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LESSONS:

Microfinance Development Strategy 2000: Sector Performance and Client Welfare

sector: Finance | country: | region: Regional

1. Challenges to implementing microfinance projects were country specific. These included the lack of an enabling environment, limited technical capacity of institutions, limited capital base and financial sustainability of MFIs, and distortions in the market. The factors critical to project success were (i) creating a conducive environment for microfinance, (ii) good design and properly sequenced activities, (iii) loans accompanied by TA for capacity development of institutions, (iv) clear understanding of the market, and (v) government commitment. [Main text, para. 138]

2. While the MDS was formulated within the overarching objective of poverty reduction, project designs were usually not clear on the mechanisms for ensuring participation of the poor in the financial system. Most projects had no baseline data or periodic monitoring data of income or poverty levels, or sex-disaggregated data of participating microfinance clients. In addition, there was no standard set of performance indicators (financial and social) for monitoring the quality of institutions supported by ADB projects. As a result, there was no readily available systematic way to check on the performance of ADB’s microfinance portfolio. [Main text, para. 139]

3. The MDS was reasonably well thought out at the time it was formulated, and its five areas of strategic focus remain relevant. However, it needs refinement to account for recent development and opportunities in the sector. Staff surveyed recommended the creation of the financial inclusion strategy to provide guidance on how poor households could access a broader range of financial services, reduce their risks, and improve their quality of life. [Main text, para. 140]

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