Innovative Lending Instruments in Microfinance – Lessons from the Africa Region Finance Forum 2004 – September 24, 2004 Workshop on Microfinance Operations.

Innovative Lending Instruments in Microfinance – Lessons from the Africa Region

Finance Forum 2004 – September 24, 2004Workshop on Microfinance OperationsKoro Ouattara - AFTFS Africa Region -World Bank

Madagascar Microfinance APL and Tanzania Rural and Microfin LIL

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Adaptable Program Loan: APL – General Features

APLs are used:– When sustained changes in institutions,

organizations, or behavior are key to successfully implementing a program;

– To support a phased program of sector restructuring, or systemic reform in the sector where time is required to build consensus.

– For a series of loans that build on the lessons learned from the previous loan(s)


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Adaptable Program Loan: APL – General Features

APL involves agreement on:– The Phased long-term development program to be

supported by the loan– Sector policies relevant to the phase being

supported– Priorities for sector investments and recurrent

expenditures– Triggers for when to move to next phase


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Why an APL for Madagascar Microfinance?

Reasons for Madagascar APL:– Long term Capacity building commitment needed to

build financially self-sustainable institutions– Support systemic reform in the microfinance sector

where time is required to build consensus – Focus on program ultimate objective which is long-

term in nature


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Madagascar Microfinance APL Project Background

Project Data:– IDA credit amount: US$16.4 million– Board Approval: May 20, 1999– Effectiveness date: October 28, 1999– Closing date: December 31, 2005– Number of extensions: 1– Implementing agencies: Central Bank of Madagascar

and AGEPMF is PIU


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Madagascar APL -Project Description and Objectives

The microfinance project : 1999-2005 – Project is phase 1 of a 15 year APL microfinance

program divided in 3 phases of 5 years each.

Objectives of Phase 1 of Project– Provide access to financial services to low-income

Malagasy by building sustainable microfinance finance institutions (MFIs) and adoption of an appropriate legal and regulatory framework.


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Madagascar APL Project Other Phases

Phase 2: Support the consolidation of Savings and Loans Associations (SLAs) by expanding coverage in the areas where they are established, and, if feasible, achieving penetration into other areas to reach a sustainable scale and cost structure; and implementation of the microfinance training program.Phase 3: support strengthening of the financial core of SLA networks and its evolution into full-fledged self-sustainable financial institutions.


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Madagascar APL - Project Phase 1 Components

Project components (4)– Improve legal and regulatory framework for

microfinance – Develop capacity of MFIs– Build skills in microfinance with national training

program – Undertake studies including audits and impact

studies


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APL1 Project Achievements in Legal and Regulatory Component

Strenghtening of legal and regulatory framework– Law for savings and loans associations (SLAs)– Management and Prudentiel rules for SLAs– Draft law for all MFIs

Capacity building at Central Bank of Madagascar – Creation of a microfinance supervision unit – Training and field visits for Central Bank staff


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APL1 Achievements in Scaling up Microfinance Institutions (MFIs)

Performance indicators as of 12/31/2003:– Number of MFI networks: 4– Number of retail MFIs: 130– Membership: 98,695– Savings: Fmg 62.038 billion (US$9.544 million)Loans outstanding: Fmg 33.5 billion (US$5.1 million)


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APL1 Achievements in Scaling up Microfinance Institutions (MFIs)

Performance indicators at beginning (12/31/1999– Number of networks: 2– Number of retail MFIs: 59– Membership: 22,818– Savings deposits: Fmg 8.3 billion– Loans outstanding:Fmg 5.5 billion


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Scaling up of MFIs- Membership Growth

Membership growth of MFIs in the project: 332%

Performance - clientele

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1999 2000 2001 2002 2003

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Scaling Up of MFIs – Savings Deposits

Growth in Savings deposits: 300%

Performance - epargne

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1999 2000 2001 2002 2003

Annee

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Scaling Up of MFIs – Credit Growth

Growth in Credit: 1,025% Performance - credit

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15000000

20000000

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1999 2000 2001 2002 2003

Annee

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)


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Scaling Up of MFIs – Sustainability

Operational Self-sufficiency: 65% - 93%Factors that can affect viability and sustainability of MFIs: – MIS System – Meeting Central Bank reporting requirements– Governance Structure– Cost of managing network and ability to cover those

costs with revenus


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Madagascar APL – Next Steps

APL2 & 3 to reach15-year Program Goals:– Effective supervision of Licensed MFIs– Implementation of appropriate law and regulations – Centralization of Services to MFIs: Inspections

(auxiliary supervision?) &“back office” activities– Automatization of MFI activities– Consolidation of networks, expansion and greater

outreach.


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Madagascar APL- Lessons Learned

APL still best instrument for project because:– Institution building of MFIs until sustainability is long

term process by experience– Law and regulations in microfinance are new and

slow to put in place– Building of supervisory capacity is long and tedious– APL phases allow to take stock and make

adjustments before moving forward– APL2&3 still needed to reach ultimate goals.


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Learning and Innovation Loan (LIL) - General Features

LIL Focus on:– Experimentation– Learning and Piloting for development solutions

LIL Design Features:– Size of loans limited to US$5 million– Prepared and approved in 6-9 months– Implementation period of 3.5 years


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Features of Tanzania LIL

Experimentation in microfinance Narrow focus on regulatory frameworkComplement of other donor activitiesSeize Comparative Advantage of BankSmall loan size of US$2 millionWas originally a component of a complex project


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Tanzania Rural and Microfinance Project – LIL Background

Project Data of Tanzania LIL:– IDA Credit amount:US$2 million– Board Approval:08/26/99– Effectiveness date:06/15/2000– Closing date:12/31/2004– Number of extensions:2– Implementing agency:BOT (Bank of Tanzania)


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Tanzania Rural and Microfinance LIL- Objectives

Project Objectives – Development of a common policy framework based

on internationally recognized best practices – Establish an enabling environment for rural and

microfinance in Tanzania and increase the quality and returns of investment in the sector


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Tanzania LIL- Project Components

1.Development of a National Microfinance Policy2. Design of legal and regulatory framework for microfin.3. Provision of operational guidelines for Gvmt and Donor

support in microfinance sector.4.Capacity building at Directorate of Microfinance at the

Bank of Tanzania and at Ministry of Cooperatives for supervision.

5. Knowledge and Skills enhancement in Microfin Sector


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Tanzania LIL - Achievements

Project Achievements:– Adoption of National Microfinance Policy– Law on microfinance companies– Adoption of Regulations for microfinance – Database on microfinance organizations in Tanzania– Operational Guidelines for Saccos (in progress)– Guidelines for donor support (in progress)


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Tanzania LIL-Scaling Up

Probable Impact of Enabling Policy and Regulatory Environment:– Scaling up of microfinance NGOs– Scaling up of SACCOS– Creation of new microfinance companies– Downscaling of banks into microfinance


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Tanzania LIL- Lessons learned of Operational Relevance

LILs can be used in all sectorsLILs can be used to address policy issuesLILs are as expensive to supervise as standard investment loansLILs can require a long period of implementationTZ LIL experience to be captured by QK

Innovative Lending Instruments in Microfinance – Lessons from the Africa Region Finance Forum 2004 – September 24, 2004 Workshop on Microfinance Operations.

Documents

madagascar apl project

microfinance project

madagascar apl project

microfinance sector

year apl microfinance

microfinance lessons

microfinance training

phase slide