1. Scaling Up and Stretching Out: Microfinance Activities in the LAC Region CGAP Presentation Mike Goldberg (LCSFP) Oct. 14, 2004

2. Understanding “Bankese” – A Basic Dictionary CC AS CC GAP EE SW FF SAP HH IPC II CA II DP OO.P. PP RSC

3. Limitations of Working with Bank Instruments Debt-based –Rarely use guarantees, grants; never equity IBRD NOT cheap –currency risk –Interest rate –commitment fees Regional competition –grants, equity, cheap $ (IDB, CABEI, EU, IFAD, etc) Legal, regulatory aspects –“deal breaker” technically, not politically Safeguards: Procurement, Disbursement, Legal –land, resettlement, indigenous peoples, frogs Painful “Fiduciary” responsibilities! Risks of documentation –Panama Social Fund, Ecuador ITIP

4. Limitations of Working with Bank Instruments “Sleeping with the Enemy” * Ingrained Government solutions Impatient politicians Pressure of elections Preference for debt forgiveness Ministries and second tier FIs can be “old school” on microfinance Formalize informal sector to generate taxes * Use of “Sleeping” approved by Ombudsman’s Office, O.P. 17.92

5. Limitations of Working with Bank Instruments La Piñata Effect Counterpart expectations with Bank (vs. reality of slow disbursement) Pressure for multi-sectoral programming Fitting (Fighting?) into the CAS Resistance to IDPs

6. Advantages of working with Bank instruments Legal and regulatory aspects PRSC, FSAP give you real teeth! (if enforced) Capacity Building, IDPs possible Affordable IDA funds - 2% Sit down with Ministers and Superintendents for “heart to heart” chats on key issues Donors want to collaborate

7. Multisectoral opportunities (housing, rural electricity) Overall neutral/positive image of the Bank in LAC –at least we’re not the IMF! Can avoid credit lines (not always easy) Advantages of working with Bank instruments

8. Getting the Formula Right… in Advance Downscaling: Must be competitive process, operational manual Greenfielding: IFC territory Upgrading: Bank can help with legal and regulatory issues, TA Linking: Bank can help with legal and regulatory issues, TA

9. The Rare Stand-Alone Project: Nicaragua Broad Based Access to Financial Services Financial systems approach Four levels/four components No credit line (Effron study; HIPC) Access indicators (Points of service) Inclusive approach to credit information systems (OPD ESW helpful) Donor coordination (PRSC) $7 million project could leverage up to $125 million in existing donor funds

10. Stretching Microfinance: Honduras Land Fund Land matters in LAC! Commercial banks, NGOs, landless farmer groups No Government role Land purchase, working capital (risk of double indebtedness) Commercial approach, savings incentive  Counter-example is GT Land Fund; heavy-handed Gov’t role, politicization, constitutional right!

11. Stretching Microfinance: Nicaragua Rural Electrification Demonstration effect Bank study – hookups Matching Grant IDPs MFIs get access to commercially priced credit BDS component improves firms’ access to technology & markets--to improve productivity

12. Small Pilots Can Lead to Large Scale Opportunities Brazil (Banco do Nordeste - CrediAmigo) Pilot – high admin costs, loan losses; drop in number of clients CGAP role critical Training led to changes in institutional culture, incentives, products, staffing Mexico (Nafin – Regional LIL) Marginal states meant start-ups Nafin preference for FIs with implicit Gov’t guarantee Lessons led to national replication US$5 million

13. Lessons Learned on Strategies Pilots are fertile learning ground Donor coordination pays dividends –shared reporting, shared philosophy, crisis management Cross-sectoral programming can pay dividends and add to overall development impact With infrastructure, can raise hookup rates, economic dev. Stand-alones and components can build on best practices

14. Lessons Learned on Design Philosophy > Expediency Counterpart philosophy can evolve Be wary of credit lines –leverage policy change and TA effectively –Do they offer clout? IDA countries use matching grants for MFI IDPs… –IBRD countries don’t Transformation is linked to scale –source of funds matters!