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Evaluation report 2006:3ISBN 951-724-569-6 (printed)

ISBN 951-724-570-X (pdf)ISSN 1235-7618

Ministry for Foreign Affairs of FinlandDepartment for Development Policy

EVALUATION REPORT • MINISTRY FOR FOREIGN AFFAIRS OF FINLAND • DEPARTMENT FOR DEVELOPMENT POLICY

Review of Finnish M

icrofinance Cooperation 2006:3

September 2006

Review of FinnishMicrofinance Cooperation

REPORT 2006:2 Evaluation of CIMO North-South Higher Education Network ProgrammeISBN: 951-724-549-1, ISSN: 1235-7618

REPORT 2006:1 Evaluation of Environmental Management in Finland´s Development CooperationISBN: 951-724-546-7, ISSN: 1235-7618

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REPORT 2004:3 Evaluation of the Development Cooperation Activities of Finnish NGOs and Loacal Cooperation Funds in TanzaniaISBN: 951-724-449-5, ISSN: 1235-7618

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REPORT 2006:3 Review of Finnish Microfinance CooperationISBN: 951-724-569-6 (printed), ISBN: 951-724-570 (pdf), ISSN: 1235-7618Printing house: Hakapaino Oy, Helsinki 2006

2. kansi- 10.10.2006 10:27 Sivu 2

REVIEW OF

FINNISH MICROFINANCE COOPERATION

Savcor Indufor Oy Review Team:

Mr. Harri PorvaliMs. Ruth Goodwin-Groen

Ms. Loice Omoroa

This report has been commissioned by the Ministry for Foreign Affairs of Finland.The Consultant bears the sole responsibility for the contents of the report. The report

does not necessarily reflect the views of the Ministry for Foreign Affairs of Finland.

September 2006

Photo on the cover: Annet Bok

iiiReview of Finnish Microfinance Cooperation

TABLE OF CONTENTS

FOREWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

ABBREVIATIONS AND ACRONYMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

FINNISH SUMMARY – SUOMENKIELINEN YHTEENVETO . . . . . . . . . . . . . . xiv

1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 What and Why Microfinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.2 Introduction to Microfinance in Finnish Development Cooperation . . . . . 2

1.3 Finnish Microfinance Portfolio Review and Effectiveness Review . . . . . . . . 2

2. MAJOR TRENDS IN GOOD MICROFINANCE DONOR PRACTICES . . 3

2.1 Expanded Vision in Support of the Millennium Development Goals . . . . . 3

2.2 Expanded Understanding of Microfinance Clients and their

Financial Service Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2.3 Diversification in Levels of Intervention in the Financial System . . . . . . . . 6

2.4 Focus on Improving Effectiveness to Achieve Better Results . . . . . . . . . . . . 7

3. ANALYSIS OF FINNISH MICROFINANCE AID POLICIES

AND PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.1 Microfinance in Finland’s 2004 Development Policy . . . . . . . . . . . . . . . . . 10

3.2 Microfinance Guidelines of 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3.3 Overview of Bilateral Microfinance Projects: 2001 to 2005 . . . . . . . . . . . . 12

3.4 Analysis of the Reasons for the Decline in Microfinance Projects and

Volume of Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3.5 Analysis of 2006 Ongoing Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

3.5.1 MicroSave/Decentralized Financial Services . . . . . . . . . . . . . . . . . . . 19

3.5.2 Consultative Group to Assist the Poor (CGAP) . . . . . . . . . . . . . . . . 20

3.6 Analysis of NGO Microfinance: 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

3.7 Analysis of Finnfund Microfinance: 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.8 Lessons Learned in Finnish Microfinance . . . . . . . . . . . . . . . . . . . . . . . . . . 25

4. ANALYSIS OF THE EFFECTIVENESS OF FINNISH MICROFINANCE . . 26

4.1 What is Aid Effectiveness? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

4.2 Bilateral Microfinance Effectiveness Strengths and Challenges 2001–2006 . 28

4.3 Comparisons of Finnish Microfinance Effectiveness with Nordic Peers . . . . 29

iv Review of Finnish Microfinance Cooperation

4.4 NGO Microfinance Effectiveness Strengths and Challenges 2001–2006 . . . 29

4.5 Finnfund Microfinance Effectiveness Strengths and Challenges 2005 . . . . . 30

5. FINNISH MICROFINANCE BEYOND 2006 . . . . . . . . . . . . . . . . . . . . . . . . 31

5.1 Summary of Finnish Comparative Advantages in Portfolio and Effectiveness . . 31

5.2 The Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5.3 The Vision: Build on Your Strengths – Collaborate . . . . . . . . . . . . . . . . . . 32

6. ACTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

6.1 Start a Consensus Building Process to Develop a Joint Microfinance

Stakeholder Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

6.2 Improve Effectiveness by Building MFA Staff Capacity . . . . . . . . . . . . . . . 34

6.3 All Stakeholders – Improve Effectiveness by Improving Accountability . . . . 34

6.4 Improving MFA Effectiveness by Improving Knowledge Management . . . . 35

6.5 Improving Other Aspects of NGO Effectiveness . . . . . . . . . . . . . . . . . . . . 36

6.6 Improving Other Aspects of Finnfund Effectiveness . . . . . . . . . . . . . . . . . . 37

6.7 In Summary – What Will Microfinance in the MFA Look Like in Five Years 37

7. REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

LIST OF ANNEXES

Annex 1. Terms of Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Annex 2. List of People Met . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Annex 3. Effectiveness Comparisons between Nordic Donors . . . . . . . . . . . . . . . . . . 49

Annex 4. Agenda for Seminar on Best Practices in Microfinance: November 2005 . . . 53

Annex 5. EU – ACP Microfinance Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Annex 6. Finnish Microfinance Review – Notes from the Debriefing Presentation . . . 56

LIST OF FIGURES

Figure 1: Breakdown of SIDA’s 2005 Microfinance Commitments intoLevels of the Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Figure 2: Distribution of Bilateral Microfinance Projects by Volume 2001 . . . . . . . . . 13

Figure 3: Number of Bilateral Microfinance Projects By Year . . . . . . . . . . . . . . . . . . . 14

Figure 4: Distribution of Microfinance Project Volume 2005 . . . . . . . . . . . . . . . . . . 15

Figure 5: Increase in SIDA’s Financial System Development Portfolio Outstanding . . 15

Figure 6: Regional Share of Annual Microfinance Commitmentsby SIDA 2003–2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

vReview of Finnish Microfinance Cooperation

Figure 7: Approximate Relative Trends in Finnish Development Cooperation2001 to 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Figure 8: Range of Financial Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 9: CGAP’s Five Point Star of Aid Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . 26

LIST OF TABLES

Table 1: Key Findings and Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . xii

Table 2: Approximate Loan Clients of Norwegian NGOs 2004–2005 . . . . . . . . . . . 9

Table 3: List of Bilateral MFA Microfinance Projects 2001–2005 (By Year Started) . 13

Table 4: Approximate Funding of Microfinance by NORAD/MFA 2004–2005 . . . . 16

Table 5: Summary of Analysis of Selected Microfinance Projects 2001 to 2005 . . . . 17

Table 6: Total Disbursements of Finnish Bilateral Development Assistance . . . . . . . 18

Table 7: Approximate NGO Microfinance Commitments . . . . . . . . . . . . . . . . . . . . 21

Table 8: Finnfund’s Microfinance Investments April 2006 . . . . . . . . . . . . . . . . . . . . 25

Table 9: Bilateral Microfinance Effectiveness Strengths and Challenges 2001–2006 . 28

Table 10: NGO Microfinance Effectiveness Strengths and Challenges 2001–2006 . . . 29

Table 11: Finnfund Microfinance Effectiveness Strengths and Challenges 2005 . . . . . 30

LIST OF BOXES

Box 1: New Vision for Microfinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Box 2: Excerpts from NORAD’s Vision of Microfinance . . . . . . . . . . . . . . . . . . . . 4

Box 3: Prudence is a Market Trader in Karatina, Kenya . . . . . . . . . . . . . . . . . . . . . 5

Box 4: Donor Support for Rural Clients in Mongolia . . . . . . . . . . . . . . . . . . . . . . 5

Box 5: Microinsurance in Guatemala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Box 6: Descriptions of Each Level of the Financial System with Examplesof Good Donor Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Box 7: Example of SIDA’s Improving Microfinance Effectiveness . . . . . . . . . . . . . 8

Box 8: SIDA’s Five Minimum Performance Criteria . . . . . . . . . . . . . . . . . . . . . . . 8

Box 9: Summary of 1998 Microfinance Guidelines . . . . . . . . . . . . . . . . . . . . . . . . 12

Box 10: Quang Tri Rural Development Program Phase III Accessto Credit Sub-Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Box 11: Thua Thien Hue Rural Development Program Access to CreditSub-Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Box 12: Top Ten KEPA Recommended Financial Performance Indicators . . . . . . . . 22

Box 13: DFID, CIDA, SIDA, and RNE’s Microfinance Collaboration in Tanzania . 36

vi Review of Finnish Microfinance Cooperation

FOREWORD

The Ministry for Foreign Affairs commissioned Savcor Indufor Oy to carry out the Review ofFinnish Microfinance Cooperation. The review team consisted of Mr. Harri Porvali as teamleader, and Ms. Ruth Goodwin-Groen and Ms. Loice Omoro as members. The core team wassupported by Mr. Jyrki Salmi and Ms. Anni Blåsten.

viiReview of Finnish Microfinance Cooperation

ACKNOWLEDGEMENTS

We extend our sincere thanks to all those who shared their valuable time and thoughts with useither during the interview process or in giving their comments on the draft report.

Ms. Tamara Cook and Ms. Alexia Latortue of CGAP provided invaluable technical inputs onthe process of the review and content of the report (as well as financial support). The depth ofthis report would not have been possible without CGAP’s expertise and we thank them.

Our special thanks go to Ms. Pirjo Virtanen, Dr. Marko Katila, and Mr. Tuukka Castrén fortheir wisdom and unfailing commitment to high quality in Finnish Development Cooperation.Also to Ms. Eva Weikkolainen, who prepared the essential Phase One Report.

Most of all we want to acknowledge the clients of all the microfinance projects reviewed. Whileit was not within our mandate to interview them, we heard their voices in the evaluations weread and the people we met. Our hope is that in some way this report will contribute to thesustainable and affordable access to the financial services they need to lift themselves out ofpoverty.

Harri Porvali, Ruth Goodwin-Groen and Loice OmoroHelsinki, September 2006

viii Review of Finnish Microfinance Cooperation

ABBREVIATIONS AND ACRONYMS

ABILIS Special foundation; development fund for people with disabilitiesACLEDA Association of Cambodian Local Economic Development AgenciesACP Africa, Caribbean and Pacific StatesADRA Adventist Development and Relief AgencyAIDS Acquired Immune Deficiency SyndromeAMFIU Association of Microfinance Institutions of UgandaASCA Assisted Savings and Credit AssociationAsDB Asian Development BankCAMFP Central American Microfinance ProgrammeCARE International humanitarian organization fighting global povertyCDC Commonwealth Development CorporationCGAP Consultative Group to Assist the PoorCIDA Canadian International Development AgencyCIDR Centre for International Development and ResearchCLUSA Cooperative League of the USACOLUMNA Insurance company in Guatemala (Compañía de Seguros S.A.)CONCORD European NGO confederation for relief and developmentDANIDA Danish International Development AgencyDEG Deutsche Investitions- und Entwicklungsgesellschaft mbHDFID UK Department for International DevelopmentDFS Decentralized Financial ServicesDODO Finnish NGO, Living nature for the futureECLOF Ecumenical Church Loan FundEDF European Development FundEDFI Association of European Development Finance InstitutionsEU European UnionEUR EuroFADES Fundación para el Análisis y el Desarrollo de Centro AméricaFCA FinnChurchAidFENACOAC Federación Nacional de Cooperativas de Ahorro y CréditoFinnfund Finnish Fund for Industrial Cooperation Ltd.FinSys SIDA’s financial systems teamFMO The Netherlands Development Finance CompanyFORUT Campaign for Development and Solidarity, NorwayFRAME SEEP’s Framework for Reporting, Analysis, Monitoring, and EvaluationFSD Financial Systems DevelopmentHIV Human Immunodeficiency VirusIDP Internally Displaced PersonsIFAD International Fund for Agricultural DevelopmentIFU Industrialisation Fund for Developing Countries, DenmarkISF International Solidarity FoundationKEHYS The Finnish NGO Platform to the EUKEPA The Service Centre for Development Cooperation, FinlandKfW Kreditanstalt für Wiederaufbau, Germany

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MDG Millennium Development GoalMF MicrofinanceMFA Ministry for Foreign Affairs, FinlandMFI Micro Finance InstitutionsN/A not availableNCA Norwegian Church AidNGO Non-governmental OrganizationNORAD Norwegian Agency for Development CooperationNorfund Norwegian Investment Fund for Developing CountriesNPA Norwegian People’s AidPANIF Environmental Sector Development Programme, NicaraguaPRODEGA Rural Development Programme, NicaraguaPYM Pentecostal Foreign Mission of NorwayQTRDP Quang Tri Rural Development ProgramRIPS Rural Integrated Project SupportRNE Royal Netherlands EmbassyROE Return on EquityROSCA Rotating Savings and Credit AssociationSEEP Small Enterprise Education ProgramSEF Small Enterprise FoundationSEK Swedish CrownSIDA Swedish International Development AgencySwedfund Risk capital company, SwedenTOR Terms of ReferenceUCOBAC Uganda Community Based Association for Child WelfareUK United KingdomUN United NationsUNCDF United Nations Capital Development FundUNDESA United Nation’s Department of Economic and Social AffairsUNDP United Nations Development ProgrammeUNIDO United Nation’s Industrial Development OrganizationUSAID United States Agency for International DevelopmentUSD United States Dollar

x Review of Finnish Microfinance Cooperation

EXECUTIVE SUMMARY

People living in poverty need permanent access to the same type of financial services we allneed: a safe way to save for life cycle events and to reduce vulnerability to shocks; access toappropriately designed credit for business opportunities; ways to transfer money; life insurance,etc. For women living in poverty these financial services often make the difference betweencontinued poverty or moving out of poverty, between sending their girl children to school ornot, and between having enough nutritious food or not. These results are what the MillenniumDevelopment Goals and the Finnish Government’s Development Cooperation Programme areall about – reducing poverty, increasing education, nutrition and women’s empowerment. Itwill require financial systems that do not exclude women, especially those living in povertyand/or in rural areas. This means building financial systems that are inclusive, and this is thenew vision for microfinance that is captivating donors and practitioners alike.

However, over the past five years bilateral microfinance commitments by the Finnish Governmenthave gradually been shrinking as microfinance project components not designed according togood practices (per the 1998 Microfinance Guidelines for the Ministry of Foreign Affairs) wereclosed without a corresponding increase in well-designed microfinance projects. Bilateral andmultilateral aid to microfinance has gone from disbursements1 of approx. EUR 1.4 million in2001 in 12 projects, to approx. EUR 1 million in 2005 in six projects, a decrease of approximately30% in the volume of funding. The highlights of the current microfinance portfolio areMicrosave/Decentralized Financial Services (DFS) in Kenya2 and the Consultative Group toAssist the Poor (CGAP)3 for whose services there has been high demand. In contrast, fourteenother donors all increased their commitments to stand alone microfinance projects in 2004,and seventeen increased their funding to the meso (infrastructure) level of the financial system.For example, the Swedish International Development Agency (SIDA) increased its totalmicrofinance disbursements to EUR 18.5 million in 2005 (SEK 170 million) and now hasEUR 87 million (SEK 800 million) in portfolio outstanding in 66 microfinance projects globally.

The five Finnish non-governmental organizations (NGOs) that reported microfinance fundingin 2005 of approximately EUR 700 0004 have also reported strong demand from local partnersfor microfinance projects. There is almost no regular reporting about the quality of these financialservices but independent evaluations have provided feedback that clients think the projectscontribute to reducing poverty and that clients need ongoing, sustainable provision of financialservices. NGO support to microfinance is typically in the form of small components in largerprojects. Compared to other Nordic NGOs their total funding is modest. For example, inSweden only one NGO, The Church of Sweden, had by 2005 invested EUR 3.3 million(SEK 30 million) in two microfinance intermediaries and disbursed an additionalEUR 1.6 million (SEK 15 million) on other local Micro Finance Institutions (MFIs) for their

1 There is only data on annual disbursements, there is no data on portfolio outstanding.2 Microsave/DFS is a multi-donor initiative based in Kenya which researches financial models that can reachpoorer and more remote rural clients.3 CGAP is a global resource center for microfinance standards, operational tools, training, and advisory serviceshoused at the World Bank. Its 33 members - including bilateral, multilateral, and private funders of microfinanceprograms - are committed to building more inclusive financial systems for the poor. http://www.cgap.org.4 In the Finnish system 20% of the expenditure is provided by the NGO itself and the rest by the MFA.

xiReview of Finnish Microfinance Cooperation

loan portfolios and technical assistance. The Church of Sweden has one full time staff workingon microfinance.

Finnfund investments in microfinance have been increasing considerably during the last fiveyears. It has committed EUR 6.4 million (USD 8 million) since 2001 to microfinance investmentfunds that finance the expansion of larger MFIs. These investments are providing solid returnsand expanding access to financial services but are not as profitable as other investments forFinnfund.

The review team discovered that the effectiveness challenges faced by the Finnish Ministry ofForeign Affair (MFA) in microfinance are symptomatic of challenges faced by many sectors inthe Ministry. These include (i) limited awareness of good practice guidelines, (ii) inadequatestaff technical capacity, (iii) soft accountability for project performance, and (iv) ad hoc knowledgemanagement. The good news is that other Nordic donors which faced similar challenges duringthe CGAP Peer Review Process in 2002, have improved effectiveness significantly as a result ofaddressing their challenges directly.

The MFA should now make a decision about microfinance. It can choose a status quo optionand microfinance will continue to phase out of the bilateral program or, it can choose to buildon its strengths. Its strengths include untied grant funding that does not have to go directly togovernments and its commitment to policies that support the Millennium Development Goals(MDGs), rural and private sector development, donor collaboration and harmonization ofpolicies with other donors. The Ministry also has a good relationship with Finnish NGOsinvolved in microfinance, as shown by joint hosting of the November 2005 microfinanceworkshop. Another obvious strength is provided by the professional capacity of Finnfund.

