1. The Consultative Group To Assist the Poorest
‘Microcredit in ECA: Linkages with Community-Driven Development’
Doug Pearce
CGAP
April 10, 2001

2. Microcredit – a basic definition
Microcredit refers essentially to methodologies for making very small loans to low-income households
Microcredit can be offered through formal financial institutions or informal financial institutions
Microcredit is only one aspect of Microfinance, which includes a range of financial services.

3. What is CGAP?
The Consultative Group to Assist the Poorest was formed in 1995 by the major donors and MFIs to set standards, develop & disseminate technical tools and training, and help build the microfinance industry.

4. CGAP: Service Center for MFI Industry

5. Technical Tools & Services
MFIs
Series of handbooks and software on topics in financial management
On line ‘consumer report’ service on MIS software
Member Donors
Appraisal and Monitoring Service
Global Donor Portfolio Database
Disclosure guidelines for MFI financial statements
Tool for measuring poverty levels of MFI clients
MFI Industry
On-line MFI Audit services
Fund for ratings/appraisals of MFIs

6. Strategic and Technical Advice/Exchange
MFIs
TA in business planning, financial modeling
Strategic advice to banks entering micro-finance
Member Donors
CGAP staff -donor relationship managers: support, advice, referrals
Stimulating national level donor coordination
MFI Industry
Work with rating agencies, regulators, supervisors
Study of West Africa legal frameworks for MFIs

7. Training and Capacity Building
MFIs
6 capacity building hubs and partners - building local markets of service providers
Member Donors
Donor staff training
CD rom distance learning courses for field staff
MFI Industry
Capacity building and certification of external auditors in microfinance audit
Boulder, Microfinance Training Program

8. Microfinance Gateway: a CGAP service to the industry
On-line library of thousands of documents and technical tools
Simple browse by 5 keytopics leading to recommended reading
Simple and easy search by topics, keywords, authors
Industry information hub
Forum to share knowledge and information.
Job Marketplace

9. Building Local Markets for Training services in ECA
Microfinance Center, Warsaw
4 CGAP courses available, plus 2 ‘own’ courses
21 courses delivered to date
342 MFI staff trained
33 countries have sent participants to courses
15 certified trainers
Courses translated into Russian and Bosnian/Serbian/Croatian

10. Microcredit in ECA ‘New’ emerging industry Fewer MFIs
Higher-end clientele
Focus on enterprise lending
Microfinance sector development varies by country

11. Microcredit at the Community-level in ECA
Community-level, but not community-owned or managed:
Includes:
Branches of commercial banks and microfinance banks
National or regional Credit Unions
International, national or regional NGOs
Community-owned or community-managed:
Village Banks
Informal Savings and Loans mechanisms
Community NGOs
Community-level Credit Unions
Savings and Credit Associations (SCAs)

12. Microcredit at the Community-level in ECA
Formalization of community-owned or managed institutions may be the way forward in ECA
Informal financial institutions limited by legal and capacity issues
Formal financial institutions can offer a wider range of services
Credit Unions/Cooperatives offer a formal sector model with scope for community representation and relevance

13. Microcredit at the Community-level in ECA
How can the World Bank and other donors assist informal financial institutions to formalize, without losing community-relevance?
Key legal role for the Bank to play in the interim period as an informal model formalizes
Institutional strengthening of a second tier entity.

14. Community-level responses in challenging situations for Microcredit
Other interventions may need to precede or accompany microcredit, such as:
Entitlement payments (grants, termination payments…)
Training and capacity-building
Infrastructure investment and maintenance
Institution-building

15. Community-level responses in challenging situations for Microcredit: Examples
Depressed industrial/mining regions:
Skills training and employment reorientation
Termination payments instead of microcredit
Isolated rural areas with low levels of economic activity:
Community-level infrastructure can help open up access to markets and facilitate economic activity.
Productive/Commercial infrastructure should be financed through a loan
Where past experience with subsidized credit has accustomed the population to poor repayment behavior:
General response: microcredit done on a sustainable basis, by a specialized (formal or informal) financial institution

16. Conclusions/Points for Discussion
Microcredit has great potential to unleash economic potential, but other interventions may be required first.
Improved linkages between microcredit and CDD needed, including inter-linked programming responses
Scope for informal financial institutions may be more limited in ECA than elsewhere. Therefore:
assist informal financial sector to formalize, and
build-on the existing cooperative/credit union system and tradition