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Wolday Amha What Is the Problem: Getting an Empowering Regulatory Framework


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Wolday Amha What Is the Problem: Getting an Empowering Regulatory Framework

  1. 1. Global Microcredit Summit November 14-17, 2011 Valladolid, Spain
  2. 2.  It is comprehensive and focused, particularly on how to address implement the social objectives of MFIs, improving the quality of financial services, and meeting the needs of clients and potential clients (strategic plan, systems and procedures, financial products and lending methodologies, relationship b/n MFIs and clients It has provided selected good practices of MFIs in different countries With the support of Teraffina and Mision Africa project of CRS, my network is playing a key role in implementing SPM in 12 MFIs. From our field experience, I can assure you that paper can be used as additional guide to monitor the implementation of SPM at an MFI level
  3. 3.  The challenge of implementing SPM, according to Anton, is the result of a failure of MFIs to understand and respond to the needs of their clients. Although the MFIs are key players in SPM, there is a need to analyze the roles of other key stakeholders. I believe that there are four key stakeholders which influence the implementation and monitoring of SPM activities at an MFI and country level. These include: 1. Sustainable inclusive finance providers 2. Government 3. Donors and other development partners 4. Investors
  4. 4. Sustainable Inclusive Finance Providers Donors and SPM DevelopmentGovernment Activities Partners Investors
  5. 5.  1. Sustainable inclusive finance providers: This has been discussed in Anton’s paper in details 2. Government: ◦ Regulators discouraging SPM (for deposit-taking MFIs) by focusing financial sustainability. ◦ Regulators discouraging saving mobilization and in some cases encourage saving mobilization ◦ Provisioning requirements making MFIs risk averse ◦ Governments providing incentives for MFIs with social objectives (eg. Tax exemptions of MFIs in Ethiopia), ◦ Microfinance support programs of governments ◦ Infrastructure development to expand outreach in remote rural areas ◦ Direct investment of government in MFIs ◦ Creating an enabling macroeconomic environment (eg. reducing inflation) ◦ Financial literacy
  6. 6.  3. Donors and other development partners ◦ Donor funded projects promoting the social objectives of MFIs ◦ Donor projects distort the credit market and affect the sustainability of MFIs, and at the end the overall performance of finance providers ◦ Capacity building support of donors to promote SPM ◦ Development partners such as CGAP influence the direction of governments, donors, and finance providers 4. Investors ◦ Promote the outreach ◦ Some discourage the social objectives of MFIs, by focusing on financial sustainability ◦ Discourage saving mobilization of MFIs
  7. 7. Key challenges Significant focus on credit-led approaches Proliferation of tool based approaches to promote SPM Very fragmented support and interventions, instead of using holistic approach, to promote SPM at regional and country levels Limited attention to the role of government in promoting SPM activities Microfinance strategies of different countries focusing on access, growth and efficiency, with very limited attention to SPM activities Lack of clarity on who should take the responsibility of monitoring the implementation of SPM activities in a given country The support of donors and development moving from one extreme to another
  8. 8. Continued Integrating the delivery of financial services with non-financial services Growth of commercial investors in MFIs influencing the implementation of SPM activities Questions for the participants of this summit Is it feasible to radically change the growth, efficiency and profit motives or mission of existing sustainable finance providers? Is a need to think new breed of inclusive finance providers which address both the social and financial objectives?
  9. 9.  A minister responsible for the development of micro and small enterprises challenged all MFIs leaders in a workshop by stating that MFIs in Ethiopia are not created to compete with commercial banks or construction banks which are risk averse and require property collateral. MFIs, in this country, were deliberately created to address the financial needs of micro and small enterprises (in the productive sector) and smallholder farmers excluded from the formal banks. We know from the outset that this is a risky business and you are expect to manage the risks using innovative approaches. The intention our strategy is not to create giant institutions which make huge profit from the disadvantaged groups. If this is the case, we would be forced to redefine microfinance in this country.