writes. SUM may wish to provide a sample format for reporting the results of the assessment of each MFI. That format could have both numerical indicators and qualitative assessments of leadership and potential.
SUM should find a way to be more involved in reviewing the work of MFI selection. This may be a review of the proposed MFIs and workplans (as SUM is now doing for Haiti). It could be ensuring that a SUM staff member is present at the advisory board meetings where selection is done or in the lead-up to those meetings. Whatever the mechanism chosen, SUM's main role would be to urge that low potential organizations are screened out and high potential organizations are screened in.
2. Agreements SUM should also develop a sample format for agreements with MFIs, as described above. The format should include the key targets that the MFI will be held responsible to reach. The following are suggested:
Number of active clients PAR-30 (Portfolio at risk over 30 days)
Operational self-sufficiency These three indicators embody the major goals MicroStart would wish to see: growth in outreach, control of delinquency (which also reveals client responsiveness and institutional competence), efficiency, and appropriate pricing. If there is an issue about client targeting with a particular MFI, an average loan size or percent women target could be added. However, for the most part, other targets would be superfluous and repetitive.
One section of the agreement should lay out clearly the terms under which successive funding tranches would be withheld or postponed. Those terms should be limited to the achievement of the targets, plus the provision of accurate reporting suitable for verifying whether targets are achieved (TSP to verify accuracy). They should not include acceptance or rejection of specific institutional suggestions by the TSP. One technique for ensuring that targets are set ambitiously but realistically is to set out preferred targets, but also to specify minimum acceptable levels of performance, below which funding could be suspended, say at 70 percent of the target.
As noted in the section on funding, it is important for the lines of responsibility between funder and MFI to be strengthened, rather than mediated by the TSP. For that reason, every effort should be made for the targets to be proposed by the MFI itself.
The workplans for technical assistance and institutional development are important as part of the overall package, but they should be seen as agreements mainly between the TSP and the MFI. The workplan is in effect a business plan, guiding the direction of and prioritizing technical assistance. The MFI should be charged by the funder to participate actively in the technical assistance being provided, with the proviso that the TSP can ask the advisory board for permission to drop the MFI from the TA portion of the program if it feels that the MFI is not cooperative (or vice versa -- the MFI can petition for withdrawal).
D. Implementation Stage 1. Monitoring and Reporting SUM has developed an excellent system for monitoring and reporting, where information is available to all country offices involved in MicroStart through a web page. This system is focused around quarterly reports, which include a series of indicators of MFI performance. Nevertheless, a few improvements could be made.
The most important of these is to include reporting on operational self-sufficiency in the quarterly reports. Currently financial performance information is only requested annually. Managers of MFIs should be looking at such information more often, however. Moreover, given that the focus of the reporting system is the quarterly report, not annual reports, it would be more effective for monitoring purposes to include the information there. Most importantly, exclusion of financial performance indicators from the key reporting document sends a signal that sustainability is not a core concern of MicroStart, or is something MFIs can look at later on.
SUM should use these monitoring reports to identify areas of weakness in the overall program. The quality of the data in the current system is not as high as it should be -- for example, data from one institution being repeated on the line for a different institution; confusion about the interpretation of delinquency numbers, and missing data. These are not surprising problems. SUM is to be commended for getting as much cooperation in reporting as it has!
2. Timely Disbursement of Payments Problems have appeared throughout the MicroStart system regarding timely payments, to both TSPs and to MFIs. It should go without saying that payment delays can seriously hamper the project's functioning. Most of the TSPs have shallow pockets, particularly when it comes to unrestricted funding, and they should not be expected to provide bridge financing to cover bureaucratic problems. Even more important, many of the MFIs have few alternative funding sources, and depend on the MicroStart funds to be able to meet basic goals. At best, payment delays bring a loss of good will. At worst, they cripple program implementation. The evaluators did not investigate the causes of late payments in detail, but identified enough examples to conclude that this matter needs serious attention if it is not to reduce the future success of MicroStart.
3. Audit Although MicroStart has a requirement that the participating MFIs should be audited, the only audit we were aware of was performed by the national government's inspector general, and therefore was not the kind of audit relevant for microfinance. SUM may wish to examine this issue more closely, to see whether it can provide guidance to country offices on how to arrange for more worthwhile audits.
E. Completion and Renewal Stage Three years is not a long time to establish the kind of institutional development MicroStart wishes to see. Even the breakthrough organizations it identifies will be far from stable and consolidated at the end of three years. Moreover, as noted above, MicroStart should become more focused on winnowing out the non-performers and offering more support to the institutions that are performing well. These reflections lead to the following suggestions about MicroStart after the first three years:
After the completion of the initial three years, MicroStart could be renewed for an additional one to three years, to focus only on those institutions that are looking like breakthroughs. One or two new organizations could be added at this stage, with the idea of supporting a second generation of organizations, which are often founded on a stronger basis than the first generation. Support to breakthrough organizations might not follow the standard TSP format, but could be more specifically tailored to those MFIs.
For new MicroStart programs, mechanisms could be evolved to begin the winnowing process earlier.
Meanwhile, SUM needs to address existing confusion about expiry dates of the various contracts it now has in place. The standard problem is that the contracts with TSPs last for three years, as do the agreements with MFIs, but because the agreements with MFIs are generally signed some time into the process, especially for MFIs picked up in a second round, there is a question about how or whether to make the end dates for assistance coincide.
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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