MID-TERM REVIEW OF MICROFINANCE INITIATIVE FOR AFRICA (AMINA) OF THE AFRICAN DEVELOPMENT FUND (ADF) FINAL REPORT OF THE CONSULTANT PRESENTATION NOTE

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1 AFRICAN DEVELOPMENT BANK GROUP MID-TERM REVIEW OF MICROFINANCE INITIATIVE FOR AFRICA (AMINA) OF THE AFRICAN DEVELOPMENT FUND (ADF) FINAL REPORT OF THE CONSULTANT PRESENTATION NOTE OPERATIONS EVALUATION DEPARTMENT (OPEV) 24 October 2000

2 MID-TERM REVIEW OF MICROFINANCE INITIATIVE FOR AFRICA (AMINA) OF THE AFRICAN DEVELOPMENT FUND (ADF) 1. Introduction FINAL REPORT OF THE CONSULTANT PRESENTATION NOTE 1.1 In recognition of the importance of the Microfinance sector, the African Development Fund (ADF), in its seventh replenishment, allocated UA 15 million for a pilot program denominated «ADF Microfinance Initiative for Africa AMINA», with the aim to generating income and employment for the poorest groups of the society, with special attention paid to women entrepreneurs. The ultimate objective of this initiative is to increase the access of microentrepreneurs (especially women) to more formal credit delivery mechanism, including those of commercial banks and other formal financial institutions. To achieve the objective for its establishment, AMINA was expected to realize the following outputs: Strengthen the operational and managerial capacity of selected Microfinance institutions; Enhance economic empowerment of women; Encourage links between Microfinance institutions and the formal financial sector; Foster increased understanding of Microfinance issues; Improve and deepen understanding of Microfinance within the Bank through training, consultation and collaboration (including AMINA staff serving as resource persons and participating in project development process) with other Divisions and acting as a catalyst for mainstreaming Microfinance within the Bank. 1.2 AMINA was designed to work through existing APEX organizations, umbrella groups or associations of Microfinance institutions, where they exist, and to help form such organizations where national MFIs are convinced that to do so would be useful. The Unit is expected to work directly with individual Microfinance institutions where it makes sense to do so and to support national and international NGOs oriented towards Microfinance. AMINA s support for APEX organizations or associations would consist of capacity-building to strengthen the selected partners ability to participate in policy dialogue.

3 1.3 The AMINA policy document stated that after one and half years of operations, a mid-term Review of AMINA Program should be carried out by Independent Consultants versed in Microfinance, Microfinance support, poverty alleviation and women-in-development projects. 2. Purpose of the Mid-term review The main objectives of the Mid-term Review according to the Policy Guidelines, is four-fold: (i) Assess the implementation of the AMINA Program and its impact on the performance of partner MFIs; (ii) Identify any problems encountered during the pilot program implementation phase and propose corrective actions; (iii) (iv) Recommend on whether Microfinance activities should be mainstreamed into Bank operations; If so, recommend any necessary changes in AMINA s strategy, policies and procedures with the objective of transforming its pilot activities during a one-year transition period into an integral permanent part of Bank s operations. 3. Mid-term review approach and methodology The Review has been undertaken on the basis on the following steps: - Review of the background documentation and policy documents, pre-appraisal reports, country Microfinance profiles, quarterly activity reports, disbursements and procurement documents, audit report, minutes of the oversight committee and data collected from the selected MFIs, including the Monitoring and Evaluation system and databases put in place; - Submission of an inception report which included the consultant s organization and program of work, methodology, approach and the schedule of field visits and interviews, and presented detailed description of the data collection method and use of both quantitative and qualitative assessments; - Conduct of field missions in the ten pilot countries; - Conduct of the quantitative and qualitative assessments and review factors impacting on the results and outcomes of AMINA activities and operations undertaken so far; - Review studies and other works on Microfinance industry and current views of partner MFIs/NGOs, donors, and other stakeholders on the program approach