The Review recommends limited but strategic microfinance involvement that does not lead toa large increase in funding. The strategic options could include continuing support for MicroSave/DFS and CGAP and looking for other collaborative opportunities with financial system specialistson a country or regional basis. These might also focus at the meso level to develop theinfrastructure for an inclusive financial system. At the micro/retail level, as part of the partnershipwith NGOs, the focus should be on consensus building on the importance of high qualitymicrofinance for best serving clients, enabling NGOs to upgrade their technical skills andagreeing on how to measure performance. The Review also recommends supporting Finnfundto expand its investments in microfinance (see recommendations below). If done effectively,this provides a strategic niche of which Finland can be proud.

xii Review of Finnish Microfinance Cooperation

Table 1: Key Findings and Recommended Actions

Key findings Recommended actions

Portfolio quality

Bilateral projectsat the macro/policylevel

• Increasing percentage ofdevelopment cooperationfunds for program assistance toreach the MDGs.

• Government funding notappropriate for retailmicrofinance or private sectordevelopment.

• Where there are financial sector specialistsin budget support countries – engage inpolicy dialogue regarding the importanceof Financial System and Private SectorDevelopment for MDGs in collaborationwith major financial system donors.

• No financial sector policy interventions.

Bilateral projects atthe meso/infrastructure level

• Support to global pro-poorinfrastructure via CGAP andrural microfinance services inKenya through MicroSave/DFS.

• Support to innovation inKenyan rural financial servicesvia Microsave/DFS.

• Very high demand for thesetechnical support services.

• Continue and increase collaborativepartnerships to support pro-poor financialsystem infrastructure. Examples include:Microsave/DFS expansion into Tanzaniaand European Union MicrofinanceFramework Programme in Africancountries.

Bilateral projects atthe micro/retail level

• Years to exit from bad practicemicrofinance in components oflarger projects.

• Number of projects withmicrofinance dwindled withlittle increase in good practicemicrofinance projects.

• Finland is the smallest bilateralfunder of microfinance.

• Cease establishing Finnish bilateralmicrofinance components or projects.

• Participate only in collaborative projectswith specialist financial system donors.Possibilities include United Nations CapitalDevelopment Fund (UNCDF) inMozambique and UK Department ForInternational Development (DFID), RoyalNetherlands Embassy (RNE) and SIDA(already collaborating) in Tanzania.

• Provide new rural projects with technicalsupport to help them link with goodfinancial service providers.

NGO project fundedby the MFA at themicro/retail level

• Important role for NGOs inthe aid program and fundingto NGOs will increase.

• Five NGOs do microfinance insome form but track little.

• Evaluations provided feedbackon the need for sustainability.

• As funding increases, include NGOs doingmicrofinance in strategy development (seebelow), enable their training and encouragepartnerships with viable MFIs achievingdepth of outreach and reporting standardindicators of performance.

• Continue focus on poor rural clients.

Finnfund investmentsat the micro/retaillevel

• USD 8 million, the largestamount of Finnishmicrofinance developmentassistance currently beingmanaged.

• Provide management fee for Finnfund’smicrofinance investments.

• Encourage focus on expanding outreach.

xiiiReview of Finnish Microfinance Cooperation

Key findings Recommended actions

Effectiveness Conclusions

Strategic clarity of allstakeholders

• Limited awareness of 1998MFA Guidelines or 1999NGO Guidelines.

• Hence the long time toimplement the guidelines inthe MFA.

• Limited implementation of theguidelines by the NGOs.

• Initiate consensus-building process with allmicrofinance stakeholders to develop astrategy for building inclusive financialsystems in support of the MDGs.

• Disseminate two-page strategy very widely:“Inclusive Financial Systems: What, Why,How”.

• Integrate into other strategy documents.

MFA staffcapacity

• Key microfinance staffcompetent.

• Little staff microfinancetechnical capacity beyondthem.

• Frequent staff changes makethe capacity building difficult.

• Participate in Aid Effectiveness –Oct 2006.

• Send key country desk officers to one weekDonor Training when in their region.

• Plan regular one-day training for relevantcountry and sector staff (so new staff canlearn too).

NGO and Finnfundstaff capacity

• Amongst NGOs theknowledge of good practices islimited – but this isrecognized.

• Finnfund understands itslimited capacity and how toget appropriate technicaladvice.

• Send two persons to Turin Training in July2007 (on CGAP scholarships).

• Catalyze NGO training workshops fordesign, implementation and monitoring ofmicrofinance projects.

• Send key Finnfund staff to Council ofMicrofinance Equity Funds meeting inLondon in September.

Accountability-all stakeholders

• Before exit from componentsno reporting on quality offinancial services.

• After exit from components,improved reporting onfinancial performance.

• No performance-basedfunding.

Everyone to track the same indicators:• Outreach: Number of accounts.• Outreach: % women.• Depth: Average outstanding loan balance.• Depth: Average savings balance.• Quality: Portfolio at Risk.• Efficiency: Operating expense ratio.• Sustainability: Adjusted Return on Assets.• Upgrade information systems to track key

microfinance indicators.

NGO accountability • Inadequate NGO reporting onpartner MFI volume or quality.

• Facilitate Microfinance Network of thosecommitted to expanding financial services.

Knowledgemanagement

• Central America, Vietnam,guidelines integrated.

• Ad hoc integration of lessonslearned.

• Earlier failures remembered atthe MFA.

• Upgrade current bilateral microfinancecomponents and share lessons learned.

• Explicitly integrate lessons learned frommicrofinance experience into new fundingdecisions.

Instruments • Grants to NGOs appropriatefor microfinance.

• Budget support andgovernment projects notapplicable for retail privatesector interventions.

• No bilateral government projects or policy-level interventions.

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FINNISH SUMMARY –SUOMENKIELINEN YHTEENVETO

Köyhyydessä elävät ihmiset tarvitsevat samanlaisia rahoituspalveluita kuin muukin väestö.Peruspalveluihin kuuluu mahdollisuus säästää tulevia tarpeita varten. Säästöjensä turvin hevoivat myös selvitä odottamattomista tapahtumista, kuten sadon menetyksestä tai sairauksista.He tarvitsevat mahdollisuuden saada luottoa elinkeinotoimintaa varten sekä rahansiirtopalveluitaja mahdollisuuden ottaa henkivakuutus jne. Tällaisten rahoituspalvelujen saatavuus voi ratkai-sevasti auttaa köyhiä naisia pääsemään ulos köyhyyden noidankehästä. Se voi myös ratkaista,pääsevätkö tyttölapset kouluun, syödäänkö perheessä ravitsevaa ruokaa jne. Vuosituhat-tavoitteiden saavuttaminen, johon Suomenkin kehityspolitiikka sitoutuu – köyhyyden vähen-täminen, koulutuksen lisääminen, ravitsemus ja naisten aseman parantaminen – riippuu pit-kälti samoista asioista. Tavoitteita ei saavuteta ilman rahoitusjärjestelmiä, jotka eivät sulje poisköyhiä, naisia ja maaseudun asukkaita. Kehitysyhteistyöorganisaatiot ovat viime vuosina kiin-nostuneet pienrahoituksesta, joka pohjautuu laaja-alaisten köyhille suunnattujen rahoitus-järjestelmien rakentamiseen.

Suomen kahdenvälisessä kehitysyhteistyössä pienrahoituksen osuus on ollut jyrkässä laskussaviimeisen viiden vuoden aikana. Laajempien hankkeiden pienrahoituskomponentit, jotka eivätolleet kansainvälisten hyvien toimintatapojen mukaisia, on lopetettu aloittamatta uusia hank-keita. Kahdenvälisten pienrahoitushankkeiden kokonaisbudjetti on pudonnut 1.4 miljoonastaeurosta (2001) 1 miljoonaan euroon (2005). Samana aikana hankkeiden lukumäärä laski 12:stakuuteen5 . Suomessa trendi on ollut päinvastainen kuin useimpien muiden kehitysyhteistyö-organisaatioiden kohdalla: kaikkiaan 14 avunantajaa lisäsi kokonaispanostustaan pienrahoitus-hankkeille. Jopa 17 lisäsi tukeaan pienrahoitusalan meso- (infrastruktuuri)tason hankkeille.Maailmanpankin tilastojen mukaan Suomi on viime vuosina käyttänyt pienrahoitukseen vä-hemmän rahaa kuin mikään muu bilateraalinen avunantaja. Myönteisenä voidaan kuitenkinpitää sitä, että Suomi on panostanut kahden organisaation, Microsave/DFS:n ja CGAP:n tukemi-seen, joiden palvelujen kysyntä on voimakasta.

Viisi suomalaista kansalaisjärjestöä raportoi tukeneensa pienrahoitusjärjestelmiä noin 700 000eurolla vuonna 2004. Ne myös ilmoittivat paikallisten yhteistyökumppaniensa pitävän alanhankkeita erittäin tärkeinä. Vaikka säännöllinen raportointi hankkeista onkin puutteellista,palaute riippumattomista arvioinneista on korostanut hankkeiden merkitystä köyhyydenvähentämiselle sekä asiakkaiden tarvetta saada kestäviä rahoituspalveluita. Suomalaisten kansa-laisjärjestöjen toiminta pienrahoituksen tukemiseksi on kuitenkin melko pientä. Useimmitense on toteutunut osana laajempaa hankekokonaisuutta. Myös rahallisesti panostus on ollutsuhteellisen vaatimatonta verrattuna esimerkiksi Ruotsiin. Siellä pelkästään yhdellä toimijalla,Ruotsin kirkolla, on 3,3 miljoonan euron (30 miljoonan Ruotsin kruunun) investointi kahteenpienluottoja kehitysmaihin välittävään organisaatioon ja 1,6 miljoonan euron (15 miljoonankruunun) suora tuki pienrahoitusorganisaatioille ja tekniselle avulle.

Finnfundin panostus pienrahoitukseen on lisääntynyt viimeisen viiden vuoden aikana. Se onsijoittanut 6,4 miljoonaa euroa organisaatioihin, jotka välittävät rahoitusta suhteellisen suurille

5 SIDA tukee pienrahoitusta huomattavasti voimakkaammin: vuonna 2005 sen kokonaismaksatukset olivatnoin 18,5 miljoonaa euroa. Sen kokonaissijoitukset 66:een pienrahoitushankkeeseen saavuttivat 87 miljoonaneuron tason.

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pienrahoitusinstituutioille. Nämä sijoitukset, vaikka eivät olekaan yhtä tuottavia kuin Finnfundinnormaali toiminta, ovat kuitenkin tuottaneet positiivista tulosta samalla, kun ne ovat laajenta-neet pienrahoituspalvelujen saatavuutta.

Suomen ongelmat pienrahoitushankkeissa ovat olleet samansuuntaisia kuin monien muidenkintoteuttamissa hankkeissa: rajoitettu tietämys hyvistä menetelmistä, vähäiset henkilöstöresurssit,rajoitettu vastuu hankkeiden tuloksista ja tehoton tiedonhallintajärjestelmä. Muilla pohjoismailla,jotka olivat mukana CGAP:n arviointiprosessissa v. 2002, haasteet olivat hyvin samanlaisia. Neovat sen jälkeen alkaneet tietoisesti parantaa toimintatapojaan ja tehokkuuden katsotaan parantu-neen huomattavasti. On huomattava, etteivät pienrahoitushankkeiden haasteet ole ainutlaatuisia,vaan kehitysyhteistyön muillakin alueilla kohdataan samanlaisia ongelmia.

Ministeriö on tullut tienhaaraan pienrahoitusalan tuessaan. Jos se aikoo jatkaa alan kahden-välisiä hankkeita, sen tulisi lisätä kapasiteettiaan erityisesti henkilöstöresurssien osalta6 . Tähänei tällä hetkellä näytä olevan valmiuksia. Tässä tilanteessa ministeriön tulisi harkita alan toi-mintojen lopettamista kahdenvälisessä yhteistyössä. Se voisi toisaalta päättää rakentaa tulevaapienrahoitustoimintaansa vahvuuksiensa pohjalle. Näitä ovat aktiivinen kansalaisjärjestökenttä,jolla on pitkäaikaisia kumppaneita kehitysmaissa, sekä Finnfund, jolla on ammattimainen or-ganisaatio ja laaja kansainvälinen yhteistyöverkosto. Niissä maissa, joille Suomi antaa budjetti-tukea, se voi neuvotteluissa – yhteistyössä muiden avunantajien kanssa - korostaa pienrahoitus-toimintaa tukevan poliittisen ympäristön merkitystä köyhyyden vähentämisessä. Suomi voimyös jatkaa ja laajentaa yhteistyötä muiden avunantajien kanssa meso-tason hankkeissa (infra-struktuurin luomisessa) yhteistyömaissa. Mikrotasoa puolestaan Suomi voisi tukea kansalais-järjestöjen kautta. Järjestöt tarvitsevat kuitenkin tukea teknisten valmiuksiensa parantamiseksi.Myös Finnfundin kautta kanavoitua tukea voitaisiin laajentaa edelleen.

Taulukko 1: Johtopäätökset ja suositukset

Johtopäätökset Suositukset

Pienrahoitustoiminnan laatu

Kahdenvälisetmakrotason hankkeet

• Kasvava osuus määrärahoistaohjelma-apuun vuosituhat-tavoitteiden saavuttamiseksi.

• Julkisen hallinnon rahoittami-nen ei ole sopiva välinepienrahoitustoiminnantukemiseen.

• Tulisi aloittaa poliittinen keskustelurahoitusjärjestelmien ja yksityisen sektorinkehittämisen tärkeydestä vuosituhattavoit-teiden saavuttamiselle niissä maissa, joilleannetaan budjettitukea.

• Yllä oleva suositus ei koske pelkästään pien-rahoitusta, vaan rahoitussektoria kokonai-suutena sekä yksityissektorin kehittämistäyleensä.

Kahdenvälisethankkeet meso-tasolla

• Tuki globaalille köyhät huo-mioonottavalle pienrahoituk-selle CGAP:n kautta. TukiKenian maaseudun rahoitus-palveluille MicroSave/DFS:nkautta.

• Voimakas kysyntä yo. instituu-tioiden tarjoamille palveluille.

• Yhteistyötä CGAP:n ja MicroSaven kanssatulisi jatkaa. Tulisi etsiä uusia yhteistyömah-dollisuuksia, esim. Microsave/DFS:nlaajentuminen Tansaniaan sekä Euroopanunionin pienrahoitusohjelma Afrikassa.

6 Tällä hetkellä yksi henkilö käyttää sivutoimisesti noin 10 % ajastaan pienrahoituskysymyksiin.

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Kahdenvälisethankkeet mikrotasolla

• Integroitujen hankkeidenhuonolaatuisista pienrahoitus-komponenteista eroonpääseminen vei vuosia.

• Pienrahoitushankkeidenlukumäärä väheni; hyviinkäytäntöihin perustuvienhankkeiden lukumäärä eikasvanut.

• Suomi on pienin kahden-välinen pienrahoituksen tukija.

• Suomi ei osallistu tulevaisuudessa kahdenvä-listen pienrahoitushankkeiden taipienrahoituskomponenttien tukemiseen.

• Suomi osallistuu yhteisiin hankkeisiinpienrahoitukseen erikoistuneiden organisaa-tioiden kanssa.

• Uusissa maaseudun kehittämishankkeissarajoitutaan rahoituspalveluja tarjoavien jatarvitsevien välisen linkin luomiseen.

Kansalaisjärjestöjenmikrotason hankkeet

• Kansalaisjärjestöt näyttelevättärkeää osaa Suomenkehitysyhteistyössä. Niidenosuus määrärahoista ontodennäköisesti kasvussa.

• Viisi yhdeksästä järjestöstä,joiden kanssa ulkoasiain-ministeriöllä on kehyssopimus,tukee pienrahoitustoimintaa.

• Arvioinnit osoittavatpienrahoitusyhteistyöntarpeellisuuden.

• Kansalaisjärjestöjen strategioiden kehittämi-seen ja koulutukseen panostamiseenkiinnitettävä huomiota. Koulutusta tarvitaanerityisesti potentiaalisten partnerienvalitsemisessa ja toimintojen seurannassa.

• Maaseudun köyhien tukemista tulisi jatkaa.

Finnfundin panostusmikrotasolle

• Suurin suomalainenpienrahoitustoimija.

• Finnfundia tulisi tukea henkilöstö-kapasiteetin lisäämiseksi.

• Lisättävä panostusta köyhimpien saavutta-miseen tähtääviin toimiin.

Toiminnan tehokkuus

Strateginen johdon-mukaisuus

• Ministeriön toimintaohjeen(1998) ja kansalaisjärjestö-ohjeen (1999) tuntemusheikkoa.

• Siksi vei pitkän ajan ennenkuin ministeriön ohjeitaalettiin noudattaa.

• Kansalaisjärjestöt eivät olenoudattaneet niille laadittuaohjetta.

• Aloite yhteisen strategian luomiseksikattavien pienrahoitusjärjestelmienmerkityksestä vuosituhattavoitteidensaavuttamiselle.

• Tulisi laatia ja jakaa laajasti kahden sivunstrategia: ”Kattavat pienrahoitusjärjestelmät.Mitä. Miksi. Miten”.

• Pienrahoitusstrategia integroitava muihinstrategiadokumentteihin.

Ministeriön henkilö-resurssit

• Pienrahoitusta käsitteleväavainhenkilöstö pätevää.

• Muun henkilöstönpienrahoitustuntemusvähäisempää.

• Ministeriön tulisi lähettää henkilö avuntehokkuuskoulutukseen lokakuussa 2006.

• Maaohjelmista vastaavia henkilöitäkoulutukseen, esim. joulukuussa 2006.

• Yhden päivän koulutus maaohjelmistavastaaville.

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Kansalaisjärjestöjenja Finnfundinhenkilöresurssit

• Kansalaisjärjestöissä hyvienpienrahoitusmenetelmientuntemus vähäistä. Puutekuitenkin tiedostettu.

• Finnfund tietoinen kapasiteet-tinsa rajallisuudesta.

• Kaksi henkilöä tulisi lähettää Torinoonkoulutukseen CGAP:n stipendillä.

• Kansalaisjärjestöille koulutusta hankkeidensuunnittelussa, toteutuksessa ja seurannassa.

• Finnfundin avainhenkilö Council ofMicrofinance Equity Funds kokoukseensyyskuussa.

Eri osapuolientulosvastuu

• Pienrahoitushankkeiden ja-komponenttien laadunraportointi ollut puutteellista.

• Laatu on kuitenkin parantunutviime vuosina.

• Ei suoritusperusteistarahoitusta.

