AGFUND-OFID Symposium Overview and Recommendations

A Symposium on “the role of donors in accommodating the basic needs of Poor people through microfinance”, sponsored by OFID and AGFUND, took place in Vienna (June 5-6, 2012). The Symposium was attended by more than 40 entities, representing a broad spectrum of the stakeholders of the Microfinance Industry. These included Donors, Microfinance Institutions, Local and Specialized Agencies, Field Experts and Beneficiary Countries. Prof. Mohamed Yunus, Nobel Peace Prize winner and the Father of Microfinance contributed to the discussions. CGAP, Microfinance Summit, and Sanabel were amongst the active participants of the Symposium. In its entirety, the Symposium acknowledges Grameen Bank as a leading institution in shaping the industry, and supports the Bank as an independent institution owned by its members. The Symposium was concluded with thanks and appreciation for HRH Prince Talal Bin Abdulaziz, for inspiring the symposium, and for his tireless efforts and support of the Microfinance Industry in its struggle for eradicating poverty.

1. A Growing and Diversifying Industry
   • Participants took note of the growth of the microfinance industry and of the paths of its development, especially in the context of helping the Poor and the Ultra-Poor work themselves out of poverty. The industry has grown to cover a broad range of personal services including insurance, savings, banking, as well as a variety of sectors such as, education, health, agriculture, energy and housing, which is accompanied by the corresponding challenges that need to be addressed. In addition, there is diversification in the needs of client groups, such as young people, social welfare beneficiaries and children.
   • Micro-credit agencies must be creative to take full advantage of opportunities to work with the Poor. The Symposium reviewed a number of schemes that offer examples of good practices that can be duplicated across a wide spectrum of environments.
2. Environment and Legal Framework The participants emphasized the importance of an enticing environment for the development of microfinance. Specifically, the symposium highlighted the importance of legal and institutional reforms at Country Level, to give microfinance agencies a legal status that recognizes their role and particularities in contributing to poverty alleviation. The symposium emphasized the need and the opportunity to create micro-finance instruments in the context of inclusive development paradigm at community and national levels, and the need to include micro-finance, micro-savings and micro insurance in the strategic plans for poverty alleviation.
3. The Ultra-Poor The Ultra-Poor is seen as high risk and unprepared for traditional microfinance products. There is a need to create adapted products that provide a combination of basic services and assets to prepare the pathways for Ultra-Poor to participate in conventional microfinance programs, to eliminate their need to live with subsidies and/or charity. Under these initiatives, the ultra-Poor are provided with a basic set of services including: livelihood trainings, productive asset transfers, consumption support, savings plans, and healthcare to bring Ultra-Poor households out of extreme poverty.
4. The Youth
   • Youth Unemployment is now one of the major problems facing economic development and social inclusion, especially in the Arab region. Young men and women often face long periods of unemployment between completing/dropping out of formal education and finding employment.
   • Microfinance should be utilised as a tool to reach out to youth, providing products that help create self-employment opportunities. While not a solution to youth unemployment, it could provide a novel tool to curb social consequences of youth unemployment.
5. Donors in Action (DIA) Donors are encouraged to continue supporting the microfinance industry and to scale up their funding, and where relevant, to launch sector specialized funding entities. While microfinance institutions have reached over 150 million Poor and low-income households worldwide, there are still over 1.2 billion people are living with less than $1.25 a day. Donors recognize the challenge and commit to bridge the financing gap to empower the Poor, stressing the relevance of microfinance with their mandate of poverty alleviation. In this context, AGFUND has identified focus areas in microfinance and social business, with specific five year goals, including micro-insurance, business development services, market and business linkage, agriculture and animal breeding, rural and peri-rural housing, education and higher education and electricity and hygienic water.
6. Double Bottom Line and Performance Measurement
   • Microfinance aims at both economic empowerment and social development. Microfinance targets a Double Bottom Line, measuring both social impact and financial performance, thus qualifying it as a powerful instrument for “socially responsible investments”. Although the amounts involved are generally small, the loans, savings and insurance options discussed by the Symposium offer millions of Poor people opportunities to find solutions to their needs.
   • The performance of MFIs in reducing poverty is a controversial subject. In order to clarify the progress of MFIs, some institutions are working to measure the impact of their institutions in reducing poverty. Specific matrices should be developed to assess the progress of clients over time and work out which are the most successful innovations to help improve living standards. This will greatly help MFIs fine tune their policies and products to meet client needs.
7. Social Business
   • MFIs provide an efficient distribution system for delivering other tools to the poor, such as healthcare, energy, education, access to markets and agricultural development. MFIs can partner with social businesses, Governments, and NGOs to provide these services.
   • Social businesses need support, yet donors and Development Institutions require evidence that their activities are actually producing results on the ground. For this reason MFIs and MFI Organisations are developing social performance indicators which measure the performance of the MFIs in respect of outreach and improvements in living standards. Such indicators measure the proportion of MFI loans which are extended to vulnerable groups such as young people and refugees. Outreach to women is important as is the provision of funds to small, informal microenterprises.
8. Micro-credit and the Crisis The timing of the Symposium is particularly appropriate given the prevailing economic crisis and its systemic risk to aggravate unemployment, poverty and hunger. The relationship between availability and affordability of foodstuffs has been highlighted. The importance of green agriculture development is emphasized together with the need to provide food in quantity and quality for an increasing world population. Microfinance is well suited to play an important role in addressing unemployment, especially amongst women and youth, and ensuring minimal food security.
9. Costing and Affordability
   • The cost of funding and delivering the microfinance is of particular concern in a framework of sustainability. There is a need for a combination of funding sources, such as Public and Private Sector, and when practical in local currency. Such schemes should be measurable, time-bound, and targeting specific areas of poverty. Examples reviewed in the symposium include a variety of government or philanthropic guarantee schemes supporting private sector initiatives.
   • Opportunities for reducing the costs of microfinance through the utilisation of new technologies should be considered.
10. Energy Poverty Alleviation Eradicating energy poverty is fundamental to reaching the Millennium Development Goals. Access to affordable, reliable and sustainable energy services is particularly relevant to reducing poverty in general. Pro-Poor energy eradication strategies are needed both at community and national levels, and must address heating, lighting and cooking needs. Situations vary from country to country and solutions need to be adapted to local circumstances. The Symposium recognized a variety of cost-effective initiatives, which addressed the most elementary needs of the Poor. A number of cost-effective solutions were presented to bring attention to the need of facilitating the affordability of basic energy solutions through micro-credit to improve the cash-flow of the Poor in the short term. In the particular case of electricity services, off-grid solutions are suitable for rural areas and micro-credit is required for individuals or small community groups. In the semi-urban areas, there are opportunities for large-scale investments as well as for micro-credit to facilitate cooperation between utilities and end-users.