Unfinished Business: The Need for More Effective Microfinance Exit Monitering
by James Copestake

High rates of exit remain the "Achilles heel" of many microfinance organizations. After reviewing definitional issues, the paper explores how exit rates adversely affect both their commercial and social objectives. It then reviews case studies of exit monitoring based on routine, questionnaire based and focus group methods, making detailed suggestions as to how data collection, analysis and reporting can be improved.

To Pay or Not to Pay: Local Institutional Difference and the Viability of Rural Credit in Nicaragua
by Johan Bastianensen and Ben D'Exelle

Innovative credit enterprises, aiming to expand the frontier of the rural credit market, can attain financial sustainability and broadened social outreach if they embed financial operations in local institutions, such as social networks and prevailing rules. Only in this way can the "rules of the game" imposed by the credit enterprise gain the local legitimacy that is necessary to reduce transaction costs sufficiently. The nature of preexisting local institutional environments, therefore, has a profound effect on the performance of credit enterprises. Our analysis of a rural microcredit program in two neighboring villages in Nicaragua indicates that existing patron-client structures, conditioned by Sandinista agrarian reform and the harshness of agro-ecological conditions, had a negative effect on the local acceptance of strict repayment rules. This analysis suggests that the evaluation of credit enterprise performance should take into account differences in local institutional environments and that efforts should be made to fine-tune standard financial technology to more adverse institutional conditions. If not, the microfinance industry may tend to exclude more difficult and poorer rural areas.

Challenges to Microfinance Commercialization
by Anita Campion

This paper was presented to audiences in Vietnam, Indonesia, Singapore and the Philippines through a World Bank multimedia distance education program in October 2001. The presentation addressed some of the core obstacles to microfinance commercialization, defined here as the application of market-based principles to providing financial services to the poor. The paper discusses some of the challenges to microfinance commercialization, such as inappropriate donor subsidies, poor regulation and supervision, and limited management capacity of microfinance institutions. Given the initial target audience of primarily World Bank employees, the paper concludes with a discussion on what donor can do to move microfinance commercialization forward in a positive direction.

Evaluation and Microenterprise Programs in the United States
by Mark Schreiner

Microenterprise programs attempt to help poor people start or strengthen small businesses. Funding and political support have grown rapidly. Is microenterprise a good use of scarce development funds? Unfortunately, most evaluations have been case studies in what not to do. Because benefits and costs cannot be measured completely nor with perfect certainty, rigorous evaluations should support their necessarily subjective judgements with logic and explicit assumptions. The usefulness of an evaluation lies not in its (apparent) incontrovertibility but rather in its clarity of assumptions and in its openness to meaningful review and critique.

Savings and Credit for U.S. Microenterprise: Individual Development Accounts and Loans for Microenterprises
by Caroline E. W. Glackin and Eliza G. Mahony

This paper provides a framework for the integration of two asset-building instruments, Individual Development Accounts (IDAs) and loans for microenterprise. Initially, it provides an overview of the emergence of the asset-based approach to poverty alleviation in the U.S.context and the evolution of IDAs and microenterprise development (MED). Then, it evaluates the potential role of IDAs in reducing risk using conventional lending criteria. The paper summarizes the findings of initial research on integrated programs and highlights four case studies. Finally, the paper provides some preliminary observations regarding potential benefits and challenges of the integrated approach and proposes an agenda for future research that will test these hypotheses.

A Symposium on Savings-Led Microfinance and Rural Poor
by Jeffrey Ashe (Introduction)

PACT's Women's Empowerment Program in Nepal: A Savings- and Literacy-Led Alternative to Financial Building
by Jeffrey Ashe and Lisa Parrott

Pact's Women's Empowerment Program (WEP) in Nepal operated through 6,500 groups with 130,000 women members. These groups mobilized nearly $2,000,000 of assets in less than three years with 94% on loan to 45,000 group members. By mid 2001, WEP had as many outstanding loans as CARD in the Philippines and Compartamos in Mexico, two very well known "credit-led" microfinance institutions, while working through three times as many groups. In addition, 65,000 group members learned to read through Pact's innovative curriculum that focused exclusively on managing a group, starting a business, and women's empowerment. WEP was implemented by 240 partners (most of them local NGOs) who were responsible for recruiting the groups and monitoring their performance. Local partners were working with almost all of the 6,500 groups within 60 days of startup, showing how quickly NGOs with their detailed knowledge of local communities can build a program if provided good training and support. With the end of AID funding, the WEP team was withdrawn from the field in May 2001.Although there are few reports of groups failing, further investigation will be required to see if groups continue to operate on their own with only the support of the local partners.