• Kaikissa hankkeissa olisi seurattavaseuraavia indikaattoreja:

– Kattavuus: tilien määrä– Kattavuus: naisten osuus– Syvyys: keskimääräinen lainatilin saldo– Syvyys: keskimääräinen säästötilin saldo– Laatu: riskilainat– Tehokkuus: toimintakulujen suhde– Kestävyys: tuotot investoinnille– Informaatiojärjestelmää parannettava

avainindikaattorien seuraamiseksi

Kansalaisjärjestöjentulosvastuu

• Yksikään kansalaisjärjestö eiraportoi riittävällä tavallapaikallisen kumppanintoiminnan määrää tai laatua.

• Tulisi luoda yhteys pohjoismaisiinkansalaisjärjestöihin.

• Tulisi luoda pienrahoitusverkosto sellaisillejärjestöille, jotka ovat kiinnostuneitatoiminnan laajentamisesta.

Informaatio-järjestelmät

• Keski-Amerikan ja Vietnaminhankkeet esimerkkinä ohjeidennoudattamisesta.

• Yleensä kokemukset siirtyvätsatunnaisesti.

• Huonosti onnistuneetaikaisemmat hankkeetmuistetaan pitkään mikä onvaikuttanut yleiseen kuvaanpienrahoitushankkeista.

• Nykyisten kahdenvälisten pienrahoitus-komponenttien kokemuksista jaettavatietoa.

• Luotava järjestelmä, jonka puitteissakokemukset toteutetuista hankkeista ovatkäytettävissä uusien hankkeiden suunnitte-lussa.

Välineet • Lahja-apu kansalaisjärjestöillesoveltuu hyvin pienrahoituksentukemiseen.

• Budjettituki ja hallinnon kauttakanavoituva apu yleensä onsopimaton väline mikrotasonpienrahoitushankkeisiin.

• Kahdenvälisistä pienrahoitushankkeistaluovutaan.

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1. INTRODUCTION

1.1 What and Why Microfinance

Access to financial services is one of the essential building blocks to achieving the MillenniumDevelopment Goals (MDGs). People living in poverty, like everyone else, need a diverse rangeof financial instruments to run their businesses, build assets, stabilize consumption, and shieldthemselves against risks. By reducing vulnerability and increasing earnings and savings, financialservices allow poor households to make the transformation from “every-day survival” to “planningfor the future” to begin to move out of poverty. Households are able to send more children toschool for longer periods, improve nutrition and living conditions which particularly benefitswomen and girls. Increased earnings also mean that clients may seek out and pay for health careservices when needed. These are what poverty reduction and the MDGs are all about7 .

Financial services needed by the poor include working capital loans, consumer credit, savings,pensions, insurance, and money transfer services. Microfinance is the supply of these financialservices to the poor and financial intermediary development, in particular, reduces incomeinequality and contributes to poverty reduction8 . Most poor people in developing economiesalready have informal means of saving and borrowing to help reduce these risks but they arerisky or expensive. The lack of access to a broader range of safe financial services is a seriousconstraint to the efforts of poor people to increase their income and standard of living. Providersof financial services to the poor include (i) donor-supported, non-profit non-governmentorganizations (NGOs), cooperatives; (ii) community-based development institutions like self-help groups and credit unions; (iii) commercial and state banks; (iv) insurance and credit cardcompanies; (v) wire services; (vi) post offices; and (vii) other points of sale. Typically, the formalbanking system does not know how and/or does not want to serve poor clients (particularly inremote rural areas) because of the high costs and perceived risks.

The clients of microfinance – those in poverty, female heads of households, pensioners, displacedpersons, retrenched workers, small farmers, and micro-entrepreneurs – fall into four povertylevels: (i) destitute, (ii) extreme poor, (iii) moderate poor, and (iv) vulnerable non-poor. Whilerepayment capacity, collateral availability, and data availability vary across these categories,methodologies and operational structures have been developed to meet the financial needs ofall these client groups in a sustainable manner.

Microcredit may be inappropriate where populations are geographically dispersed or nomadic,have a high incidence of debilitating illnesses (e.g., HIV/AIDS), are dependent on a singleeconomic activity, or reliant on barter rather than cash transactions. The presence ofhyperinflation, or absence of law and order, may stress the ability of microfinance to operate.However, strong and innovative microfinance providers are able to operate even in extremelychallenging circumstances. These providers uphold two prerequisites of successful microcredit:(i) discipline both for clients (timely repayment) and institutions (business practices that leadto sustainability); and (ii) no subsidization of interest rates.

In short, access to financial services is one of the essential building blocks to achieving theMillennium Development Goals.

7 Littlefield, Murdoch & Meesbahuddin 2004.8 King & Levine 1993; Beck, Demirguc-Kunt & Levine 2004; Jalilian & Kirkpatrick 2005.

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1.2 Introduction to Microfinance in Finnish Development Cooperation

Microfinance did not have a prominent role in the Finnish development cooperation until themid-1990s when donors realized its potential in poverty reduction. After that the enthusiasmfor microfinance grew, the number of interventions increased until the end of decade but theseprojects were not always well designed. Microfinance guidelines were approved in 1998 toimprove the design of microfinance projects. Soon both the number of interventions and thefunds used in the bilateral program started decreasing. At present, Finland is the smallest bilateraldonor in microfinance.

Finland has used three channels for supporting the microfinance: (i) bilateral projects, (ii)support of NGOs (Ministry of Foreign Affairs funds 80% of the NGO programs), and (iii)Finnfund. Most of the microfinance supported by Finland through bilateral assistance or NGOshas been a component in larger integrated programs serving the main program’s goals ratherthan supporting sustainable microfinance systems. The recent Ministry of Foreign Affairs (MFA)policy or strategy documents do not consider microfinance as a priority although microfinanceis essential to several of the MFA’s poverty reduction goals. The Ministry does not have a fulltime specialist for microfinance, private sector or financial system development.

The idea for Donor Peer Reviews9 emerged from conversations between the British Secretary ofState Clare Short and Consultative Group to Assist the Poor (CGAP), on ways that CGAPmember donors could use microfinance as a test case for improving aid effectiveness. Seventeenmember donors participated in peer reviews of each other’s microfinance effectiveness from2002 to 2003, with the focus on procedures, processes and practices. They were motivated bythe fact that, although donors had been using between USD 800 million and USD 1 billionannually for microfinance, the operations on the ground did not often produce the desiredresults, and good practices were not systematically followed. Finland did not participate in thisreview at the time. The ultimate aim was to improve the donor efficiency, not only in the areaof microfinance but – using it as a case – in a wider context. The reviews resulted inrecommendations to each participating donor that were made public on CGAP’s website: http://www.cgap.org/projects/donor_peer_reviews.html.

1.3 Finnish Microfinance Portfolio Review and Effectiveness Review

The MFA decided to conduct a similar review of the Finnish microfinance effectiveness togetherwith a microfinance portfolio review. The main purposes were to:

1. Clarify the current scope of Finnish microfinance support and assess it againstinternational trends and best practices in microfinance paying special attention to thepotential to improving aid effectiveness.

2. Suggest a vision on the role of microfinance within the MFA portfolio based on assessedcomparative advantages, objectives of the Finnish development policy and availableresources.

3. Identify concrete measures in a form of an action plan (covering institutional andadministrative arrangements, personnel support and other resources) to implement the

9 Donor Peer Reviews were carried out by team of two microfinance donor peers – i.e. from agencies of asimilar size or programme, and two CGAP staff who managed the process and produced the report.


vision and enable effective implementation of good donor practices building on identifiedstrengths.

The review has been carried out in two phases. In phase I, Ms. Eva Weikkolainen of MFAconducted a review of the present microfinance portfolio (Weikkolainen 2006). During thephase II, a team of consultants consisting of Mr. Harri Porvali, Ms. Ruth Goodwin-Groen andMs. Loice Omoro, reviewed documents and carried out interviews to collect information onboth the effectiveness and the quality of the Finnish microfinance program. This analysis formsthe basis for the conclusions, vision and action plan presented in this document.

2. MAJOR TRENDS IN GOOD MICROFINANCEDONOR PRACTICES

Microfinance has come a very long way since 1995 when the first donor principles formicrofinance were jointly developed by the Donors’ Working Group on Financial SectorDevelopment and the Committee of Donor Agencies for Small Enterprise Development at theWorld Bank. It was titled Micro and Small Enterprise Finance: Guiding Principles for Selectingand Supporting Intermediaries. Bilateral donors, such as Finland, were learning that poor peoplewith microenterprises needed, and could pay for, access to appropriately designed credit services,so the donor guidelines helped donors fund good providers of credit for microenterprises.

Since then, the realization of the importance of access to financial services for all people hasresulted in donors’ understanding that it is the whole financial system that has to change toinclude poor people. The borders between this evolving understanding of microfinance and thelarger financial system are starting to blur. Consequently, there has been an explosion in thetypes of financial services available and the ways that donors provide support to the developmentof financial system. The major trends in good practices that donors have been implementing, asoutlined in Building Inclusive Financial Systems: Donor Guidelines on Good Practice inMicrofinance (CGAP 2004a), are:

• Expanded Vision in Support of the Millennium Development Goals• Expanded Understanding of Microfinance Clients and their Financial Service Needs• Diversification in Levels of Intervention in the Financial System• Focus on Improving Effectiveness to Achieve Better Results

2.1 Expanded Vision in Support of the Millennium Development Goals

Donors and governments have expanded their vision from simply providing credit to the poorto enabling the whole financial system to include the poor as described in Box 1. This expandedvision has come from understanding that all forms of financial services are critical to overcomepoverty. Donors are now including microfinance in the financial sector, private sector and ruraldevelopment departments, often increasing its profile within agencies. At the same time someNGOs are specializing in this sector, becoming actors in the financial system themselves. Thisnew vision complements donors’ efforts to work towards many of the Millennium DevelopmentGoals, particularly the poverty reduction goal, as is very clear in the Norwegian Agency forDevelopment Cooperation (NORAD) example in Box 2.


Box 1: New Vision for Microfinance

The new vision of microfinance is for poor people in the developing world to enjoy permanentaccess to a wide range of financial services (e.g. savings, credit, remittances, insurance) deliveredby different types of financial and non-financial institutions through a variety of mechanisms.

Source: CGAP 2004a

Box 2: Excerpts from NORAD’s Vision of Microfinance

What is microfinance?

The microfinance is defined as provision of a broad range of client-responsive financial services(loans, savings, insurance) to poor people through a wide variety of institutions.

Microfinance includes urban microfinance, as well as rural finance through cooperatives, creditschemes to small-scale fisheries, and credit components in larger projects, such as integratedrural development projects.

Why microfinance?

Financial services for the poor can be a powerful tool for poverty reduction by enhancing theability of poor people to increase incomes, build assets, and reduce vulnerability in times ofeconomic stress.

Microfinance fits well into Norwegian development cooperation’s rights-based approach to povertyreduction and private sector development.

The vision of building permanent pro-poor financial systems through donor coordination andharmonization is coherent with the principles behind new development cooperation practices.

NORAD intends to:

• Continue working through Norwegian NGOs.• Advocate a pro-poor financial system approach and follow international good practices and

principles.• Promote pro-poor innovations in close cooperation with other donors.• If working directly with Micro Finance Institutions (MFIs), cooperate closely with other

donors at the country level.• Maintain the excellent coordination and exchange of information between Norwegian actors.• Continue to be active within CGAP and advocate social aspects of microfinance.

Source: NORAD 2003

2.2 Expanded Understanding of Microfinance Clients and their FinancialService Needs

The new vision means expanding the definition of those who need access to finance andexpanding our understanding of what financial services they use and need. It is no longermostly urban micro-entrepreneurs who are microfinance clients, there is now an increasingfocus on rural areas, farmers, young and old, those who do not necessarily have micro-businessesbut need a safe place to save, a way to transfer money or some form of insurance, althoughwomen are still the majority of clients. The examples in Boxes 3 to 5 below provide insight intothis new bigger opportunity to microfinance and how donors have addressed it.


Box 3: Prudence is a Market Trader in Karatina, Kenya

She belongs to four informal savings groups: one has a monthly payout that she uses to pay forher grandchildren’s school fees (she cares for them since their parents died of AIDS); another onepays out weekly which she uses to restock her market stall. In addition, she belongs to anotherinformal credit and savings group in which she can take out small, short-term loans if neededperiodically, and the entire amount is distributed among members of the group just beforeChristmas (last year she received USD 109 during the holiday season). She also belongs to aninformal funeral insurance group to ensure that her remains are transported to her home villageafter she dies. Prudence keeps a few dollars around the house and has long-term savings lockedup in a cow that is looked after by her brother in her home village. Finally, she also has a loanfrom Faulu, a Kenyan Micro Finance Institution (MFI) which she is using to upgrade her hometo rent out some rooms to secure regular income in her old age. Faulu was originally supportedby the European Union, the UK Department for International Development (DFID) and theUnited States Agency for International Development (USAID), now Citibank Kenya is its majorfunder.

Source: Wright 2005

Box 4: Donor Support for Rural Clients in Mongolia

The Agricultural Bank of Mongolia (Ag Bank) today is the main provider of financial services in therural areas of Mongolia. It has the largest branch network in the country, with 379 locations (93percent in rural areas), and provides deposit and loan products at each point of service. But in 1999it had nearly failed and was in receivership. With the government’s support, donors decided AgBank was so important for the rural economy that it could not fail, so they funded internationalexperts to turn the bank around. Turnaround efforts resulted in Ag Bank becoming the mostprofitable bank in Mongolia. Ag Bank has shown that financial products can be created and deliveredgainfully in even scarcely populated and poor areas if they truly meet the needs of customers.

Source: Dyer et al. 2004

Box 5: Microinsurance in Guatemala

In 1994, the Guatemalan National Federation of Credit Unions (FENACOAC) and nine membercooperatives created their own insurance company, COLUMNA. Today, more than half a millionGuatemalans, mostly members of 35 primarily rural credit unions, have bought insurance policiesthrough COLUMNA. Cooperative members have a life insurance policy protecting their savings,contributions, and credit balances. Also, 54 000 members have a microinsurance policy for funeralservices and accidents called Plan de Vida Especial (Special Life Plan). The Special Life Plan is agroup life insurance product that offers a benefit between around USD 1 200 and USD 6 200in case of death and an additional sum to cover accidental death and disability. The low insurancepremium (between USD 7.80 and USD 39) is paid annually. The product is marketed anddistributed through the credit unions, benefiting from their wide geographic coverage. The planhas been profitable; over the past four years, the estimated profit for the Special Life Plan hasaveraged 26 percent of the net written premium.

Source: Herrera & Miranda 2004


2.3 Diversification in Levels of Intervention in the Financial System

As a result of the new vision, donor projects have expanded beyond supporting only credit providersto supporting all three levels of the financial system: (i) micro, (ii) meso, and (iii) macro. Donorsare making significant contributions to building inclusive financial systems in many differentways and exiting from microfinance components of larger projects that do not build sustainableinstitutions. Donors are ensuring that projects with financial service providers (be they savingscooperatives, banks, NGOs or Rotating Savings and Credit Associations (ROSCA) will remainlong after the project has finished and will contribute to changing the financial system to includepoor people. Box 6 provides a definition of each level of the financial system and shows donortrends for each level. In addition, Figure 1 shows how SIDA’s microfinance program is divided upby level.

Box 6: Descriptions of Each Level of the Financial System with Examples of Good DonorPractices

Micro or Retail Level:

The backbone of the financial system is retail financial service providers that offer services directlyto poor and low-income clients. They run the spectrum of financial services from informalmoneylenders or savings clubs to commercial banks and everything in-between.

– Setting up performance-based funding of retail institutions– Including donor exit strategies from the beginning– Taking informed risks on promising institutions

86% of the 17 donors reporting to CGAP increased funding to stand alone MFI projects in 2004.Finland decreased its funding.

Meso or Infrastructure Level:

The basic financial infrastructure and range of services required to reduce transactions costs,increase outreach, build skills, and foster transparency among financial service providers. It includesauditors, rating agencies, professional networks, trade associations, credit bureaus, transfer andpayments systems, information technology, technical service providers, and trainers. These entitiescan transcend national boundaries and include regional or global organizations.

– Strengthening human resources through training program– Supporting international networks and country-level associations– Developing performance indicators to measure impact

All 17 donors reporting to CGAP increased funding to this level from 2003 to 2004. Finlandmaintained its funding.

Macro or Policy Level:

An appropriate legislative and policy framework is necessary to allow sustainable microfinance toflourish. Central banks, ministries of finance, and other national government entities constitutethe primary macro-level participants.

– Supporting interest rate liberalization– Not supporting direct provision of financial services by a government– Building the capacity of key government staff

80% of 17 donors reporting to CGAP increased funding to the macro level in 2004. Finland haslimited microfinance funding specifically for policy level work.

Source: CGAP 2004a, 2004b, 2004c, 2006


Figure 1 shows SIDA’s definitions of its type of projects which is roughly equivalent to 23% offunding to the policy/macro-level financial, including legal and regulatory frameworks, andsupervisory capacity; 8% to the infrastructure/meso-level, including support to organizationsworking with training and development of methodologies; all the rest went to building upfinancial intermediaries at the retail/micro-level, including 52% to informal/semi-formal financialinstitutions (retail and wholesale) and 17% to formal financial institutions.

Figure 1: Breakdown of SIDA’s 2005 Microfinance Commitments into Levels of theFinancial System

Source: SIDA 2006

2.4 Focus on Improving Effectiveness to Achieve Better Results

Increasing concern to improve donor effectiveness drove the Donor Peer Review Process startingin 2002. Donors involved in this process have moved beyond ad hoc support to focusing ontheir comparative advantages and improving effectiveness to achieve better results. SIDA andthe NORAD are examples of donors successfully working on improving their effectiveness (seeBoxes 2, 7, and 8). One area both are focusing on is improving accountability. SIDA is nowimplementing five minimum performance indicators for all projects and NORAD has recentlyundertaken an inventory and will also be implementing similar indicators.


Box 7: Example of SIDA’s Improving Microfinance Effectiveness

Strategic Clarity

2002: The review team identified the need for a coherent policy on microfinance. Good practiceprinciples were not accessible to SIDA staff designing or monitoring microfinance-related projectsand were not familiar with microfinance good practice principles.

2006: There is now a common vision of microfinance and Financial Systems Development(FSD) articulated within SIDA’s internal documents across departments. This articulated visionis consistent internally and also aligned with international good practices. Most new microfinanceprojects comply with good practices.

Accountability

2002: SIDA had only very rudimentary information on its portfolio of microfinance. Its qualityassurance process and performance management were inadequate. Neither financial systemsdevelopment nor microfinance were very visible at the project committee – which had littleguidance about key indicators for success (or failure) in financial systems projects.

