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2.3.5 Micro finance

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Alessio Lupi16 May 2018

Indicators: a) Key GP and LL on micro finance in IE identified.

b) Challenges on micro finance in IE identified and possible means to overcome challenges identified and analysed.

Data Analysis Methods: Identification of GP and LL on micro finance. Analysis of GP and LL to determine adaptability and scalability. Identification of challenges identified during promotion and implementation on micro finance and determine if/how these were overcome.

RECOMMENDATIONS:

1. Take into account substantial insights that can affect microfinance provision success:

  • Provision of a broad range of micro finance products including package with diversified interest rates and loan periods
  • Women’s specific finance needs and habits at different life cycle moments and in accordance with their physical mobility opportunities (some are able to be more mobile than others)
  • Identification of innovative ways of reaching borrowers, especially in remote, rural areas and/or where they have low educations levels.  E.g. example from Malawi where a biometric smart card is used that enables non-literate customers can open and manage a savings account using only their fingerprints for identification.

References:

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2. Consider that different and adapted types of micro finance services may need to be designed in line with specific socio-cultural, political contexts. Verify the specific situation prior to planning new projects and avoid simple replication of methods used in other settings. Develop appropriate strategies for each situation in advance.

References:

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3. When supporting the development of micro finance systems, verify if introduction of any of the services will compete for the same market segment as existing service providers. If this is the case, consider redesigning the project to take this into account.

References:

  • Resseguie, Robert; Hendricks, Larry; Nizami, Zareef;  Paaeez, Waheedullah, 2011, Mid-Term Evaluation of Rural Finance and Cooperative Development Program- RUFCOD (Afghanistan), Midterm or interim evaluation, USAID, Washington DC.

The evaluation noted that credit programs not thrive in grant funded development environments but this was ignored in the project design.

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4. Note that analysis shows that linking NGOs together with banks or Micro Finance institutions is more likely to be associated with success (as opposed to delivering programs solely through banks or Micro Finance institutions).

Reference: Cho, Yoonyoung;  Honorati, Maddalena, 2013, Entrepreneurship Programs in Developing Countries: A Meta Regression Analysis, Meta-analysis of evaluations, World Bank Human Development Network Social protection and Labor Unit, Washington DC.

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5. Ensure that there is always sufficient training of implementing agencies and their staff so that micro loans are well managed.

ReferenceIndonesia Urban Poverty Project FE - World Bank 2015

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6. Ensure that projects promote realistic expectations of the benefits of micro finance groups and services to avoid discouragement of members. Ensure that members understand that it takes time for their activities to grow even if micro finance or other support is provided.

ReferenceIndependent Final Evaluation of Ethiopians fighting against Child Exploitive Labor (E-Face), Final Report, USDOL, O’Brien & Associates International 2016, Washington DC.

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7. Note that analysis shows that access to credit probably plays a greater role in improving business performance than training. Training alone is, however, still strongly associated with business performance of youth and higher education individuals, especially in the studies where business training was provided for these entrepreneurs.

ReferenceEntrepreneurship Programs in Developing Countries: A Meta Regression Analysis, Meta-analysis of evaluations, World Bank Human Development Network Social protection and Labor Unit 2013, Washington DC.

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8. Design easy credit facilities supporting entrepreneurs to start/expand their business. Interest free loans can work better than grants, since they break the dependency of micro-finance institutions upon international donors, besides bringing accountability for beneficiaries themselves.

Reference: Productive work for youth in Armenia – supporting young entrepreneurs, Midterm or interim evaluation, UNIDO 2015, Vienna.

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9. Where a project is carried out in a fragile context, determine the usefulness of implementing a credit programmes. Verify whether the locations are ready to receive the services and implementation is practical and feasible.

Reference: Resseguie, Robert; Hendricks, Larry; Nizami, Zareef; Paaeez, Waheedullah, 2011, Mid-Term Evaluation of Rural Finance and Cooperative Development Program-RUFCOD (Afghanistan), Midterm or interim evaluation, USAID, Washington DC.

