1 The Africa Microfinance Network Membership in Networks of Microfinance Institutions Accra, Ghana 6 – 7 November, 2002

2 Summary  Introduction  Networks of Microfinance Institutions (MFI)  Membership in MFI Networks  Conclusion

3 Introduction The fast evolution of the microfinance sector in Africa and the resultant increase in demands for technical and financial assistance has led to the mushrooming and development of MFI networks. Generally, there exists a large diversity of microfinance networks. These can be distinguished by: Their areas of intervention. Their missions. Their relationships with their members.

4 Introduction (Cont.) Networks can be grouped into the two following main categories: Vertical networks. Lateral networks.

5 Introduction (Cont.) a.Vertical Networks Vertical networks are functional alliances between the members who: Have the same mission. Operate within the same client base. Use the same operating strategies, methodologies and systems.

6 Have a leader who is the official representative of the network, manages operations and common resources, and monitors the whole network. A vertical network is a decentralised institution with limited autonomy of its members. FECECAM in Bénin, FUCEC in Togo and FENACOOPEC in Côte d’Ivoire, as well as FINCA International are examples of vertical networks. Introduction (Cont.)

7 b.Lateral Networks Lateral networks are professional associations of institutions that seek to improve the capacity of their members. Lateral networks have the following objectives: To improve the different methods and systems used by their members. To exchange information among members. To contribute to the improvement of the policy and financial base of the sector. Introduction (Cont.)

8 In a lateral network, members need not: Have the same mission. Apply the same strategies, methodologies and systems. The coordination of a lateral network does not require the management of operations and resources of members, resulting in greater autonomy. Introduction (Cont.)

9 It is important to note that a lateral network cannot join a vertical network, whereas the opposite is possible and often happens. AFMIN and its members are examples of lateral networks. WWB and SEEP are also lateral networks. In the rest of our presentation, we focus on lateral networks, with special attention to microfinance networks and their membership issues.

10 I. Microfinance Networks A network of MFIs is an association of institutions of different legal structures and size who agree to mobilise their experiences and expertise to achieve the common objective of developing the microfinance sector.

11 I. Microfinance Networks a.Role of MFI networks Generally, the goals of MFI networks are to: Assist in the development of knowledge which results in the growth and expansion of MFIs and accelerates the development of young institutions. Develop, promote and ensure adherence to operational and financial performance standards which result in strengthening the credibility of the sector.

12 Microfinance Networks (Cont.) Establish consensus among members on performance indicators and standards, and a system for monitoring performance indicators. Provide technical assistance to build MFI capacity. Promote and facilitate the exchange of best practice among members. Promote sound relations among members, other MFIs, banks, donors and all actors in the public and private sector.

13 Develop new products and methodologies that will contribute to the effectiveness of members. Build awareness of the effectiveness of microfinance as an instrument for poverty eradication. Apply members’ collective voice and bargaining power to influence policy decisions that impact the microfinance sector. Develop political will among all key actors and stakeholders. Microfinance Networks (Cont.)

14 b.Main Challenges of MFI Networks MFI networks experience several challenges. The most important ones include: Being responsive to the specific demands of a heterogeneous group of MFIs at different stages of development. Developing a climate of trust among members, who for the most part are competitors. A climate of trust is necessary for the promotion of transparency and the exchange of best practices. Microfinance Networks (Cont.)

15 Motivating large MFIs to contribute concretely to the capacity building of smaller institutions. Limited know-how among young networks in the development and dissemination of new products and services. Dealing with conflicts between the objectives of certain donors and public authorities, and best practices in microfinance. Reticence of certain members towards shared performance standards, etc. Microfinance Networks (End)

16 2. Membership in MFI Networks The question of membership in MFI networks is a complex one because of the varied operating contexts in the different countries. The microfinance sector in any country consists of organisations of different sizes, different stages of development, and different legal structures, each requiring different services from the networks. As a result, there is no magical formula to resolve the issue of membership in MFI networks.

17 Since 1998, this question has been discussed in several workshops under the programme to build the Africa Microfinance Network (AFMIN). These workshops provided AFMIN members the opportunity to agree on answers to the following key questions: Membership in MFI Networks (Cont.) Which types of institutions can become members of MFI networks? What should the membership criteria be? What obligations should members have in order to maintain the sustainability of their networks?

18 a.Which Types of Members should MFI Networks Consider? The following possibilities were discussed: Only MFIs that meet agreed performance standards All MFIs. All interested organisations, including banks, government agencies and donors. Membership in MFI Networks (Cont.)

19 AdvantagesDisadvantages Easy to build consensus on key issues Easy to establish performance indicators and standards High degree of professionalism Easy to collaborate among members Greater participation by all members Exclusion of young innovative MFIs Risk of slowing down the growth potential of the sector Exclusion of MFIs that most need the support of the network May be perceived as elitist Risk of monopolisation of the sector by a few institutions May lead to having several networks in the same country Risk of limited service offerings Networks Enrolling only High Performing MFIs Membership in MFI Networks (Cont.)

20 AdvantagesDisadvantages Smaller MFIs are motivated to improve their performance Costs of the network are shared by more organisations The network is more representative Advocacy activities are more effective Greater possibility to innovate More opportunities for best practice exchanges Weaker institutions are better supported. Weakened credibility of the network Difficult to define performance standards May be more difficult to build consensus on key issues May be more difficult for members to communicate May have higher operating costs Larger institutions may be demotivated Networks Enrolling all MFIs Membership in MFI Networks (Cont.)

21 AdvantagesDisadvantages Easier to raise funds Participation of all organisations enriches dialogue Greater understanding of the problems of the sector More effective advocacy Development of research work on the sector Possibility to develop various programmes for the sector The network’s identity is not clearly defined Network risks being driven by external forces More difficult to define performance standards Greater tendency for conflict among divergent groups More difficult for MFIs to be heard Lack of transparency among MFIs Lack of commitment by MFIs Networks Including Donors, Researchers and Government Membership in MFI Networks (Cont.)

22 AFMIN members recommend that MFI networks: Include a wide range of MFIs. Put in place minimum standards of performance. Provide provisional or observer status to young MFIs that do not already meet all the performance standards. Do not include public figures, donors and researchers, etc., as members. They may be invited to participate in workshops. Membership in MFI Networks (Cont.)

23 b.Other Conditions and Criteria For a network to function well, the following conditions are important: Equality of all members. Absence of competition between the network and its members. Same level of contributions by all members. Cost recovery strategies for services to members Commitment to performance standards by members Volunteerism of members of network bodies Membership in MFI Networks (Cont.)

24 c.Obligations of Members To ensure the sustainability of networks, members should observe the following key principles: Regular payment of membership dues. Payment for services delivered by network. Active participation in activities of the network. Compliance with code of conduct and performance standards. Regular submission of information to the network. Contribution to the promotion of the network. Demonstration of transparency. Membership in MFI Networks (End)

25 MFI networks play an important role in the development of the microfinance industry. To be effective, they should include MFIs of different sizes, in different stages of development, having different legal structures and requiring different services from the network. It is therefore necessary for these networks to establish, from the beginning, clear and precise membership criteria and to apply them rigorously. Conclusion