2006: The FinSys team tracks FSD projects and circulates this information through its newsletter.The performance criteria it increasingly uses to improve accountability is given in Box 8 below.The department working with NGOs has launched a public on-line system that providesinformation on the projects under the block grants to Swedish NGOs including FSD. SIDAnow uses more performance-based agreements with its retail partners (i.e. Small EnterpriseFoundation SEF in South Africa) that ensures a focus by SIDA and its partners on achievingagreed results.

Sources: www.cgap.org and www.sida.se

Box 8: SIDA’s Five Minimum Performance Criteria10

1. Outreach: How many clients are being reached? Measured by number of clients (not accounts)the average is approximately 20 000 (while the biggest is 250 000 by a project in Ethiopia;all the institutions reported an increase).

2. Depth of outreach: How poor are the clients? Measured by the average loan balance perborrower. The average indicator for the portfolio is USD 380.

3. Portfolio quality: How well is the institution collecting its loans? Measured by the value ofall the loans outstanding which have installments of principal more than 30 days overduedivided by the gross loan portfolio the average ratio is 1.3%; most institutions reported animprovement in this indicator.

4. Financial sustainability: Is the institution profitable enough to maintain and expand itsservices without assistance? Measured by average operational self-sufficiency – around 100%was deemed as sustainable.

5. Efficiency: Is the financial institution providing services at the lowest possible cost to theborrower? Measured by operating expenditure per active borrower the average cost stands atUSD 122, while the Ethiopian project maintains a cost of USD 6 per borrower.

Source: www.sida.se

10 This information is based on SIDA’s first attempt to analyse its portfolio in quantitative terms. The systemis still being developed.


Table 2 shows the number of loan clients that agencies funded by NORAD/MFA are serving.Tracking numbers of clients is a basic indicator of outreach (this information was not availablefor the Finnish program). The total number of loan clients stands at an impressive 1.5 millionat the end of 2004, estimated to increase to over 1.8 million in two-years time. Strømme is aspecialist microfinance NGO and reaches twice as many clients as the next largest NGO and isgrowing fast. It records the highest number of clients, with about 57% of the total in 2004which is expected to increase to 61% in 2005.

Having analyzed the major trends in microfinance, with examples from Nordic peers, the Finnishmicrofinance program will be analyzed in the following chapters.

Table 2: Approximate Loan Clients of Norwegian NGOs 2004–200511

Norwegian NGO 2004 2005 estimate

AtlasAlliansen 0 0CARE 151 908 129 540Embassies 7 791 10 612FORUT 24 970 25 595Misjonsalliansen 33 657 41 579NCA 0 0Norges Vel 2 983 2 025Normisjon 16 476 19 250NPA 415 225 423 775PYM 0 0Strømme 863 768 1 027 114

Total 1 516 778 1 679 490

Source: Sigvaldsen & Jørgensen 2006

11 Sigvaldsen & Jørgensen (2006) note seven different problems with the data quality in their report, so theseare approximate numbers only.


3. ANALYSIS OF FINNISH MICROFINANCE AIDPOLICIES AND PORTFOLIO

3.1 Microfinance in Finland’s 2004 Development Policy

The primary commitment of Finland’s Development Policy (Government Resolution, 5 February2004) is to the values and goals of the United Nations (UN) Millennium Declaration, knownas MDGs. Other principles include sustainable development, partnerships for developmentwith public and private sectors and civil society, long-term commitment and transparency.Unlike the 12 September 1996 Development Policy, this one does not make an explicit referenceto microfinance, although it is widely recognized that microfinance makes an importantcontribution to all of the following priorities:

• Poverty Reduction: Access to financial services is critical for poverty reduction.• Gender: The majority of microfinance clients are women, who have very limited access

to mainstream financial services.• Agricultural Finance: Rural areas have been ignored by most formal banks and yet the

rural poor still need access to sustainable financial services.• Local ownership: Microfinance is based on sustainable local institutions.• Private Sector: Microfinance is critical to the growth of small enterprises.• Importance of Cooperatives and Savings Schemes: Many MFA staff remember one

reason that Finland developed very fast since the 1930s was the role of small financinginstitutions (local cooperative and savings banks, savings schemes of consumercooperatives, local insurance associations, etc.).

• Education: Access to microfinance services, both savings and credit, increases schoolattendance, particularly that of girls.

• Risk reduction: Savings, in particular, plays a role in reducing the vulnerability to shocks.• NGO support: The Finnish government is intending to expand the volume of assistance

channeled through the NGOs. There is considerable interest among the Finnish NGOsin microfinance.

Similarly, the MFA’s rural development guidelines (2004) do not specifically mention themicrofinance (as did the ones prepared in late 1980s). But most of the priority areas identifiedfor Finnish support require financial services, including support of (i) livelihood strategies ofrural poor, particularly rural women; (ii) sustainable rural economy; (iii) diversification of ruraleconomies; (iv) services for rural poor; and (v) private sector and civil society.

Apart from the above factors in the Finnish policy favoring the microfinance interventions,there are also some policies which appear to be antithetical to microfinance interventions:

• Budget support: The increasing share of program assistance of the total funds fordevelopment cooperation reduces the funding available for projects. At the same timebudget support is not a suitable instrument for the private sector, including microfinance.On the other hand, provision of budget support would, in principle, make it possible toinclude the promotion of microfinance in the policy dialogue.

• Three-sector limit: The policy of supporting projects with a maximum of three sectorsper country typically excludes stand-alone microfinance projects. However, bilateralprojects facilitating the access of entrepreneurs and farmers to formal financial institutionscould be supported as part of larger projects.


• Disbursement pressure: The Finnish development funding is expected to increaseconsiderably if the government’s targets are to be met. This is likely to create disbursementpressure. The experience has shown that the increased funding is not necessarilyaccompanied by increasing staff capacity. As a result, projects in areas like microfinanceand rural development, where large amounts of funds are often not required, will losepopularity in comparison with larger projects, sectoral programs and budget support.However, this also means there is an opportunity for Finland to join collaborative projectswith other donors, thus having avoided the whole design process.

This analysis shows that the new vision for microfinance is entirely consistent with the FinnishGovernment’s priorities for development cooperation.

3.2 Microfinance Guidelines of 1998

The document outlining the MFA policy on microfinance, Microenterprise Finance: GeneralGuiding Principles for Selecting and Supporting Microfinance Intermediaries, was approved bythe Director General on 14 August 1998 (Ministry for Foreign Affairs of Finland 1998). It isinteresting to see how much the microfinance has evolved since that time which means that theGuidelines are now out of date, e.g.:

• “the purpose of microfinance is to provide savings and credit services for the poor andvery small entrepreneurs” – experience has shown that all people need the services, notjust entrepreneurs;

• “in order to ensure the reaching of poor, particularly women, wealth limits have to be setfor participating clients” – experience has shown that targeting can also be done byproduct design to screen out non-poor clients;

• “the clients would be required to form groups and attend weekly meetings” – experiencehas shown that a range of methodologies are appropriate and viable, not just weeklygroups; and

• “building up a sustainable microfinance institution requires normally a long time horizonup to ten years” – experience has show that this very long time horizon is not alwaysneeded.

The preparation of these Guidelines was apparently prompted by problems experienced inoperating microfinance activities as part of integrated projects. These operations had beenimplemented mainly through revolving funds with little attention paid to the sustainability. So,some of the key points responding to these problems remain valid:

• microfinance activities should, in the future, not be part of integrated projects, wheretheir purpose is rather to support the goals of the main project rather than building upa sustainable microfinance service;

• MFIs have to charge market interest rates in order to cover the costs of extending relativelysmall loans and to achieve the financial sustainability of the local intermediary;

• economic sustainability could also be achieved through embarking on voluntary savings(this would also be in the interest of the poor who require safe and accessible savingsfacilities); and

• different types of local institutions can deliver micro credits to the clients: NGOs, savingsand credit cooperatives, non-bank financial companies, banks linking to self-help groups,rotating savings and credit associations, etc.


These Guidelines were useful to the extent that they were used in project design. There isevidence that some projects were stopped after 1998 when it was realized they were not inaccordance with these Guidelines. However, as discussed in the effectiveness section below,there appeared to be little dissemination of these Guidelines, so it was a slow process for themto be implemented. Now it seems they have been almost totally forgotten. What is neededinstead is something very much shorter and action oriented that can be put on a wall, not in afile.

Box 9: Summary of 1998 Microfinance Guidelines

• Support sustainable local financial institutions, not project components• Support best performers for scaling up, not start-ups• Track performance indicators according to international best practice• Require effective governance and accountability• Create incentives to reach poorer clients• Undertake impact analysis

3.3 Overview of Bilateral Microfinance Projects: 2001 to 2005

Phase I of this Review prepared by Eva Weikkolainen (2006) provided a detailed description ofthe Finnish Microfinance from 2001 to 2005. This section provides additional informationand analysis.

2001 Portfolio review: Microfinance was embraced enthusiastically in the 1990s. In 2001there was almost EUR 1.1 million in bilateral microfinance projects, all but one (the PhilippinesTechnical Assistance project) were microfinance components of larger projects. Appropriately,these projects were in countries with which Finland has a long-term partnership, such as Viet-nam, Zambia and Nicaragua – as shown in Figure 2. In addition, EUR 252 282 was contributedto CGAP so there was approximately EUR 1.4 million in total bilateral and multilateralmicrofinance funding disbursed in 2001. There was still Finnish funding in the outstandingloan portfolios of the agencies it financed but these funds were not tracked separately.

There would have been more projects if several of the bilateral projects at the planning stagearound 2000 had been implemented. Such projects had been planned for South Africa, Nepal,Malawi, Namibia (two projects) and Vietnam.

2006 Portfolio review: Table 3 shows all the projects in operation between 2001 and 2005 andFigure 312 shows visually the steady downward trend in the number of microfinance projects.The Honduras Project will come to an end this year, while Kenya project and the UN’s IndustrialDevelopment Organization (UNIDO) program in Vietnam will come to an end next year. Thethree remaining projects implemented in Vietnam will be limited to training and no furtherfunding of microfinance is planned. Figure 4 visually shows that the total bilateral microfinancein 2005 was approximately EUR 700 000 and in addition there was funding of EUR 260 000to CGAP. Thus the total was approximately EUR 1 million. This is a 30% reduction in volumeof microfinance funding since 2001. The geographical focus was even more concentrated onVietnam.

12 These figures do not include Finland’s support to CGAP.


Figure 2: Distribution of Bilateral Microfinance Projects by Volume 2001

Source: Weikkolainen 2006 (updated)

Table 3: List of Bilateral MFA Microfinance Projects 2001–2005 (By Year Started)

Country Project/Programme Period

Nicaragua Rural Development Programme PRODEGA 1990–2003

Nicaragua Social Sector Development Programme FADES 1994–2003

Zambia Rural Development Programme in Luapula 1995–2001

Tanzania Rural Integrated Project Support (RIPS) 1996–2005

Honduras Self Managed Local Development for Poverty Reductionin Northern Copan with Government of Honduras,UN’s Development Programme (UNDP) 1999–2006

Nicaragua Environmental Sector Development Programme PANIF 1998-2001

Philippines Technical Assistance to the Philippines for Institutionalof Grameen Banking Services with the Asian DevelopmentBank (AsDB) 1999–2001

Vietnam Vietnam Forestry Sector Cooperation Programme Phase II 1999–2003

Vietnam Thua Thien Hue Rural Development Programme Phase I & II 1999–2008

Mongolia Micro Start Programme Phase II with UNDP 2000–2001

Central America Central American Microfinance Programme CAMFP 2001-2003

Vietnam Haiphong Water Supply, Sewerage and Sanitation ManagementProgramme 2001–2004

Vietnam Quang Tri Rural Development Programme Phase II & III 2002–2009

Kenya MicroSave – Decentralized Financial Services with DFID UNDP 2003–2007

Vietnam Entrepreneurship Development Programme for Womenin Central Vietnam, Phase II/UNIDO 2004–2007


Figure 3: Number of Bilateral Microfinance Projects By Year

Figure 4: Distribution of Microfinance Project Volume 2005

Source: Weikkolainen 2006

In contrast, SIDA has significantly increased its total microfinance disbursements toEUR 18.5 million in 2005 (SEK 170 million13 ) and now has EUR 87 million (SEK 800 million)in portfolio outstanding (Figure 5). The 2005 portfolio is a 10% increase over the 2004 portfolioof EUR 78.3 million (SEK 720 million) in the end of 2004. This was concentrated in fewerprojects reducing the number from 80 microfinance projects globally in 2004 to 66 projects in2005. During 2004 the total disbursement was approximately EUR 13.6 million(SEK 125 million).

13 The statistics are based on projects with ongoing contracts of more than SEK 1 million (SIDA 2006).


Figure 5: Increase in SIDA’s Financial System Development Portfolio Outstanding

Source: CGAP 2006

Also by way of contrast, SIDA’s biggest geographical focus area was Africa with overEUR 27 million (SEK 250 million) followed by Latin America, at EUR 21.6 million(SEK 200 million; Figure 6).

Figure 6: Regional Share of Annual Microfinance Commitments by SIDA 2003–2005

Source: SIDA 2006


Norway also is significantly increasing its total microfinance program. In 2005 it was up toEUR 9 million from EUR 8 million in 2004. Table 4 shows how much each of the Norwegianagencies give to microfinance each year.

Table 4: Approximate Funding of Microfinance by NORAD/MFA 2004– 200514

2004 2005 estimate

EUR 1 000

Strømme 5 838 7 056

Norges Vel 459 182

Normisjon 115 157

Emb. Kenya 272 344

Emb. Sri Lanka 429 289

PYM 0 162

CARE 792 1 075

Misjonsalliansen 865 981

NPA 600 600

AtlasAlliansen 85 163

FORUT 156 146

Utviklingsfondet 166 178

NCA 800 800

NORAD/MFA 1 230 615

Total 11 807 12 748

Contribution from NORAD and MFA 8 026 8 977

Source: Sigvaldsen & Jørgensen 2006

3.4 Analysis of the Reasons for the Decline in MicrofinanceProjects and Volume of Funding

First, the decline in microfinance funding started when the guidelines were being brought inbecause projects being planned did not comply with the Guidelines. To show the extent to whichthe projects did not comply with the Guidelines, a summary analysis of a sample of microfinanceprojects against the key points of the guidelines (outline in Box 9 in Subsection 3.2) is provided inTable 5. It shows the results of that analysis and the discrepancy between the guidelines and theprojects. Only one project complied with the guidelines and that was a project specifically designedto improve and rescue the failing microfinance components in five earlier Central American projects.

Second, there were some major problems, namely in the Luapula Livelihood and Food SecurityProgramme in Zambia and in the Rural Integrated Project Support (RIPS) in Tanzania asreviewed by Komppula (2001). The two main reasons for the problems in both projects werethat the project staff made the loan decisions, not the local MFI and that there were no accuraterecords of the loan portfolio, so it was impossible to track down who were due to pay the loansback, when and how much. Such problems created a negative image for microfinance in MFA.

14 Sigvaldsen and Jørgensen (2006) note seven different problems with the data quality in their report, so theseare approximate numbers only.


Table 5: Summary of Analysis of Selected Microfinance Projects 2001 to 2005

1998 Support Support Track Require Create UndertakeGuidelines sustainable best performance effective incentives impactProjects local performers indicators governance, to reach analysis

financial for scaling according to accountability, poorerinstitutions up, not international quality clientsnot project start ups best practicecomponents

Philippines Yes OK but No – MFI OK – just N/A No – noTech. Asst Grameen performance delivering impact of‘01 report MFIs only unknown training training

Honduras No – govt. No a project No – only No – no data Yes – goal OK – clientCopan disburses start-up indicator to reach survey‘02 Design funds number of poor clients

loans

Vietnam No –project No – a No – only OK – Yes – reached Yes – 44%Forestry disburses project start- raw data disbursed all poor farmers of loans for’03 Report funds up funds purchase of

animals

Haiphong, OK – No – a No – only OK – Yes – Yes– healthWater component project start- raw data disbursed all especially increase and‘04 Final transferred to up funds women also to

Vietnamese increaseWomen’s incomeUnion

QTRDP No – OK – Phase No – no OK – track Yes – goal Yes –Phase II revolving I continued indicators disbursement of poverty evaluation’02 Design fund only reduction designed

CAMFP Yes – chose Yes – good Yes – standard Yes – set Yes – per Yes – clients‘04 Report local MFIs selection indicators performance project goals have access

process targets

Third, there was limited increase in good practice microfinance projects to replace the negativeones. Table 5 shows the Central American Microfinance Programme (CAMFP) complied withthe guidelines. It was a success because it took the microfinance funds away from the projectsand government and put them in sustainable MFIs. But it was difficult to do. Contributingfactors to the lack of new projects include the difficulty to exit bad practice projects, not havinga full time microfinance specialist after 1998 to provide technical advice to prevent the problemsreoccurring, insufficient high-level support for microfinance in the MFA as well as policy relatedfactors discussed above, such as the increase in budget support. Figure 7 summarizes the mainpolicy trends in Finnish Development Cooperation (based on the numbers given in Table 6)that contributed to the decline in new good practice microfinance projects.


Figure 7: Approximate Relative Trends in Finnish Development Cooperation2001 to 2005

Table 6: Total Disbursements of Finnish Bilateral Development Assistance

2001(EUR million) 2004

Total 314.1 384.3

Programme support 4.6 (1.46%) 33.7 (8.77%)

Support to NGOs 20.2 (6.43%) 29.9 (7.78%)

Banking and Financing 1.12 (0.35%) 0.64 (0.17%)

Source: Ministry for Foreign Affairs of Finland 2006

3.5 Analysis of 2006 Ongoing Projects

The Quang Tri Rural Development Program (QTRDP) Phase III has integrated the lessonslearned from the previous projects in Vietnam. Since agricultural credit is readily available frombanks, the project has now a subcomponent on facilitating credit access not providing creditdirectly (Box 10). However, savings will also be an important part of what clients need.

Box 10: QTRDP Phase III Access to Credit Sub-Component

Some of the key indicators:• Number and % of successful male/female applicants with credit provided through different

sources / routes (e.g. using the Vietnamese Women’s Union as an intermediary).• Amount of money provided as credit.• Number of savings and credit groups functioning.• Improved awareness of villagers in economic planning and credits and saving.


Similarly, the Thua Thien Hue Rural Development Programme project recognizes that althoughthere is a lack of interest by financial institutions in providing credit to poor clients directly,bank credit can be accessed if the mass organizations - the Women’s Union and Farmer’sAssociation - have improved capabilities to intermediate. This is an important step to integratingclients into the formal system. However, it is unclear how some of these indicators will betracked.

