“Current Trends in Cross-Border Funding for Microfinance;” by Estelle Lahaye and Ralitsa Rizvanolli; published by CGAP (Consultative Group to Assist the Poor); December 2012; 4 pages; available at: http://www.cgap.org/sites/default/files/Brief-Current-Trends-in-Cross-Border-Funding-for-Microfinance-Nov-2012.pdf
This brief summarizes the findings in a survey performed by CGAP (Consultative Group to Assist the Poor), a US-based nonprofit policy and research center, of cross-border funding for microfinance between the years 2007 and 2012. The study indicates that cross-border funding commitments increased gradually over the entire period but at a much slower rate between 2009 and 2011. The authors explain this decrease in growth by stating that – while funders committed the same amount of money in the latter years – more investments closed than had in past years. Of the USD 17 billion committed to microfinance worldwide as of September 2011, two thirds is supplied by public funders. However, private funding grew at a faster rate than public funding over the five-year period and one third of public funders decreased their commitments in 2011. Development finance institutions (DFIs) provided 63 percent of direct funding while multilateral agencies tended to fund efforts via developing country governments. Approximately 60 percent of cross-border investments were made in South Asia; Europe and Central Asia; and Latin America and the Caribbean. The authors state, however, that regional allocation is shifting towards other regions such as Sub-Saharan Africa; the Middle East and North Africa; and East Asia and the Pacific. Development finance institutions, which provide the largest amount of cross-border funding, allocate approximately 20 percent of their total commitments to India, Turkey, Peru, Indonesia and Russia, and 30 percent of DFI money is channeled through microfinance investment intermediaries. The authors also state that debt funding consistently remains the main method used by cross-border funders in supporting microfinance, although equity investments and guarantees both increased between 2009 and 2011. The authors conclude that despite a slower growth in commitments, cross-border funders still see microfinance as an important investment.
“The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination in Microcredit Groups;” by Wendy Janssens and Berber Kramer; published by International Labour Office; August 2012; 24 pages; available at: http://www.ilo.org/public/english/employment/mifacility/download/repaper22.pdf
This paper summarizes the results of a field experiment involving 355 microcredit clients in Tanzania. Health risks were simulated within groups of microfinance borrowers, and borrowers were asked to decide whether they would purchase insurance to offset health expenditures. The study divided participants into two categories: those with high levels of risk aversion and those with low risk aversion. The results of the study showed a high level of free-riding, whereby group borrowers without individual health insurance rely more heavily on their fellow group members to help pay their loans when the free-riders have high health care costs to pay. The study finds that group insurance solves the problem of free-riding as even low risk aversion borrowers are likely to choose to take the insurance.
“Microfinance Development Strategy 2000: Sector Performance and Client Welfare;” published by the Asian Development Bank; September 2012; 99 pages; available at: http://www.adb.org/documents/adbs-microfinance-development-strategy-2000
This document summarizes a study aimed at evaluating the performance of the Asian Development Bank’s (ADB’s) support in “developing sustainable and inclusive microfinance systems in its developing member countries” and providing recommendations for ADB’s future work in microfinance. The study considered ADB’s portfolio from 2000 to 2010, which includes USD 2.5 billion invested in 78 projects. The authors examined the following three areas: the relevance, responsiveness and results of each project; interviews and surveys of microfinance institution staff and beneficiaries; and six case studies comprising 33 percent of ADB’s microfinance portfolio. The study found that ADB’s microfinance operations were relevant and responsive in project design and formulation but were not effective in achieving results. The authors attribute this to limited outreach to poor people. The authors cite that the sector has changed rapidly in the ten years since ADB wrote its intervention guidelines.
The authors examine performance in creating a supportive policy environment for microfinance; building viable institutions; promoting pro-poor innovations and financial technology; and developing finance infrastructure. The authors find that while the outreach of microfinance institutions (MFIs) grew over the ten-year period, there is no evidence that ADB’s interventions reached the majority of poor households, which is a stated goal of ADB. Following these conclusions, the authors make four recommendations to improve ADB’s microfinance interventions in the future: to target poor and low-income clients through innovative approaches and monitoring of poverty levels; focus on client needs and demand; support market infrastructure development; and refine the microfinance development strategy to reflect sector developments.
By Charlotte Newman, Research Associate
About CGAP
CGAP (Consultative Group to Assist the Poor) is a US-based nonprofit policy and research center dedicated to providing financial access to poor people worldwide. CGAP is supported by approximately 30 development agencies and private foundations. Its mission is to provide market intelligence; promote standards and offer advisory services to governments, microfinance providers, donors and investors. CGAP reported total revenue of USD 29.5 million for the fiscal year ending June 2011. CGAP is co-located with the offices of the World Bank Group in Washington DC.
About International Labour Organization
Founded in 1919, the International Labour Organization (ILO), is an agency of the United Nations, an organization promoting peace and improved living standards. The objective of ILO is to advance opportunities for men and women to obtain productive work in conditions of freedom, equity, security and human dignity. Headquartered in Switzerland, its founding mission is that labor peace is critical to prosperity. For the biennium 2012-2013, ILO anticipates a budget of USD 861 million.
About Asian Development Bank
Established in 1966 and headquartered in Manila, the Philippines, the Asian Development Bank (ADB) is a development finance institution that consists of sixty-seven members, of which forty-eight are located in the region. ADB has three strategic priorities: to foster inclusive growth, to facilitate regional integration and to ensure environmentally sustainable growth. To accomplish these objectives, ADB uses loans, technical assistance programs, grants, equity investments and guarantees to private companies in member countries in the region. As of December 2011, ADB reported outstanding loans of USD 78.1 billion and total approved equity investments of USD 239 million.
Sources and Additional Resources:
“Current Trends in Cross-Border Funding for Microfinance;” http://www.cgap.org/sites/default/files/Brief-Current-Trends-in-Cross-Border-Funding-for-Microfinance-Nov-2012.pdf
“The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination in Microcredit Groups,” http://www.ilo.org/public/english/employment/mifacility/download/repaper22.pdf
“Microfinance Development Strategy 2000: Sector Performance and Client Welfare,” http://www.adb.org/documents/adbs-microfinance-development-strategy-2000
MicroCapital.org story, October 30, 2012, “MICROFINANCE PUBLICATION ROUND-UP: Analysis of Microfinance Investment Vehicles; Female Microfinance Clients in Pakistan; Life Microinsurance in the Philippines,” https://www.microcapital.org/microfinance-publication-round-up-analysis-of-microfinance-investment-vehicles-female-microfinance-clients-in-pakistan-life-microinsurance-in-the-philippines/
MicroCapital.org story, October 15, 2012, “MICROFINANCE PUBLICATION ROUND-UP: Microfinance Microscope 2012; Impact of Financial Access in Bosnia and Herzegovina; Economic Opportunities and Financial Outcomes of Microfinance,” https://www.microcapital.org/microfinance-publication-round-up-microfinance-microscope-2012-impact-of-financial-access-in-bosnia-and-herzegovina-economic-opportunities-and-financial-outcomes-of-microfinance/
MicroCapital Universe Profile: CGAP
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29
MicroCapital Universe Profile: International Labour Organization
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Labour+Organization+%28ILO%29
MicroCapital Universe Profile: Asian Development Bank
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Asian+Development+Bank+%28ADB%29
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