How Donor Funds Could Better Reach and Support Grassroots Microcredit Programmes: Working Towards the Microcredit Summit's Goal and Core Themes

In order to fulfill the Microcredit Summit's goal of reaching 100 million families with microcredit by the year 2005, we must ensure not only that more resources are dedicated to promoting microcredit, but also that resources are provided to institutions in cost-effective ways. Donor agencies generally provide funds as grants or low-interest loans to microcredit programmes, often with government involved as a guarantor. The administrative cost of providing these funds is often unacceptably high, and the amount that actually reaches the poor as loans is likely to be quite low. Donors should increase the percentage of microcredit funds that reach the poorest to 70%. Several limitations exist in current methods of fund distribution by donor agencies. One significant limitation is an over-reliance on consultants, many of whom do not have the skills necessary to successfully advise and assist microcredit donors and practitioners. In order to strengthen their capacity to reach the poorest, donor agencies should declare a target percentage of funds going to the microfinance sector which will be committed as loans to the poorest, and then require each local office to produce annual reports on its contribution to achieving the country goal. A clear policy should be established to ensure that funds go to the poorest. This information should be circulated to CGAP members and to local Microcredit Capital Programmes (MCPs), Microcredit Funds (MCFs) and NGOs. Moreover, agencies should create a country-level CGAP mechanism and hold at least one meeting each year to review progress and discuss upcoming plans