Box 11: Thua Thien Hue Rural Development Program Access to Credit Sub-Component

Indicators:• All communes have access to credit services, either directly or via credit intermediation services.• Male and female credit applicants are more confident and better able to present loan

application.• Credit intermediary organizations have greater capacities to serve clients and link them with

financial institutions.• Financial institutions have products that are designed for poor clients.

The third project in Vietnam that includes access to credit is the UNIDO EntrepreneurshipDevelopment Programme for Women in Food Processing in Central Vietnam Phase II 2004 to2007. It recognizes that entrepreneurs face many barriers in accessing credit from banks so it isselecting entrepreneurs who have good potential for access credit, assisting them in the preparationof business plans and establishing links with credit institutions to facilitate their access to loans.

3.5.1 MicroSave/DFS

DFS conducts research on decentralized financial models that can reach poorer and more remoteregions. These are primarily community-based financial organizations based on members’ savings(although in some cases NGOs lend additional funds to the groups to encourage the saving).The range of financial service providers from centralized formal banks to the decentralizedinformal service providers is shown in Figure 8. The East African rural environment ischaracterized by poor communications infrastructure, relatively low population density, lowlevels of literacy, low profitability and/or high risk of many rural economic activities, and relativelyundiversified economies. Given that 60-80% of African people live in rural areas, there is apressing need to extend financial services into these areas in a systematic manner.

Figure 8: Range of Financial Service Providers


As a result of the success of the DFS models, they have recently received additional fundingfrom the International Fund for Agricultural Development (IFAD) and Centre for InternationalDevelopment and Research (CIDR) in addition to the funding from DFID, UNDP and Fin-land. They are planning expansion to Tanzania and elsewhere because of the positive results inKenya.

3.5.2 Consultative Group to Assist the Poor (CGAP)

Finland has consistently supported CGAP in line with all the other Nordic developmentcooperation programs and almost all the other bilateral and multilateral microfinance donorsand foundations15 . There has been high demand for CGAP’s technical services in all aspects ofthe expanding vision of microfinance, in particular for supporting pro-poor financial serviceinnovation. For example, the pro-poor innovation challenge provides funding for innovativefinancial products for the poorest and CGAP has received a large number of high qualityapplications for the awards every year. CGAP also has a transparency award that rewards MFIsthat provide the most accurate and comprehensive data on their performance. In addition,CGAP has a major policy initiative as more donors (like Finland) provide budget support andget involved with supporting an inclusive financial system framework. It supports donors asthey improve microfinance effectiveness, both at headquarters and in the field; and it documentsand shares the latest innovations in microfinance be it insurance or appropriate products for thepoorest clients. Finland’s support of CGAP has enabled it to participate in the leadership ofbuilding inclusive financial systems. It also means that Finland has access to CGAP’s expertiseto help it to move forward in new directions for Finnish microfinance.

In summary, each of these five projects appears to contribute to inclusive financial systems. Butthe bilateral interventions are only modest components of projects and do not inspire confidencein their ability to change the financial system. After all, they are still working within the structureof the Government, not the private sector. The Microsave/DFS project is contributing tofundamentally changing the financial system to include rural women. It stands out (with CGAP)as the one most closely aligned with Finland’s development cooperation policies of collaboratingwith other donors to enable those in remote rural communities, particularly women to moveout of poverty. The NGO program and Finnfund are treated separately below.

3.6 Analysis of NGO Microfinance: 2005

The MFA recognizes the comparative advantage of NGOs in reaching out to and understandingthe needs of the poorest in developing economies. There is impressive diversity in FinnishNGOs which not only varies in mission and clients but also in size (with annual budgetsranging from EUR 20 000 to EUR 7 million), in terms of the share of voluntary/ professionalhuman resources, type of cooperation (and financing instrument) with the MFA, and in formsof partnership with local actors, etc. This diversity is reflected in the over 200 NGOs that arelisted by the MFA as implementing microfinance projects of some sort, encompassing a vastspectrum of savings and credit activities with poor people, many in remote rural communities.

15 According to the CGAP Annual Report 2005, Finland’s contribution for 2006 is slightly lower that theother Nordics at USD 344 578 but that is consistent with its position as the smallest funder of microfinance.


According to the Phase I report (Weikkolainen 2006), the total microfinance portfolio of theFinnish NGOs, supported by the Ministry for Foreign Affairs which responded to thequestionnaire, was “guestimated” at EUR 690 000 annually. This is highly approximated becauseit was unclear whether the numbers reported were annual or multi-year and whether they werecommitments, disbursements or portfolio outstanding.

Table 7 is meant to complement the Phase I study to give an indication of how much of theMFA’s NGO-funding goes into microfinance projects. This data is approximate only and thereis no additional information about whether the funds were used for capacity building or theloan portfolio, etc. There is limited data about the volume of NGO microfinance funding,either annual disbursements or portfolio outstanding. As a result, none of this NGO data canbe included in the same analysis as the bilateral aid data which, although not robust, can at leasthold up to some analysis.

Table 7: Approximate NGO Microfinance Commitments*

Organization Number Total funding Approx. 2005 % of MFAof reported from the microfinance funds allocated

projects MFA (EUR) budget in EUR/year to microfinance

ABILIS 25 1 150 000 95 00016 17%

DODO 1 40 000/yr 7 000 14%

ADRA 1 250 000/3 yr 6 000 7.2%

ISF has a 2 Uganda 830 00017 / 25 000 Projects 100%framework 5 yrs microfinance –agreement with Somalia 120 000/3 yrs 9 000 MFA funds 15%the MFA of the project18

FinnChurchAid(19 1 N/A 40 000 from own 100%funds

Approx. total 182 000

* of those reported only

ABILIS is a Finnish foundation which grants funds directly to local NGOs in the South for supportof disabled people – there is no Finnish NGO partnership in the implementation. FinnChurchAid(FCA) provides a grant of EUR 40 000 of its own funds to the Ecumenical Church Loan Fund(ECLOF) which specializes in microfinance. FCA also supports Lutheran World Federation butthey are not able to separate out the microfinance components. The International Solidarity Foundation(ISF) is a large network organization with a framework agreement with the MFA. It specializes incountries that have had internal conflicts and has two dedicated microfinance projects in Ugandaand Somalia. DODO (Living nature for the future) has microfinance components in projects thatprotect the environment and ADRA (Adventist Development and Relief Agency) also includesmicrofinance components in general development projects.

16 ABILIS; total 2006 budget for microfinance projects is EUR 189 854. Since this can be disbursed over oneor three years we take approximately 50% of that number.17 We understand the microfinance project is co-financed by the EU and the budget is EUR 830 000 of whichapprox. 15% or EUR 25 000 annually is paid for from MFA funds.18 These numbers are approximate only. The reporting to our team and to Weikkolainen is inconsistent.19 The FCA reported having MF-components in several of their development projects but was not in aposition to state specifically what was the share of microfinance. In fact several NGOs had the same difficulty.


In 1999, the Service Center for Development Cooperation (KEPA) in conjunction with theMinistry developed an NGO Microfinance Handbook that provided detailed guidance on allaspects of NGO microfinance from the planning process for a microfinance project to monitoringprogress. It warned against tracking too many indicators then suggested at least seventeen (seethe top ten in Box 12).

Box 12: Top Ten KEPA Recommended Financial Performance Indicators

1. Return on the loan portfolio2. Financing expenses3. Reserve for bad loans4. Operational expenses5. Cost of capital (taking inflation into consideration)6. Donations and assistance7. Operational profitability8. Full financial profitability (loans/financing expenses + operational expenses)9. Reservation for bad debts + calculated price of capital, total expenditure/total loan portfolio10. Expenses/total value of lending

Source: Eloheimo 1999

None of the NGOs interviewed knew about this handbook or its recommendations. Only oneof the NGOs had any systematic way of monitoring the micro credit performance at theheadquarters level other than through project evaluations. That was FCA’s annual report fromECLOF.

Perhaps because of the insufficient compliance with good practice guidelines, MFA policytowards the NGOs’ involvement in microfinance activities has been somewhat ambivalentduring the recent years. Some NGOs have understood there is a policy to discourage themfrom the sector because at least two applications for funding microfinance operations in 2005were rejected. The wording of the decisions by the Ministry could imply that it is opposed tothe funding of microfinance operations implemented by NGOs. However, the NGO unit atpresent appears to have a positive stand towards this sector. In addition, the MFA together withthe FCA in November 2005 co-hosted a workshop for NGOs on good practices in microfinance(the agenda for that meeting is provided in Annex 4).

However, taking a good look at the evaluations and reports provides a more encouraging viewof Finnish NGO microfinance. In April 2006 ISF undertook an evaluation of its jointmicrofinance project with the Uganda Community Based Association for Child Welfare(UCOBAC) in rural mid-western Uganda that had been operating since 2002: “Strengtheningcommunity-based resource mobilization to empower vulnerable women and their children inmid-western Uganda”. It set up local savings and credit groups. Clients claim that their incomehas increased 2–3 times as a result of the financial support offered by the project. Averagerepayment rate stands at 95.8% because client activities have been affected by late disbursementof loans. There is no definition how this indicator is calculated but the evaluator comments it isnot good enough. Although efforts have been made to improve reporting, accounting and loantracking systems, the quality and frequency of information generation is still inadequate. Theevaluator commented that because UCOBAC does not network with the rest of the microfinance


industry in Uganda, it has missed out on various learning, information-sharing, training andfunding opportunities.

The good news is that the evaluator thought there was a good foundation and that it couldmove ahead as a microfinance program, achieving permanent access for the women who needits services so much and having a long-term impact. He recommended ISF/UCOBAC establisha semi-autonomous entity with its own board, management and accounting (especially acomputerized information system).

ISF also undertook an evaluation of its project in Burao, Togdheer, Somaliland with Committeeof Concerned Somalis and Candlelight for Health Education and Environment. The evaluatorconcluded that “the micro-credit project expanded gender and social equalities in Burao andincreased opportunities for women from returnees and Internally Displaced Persons (IDPs) toreach sustainable livelihoods through increasing business incomes and sales”. He further notedthat it was of great importance not only to small and micro-business enterprises owners becauseof its potential to improve the livelihood of significant population in Burao and other similartowns. Unfortunately the micro-credit project is dependent upon donor funding because of thehigh costs of reaching a small disbursed population in a conflict-prone area which limits itsability to grow. He recommended a redesign of the project to allow both expansion andsustainability.

ABILIS’ project evaluation over the last six years indicated that 52% of the projects includedmicrofinance. However, the clients viewed them as charity and that there was an insufficientexpertise and experience in the implementation of the microfinance activities. The evaluatorrecommended microcredit type of activities should be implemented by more experiencedorganizations to minimize negative impacts (Katsui 2006). The Board then understood that“establishing a revolving microcredit fund requires different type of expertise than simply aproject of training and a start-up kit for the members” (ABILIS Board Response to the Evaluation2006). This shows an increased awareness of what it takes to implement high-qualitymicrofinance.

FCA receives an annual report from ECLOF to which it provides grant funding. ECLOFmakes loans to church-based groups (with balanced gender participation) primarily for agricultureand enterprise development. ECLOF has very positive reports from clients about the differencethat the loans have made to their lives by helping them increase their incomes. When it comesto financial reporting, ECLOF’s 2004 Annual Report includes financial statements but doesnot include standard portfolio indicators. Its global “repayment rate” is 74% in 2004 but itdoes not provide a definition of that indicator. By any definition this means that a quarter of itsloans are late and may not get paid back which is not good performance. The total “operational”costs for the loan program are 31% (that means not including the cost of funds which isapproximately 5% and probably not including potential write offs). In simple terms it appearsthat they would have to charge an effective annual interest rate of over 40% to cover their basiccosts. Needless to say, they are loosing money. They know it is a problem because the five-yearplan focuses on reaching sustainability. It will be achieving so much more when it is transparentabout its performance, focused on efficiency and sustainability, growing with its clients andassuring them of permanent access to credit.

In summary, these reports and evaluations of NGOs projects, when put together with thediscussion with the staff, are encouraging for the future. There is a growing realization of the


need to improve technical skills to respond to the demand from their partners to provide ongoingaccess to finance for their clients. They are keen to upgrade the quality of both their programsand their skills. It is now a matter of some urgency that skills upgrading take place for thebenefit of clients. Unfortunately neither KEPA nor the European NGO Confederation forRelief and Development (CONCORD) have the specialist skills in-house to be able to providesuch technical services for the NGOs. They would have to find sources of expertise from theirnetwork or look more widely. For example, the Dutch Microfinance Platform and the Swedish/Norwegian network have deep and wide microfinance experience.

3.7 Analysis of Finnfund Microfinance: 2006

Finnfund is a development finance company set up by the Government of Finland with themain objective to fund investments in developing countries involving Finnish companies. TheGovernment of Finland holds 79.9% of the share capital. Finnfund is supervised by the Ministryfor Foreign Affairs. The Chairperson of the Board of Directors is the Under Secretary of State incharge of the development cooperation policy at the Ministry. It can either make equityinvestments or lend on soft terms. However, it is operating on purely commercial principlesand has to make a profit. The MFA recently (May 2006) launched a program targeting Finnishcompanies looking for partners in developing countries. The Finnish partnership program ismanaged by Finnfund. By the end of 2005, it had financed 84 projects in 21 countries. At theend of 2005, the total portfolio stood at EUR 118 million and its return on equity was 3%.Finnfund is a member of Association of European Development Finance Institutions (EDFI)which is a network of 15 similar European institutions. The main objective of the network is toexchange information on co-financing opportunities, target countries and development ofmethods. A considerable part of Finnfund’s investments in low-income countries is in form ofco-financing. The closest cooperation has been with Swedfund of Sweden, Norfund of Norway,Industrialisation Fund for Developing Countries (IFU) of Denmark, the British CDC(Commonwealth Development Corporation), the German DEG (Deutsche Investitions- undEntwicklungsgesellschaft mbH) and the Netherlands Development Finance Company (FMO).

It started its involvement in microfinance in 2000. It does not fund MFIs directly but invests inintermediaries, who invest/on-lend to MFIs. The operations started promptly and the portfolioexpanded rapidly between 2001 and 2002 but slowed shortly after there was a decision to keepthe total microfinance portfolio between EUR 5 and EUR 10 million until it had enoughexperience to decide on possible future expansion. The long-term aim is to allocate about 10%of the entire portfolio to microfinancing. It may grant both venture capital and loans. At presentit cooperates with five intermediaries as shown in Table 8.

Of the total USD 8 million in commitments, USD 3 million is for loans and USD 5 million isfor equity but only USD 2 042 057 for equity has been invested so far. This is due to thetiming the new Solidus commitment which is only beginning to materialize as an investment.As can be seen in Table 8, most of the funding has gone to Latin America but since funding isfungible, it is not possible to give an exact breakdown per region. The dominance of LatinAmerica is attributed to its more developed microfinance sector in conjunction with the difficultlyof identifying commercially sound intermediaries in other regions. The target is to have twothirds of the microfinance portfolio allocated to the lowest income countries.


Table 8: Finnfund’s Microfinance Investments April 2006

Name of the fund/ Main area Commitments InvestmentsType of investment of operation (USD) 11 April 2006

(USD)

Accion Investments/ Equity Latin America (mainly) 1 500 000 1 154 253

Latin American Challenge Fund/ Latin America 500 000 500 000Equity

Latin American Challenge Fund/ Latin America 3 000 000 3 000 000Loans

Shorecap International Ltd/Equity Africa, Asia, Eastern 1 000 000 387 794 Europe

Solidus Investment Fund Latin America 2 000 000

Total Portfolio 8 000 000 5 042 047

Another important point about these numbers is that the Finnfund numbers are all for loans orinvestments – they are on Finnfund’s balance sheet. The data from the bilateral aid program aredisbursements, or expenses which are shown on the Ministry’s income statement. The Ministrydoes not keep track of its portfolio. So it makes no sense to compare these two sets of figures.

Finnfund faces a challenge common to all financial institutions in the microfinance sector – thehigh cost of administration as a percentage of the portfolio outstanding. This is why it operatesthrough intermediaries. If Finnfund was to be more closely aligned with the poverty reductionfocus of the MFA, it would need to make direct investments in MFIs. Consequently, thiswould require grant funds to undertake that management role. Currently one person within itsorganization is using about 10 to 15% of her time for microfinance operations.

Another challenge is the relatively low margins for investors in the microfinance sector. Finnfundoperates under commercial principles. MFIs would need to charge high fees to cover their owncosts and do not want to pay high rates for international financing as well as to manage currencyrisk, so they look elsewhere.

In summary, Finnfund plays an important role in the Finnish Government’s microfinanceportfolio. It has prudently invested in microfinance with both equity investments and long-term loans to learn about the sector. It has the potential and interest to expand its microfinanceportfolio and would play a significant role in financing the expansion of access to financialservices through profitable MFIs.

3.8 Lessons Learned in Finnish Microfinance

Lessons drawn from the microfinance projects implemented during this decade, in addition tothe need to follow good practice guidelines, are as follows:

1. There is need for incentives to follow good practices or sanctions for not followingthem.

2. If Finland wants to continue having microfinance as part of its bilateral cooperation,there would be a need to have a full-time specialist on staff to ensure a professional


approach in the design and implementation of the projects. (However, we are notrecommending this; see Section 6).

3. A proper reporting system and continuous monitoring is imperative, with clearaccountability for results.

4. Microfinance is unequivocally only a private sector operation.5. The focus on sustainability has to be built in from the beginning.6. The lack of exit strategies have had a negative impact on sustainability.7. The insufficient technical capacity by staff limits the impact of the microfinance projects.8. In microfinance it is often wise not to do anything rather than doing it badly – or find

alternative ways of doing it. For example, when the Kenya-Finland Livestock DevelopmentProgramme could not identify a suitable MFI operating in its project area for fundingthe procurement of cows by women’s groups, it designed an alternative credit schemewhere the administration of funds was not required. Its Cow-from-Cow Rotation Schemehas been considered as a success and has been replicated by other projects in and outsideof Kenya. Similar innovative approaches could have been a way to avoid problems inother Finnish projects implemented in remote areas.

4. ANALYSIS OF THE EFFECTIVENESS OF FINNISHMICROFINANCE

4.1 What is Aid Effectiveness?

The seventeen donor peer reviews conducted with bilateral and multilateral developmentcooperation agencies identified the five core elements of donor effectiveness. They are mosteasily remembered as the five points of the Star of Aid Effectiveness designed by CGAP andshown in Figure 9.

