This morning, representatives of Luxembourg-based nonprofit Appui au Développement Autonome (ADA) and the Red Centroamericana y del Caribe de Microfinanzas (REDCAMIF), a network of seven national microfinance networks, presented their progress to date on their joint effort to promote product innovation and capacity building among microfinance institutions (MFIs) in Central America and the Dominican Republic. The partnership, which was launched earlier in 2012, has a budget of EUR 5.5 million (USD 7 million) to be disbursed over a period of 4.5 years. The organizations have completed a survey of client needs in the region and have dedicated approximately 15 percent of the project budget to support networks in becoming self-sufficient, including through a fund to support national networks in developing products they can sell to their member MFIs.
A diagnostic process that was completed by ADA and REDCAMIF on November 13 identifies the following client needs in the region:
1. Loans for housing and community infrastructure such as energy, water and street improvements: The terms these loans would most likely range up to five years, with three years being the most common. The infrastructure loans would be disbursed under a joint-liability model with as many as 30 co-borrowers.
2. Rural finance: These products would support production, processing and trading with the aim of improving markets for – including the international trade of – foods and other goods. REDCAMIF Executive Director Ivan Gutierrez stated that investments focused on reducing environmental impact can be successful because they respond to customer demands as well as improving water and other resources in the region of production.
3. Leasing: Those lacking collateral can “rent to own” fixed assets such as sewing machines, taxis, boats, livestock or restaurant equipment. Mr Gutierrez suggested that for larger investments, such as a tractor, neighbors might borrow as a group over a term of five years.
4. Voluntary microinsurance: Coverage may include accident, life, health or others, or several of these may be bundled together. While 70 percent of clients represented by REDCAMIF have mandatory life insurance covering their loan balance, only about 2 percent have voluntary insurance. Just four of the 125 MFIs under REDCAMIF offer voluntary insurance. In designing microinsurance products, Mr Gutierrez stated that it is vital to minimize fine print and exclusions.
5. Micropensions: Approximately 17 percent of 9 million microentrepreneurs in region have pensions. REDCAMIF has multiple pilots ongoing in this arena.
6. Savings: Savings products may be linked to loan, accessible by debit card or timed to an event such as a holiday or school fee deadline. Most MFIs under REDCAMIF cannot accept savings due to their status as NGOs or similar organization type.
In addition to savings, Mr Gutirrez added that regulations often block MFIs from offering international remittances and checking accounts. Regulation also prevents some MFIs from accepting certain investments and can thwart microenterprises with onerous taxes and a lack of legal recognition. However, Mr Gutierrez reports that legal frameworks in the region have been slowly improving since 2010.
Part of the ADA-REDCAMIF effort includes establishing a fund to support national networks in efforts such as developing services they can sell to their members. Regarding strengthening networks, Wendy Medrano-Lazo of ADA stated that, “Most of the national networks are not sustainable at all.” It is anticipated that ADA and REDCAMIF will begin accepting applications for funding in December and begin funding successful projects in January 2013. Ms Medrano-Lazo stated that, “The national networks are already working on several interesting proposals such as microfranchising.” Matching funds will be required of participating networks.
Other goals of the partnership between ADA and REDCAMIF include:
1. Improving governance, management and financial performance,
2. Improving risk management among smaller MFIs,
3. Improving transparency, analysis, benchmarking and dissemination of social and financial information and
4. Supporting MFIs in implementing tools to manage social performance such as social audits.
Ms Medrano-Lazo underscored that ADA and REDCAMIF will not be creating new tools for social performance management. Instead, the focus will be on supporting MFIs in implementing existing tools such as the Progress Out of Poverty Index, which was developed by the nonprofit Grameen Foundation USA.
REDCAMIF’s programs include risk management, micropensions, transparency and others. It has also created Microbiz, an entity offering software services to microfinance institutions.
Established in 1994, ADA now employs 24 people with the aim of supporting autonomous development and disseminating good practice. The organization is structured around: (1) inclusive finance innovation; (2) capacity building; (3) advisory to the Luxembourg Microfinance and Development Fund; (4) knowledge management through university and other channels and (5) research and development.
This content is sponsored by the European Microfinance Platform (e-MFP), the organizers of European Microfinance Week. It is the first in a series of articles on the proceedings of the event, which is taking place in Luxembourg from November 14 to November 16. MicroCapital is reporting onsite throughout this time.
Additional resources
July 13, 2012, “MICROFINANCE EVENT: REDCAMIF to Host 6th Annual Microfinance Conference on Growing with Inclusion, Panama City, September 5 – 7, 2012,” https://www.microcapital.org/microfinance-event-redcamif-to-host-6th-annual-microfinance-conference-on-growing-with-inclusion-panama-city-september-5-7-2012/
March 22, 2011, “MICROCAPITAL BRIEF: Peruvian Microfinance Institution (MFI) Prisma is First Fully Certified User of Grameen Foundation’s Progress out of Poverty Index (PPI),” https://www.microcapital.org/microcapital-brief-peruvian-microfinance-institution-mfi-prisma-is-first-fully-certified-user-of-grameen-foundations-progress-out-of-poverty-index-ppi/
MicroCapital Universe profile: Red Centroamericana y del Caribe de Microfinanzas (REDCAMIF): https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Red+Centroamericana+y+del+Caribe+de+Microfinanzas+%28REDCAMIF%29
MicroCapital Universe profile: Appui au Développement Autonome: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Appui+au+D%C3%A9veloppement+Autonome+%28ADA%29
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