Community Savings Funds: Providing Access to Basic Financial Services in Marginalized Rural Areas of Mexico
by Gabriela Zapata

The Community Savings Funds (CSFs) promoted by the Ministry of Agriculture in Mexico seek to provide marginalized community groups with a simple mechanism that allows them to save and administer their own funds securely, efficiently, and profitably, according to their own needs and priorities. Specially trained promoters help set up CSFs for a period of one year—using a standardized Toolkit—after which they are expected to work autonomously. There are 540 CSFs in 12 states with over 12,800 members and savings totaling 4.45 million pesos (US $445,000). This paper describes the characteristics of the CSF model and the results to date. It discusses implementation problems and issues of sustainability and growth in light of the new regulatory environment. It also debates the viability and desirability of autonomous savings and credit groups at the community level and the advantages and disadvantages of their inclusion into the formal financial sector.

CARE's Mata Masu Dubara (Women on the Move) Program in Niger: Successful Financial Intermediation in the Rural Sahel
by William J. Grant and Hugh C. Allen

CARE's Mata Masu Dubara (MMD) project is a women's time-bound accumulating savings and credit association (ASCA) program in rural Niger. Over the past decade, CARE has facilitated the creation of over 5,500 active women's groups with over 162,000, providing the purest forms of financial intermediation to their members in some of the poorest parts of Niger. Working from a very simple and appropriately adapted savings based product, sustainability and replication of the associations is easy to achieve. Due to the overwhelming demand for the product, CARE's role has evolved from service provider creating the associations to a facilitator that trains local animators who are then paid by the village women to train them. CARE estimates that there is a minimum of 200,000 practicing members with over $3 million in savings. This article examines the nature of markets for rural financial services in the Sahel and the characteristics of the MMD model that respond so well to that market. It also reviews the limitations of the model, and some of the adaptations that CARE has introduced to successfully replicate the program in numerous other countries in Africa.

The New Microfinance: An Essay on the Self-Help Group Movement in India
by Kim Wilson

Indian NGOs have created at least one million self-help groups with 17,000,000 members since the self-help group concept was developed by MYRADA in the late 1980s. India is unique in that banks are permitted to lend directly to unregistered self-help groups and by May 2001, banks and cooperatives had financed 461,478 of these groups, with almost 200,000 new self-help groups financed between May 2000 and May 2001, indicating an accelerated process of expansion. The National Bank for Agriculture and Rural Development (NABARD) trains banks and refinances their loans. The key to NABARD's success is decentralization. Responsibility for group development and training is devolved to NABARD's 2,100 NGO partners and almost 450 banks and cooperatives provide banking services to the groups. According to the Microcredit Summit Report, 2,663,901 of the 6,651,701 active members of the groups financed through NABARD (most of them women) were categorized as "the poorest," making NABARD the largest microfinance initiative in Asia, with Grameen Bank a close second. (If the number of members of self-help groups not linked to bank financing are included, the number of the poorest being reached through self-help groups is at least double.) Local costs per group member to train and support a group until it can operate independently range between $4 and $12.

Ashrai: A Savings-Led Model for Fighting Poverty and Discrimination
by Brett Matthews and Dr. Ahsan Ali

Ashrai is getting results with a savings-led model among minority peoples in northwest Bangladesh. These people are mostly landless and illiterate, and earn about $50 a year per person. They are a vital population segment that microfinance institutions in Bangladesh and elsewhere are unable to serve successfully. Ashrai began its field work ten years ago by replicating Grameen Bank, but rapidly learned from its clients that they needed savings at least at much as loans, flexible loan repayment schedules structured around seasonal cash flow, and an easing of the requirement that loans be for productive purposes. Ashrai takes an innovative approach based on intensive capacity building to help clients build small, informal financial intermediaries. Savings mobilization,institution-building, and education/literacy interventions work together to support the efforts of some of the world's poorest people to build a base of economic power and self-respect.

Book Review
Inner-City Entrepreneurship Development: The Microcredit Challenge. By Nitin Bhatt
by Jerry Black