Figure 9: CGAP’s Five Point Star of Aid Effectiveness


(1) Strategic Clarity and Coherence: The coherence of an agency’s vision and strategy formicrofinance and whether this vision and related agency policies are in line with accepted goodpractice. A good microfinance policy and strategy is important but by themselves are not enough:it must be internalized by staff and translated into results on the ground.

(2) Strong Staff Capacity: This element measures whether there is sufficient technical expertiseto manage operations. The trend toward the generalist staff means that few of the people whodesign and implement microfinance programs have the minimum baseline of microfinanceknowledge.

(3) Accountability for Results: This means transparency about microfinance programmingand performance. Decisions on whether to continue, terminate, or replicate a program shouldbe guided by performance against measurable objectives, such as key financial indicators. Inmany agencies, especially the multilaterals, pressure to approve and disburse projects oftentakes precedence over setting up systems to ensure accountability.

(4) Relevant Knowledge Management: How well the agency learns from its own and others’experiences, and whether learning is applied to new operations. Ideas and experience are oftennot communicated well within and among agencies, so mistakes may be repeated and successfulapproaches not incorporated into new program designs. Capturing information about whatworks is only the first step. Deliberate communication strategies are needed to ensure that thisinformation is actually applied to operations.

(5) Appropriate Instruments: Whether an agency has instruments that allow it to work directlywith the private sector. It is harder to practice good microfinance if donors must channel supportthrough governments. Yet, even when agencies can work directly with the private sector, theydo not always use funding instruments in a flexible and performance-based manner. Effectiveagencies choose those instruments – grants, loans, guarantees, and equity investments that bestrespond to market needs and seek to complement, not displace, private capital. They also linkdisbursements to the attainment of clear performance goals.

While not exhaustive, these five elements shape an individual agency’s ability to apply goodpractice to its microfinance operations – thus achieving greater impact in the lives of poorpeople. A minimum level of performance in each of the five elements is critical for donoreffectiveness in microfinance and, in all probability, other areas of development as well. Agencyheads have found the Star useful for the all their work, not just in microfinance (for moredetails see CGAP 2004b).


4.2 Bilateral Microfinance Effectiveness Strengths and Challenges 2001–2006

Table 9: Bilateral Microfinance Effectiveness Strengths and Challenges 2001–2006

Effectiveness Strengths Challenges

Strategicclarity

• 1998 MicrofinanceGuidelines (official policy).

• Micro-level bilateralprojects now comply.

• Meso-level programs alsosupport guidelines.

• Clear commitment to theMDGs and povertyreduction.

• Limited awareness by staff of guidelines.• Insufficient dissemination of guidelines.• Slow follow through of guidelines.• MFA ambiguous and incoherent about MF.• Ambivalence about the private sector’s role in

development.

Staffcapacity

• Key staff competent.• Country program staff

understand MF, support toMDGs.

• Keen interest in agriculturalfinance.

• Inadequate staff microfinance technicalcapacity and no access to experts.

• Limited financial systems or private sectorexpertise.

• No training for Helsinki or Embassy staff(2 Turin places available each year).

Account-ability

• Project reviews/evaluationsresulted in projectimprovements.

• Central America projectincluded performancestandards.

• Quality control is seen asimportant.

• Inadequate reporting on quality of financialservices.

• No requirement for NGOs to report on MFIvolume or quality.

• No standard reporting, tracking norbenchmarks for MFA/NGO projects.

Know-ledgemanage-ment

• Working groups/teams oncountries, specialists learntogether.

• Project-based learning inVietnam and CentralAmerica projects.

• Slowly using CGAPresources.

• Ad hoc knowledge management.• Experience lost with high staff turnover.• Insufficient process for sharing learning across

countries or from other donors.

Instru-ments

• Grants appropriate. • Government projects not appropriate for retaillending operations.

• Budget support not applicable for retail privatesector interventions.


4.3 Comparisons of Finnish Microfinance Effectiveness with Nordic Peers

The other Nordic countries all participated in the peer review exercise, Norway and Sweden in2002 and Denmark in 2003. A follow-up exercise was carried out in Sweden and Norway in2006. Annex 3 provides a detailed comparison of Finland with the other Nordic countriesagain referring to the five elements of effectiveness. It shows that many of the findings at thetime of the peer reviews were very similar. For example, the Danish International DevelopmentAgency (DANIDA) staff ’s vision of microfinance was unclear, NORAD had no microfinancestrategy, and within SIDA there was a lack of clarity on the role of microfinance, and goodpractice principles were not accessible to staff. So Finland, with the staff ’s limited awareness ofthe Microfinance Guidelines, is in good company.

The other Nordic donors have had time to improve their effectiveness as a result of the findings.Now Finland could do the same. In fact, peer review countries have reported that the focus onmicrofinance effectiveness has contributed to improving effectiveness in other areas ofdevelopment cooperation as well.

4.4 NGO Microfinance Effectiveness Strengths and Challenges 2001–2006

Table 10: NGO Microfinance Effectiveness Strengths and Challenges 2001–2006


Strategic clarity • Clear poverty focus.• Long-term relationships with

local partners.• Recent evaluations show

knowledge of good practicesincreasing.

• No clear MF strategy for any of theNGOs.

• MF components to achieve otherproject goals.

Staff capacity • NGOs recognize the need toimprove.

• NGOs are willing to learn.

• Insufficient microfinance skills – asreported by the NGOs themselves.

• Reliance on local partners forimplementation.

Accountability • All meet MFA reportingrequirements.

• Some NGOs see need forfinancial reporting onmicrofinance component.

• Evaluations emphasize itsimportance for the future.

• No system for tracking performanceof microfinance components at localoffice or headquarters level.

• Little recognition of the link betweenportfolio and financial performancetracking and the ongoing provisionof microfinance services.

Knowledgemanagement

• The NGOs recognize the needfor networking with Nordics tolearn.

• Local partners recognized needfor local networking.

• No links with international specialistnetworks.

• No Finnish network and no move tostart one.

• No participation in local networks.

Instruments • Grants for financing.• Grants for capacity building.


4.5 Finnfund Microfinance Effectiveness Strengths and Challenges 2005

Table 11: Finnfund Microfinance Effectiveness Strengths and Challenges 2005


Strategic clarity • Works through established MFintermediaries with clear strategies.

• Clear Return on Equity (ROE)criteria.

• No explicit microfinance strategy.• No explicit expansion of access or

poverty reduction focus.

Staff capacity • Competent staff for financialappraisal.

• One person using 10–15% ofcapacity on MF – insufficient forexpansion.

Accountability • Established reporting procedureson financial performance fromintermediaries.

• Intermediaries track standardmicrofinance indicators.

• Does not prepare specific MFreports.

• Difficult to track impact on poverty,as working through intermediaries.

Knowledgemanagement

• Established managementinformation systems.

• Networking with internationaldevelopment finance institutionse.g. International FinanceCorporation, German KfWBankengruppe and DEG.

• Limited lessons learned.• Limited networking, e.g. not part

of Council of Microfinance EquityFunds.

Instruments • Equity.• Loans.

• No grants for capacity building ofMFIs.


5. FINNISH MICROFINANCE BEYOND 2006

5.1 Summary of Finnish Comparative Advantages in Portfolioand Effectiveness

A commonly held view by MFA staff is that Finland has no major comparative advantageswhen it comes to microfinance. They cannot see how Finland could make a valuable contributionto microfinance. At the same time, they think there should be a place for microfinance becauseof its contribution to poverty reduction but they find it difficult to see the possibility of puremicrofinance projects because of the increasing share of budget support and sector programs, aswell as the three sectors per country policy. These views may be valid given the staff members’knowledge but the microfinance horizon is much bigger now and these views are based on thepast.

With microfinance now being understood as building inclusive financial systems, there arenew opportunities for Finland. Microfinance is no longer just about retail bilateral projects.There are better ways for Finland to contribute to providing access to financial services for poorpeople. Already Finland is contributing at the meso level through new product development atMicroSave/DFS in Kenya. This does not require large amounts of funds but donors with avision for remote rural clients. Finland is also contributing to global capacity building throughCGAP and its services are in great demand. Both are implemented in collaboration with specialistmicrofinance donors. Finland is already supporting significant expansion of retail financialservices by larger MFIs through Finnfund’s investment but its clients need capacity buildingservices, too. These examples are successfully contributing to inclusive financial systems andeach has a unique Finnish presence. Finland’s support to NGOs will increase and NGO partnerswill continue to request support for retail microfinance activities. This provides an opportunityfor the MFA and NGOs, with their common commitment to poverty reduction, to start afreshand develop and implement a uniquely Finnish strategy for NGO microfinance.

Finland is committed to many areas for which building inclusive financial systems are crucial,from poverty reduction and women’s empowerment to agricultural sector and private sectordevelopment. Finland is not limited to channeling its development cooperation funding throughgovernments alone (although it often chooses to do so). Finland is also committed to workingwith the United Nations system, the European Union and harmonizing its policies with otherdonors. This type of collaboration is important to inclusive financial system development.Thus, Finland is uniquely positioned to participate in collaborative projects with other donorsthat specialize in financial system development.

Many other donors are constrained by having to work directly with governments, by onlyhaving loans or by having to move large amounts of money. Finland’s commitment tocollaboration, flexibility to support meso-level and regional initiatives, and grant funding forcapacity building as a package, are very real comparative advantages.


5.2 The Decision

The choice for the future of Finnish Microfinance is either:

• Phase Out: Keep the status quo and let microfinance die a natural death. MFA staffwithout microfinance skills will choose alternatives to financial services for poor peoplewhen designing poverty reduction activities and NGOs will continue to be given themessage that the MFA does not fund microfinance

or;• Build on Strengths: Build on the strengths of the Finnish microfinance portfolio and

improve effectiveness to create a strategic, focused program of support for inclusivefinancial systems that centers around collaborative partnerships.

5.3 The Vision: Build on Your Strengths – Collaborate

In the opinion of the review team, the MFA is so committed to poverty reduction and to beinga ‘team player’ that by far the best option is to recognize the Finnish niche in microfinance andbuild on its strengths. For each of the departments of the MFA this will mean:

(1) Country Programs and Embassies: No more bilateral microfinance components. Instead,if there is demand, the MFA would partner with specialist donors in good practicemicrofinance projects at micro/retail and/or meso/financial infrastructure levels and canstill fly the Finnish flag. Collaboration allows a much bigger bang for Finland’s euros.

(2) NGO Program: With increasing funding to NGOs this is a good opportunity to onlyprovide microfinance support for those NGOs with partners who are committed to goodmicrofinance practices, i.e. to meet performance standards and significantly contribute topoverty reduction. With a growing budget it is much easier because NGOs can still getfunding for other projects if the microfinance is not their strength (in other words, makeNGO muddling along in microfinance history).

(3) Finnfund Board: Oversight of Finnfund’s increasing investment in microfinance as part ofits capital increase with a management fee.

The action plan provides the steps on how to get from here to there.


6. ACTION PLAN

6.1 Start a Consensus Building Process to Develop a Joint MicrofinanceStakeholder Vision

Stakeholders as a strength: Building on strengths starts with recognizing the range of Finnishmicrofinance stakeholders as strengths. These include agriculture sector specialists in the MFA,NGOs committed to poverty reduction, Finnfund committed to profitable institutions, Em-bassy staff in long-term partner countries, senior MFA policy makers, evaluation experts,microfinance experts in the field and in Helsinki, KEPA, CGAP, and more. Imagine the powerof each of these stakeholders working together for a common vision.

Improving Effectiveness by Improving Strategic Clarity: We cannot emphasize enough theimportance having a clear microfinance vision and strategy, and for that vision and strategy tohave developed out of a consensus building process with these Finnish microfinance stakeholders.This will take longer than writing a strategy paper, will be more challenging and may requiresome compromises20 . But, the power of this approach is that each stakeholder will have a senseof ownership, each stakeholder will have a common language to discuss challenges and will beable to trust the others to be taking actions that are supportive of the common vision (this isparticularly important if the MFA increases funding to the NGOs because it will not be directlymonitoring projects). This process will also equip staff as they collaborate with other donors tounderstand and integrate a range of opinions.

Steps to a common stakeholder vision: For each stakeholder group to fully participate in theprocess, they will need to proactively learn about what is happening globally in building accessto financial services and in each other’s programs. For example, the NGOs might share withother Finnish stakeholders the results of their evaluations, the MFA might share internally andexternally some of the results of this review and internally address the lessons learnt onmicrofinance21 . NGOs and Finnfund might participate in international networks of likemindedagencies in microfinance. Thus, each stakeholder will understand how microfinance helps achievethe MDGs, why it is a private sector operation, and why permanent access to financial servicesis important to clients. Is it expecting too much of all stakeholders to proactively learn abouthow to provide clients with the best financial services they can? Perhaps yes for some of thesmaller NGOs, so instead they might want to partner with specialist MFIs rather than trying tolearn all about it themselves.

Once everyone is up to speed, a one-day workshop should be sufficient to develop a commonvision and strategy for inclusive financial systems that clearly supports the MDGs and commitsto good practices that can be distilled into two succinct pages.

This process should be led by an independent experienced Finnish facilitator who understandsmicrofinance. It should not be led by the MFA so that NGOs see the MFA as a partner.

20 In principle, for such a strategy, microfinance should be placed firmly in the context of financial systemdevelopment (and private sector development). But since many in the NGO community prefer to start withthe client’s needs this would be a more prudent initial approach.21 Telling positive stories, such as the Kenya-Finland Livestock Programme and the DFS experience wouldhelp. Also, understanding what went wrong with the project design in some other projects. However, nothingis more powerful than the result of many poor women improving their lives.


The two-page vision and summary strategy: “Inclusive Financial Systems: Where we are going,Why, and How we are going to get there” should be circulated as widely as possible, and itshould look good enough to be put on the wall.

6.2 Improve Effectiveness by Building MFA Staff Capacity

A common language of inclusive financial systems: All MFA staff involved in country orsectoral programs needs a common language for building inclusive financial systems. This isnot a major exercise since all the staff we spoke with understood the importance of microfinancein the MDGs. This may happen in several ways, for example:

• Planning a half-day onsite training for staff by region that is interactive and fun. Thenhaving it regularly for new staff or staff returning from embassies, etc. Something short thatfocuses on key ideas and lets people know where additional resources can be found issufficient.

• Sending staff involved with NGOs or policy work, who want to go, to the one week CGAPDonor Training in their region.

• Increasing the time available for the Microfinance Focal Point to spend on private sectorand financial sector development of which microfinance is a critical component. Encouragehim/her to conduct tailored workshop type meetings with each partner country desks (likeVietnam), to look at their program in the light of an inclusive financial system.

In-depth microfinance technical expert: To best upgrade staff capacity, it is worth consideringhaving access to a microfinance technical expert who is not on staff but understands the MFAand who could be available to work as needed with the policy teams in their negotiation withgovernments, to backstop the NGO desk as they expand their program, to provide technicalservices for the new rural projects with financial service providers and to support Finnfund inits efforts.

6.3 All Stakeholders – Improve Effectiveness by Improving Accountability

Going for high-quality microfinance: Whether it is the bilateral, multilateral, NGO or Finnfundmicrofinance, everyone needs to track standard indicators so they can assess the quality of theirmicrofinance portfolio, to compare it against industry benchmarks and to make improvementsif needed.

The Small Enterprise Education Program (SEEP) Network of microfinance NGOs has developeda very simple (free) Excel program for NGOs called the Framework for Reporting AnalysisMonitoring and Evaluations in Microfinance – the FRAME Tool. It is consistent with goodpractices in microfinance and the CGAP recommended a minimum of seven indicators. Theyare:


1. Outreach: Number of clients2. Outreach: % women3. Depth: Average outstanding loan balance4. Depth: Average savings balance5. Quality: Portfolio at Risk6. Efficiency: Operating expense ratio7. Sustainability: Return on Assets or Adjusted Return on Assets

When these basic indicators are reported on a monthly or quarterly basis, NGO and MFAmanagers will be able to watch for trends, see any problems as they occur and provide supportas needed. Having a system for accountability is critical for aid effectiveness.

This may require stakeholders to upgrade their internal information systems. The MFA mayneed to have web-based internal database where staff can track microfinance (and other sectoral)project performance. For NGOs partners that are computerized, the NGO headquarters willneed a compatible system to allow electronic information sharing and aggregation of data fromseveral projects.

An added benefit of each stakeholder tracking the same information is that it will also helpknowledge management among stakeholders. Each will have common information to shareand they can learn from each other. Each stakeholder data could also be aggregated to tell apowerful story of numbers of clients reached with Finnish support but that is secondary to themain purpose of ensuring the quality services are being delivered.

For stakeholders to be accountable for setting up a microfinance accountability system, theywill need to agree on a timeline. The MFA could share progress and timelines at the October2006 Meeting on Aid Effectiveness in Paris.

6.4 Improving MFA Effectiveness by Improving Knowledge Management

Strategic Clarity supports Knowledge Management: The consensus approach to strategydevelopment will encourage information sharing between stakeholders. To build on thatbeginning and create a forum for sharing lessons learned, it would be encouraging for stakeholdersto have a one-page story emailed each month about a new collaborative partnership ormicrofinance investment. Those working within Embassies would hear about new ideas forcollaboration, it would help NGOs see the benefits of linkages, it would broaden the horizonsof each stakeholder, and more.

Other ways to have lessons learned about the collaborative process is to create opportunities forsharing specifically about the collaborative process (not as an after thought). For example, whathas Mr. Malkamäki and the Nairobi Embassy learnt about working with several donors inKenya that would be useful to others considering such collaborations? In particular the Dar EsSalaam Embassy and Tanzania desk may consider partnering with the DFID, the CanadianInternational Development Agency (CIDA), SIDA, and the Royal Netherlands Embassy (RNE)initiative there (see Box 13) – what do they need to know about harmonizing systems andworking collaboratively to fit in easily and add value? What has CGAP learnt about workingwith the European Union (EU) that would be useful for Finland, if it was considering workingwith the EU in its Microfinance Framework Programme for Africa? (Annex 5). If Finland diddevelop collaborative expertise in microfinance, then many other donors would soon be interestedin learning from Finland.


Box 13: DFID, CIDA, SIDA, and RNE’s Microfinance Collaboration in Tanzania

• Common donor goals: Each agency’s microfinance/rural finance strategy recognizes theinterconnectedness of the financial system and the need to expand pro-poor finance. Theyalso have a commitment to donor harmonization.

• Supportive and appropriate government policy: The Tanzania Pro-poor FSD Programsupports the Government of Tanzania’s National Microfinance Policy.