EVIDENCE SAMPLE: The evaluation determined that the design of the project has worked well with the exception of location. The primary emphasis was to bring development in behind a military surge – a clearing action. This environment was not conducive for a credit program that requires an extended time frame and staff mobility to reach sustainability.

When designing and approving credit projects to be located in an insecure environment, careful consideration needs to be given to the range of implementation and monitoring activities that can realistically be undertaken in support of such programs. In addition, credit programs will not thrive in grant funded development environments.

It was further noted that, although credit programs, can be established as successful systems to provide access to credit, they require support and subsidy for a longer period of time than in a normal development environment. Security is a key aspect of this success, so that as military progress moves from ‘clear’ to ‘hold’ and ‘build’ in these areas, and as grant funded programs are reduced, the climate for employing credit for business and livelihood development improves. Therefore, for these credit initiatives to prosper in this milieu, longer term commitments of funding and TA support are required.

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10. Support development of appropriate laws/regulations for inspection of the functioning of credit unions and similar micro finance institutions.

Reference: Resseguie, Robert; Hendricks, Larry; Nizami, Zareef; Paaeez, Waheedullah, 2011, Mid-Term Evaluation of Rural Finance and Cooperative Development Program- RUFCOD (Afghanistan), Midterm or interim evaluation, USAID, Washington DC.

EVIDENCE SAMPLE: The evaluation indicated that, with operational regulations necessary for the credit network, such as legitimate supervision and inspection, the cooperative law/regulation is urgently needed to build an even more solid credit network. At some point in every credit union system, a specific law to manage the emerging system is needed.

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11. Improve micro-finance access through multiple approaches:

  • Support openness for entry of new commercial players and investors into the micro finance sector
  • Advocate for more enabling government policy and regulations
  • Facilitate access to technological innovations related to Micro Finance for people dependent on the IE. This would include electronic banking such as SMS-based banking, electronic point of sale devices in retail outlets and ATM’s.

ReferenceEnterprise Development for Rural Families Programme in Kenya, Final Report, SIDA 2014, Stockholm.

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12. Promote training on financial education of people dependent on the IE, including on accessing and using micro finance and other financial services to obtain the most economic benefits. Specifically this may include support the training of micro finance and other financial service providers to strengthen their capacities to provide effective services to people dependent on the IE. For example:

  • Customer care
  • Treasury and credit management
  • Internal control
  • Check clearing

References

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13. Strengthen knowledge and capabilities of community members on various savings methods and encourage them to save as a pre-condition for further support.

ReferenceEnterprise Development for Rural Families Programme in Kenya, Final Report, SIDA 2014, Stockholm.

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14. Combine financial education and life skills training with financial services to increase impact of support to young people dependent on the IE.

References

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15. Consider the development of special loan products for women in line with their specific needs.

ReferenceFinal Performance Evaluation: Agricultural Credit Enhancement (Ace) Program in Afghanistan, Final evaluation, USAID 2015, Washington DC.

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16. When supporting the development of credit programs, develop core branches first in urban areas, test and learn from them as they solidify their services. Use successful offices to support the development of more risky branches in rural/urban areas.

Reference: Resseguie, Robert; Hendricks, Larry; Nizami, Zareef;  Paaeez, Waheedullah, 2011, Mid-Term Evaluation of Rural Finance and Cooperative Development Program- RUFCOD (Afghanistan), Midterm or interim evaluation, USAID, Washington DC.

EVIDENCE SAMPLE: The evaluation noted that the growth of credit programs has generally followed a pattern that begins with core branches in urban areas and, as the operations solidify, moves out to more rural areas. This allows the credit program to establish successful offices that in turn can support the development of more risky branches in rural/urban areas.

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17. Foster the use of enterprise incubation funds since it can efficiently target and support economic activities that need financial support.

ReferenceEnterprise Development for Rural Families Programme in Kenya, Final Report, SIDA 2014, Stockholm

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18. Find innovative ways to increase the potential of small loans, such as encouraging borrowers to share what they receive for the development of local cooperatives. By doing so, borrowers may enhance and share their income with their community, narrowing the likelihood of large individual losses at the same time. Consider options such as stocking rice or other commodities to form a form of saving safety net for community members where this may be appropriate. That is, not all savings needs to be in the form of money, especially when working with the poorest.