• Joint principles for pro-poor financial system development. They agreed on joint principlesfor action, e.g. a business-like approach to building the market, an exit plan, allowinginstruments to evolve as markets develop (e.g., start-up grants to commercially-priced loans).

• Establishment of a trust mechanism: A professionally-managed trust is being created tofacilitate joint programming. The trust will support a range of market initiatives, fromdeveloping retail capacity (credit unions, banks) to infrastructure (credit rating) to policyand regulation, much like DFID’s similar trust mechanism in South Africa.

Source: Helms & Goodwin-Groen 2004

6.5 Improving Other Aspects of NGO Effectiveness

Improving Staff Capacity: Each NGO undertaking microfinance projects has indicated itsinterest in improving its microfinance technical skills and participating in a network. Each onerecognized that they did not know enough about this important aspect of development. KEPAhas an interest in providing an opportunity for their members to start upgrading theirmicrofinance skills.

Two staff members from NGOs (preferably one from KEPA) with some understanding ofmicrofinance, should go as soon as possible to a well-recognized international microfinancetraining program, such as the Turin or New Hampshire program. All such trainingopportunities can be found at www.microfinancegateway.org. This would give them a newvision for microfinance. It would give them a solid base of knowledge to start implementinginto their programs, and it would provide them with invaluable contacts across the globe.Perhaps it would also encourage them to initiate a training program for NGOs in Helsinki andthe establishment of a Finnish Microfinance Network for those committed to expanding accessto financial services for the poor.

KEPA to organize microfinance training workshops and microfinance network: The upcomingre-negotiation of KEPA’s contract to provide training to Finnish NGOs would provide anopportunity for MFA to discuss strengthening thematic training in areas like microfinance.This is the kind of catalyst KEPA needs to encourage it to organize microfinance training for itsmembers. We recommend hiring an experienced microfinance network (like SEEP, NordicNetwork or the Dutch Microfinance Platform) to work with KEPA to design a series ofmicrofinance training workshops for its members. These training workshops will provide astep-by-step approach to microfinance that is tailored to the Finnish NGO experience coveringdesign, implementation and monitoring of microfinance projects. It would need to be both inHelsinki and at KEPA field offices. Out of this process there should be the momentum for theNGOs that undertake microfinance to start their own specialist network – since many NGOsexpressed interest in such a network.


NGO microfinance networks have access to learning from the experience of other suchnetworks: There are many opportunities for members of an NGO microfinance network tolearn from other such networks by participating in conferences, in online discussions andcollaboration in the field. KEPA’s field presence is a natural means to learning from experiencednetworks in the field. For example, ISF’s partner in Uganda, UCOBAC, could have benefitedin technical skills and access to funding from participating in the local MFI network, theAssociation of Microfinance Institutions of Uganda (AMFIU). If ISF itself had been aware ofthe possibility of such a network through learning from more experienced NGOs, it could haveput UCOBAC in contact with AMFIU.

The bottom line on building NGO staff capacity is that if NGOs are not skilled in microfinancethen they should not be doing it. The Hippocratic Oath is first “do no harm” and that should bethe same for NGOs. Inefficient microfinance that effectively treats loans as grants, makes itmore difficult for serious MFIs to get their loans back and thus prevents ongoing access tofinance available for their clients.

6.6 Improving Other Aspects of Finnfund Effectiveness

Strategic Clarity: Since Finnfund’s connection to the MFA is only through the MFA’s Boardmembership, it will need to adapt the consensus strategy to its own comparative advantage ofincreasing large-scale access to financial services.

Improving Staff Capacity: Participating in networks for microfinance investment funds is agood way for staff to improve their technical capacity. For example, The Council Of MicrofinanceEquity Funds has a meeting in London in September. The new staff person responsible for themicrofinance portfolio should go with the MFA Focal Point to benefit from those with years ofmore experience. There may also be mutual value in field trips with NGO partners so thatFinnfund can understand NGOs’ priorities and NGOs can appreciate potential investor’spriorities.

Knowledge Management: The one person at Finnfund who has been managing the portfoliohas already integrated lessons from other investors in the microfinance funds. However, withthe expected capital increase, a new person taking over and the fast development of microfinanceit will need to develop more explicit means to integrate learning into its investment decisions.

6.7 In Summary – What Will Microfinance in the MFA Look Like in Five Years

In five years the MFA will be actively participating in good practice microfinance throughcollaborative ventures for maximum impact and effectiveness:

• The Country Desks and Embassies will be experienced participants in collaborativeprojects and will be working seamlessly with other donors, having the same reports andtracking standard indicators. Funding to microfinance through these type of projectswill have increased accordingly.

• The NGO Unit will be active partners with microfinance NGOs that support sustainableMFIs and significantly contribute to poverty reduction among the poorest clients. Thefunding will probably have focused on training in the first year, then increased as MFIsgrow.


• Finnfund will be expanding access to financial services through formal financialinstitutions.

• The Microfinance Focal Point will have an information system that can track all threetypes of microfinance support and report to the Minister about its effectiveness.

• In addition: the Evaluation team will have used the lessons learned from microfinanceto contribute to improving effectiveness in other sectors of Finnish DevelopmentCooperation.

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Government of Finland (Ministry for Foreign Affairs) &. Government of Vietnam (Ministry ofPlanning and Investment). 2006. Quang Tri Rural Development Programme Phase II.Draft Proposal for Updated Version.

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the Financial Systems Team www.sida.se.Sigvaldsen, E. & S. Jørgensen. 2006. Inventory of Microfinance Activities Supported by Norway.

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www.cgap.org, sites visited July 2006.www.formfin.fi, sites visited July 2006.www.microfinancegateway.org, sites visited July 2006.www.microsave.org/dfs, sites visited July 2006.www.norad.no, sites visited July 2006.www.sida.se, sites visited July 2006.www.un.org/milleniumgoals, sites visited July 2006.www.uncdf.un, sites visited July 2006.www.yearofmicrocredit.org, sites visited July 2006.


ANNEX 1. TERMS OF REFERENCE (TOR)

Review of the Finnish Microfinance Cooperation

(89841501)

1. Background

Microfinance represents a small share of the budgets of multilateral and bilateral aid organizations.However, tackling the challenges in aid effectiveness requires also improvements in theeffectiveness of microfinance as well as harmonizing aid related to microfinance.

In 2002–2005, the Consultative Group to Assist the Poor (CGAP), in cooperation with DFID,conducted a peer review of microfinance operations of some twenty donors, focusing on theirprocedures, processes, and practices. Finland did not participate in the review.

In the light of recent developments in the field of microfinance and trends in the Finnishdevelopment cooperation, there is a reason to take a closer look at the Finnish support tomicrofinance to help in determining the scope for microfinance in the future Finnish aid portfolioand enhance conformity with the international “best” practices. The potential of microfinancefor contributing to the MDGs (Millennium Development Goals) is now better understood.There is a shift towards building inclusive financial services that (i) cater for a range of financialservices needed by the poor, and (ii) are integrated into formal financial sector, combining thuscommercial financing objectives with social objectives. International best practices inmicrofinance have been established providing guidance also for bilateral aid organizations. Atthe same time, the Finnish aid modalities have shifted with increasing emphasis on budgetsupport and sector programs, decentralization and move towards more generalist staff whichalso has implications for effective donor support of pro-poor financial services.

The Ministry for the Foreign Affairs of Finland (MFA) supports microfinance through differentchannels: (i) bilateral support (e.g. in Vietnam) often as part of a bigger program dealing e.g.with rural development, (ii) support to NGOs which integrate micro-finance into their otherfield programs or projects, and (iii) support to Finnfund that independently invests intomicrofinance as part of its portfolio. There is no separate unit, resource person or adviserresponsible for microfinancing. Most microfinance projects are under the responsibility of regionaldepartments. The Department for Development Policy is responsible for development of variousaid instruments including support for microfinance. The Unit for NGOs deals with non-governmental organizations including their support for microfinance operations in developingcountries.

MFA have gradually developed their microfinance portfolio and field operations to meet theinternational best practices. In effect, this has resulted in downsizing the Finnish support formicrofinance without actually making an explicit policy decision about the reduced role ofmicrofinance in the Finnish development cooperation. As of 2006, MFA does not have a separatemicrofinance program or formally approved microfinance guidelines. In fact, there is no coherentand up-to-date information on the current microfinance portfolio. Neither is known, whatkind of gaps there may exist and if the Finnish microfinance support is comparable with theinternational development trends and best practices.


2. Review Objectives

The planned review is to shed light on the issues identified in the preamble. The purpose of thereview is three-fold:

1. Clarify the current scope of Finnish microfinance support and assess it against internationaltrends and best practices in microfinance paying special attention to the potential toimproving aid effectiveness.

2. Suggest a vision on the role of microfinance in the MFA aid portfolio based on the assessedcomparative advantages, objectives of the Finnish Development Policy and availableresources.

3. Identify concrete measures in a form of an action plan (covering institutional andadministrative arrangements, personnel support and other resources) to implement the vi-sion and enable effective implementation of good donor practices building on identifiedstrengths.

In particular, the review is to

1. provide a detailed description of the MFA’s microfinance portfolio paying attention to the(i) changes in the channels for delivering microfinance support, (ii) current volume andpast trends in allocation of support by instrument and geographical location, (iii) trendinformation about microfinance funding by level (macro, meso, micro), and (iv) identificationof all key operators in Finland associated with microfinance.

2. provide a description of the MFA’s policies related to microfinance.3. provide a concise description of international trends in microfinance in development

cooperation, paying special attention to a few countries to be selected in collaboration withMFA.

4. prepare a concise comparative analysis of the similarities and differences between FinnishMFA support and the countries covered in the previous step.

5. make proposals to improve aid effectiveness through the analysis of the five elements ofeffectiveness: strategic clarity, staff capacity, accountability for results, relevant knowledgemanagement, and appropriate instruments22 and identify most effective channels to supportmicrofinance.

6. identify success factors and challenges to implementing good donor practices amongstmicrofinance practitioners supported by MFA.

7. identify best mechanisms for supporting microfinance to contribute to the Finnishdevelopment policy objectives, paying special attention to poverty reduction and otherMDGs and the potential role of microfinance as a supporting mechanism for crosscuttingthemes.

8. identify most effective channels to support microfinance to build on comparative advantagesof different operators such as NGOs and e.g. development financing institutions.

9. provide information on needs (human resources, training, practical guidelines, etc.) ofmicrofinance practitioners (MFA, NGOs and others).

10. enhance awareness about microfinance amongst MFA staff and key Finnish stakeholders,such as relevant NGOs, associated with microfinance.

22 This classification follows the approach adopted by CGAP in all of its donor peer reviews.


This review is of strategic nature and the focus is consequently on identifying possible futuredirections and action rather than evaluating past and ongoing microfinance support. The objectiveis to provide information to help MFA to make a decision on its level of involvement inmicrofinance in the future given the assessed strengths and weaknesses and development needs.The possible scenarios can thus include expansion, consolidation, delegation or even phasingout of microfinance operations. The TOR provide a guiding framework. In addition to theissues mentioned above, the consultants can address other issues as may be agreed upon withthe MFA.

3. Review Methodology

The review is to be carried out in two phases:

Phase 1. (MFA)

A survey to provide a detailed description of the current MFA microfinance portfolio (see item1 above). The survey is to be carried out directly by MFA in 20 February -21 April 2006 as aninput to the actual consultancy. This survey will cover multilateral and bilateral support, Finnfundand MFA-financed NGO microfinance operations.

Phase 2. (Consultant)

A review of the MFA microfinance cooperation to be conducted by a consultant team inaccordance with these TOR. The actual review is to take place in May-June 2006 following inthe below listed steps:

– review of the material produced by the MFA during Phase 1– analysis of MFA development policy documents and international commitments as a

framework for developing microfinance support– review of MFA guidelines, procedures and processes (incl. project cycle) based mainly

on existing documentation– assessment of strategic clarity, organizational culture and structure, technical expertise,

resources, information and decisions flows, microfinance instruments based on interviewsof MFA staff and review of existing documentation incl. project documents and evaluationreports

– interviews of a sample of Finnish NGOs and other organizations associated withmicrofinance

– concise comparison of the Finnish NGO operations in microfinance with the overalltrends in microfinance within the international NGO fora

– interviews (phone, email) of personnel dealing with microfinance in the selected MFA-supported field projects

In principle, this review is to adopt the general methodology of the CGAP donor peer reviews(see references). However, the consultants can use innovative approaches to modify the donorpeer review methodology to fit the Finnish context and specific objectives. The review shouldbe carried out in a participatory manner so that relevant stakeholders will be given a possibilityto comment during the review.

The review is to be carried out mainly or entirely in Finland.


4. Required Expertise and Composition of the Team

A team is required to embody the following expertise and experience:

– A good understanding of Finnish development policy and principles.– Experience in development project management and administration.– Familiarity with microfinance in developing countries.– Thorough understanding of international best practices in microfinance and recent

development trends.– Proven capability and track record in carrying out similar evaluations or reviews and

capability to write concise, analytical reports accessible also to non-professionals– At least one member of the team must be fully fluent in spoken and written Finnish; all

shall possess fluent knowledge of the English language.

Gender balance and a qualified expert from a developing country in the review team is an asset.

The initial survey (phase 1) will be carried out by a MFA resource person. She will not be partof the actual review team but will be available to clarify findings of the phase 1 and help inaccessing documents and data in MFA which may not be accessible to outside consultants.

5. Timetable and Reporting

The initial survey (phase 1) is to be undertaken in 20 February-21 April 2006 (four full workingweeks).

The actual review (phase 2) is to take place in May-June 2006.

– Assignment launch and signing of a contract at MFA by 10 May 2006.

– Submission of a short inception report to MFA by 19 May 2006.

– Submission of the draft interim report including preliminary findings to MFA by7 June 2006.

– Submission of the draft final report, including a concise summary in Finnish and clearlypresented conclusions and recommendations to MFA by 14 June 14 2006.

– The preliminary deadline for presenting the final report in a workshop to be organizedby the consultants with support from MFA is 21 June 2006. However, if the date is notfound convenient for MFA or the Consultant, the presentation may be postponed to alater date.

The recommendations are to be concrete and accessible and presented in such a way that theycan facilitate future decision-making at MFA.

The review report shall be produced in English language (UK) including a concise summary inFinnish language. The Team Leader is responsible for the report and approves the contributionof the other experts. All reports will be handed over to the Ministry in electronic format both asMS Office and PDF files. The final version has to be proof-read and otherwise in a formallowing direct printing.

The consultant team is to report to the Unit for Evaluation and Internal Auditing in MFA.


7. Mandate

During the review, the expert team is entitled and expected to discuss with the pertinent personsand organizations any matters related to the assignment. The team is not authorized to makeany commitments on behalf of the government of Finland. The team is not allowed to discloseany material collected during the completion of this work to any third party without a priorconsent of MFA. The final report prepared by the team shall be subject to the approval of MFA.

8. Background Information

CGAP donor peer reviewshttp://www.cgap.org/projects/donor_peer_reviews.html

Peer Review of DANIDAhttp://www.cgap.org/docs/PeerReview_DANIDA.pdf

Peer Review of SIDAhttp://www.cgap.org/docs/PeerReview_SIDA.pdf

Peer Review of Norwayhttp://www.cgap.org/docs/PeerReview_Norway.pdf


ANNEX 2. LIST OF PEOPLE MET

Ministry of Foreign Affairs:

Mr. Tuukka Castrén, Senior Advisor (Development Policy), Department for Development PolicyMs. Tuula Gallen-Kallela, Second Secretary (Administrative Affairs), Department for Africa

and the Middle EastMs. Vuokko Heikkinen, Counsellor, Department for Africa and the Middle EastMs. Selma Honkanen, Counsellor, Department for Africa and the Middle EastMr. Matti Junnila, Counsellor, Department for the Americas and AsiaMr. Oskar Kass, Programme Officer, Department for Development CooperationMr. Marko Katila, Economic Advisor, Department for Development PolicyMr. Matti Lahtinen, Chief Administrator, Department for Development CooperationMr. Pekka Puustinen, Director, Department for Development PolicyMs. Sanna Pääkkönen, Project Assistant, Department for the Americas and AsiaMr. Juha Savolainen, First Secretary, Department for the Americas and AsiaMs. Marjatta Selänniemi, Adviser for Agriculture and Rural Development, Department for

Development PolicyMr. Juhani Toivonen, Deputy Director General, Department for Development PolicyMs. Leena Viljanen, Counsellor, Department for Global AffairsMs. Pirjo Virtanen, Councellor, Department for Development PolicyMs. Eva Weikkolainen, Trainee, Department for Development Policy

Development Policy Committee (MFA), Supervisory Board (Finnfund):

Mr. Kalle Laaksonen

Finnfund:

Mr. Jaakko Kangasniemi, Managing Director, CEOMs. Sari Nikka, Programme DirectorMr. Peter Platan, Programme Manager

NGOs:

Mr. Asko Alajoki, Operation MobilizationMr. Henrik Bergman, FinnChurch AidMs. Taija Heinonen, Abilis FoundationMs. Tuuli Kaskinen, DODOMs. Anita Lintula, World VisionMs. Kirsi Martonen, Nakurun LapsetMs. Eija Mustonen, Kehys ryMs. Helena Nevalainen, KEPAMs. Katarina Nyberg, Finnish Association for the DeafMr. Ari Pappinen, Adventist Relief and Development AgencyMs. Auli Starck, KEPAMs. Susanna Tan, International Solidarity FoundationMs. Ulla Terva, World Vision


Project Personnel:

Mr. Eero Helenius, Thua Thien Hue Rural Development ProgrammeMr. Juhani Härkönen, Quang Tri Rural Development ProgrammeMr. Esko Ikävalko, Luapula Livelihood and Food Security ProjectMr. Tor-Gunnar Lindborg, Luapuala Livelihood and Food Security ProjectMr. Markku Malkamäki, MicroSave/DFSMr. Tapani Ruotsalainen, Vietnam-Finland Forestry Sector Cooperation Programme

International Institutions:

Ms. Tamara Cook, CGAPMs. Alexia Latortue, CGAPMs. Hannah Siedek, CGAPMr. Tor Gull, OikocreditMr. Nils-Gunnar Smith, Church of Sweden


ANNEX 3. EFFECTIVENESS COMPARISONSBETWEEN NORDIC DONORS

1. Introduction to the Agencies

DANIDA has considerable experience in microfinance. It incorporates several of its recentmicrofinance initiatives within its financial sector, like in Tanzania, Nicaragua and BurkinaFaso. It is focusing on financial and institutional sustainability through private sector approach.It has a proven record of cooperation with other donors, while it has a good knowledge of ruralcontext and cooperatives in its partner countries.

NORAD became involved in the microfinance in mid-1980s. That time it was one of the firstdonors to support the Grameen Bank. Initially, most of the funds for microfinance were channeledthrough the bilateral program. At present, the bulk of funding goes through the NGOs. Thereare only a few bilateral projects and only one at the micro level. At the time of 2002 peer review,it had a private sector policy but no microfinance policy. However, after the review a paper“Building demand-led and pro-poor financial systems” (NORAD 2003) was drafted andapproved as NORAD’s official microfinance policy. One of the major components in the strategyis to fund local microfinance institutions through Norwegian NGOs. Out of the totaldisbursement for the sector in 2004 49% went through one NGO – Stroemme. In fact, NORADis relying increasingly on NGOs for implementation of Norwegian microfinance interventions.Although the total expenditure went up from EUR 14.8 million (actual expenditure) in 2004to EUR 16.6 million (estimated expenditure) in 2006, NORAD’s direct involvement decreasedwent down from EUR 1.23 million to EUR 370 000 during the same period. As a consequence,in terms of percentage of the total microfinance support, the share of NORAD’s directinterventions went down from 10.4% in 2004 to 2.8% in 2004. If the NORAD contributionto the NGO projects is taken into consideration, its share of the total budget in 2006 is still64.8% (Sigvaldsen & Jørgensen 2006).

SIDA has extensive experience in the microfinance, both through bilateral and NGO programsand NGOs. In 2002 its effectiveness was ranked as medium. After that SIDA undertook severalsteps in line with the review recommendations and got clearly better marks in the check-upreview in 2006.

The below summaries of donor efficiency is based on the 2002 peer review conclusion andinterviews with CGAP, except those on Finland which are conclusions from the 2006 review.

2. Strategic Clarity

DANIDA: In 1999 it developed guidelines for supporting financial services reflecting goodpractices. But staff vision of microfinance is unclear, often perceived as an input in agricultureprograms rather than a segment of financial sector. However, it is slowly incorporatingmicrofinance interventions within financial sector development. DANIDA puts a strongemphasis on private sector development not the strong link between the private sector andaccess to finance.

NORAD: It has a deep commitment to poverty reduction, a clear strategy on private sector, acommitment to recipient ownership, emphasis on partnership, high staff coherence on operational


level policies were considered as strengths, while lack of clarity about the role of microfinance,the non-existence of microfinance strategy and lack of internalization of private sectordevelopment policy and principles were weaknesses. Soon after the review a policy documentfor microfinance was prepared.

SIDA: (In 2002) Clear institutional focus on democratic and rights-based development isconsistent with microfinance principles. SIDA has policy guidelines for private sectordevelopment. However, there is a lack of clarity on the role of microfinance within a broaderdevelopment agenda. Good practice principles were not accessible to staff, when designing ormonitoring microfinance projects. Commitment to sustainability and long-term perspective todevelopment. Corporate culture of openness, flexibility and learning. Relatively low appetitefor new policies. SIDA seems to have found a niche in housing finance. (In 2006) There is acommon vision of microfinance and finance sector development articulated in internaldocuments.

MFA/Finland: Commitment on poverty reduction, emphasis on local ownership and long-term partnerships are obvious strengths while the lack of clearly formulated private andmicrofinance policies are weaknesses. In principle, there is a microfinance guideline. However,it is not known to many staff members while others think that it is not valid anymore. In fact,it was mostly not followed in the practical work even earlier. Furthermore, part of staff still hasan ambiguous stand towards the private sector although the attitudes have been changing. Thestrategy towards the NGO microfinance operations has not been clear. This will probablychange, when the work on new guidelines is completed.

3. Staff Capacity

DANIDA has only one person dealing with microfinance, and that person uses only about20% of his time on microfinance. DANIDA has a good knowledge of the general context ingeneral but the staff can not retain the corporate knowledge of microfinance because theinformation is held by external consultants. Staff has difficulty in engaging effectively withexternal consultants while the external expertise is of uneven quality.

NORAD has only one full-time microfinance specialist is not sufficient to provide advisoryservices to NGO and bilateral portfolio23 . Access to limited but competent outsourced expertise.No plans for expansion of staff despite the increasing development cooperation budget.Overstretched staff capacity at embassy level.

SIDA: (In 2002) Under-resourced (one full-time specialist and a microfinance team who,however, have other demands on their time) but highly effective technical expertise. Demandfor technical advise exceeds the supply. Positive impact of technical expertise on quality ofproject design. Over-reliance on consultants poses risks of staff deskilling and poor knowledgemanagement. Building up expertise in housing finance. (In 2006) SIDA has now a dedicatedFinancial Systems Team consisting of four technical staff. It has microfinance network withNGOs for informal exchange and learning. More staff at head quarters and country officeshave been trained internally on microfinance.

23 During the follow-up review it was found that the microfinance specialist was actually able to use only onethird of her time on microfinance.


MFA/Finland: One person using 10 to 15% of his time on microfinance. The MFA has nocapacity to support the NGOs in microfinance projects. The persons in charge of countrydesks learn about microfinance mainly on their own initiative. There are very few microfinancespecialists available in Finland. The staff numbers are unlikely to increase in line with theexpected increase in the development cooperation budget. The staff resources at the embassieshave improved but there are no microfinance specialists.

4. Knowledge Management

DANIDA: The decentralization process which was going on at the time of the review, wasdesigned to get the staff closer to the clients. However, the structure was not deemed to enableeffective promotion and supervision of microfinance operations. There is no formal structureto capitalize and exchange knowledge and lessons learned.

NORAD: Technical Department is very effective in updating the mindset of staff. Culture ofopenness to dialogue and technical advice. Focus and responsibility has shifted to the embassiesbut most of the staff are still in Oslo. There is an explicit trust in NGOs that has lead to arms-length management and little quality control.

SIDA: (In 2002) Microfinance expertise is placed in the financial sector department. Explicitcoordination with other donors and partners. Lack of clarity regarding the role of microfinanceteam. Decentralization will intensify the challenges to the central unit to maintain qualitycontrol. Limited knowledge exchange between the microfinance specialists and generalists andbetween Stockholm and field operations. (In 2006) The Financial Systems Team has designeda system for tracking Financial Sector Development projects. It is circulating information througha newsletter. A public on-line system providing information on specific projects under theblock grants to Swedish NGOs has been launched. There are more performance-basedagreements. However, as a whole there is still no culture of systemic performance monitoring.Although there is more information available, there are still no systemic ways of capturing andtransferring knowledge on continuous basis.

MFA/Finland: Although the situation has improved, it still appears to depend on countrydesks whether or not advisory services are requested. The flow of information is a problem – thelessons learned are not being transferred within the organization in a systematic way. The highturnover of staff makes the situation worse. The MFA seems to have very limited informationof its microfinance portfolio. The NGOs have not been closely monitored and information ofthe performance of their microfinance projects is limited. The operations are characterized bycautiousness which does not encourage innovative thinking. On the other hand, the fast shift ofemphasis from project assistance to program assistances shows that the MFA is ready for changes,when the push comes from the top.

5. Accountability

DANIDA: The microfinance guidelines are not utilized by the staff. There is no consistentperformance monitoring system to (i) be accountable for results, (ii) learn lessons, and (iii)make appropriate funding decisions.

NORAD: Technical inputs are not given to all projects systematically. Civil Society Departmentportfolio has been completely delegated to the NGOs. Insufficient performance monitoring


Embassies responsible for overseeing implementation generally are overstretched and staffed bygeneralists.

SIDA: Ad hoc technical inputs into design of credit components in multi-sector projects. TheProject Committee and departmental technical approval committees are not focused onmicrofinance. Weak project monitoring and management.

MFA/Finland: Technical inputs at various stages of the project cycle appear to depend on theinitiative of country desks. The microfinance guidelines have not been utilized. There is nospecific system for monitoring microfinance projects. The NGOs have been left very much ontheir own after the approval of the project for MFA funding.

6. Instruments

DANIDA has a proven record of cooperation with other donors (co-funding) while its fundinginstruments show flexibility with unallocated funds. DANIDA is willing to invest in the longterm.

NORAD: The quality of NORAD’s portfolio, especially credit components of larger projects,is questionable. The existence of incentives to apply sound practices is not clear. Grant instrumentas such suitable for micro financing but it is not always appropriately used. Appropriate exitstrategies often not included in the in designs. Performance based contracts not systematicallyused. Budget structures too rigid to allow for funding of international capacity building structuresfunds, etc. Norfund would offer a possibility equity investments in institutions and internationalfunds.

SIDA: (In 2002) Difficult to ensure quality of credit components in multi-activity project(rural and urban), mainly due to confusion over project goals. Trend to increase developmentcooperation budget, while holding staffing levels constant, may increase disbursement pressures.Selection of specialist implementing partners has been a problem in the past. No performancebased contracts. Exit strategies have been a weakness. (In 2006) Poor quality credit componentsare no longer an issue. SIDA is in a good position to work with the private sector and fund atthe regional and global level.

MFA/Finland: The quality of MFA’s bilateral portfolio in general has been poor. However, it isclearly better in the few remaining projects. Apparently there has been no incentive to adhere togood practices in the past. An example of this is that most of the projects have not compliedwith the 1998 guidelines. The exit strategies for microfinance support have been unsatisfactory.In fact, microfinance components were often used as an exit strategy for integrated programs.Budget structures are not too rigid to allow international capacity building interventions.Microfinancing through Finnfund is a promising option. The NGOs are interested inmicrofinance but would require support.


ANNEX 4. AGENDA FOR SEMINAR ON BESTPRACTICES IN MICROFINANCE:NOVEMBER 2005

Ministry for Foreign Affairs and FinnChurchAid

Seminar on Best Practices in Microfinance

November 23, 2005

at Engel-Hall, Merikasarmi (Laivastokatu 22 A 1), Helsinki

Main Objectives

• Clarify the concept of microfinance and its role in contributing to MDGs• Enhance awareness about best practices in microfinance and how to apply guidelines in

operational planning and implementation• Help participants to decide to what extent and in which way they should be involved in

microfinancing• Provide an overview of the operations and services of the CGAP

Agenda

8.30 Registration and coffee

9.00 Opening SpeechRitva Koukku-RondeDirector General, Department for Development Policy,Ministry for Foreign Affairs

9.10 Role of Microfinance in Poverty Reduction and Meeting OtherMillennium Development Goals

Hannah Siedek and Tamara Cook, CGAP

9.40 ECLOF Experiences in MicrofinancingMuhungi Kanyoro, ECLOF

10.20 Oikocredit Experiences in MicrofinancingTor Gull, Oikocredit

11.00 Discussion and a short break

11.30 Finnfund and MicrofinanceSari Nikka, Finnfund

11.40 Presentation of the Donor Guidelines on Best Practice in Microfinance:Lessons Learned

Hannah Siedek and Tamara Cook, CGAP

12.30–13.30 Lunch


13.30–15.00 Focus on Microlevel – Credit Components and MFI AppraisalHannah Siedek and Tamara Cook, CGAP

15.00–15.15 Coffee Break

15.15–16.10 Questions, Discussion and Follow-up

16.10–16.20 Wrap-up

16.20–16.30 Closing of the SeminarAntti Pentikäinen, Director, FinnChurchAid


ANNEX 5. EU-ACP MICROFINANCE PROGRAMME

1. EU ACP Microfinance Framework Programme

The European Union (EU) and the African, Caribbean and Pacific States (ACP) launched theMicrofinance Framework Programme to help the poor in ACP countries get better access toappropriate financial products and services. The Programme is taking a three pronged approachto improve the effectiveness of microfinance operations in ACP countries: by strengthening thecapacity of microfinance actors; supporting microfinance ratings and improving efficienciesand transparency in the microfinance market.

2. Building Capacity: Strengthening Institutions

To address one of the main bottlenecks in microfinance in ACP countries, the lack of retailfinancial capacity, the EU/ACP Microfinance Programme launched a one off Call for Proposalsin June 2005. Eleven grants are awarded to address the objectives of diversification of financialservices for the poor, the use of technology to reduce transaction costs, the expansion of outreachof financial services in underserved markets and enhancement of transparency in the microfinancesector. Learn more about our capacity building efforts or the outcome of our Call for Proposals.

3. Ratings: Stimulating Improvement

The Programme supports the Rating Fund’s efforts and is co-financing ratings in AfricanCaribbean and Pacific Countries to improve information available on the risk and performanceof microfinance institutions.

4. Transparency and Efficiency: A Shared Goal

The Programme and CGAP share a goal of promoting institutional and product diversity,building transparency, and enhancing regulatory and policy frameworks. It makes concreteefforts to raise awareness in ACP countries about CGAP’s products and services.

http://ec.europa.eu/comm/europeaid/projects/acp/microfinance/trans_en.htm

The EU/ACP Microfinance Framework Programme is financed from the 9th EuropeanDevelopment Fund (EDF). It is an integral part of the comprehensive EU/ACP strategy forprivate sector development following the Cotonou convention.


ANNEX 6. FINNISH MICROFINANCE REVIEW –NOTES FROM THE DEBRIEFINGPRESENTATIONThursday 27th July 2006 10 am

Participants: Marko Katila, Jyrki Pulkkinen, Matti Lahtinen, Riikka Otsamo, Sirpa Mäenpää,Jari Viitanen, Tuukka Castrén, Jukka Savolainen, Leo Olasvirta, Juhani Toivonen, Vesa Leino,Olli Moilanen, Anna-Riitta Niemelä, Harri Porvali, Aira Päivöke and Majella Clarke (notes).

Mr. Harri Porvali presented the trends, strengths, challenges, recommendations and proposedaction plan to the Finnish Ministry of Foreign Affairs. Ms Aira Päivöke chaired the presentation.

Discussion

It is evident that microfinance is perceived as an increasingly important part of global financialservices in conjunction with providing valuable financial instruments for reducing poverty.This is evident with the large banks (Citibank, Visa corporation) getting involved in microfinanceprogrammes in developing countries. Microfinance is now perceived as business, and thereforeit must make money. Several critical questions came from the discussion that followed thepresentation.

On one hand, Finnfund has the resources and infrastructure to implement viable microfinanceprogrammes but it does not focus on poverty reduction. On the other hand, some NGOs dofocus on poverty reduction and have a capacity to engage with stakeholders at the grassrootslevel but do not have the knowledge or resources to implement a successful mircofinanceprogramme.

Critical Question #1: Is there a potential for Finland’s comparative advantage in microfinanceto warrant development? This would also perhaps contradict some elements of the final reportwhich highlight that there is no need to expand microfinance. On the contrary, it would requirea large expansion and commitment of resources to satisfy the recommendations from the finalreport.

Critical Question #2: What would be Finland’s “niche” in microfinance? If the MFA does getmore involved with microfinance, how will it contribute to the value added process? This questionstimulated a short discussion observing that Finland is a global leader in providing bankingservices because of its information technology. Technology is Finland’s global “niche” andtherefore technology in microfinance banking services could be developed further.

REPORT 2002:5 Evaluation of the Bilateral Development Co-operation Programme between Kenya and FinlandISBN 951-724-373-1, ISSN 1235-7618

REPORT 2002:4 Evaluation of Bilateral Development Co-operation between Nicaragua and FinlandISBN 951-724-372-3, ISSN 1235-7618

REPORT 2002:3 Evaluation of the Bilateral Development Co-operation between Ethiopia and FinlandISBN 951-724-370-7, ISSN 1235-7618

REPORT 2002:2 Evaluation of the Bilateral Development Cooperation between Mozambique and Finland ISBN 951-724-367-7, ISSN 1235-7618

REPORT 2002:1 Evaluation of the Development Cooperation Programme between Nepal and FinlandISBN 951-724-368-5, ISSN 1235-7618

REPORT 2001:9 Evaluation of the Bilateral Development Co-operation between Finland and ZambiaISBN 951-724-365-0, ISSN 1235-7618

REPORT 2001:8 Evaluation of the Bilateral Development Co-operation between Vietnam and FinlandISBN 951-724-361-8, ISSN 1235-7618

REPORT 2001:7 Evaluation of Diesel Power Plants in Four Countries: TanzaniaISBN 951-724-356-1, ISSN 1235-7618

REPORT 2001:6 Evaluation of Diesel Power Plants in Four Countries: PeruISBN 951-724-355-3, ISSN 1235-7618

REPORT 2001:5 Evaluation of Diesel Power Plants in Four Countries: NepalISBN 951-724-354-5, ISSN 1235-7618

REPORT 2001:4 Evaluation of Diesel Power Plants in Four Countries: IndonesiaISBN 951-724-353-7, ISSN 1235-7618

REPORT 2001:3 Evaluation of Diesel Power Plants in Four Countries: SummaryISBN 951-724-352-9, ISSN 1235-7618

REPORT 2001:2 Evaluation of the Development Co-operation Programme between Egypt and FinlandISBN 951-724-344-8, ISSN 1235-7618

REPORT 2001:1 Finland´s Support to Water Supply and Sanitation 1968-2000. Evaluation of Sector PerformanceISBN 951-724-343-X, ISSN 1235-7618

Blue Series 2000:2 Eight Development Credits for Zimbabwe in 1980-1991ISBN 951-724-322-7, ISSN 1239-7997

Blue Series 2000:1 Evaluation of Consultant Trust Funds Affiliated with the International Financial InstitutionsISBN 951-724-321-9, ISSN 1239-7997

REPORT 2000:1 Country Programming Process: The Namibian-Finnish ExperienceISBN 951-724-306-5, ISSN 1235-7618

REPORT 1999:8 Evaluation of Finland's Support to the Asian Institute of TechnologyISBN 951-724-295-6, ISSN 1235-7618

REPORT 1999:7 Thematic Evaluation on Environment and Development in Finnish Development Co-operationMultilateral Development ISBN 951-724-243-3, ISSN 1235-7618

REPORT 1999:6 Thematic Evaluation on Environment and Development in Finnish Development Co-operationConcessional Credits ISBN 951-724-242-5, ISSN 1235-76181-X

REPORT 1999:5 Thematic Evaluation on Environment and Development in Finnish Development Co-operationMeteorology ISBN 951-724-241-7, ISSN 1235-76181-X

REPORT 1999:4 Thematic Evaluation on Environment and Development Co-operation ForestryISBN 951-724-240-9, ISSN 1235-76181-X

REPORT 1999:3 Thematic Evaluation on Environment and Development in Finnish Development Co-operationNicaragua ISBN 951-724-239-5, ISSN 1235-76181-X

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EVALUATION REPORT • MINISTRY FOR FOREIGN AFFAIRS OF FINLAND • DEPARTMENT FOR DEVELOPMENT POLICY

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