References:

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19. Provide training follow-up services and analyse the training or technical support on micro finance that beneficiaries need for success.

ReferenceImpact Evaluation of the Small Loan Component of IFRC/RCSC Livelihood Recovery Project In Sichuan, Impact evaluation, International Federation of Red Cross and Red Crescent Societies, 2013, Geneva.

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20. Ensure that the size of individual loans in a micro finance project are sufficient to actually make a difference with regard to investment possibilities for viable enterprises.

Reference: Samaranayake, Mallika R.; Velupillai, Krishna, 2011, Mid- term Evaluation of : “Socio-economic recovery in the North and East” under the UNDP Country Programme Action Plan (CPAP) 2008-2012 (Sri Lanka), Midterm or interim evaluation, UNDP, New York.

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21. Make long-term repeated application for loans accessible to everyone with reasonable pre-condition criteria. Giving the opportunity to re-apply for a loan only to those entrepreneurs who have showed high growth in a short time is not conducive to strengthening. New firms may actually need more time to develop and become eligible for new loan facilities.

Reference: UNIDO, 2015, Productive work for youth in Armenia – supporting young entrepreneurs, Midterm or interim evaluation, UNIDO, Vienna.

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22. Encourage the growth of a good savings balance after accounts are opened as it is critical for business sustainability.

ReferenceLessons learned Youth access to rural finance: Inclusive rural financial services, General background document on issues in our research matrix, IFAD 2015, Rome.

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23. Provide guidelines clearly defining the loan repayment mechanisms, setting the most suitable amount and length of loans for different types and scale of businesses. Ensure that all stakeholders are well aware of the guidelines and how they apply to the different types of recipients.

ReferenceImpact Evaluation of the Small Loan Component of IFRC/RCSC Livelihood Recovery Project In Sichuan, Impact evaluation, International Federation of Red Cross and Red Crescent Societies, 2013, Geneva.

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24. In designing micro finance programming with youth, take a life cycle approach to develop approaches that are relevant and appropriate at different stages and transitions of a young person’s life.

Reference: Kasprowicz, P., and E. Rhyne. 2012. Looking through the Demographic Window: Implications for Financial Inclusion. Washington, D.C.: Center for Financial Inclusion at Accion. In: Lessons learned Youth access to rural finance: Inclusive rural financial services, General background document on issues in our research matrix, IFAD 2015, Rome.

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25. Invest in innovations and share the successes of youth access to a variety of financial services while also building the capacity of financial service providers to design and deliver viable financial products for rural youth.

ReferenceLessons learned Youth access to rural finance: Inclusive rural financial services, General background document on issues in our research matrix, IFAD 2015, Rome.

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26. Be aware in designing micro finance support with young people that they often do save and/or borrow already. Their sources of income might be small and irregular. When they save they often do so in unsafe places. They borrow, most often informally, to start a business but also to continue with their education. They want access to formal financial services that can better meet their growing needs.

References:

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27. When designing programming for micro finance with youth, promote the establishment and tapping into formal savings accounts prior to using other types of financial services, especially loans. This savings-first approach builds young people’s capacity and confidence in using formal financial services and serves as a basis for building assets for the future.

References:

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28. Note when designing programming that assist migrant youth that it is useful to support them with access to adequate financial instruments, such as affordable and cost-effective remittance products. This can benefit the economic development of their communities of origin and lead to long-term productive capacities.

Reference: Global Migration Group, 2014, Migration and Youth – Challenges and Opportunities, Meta-analysis of evaluations, United Nations Children’s Fund, online publication.

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29. Be aware that there is emerging evidence that youth have the capacity to repay loans and that youth loans are not riskier than adult loans.

ReferenceLessons learned Youth access to rural finance: Inclusive rural financial services, General background document on issues in our research matrix, IFAD 2015, Rome.

 

SOURCE: RNSF research - Volume 4.2

 

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