4 and strategy for capacity building activities, policy dialogue, donor coordination, and mainstreaming Microfinance in development institutions; - Debriefing meeting and reporting after country visits; - Submission of the Draft Final Report and country reports; and - Submission of the Final Report after inclusion of the Bank s comments. 4. Main findings and conclusions 4.1 AMINA s activities occurred over a short period of time (Jan to the present) and were limited in number. However, due to the lack of clarity of the strategic objective of the program (increase income and employment in the poorest groups of society) and the time period of the pilot program, which was inadequate to achieve this objective, AMINA is unable to achieve its expected outcomes. 4.2 Activities were sporadic and lacking in follow-up, and not always appropriate to the needs of the target group. There was little strategic planning. In three pilot countries, no training activity has yet occurred. As of March 31, 2000, AMINA had disbursed UA 1,947,721 an equivalent of 98 percent of the first tranche received by AMINA in April 1998 (UA 1,999,000). Forty-four percent (44%) of the expenditure was used for capacity building activities, and twenty-five percent (25%) for the AMINA Unit direct costs. 4.3 The population targeted in the Policy Guidelines: poor micro-entrepreneurs, especially women, was not affected to any great degree by AMINA s activities. The objective of linking the poor to more formal financial institutions has not been reached, and the expected results, generation of income and employment, did not materialize. For instance, where a MFI includes only 20% of women amongst its clientele, the AMINA support did not impact significantly on the participation of women in the partner MFIs, nor in deepening their outreach to the very poor. 4.4 Impact, where it did occur, remained at the institutional level of the Microfinance institutions (MFIs). There was positive impact at this level in some cases. These were primarily cases where the activity was ongoing (such as training courses) and appropriate to the level of the institution. There were also examples of neutral impact, and no examples of negative impact. 4.5 AMINA input into Bank interventions was positive where it occurred, but also limited and sporadic. There was no overall improvement in the Bank s ability to design best practice Microfinance components into Bank projects. 4.6 Poor internal program management, including lack of strategic planning, poor human resource management, poor document management, and lack of

5 understanding of the Bank s institutional environment, contributed to the unsatisfactory results and achievements. 4.7 Although the program has been hampered by lack of continuity, AMINA has produced valuable impacts, and quite a few of its partners are on the path of building success stories. Field visits in the ten pilot countries have proved that, in many cases, the approach had often changed the MFI perspective towards sustainability, and had resulted into tangible changes within partner organizations. 4.8 AMINA partners state that the AMINA program should be developed and extended, after it draws lessons from the past. Bank staff point out they lack capacity in microfinance project design, while there is an increasing number of projects, mainly in agriculture and in the social sector, with microfinance components. Commercial banks and MFIs suggest that, although there is a limited number of success stories, microfinance is still a nascent industry in Africa, and that they need a strong institutional support to efficiently meet the challenge of poverty reduction. 5. Main recommendations and follow-up Actions 5.1 The critical importance of Microfinance cannot be ignored, as it has great potential for poverty alleviation. The mid-term Review team found that demand for assistance in Microfinance is extensive and unmet by other donors. 5.2 The Consultant s Report recommends an extension of AMINA s mandate for a new Pilot Phase, for three and a half years, starting from the time the Unit is fully operational. 5.3 AMINA would design a Microfinance Country Strategy for each pilot country. Microfinance Country Strategy Papers (CSPs) would clearly focus the AMINA program on a few core issues, where the AMINA intervention can have a strategic impact on the Microfinance sector. The MF Country Strategy would be approved by the Board. 5.4 The operational objectives of the AMINA Pilot Phase II would be the following: To strengthen institutions, including commercial banks, that lend or express a willingness to lend to the poor, especially women; To foster innovative and replicable approaches for meeting the financial needs of the poorest, with a priority on remote rural areas where appropriate; To strengthen best practice Microfinance within the Bank. 5.5 The AMINA Unit would review the design of the Microfinance components of all ADB projects within its 10 pilot countries. The pilot countries would not change during Phase II.

6 5.6 Bank rules and procedures would apply to the management of AMINA s activities. However, drawing upon the lessons of the pilot phase, the Board and Management would introduce a limited set of specific rules and procedures appropriate to a pilot Unit directly taking charge of program implementation. 5.7 The tools provided by the Policy Guidelines (financial guarantees, grants for onlending, loans for on-lending, grants for operational expenses of MFIs) would be reinstated. The use of these tools would be delineated as part of a Microfinance country strategy. 5.8 The Unit would be headed by a Manager and reporting to a Director. With this structure, the Oversight Committee would become obsolete in Phase II. In order to ensure a better follow- up of the activities and results, AMINA should establish a monitoring and evaluation system based on limited set of impact indicators linked to the potential expected outcomes. These indicators would have to be discussed with each stakeholder for the duration of the program. 5.9 All AMINA staff would receive contracts for the duration of the pilot phase. The Unit would consist of five Microfinance experts, a financial analyst, an information manager, two program assistants, two secretaries, and one messenger, in addition to the Manager A new permanent Microfinance position in each Country Department would be created. There would be a technical relationship between AMINA s Microfinance experts and the departments Microfinance experts, with the former providing technical assistance to the latter With the African Development Institute (CADI) support, AMINA would design a Microfinance training program for Bank staff, to be implemented by CADI All MFIs and MFI-support organizations, including apexes, co-operatives, credit unions, federations, commercial banks, NGO credit programs (local and international), associations, networks, start-ups, etc., may be considered for AMINA assistance, if the choice of such MFIs supports the achievement of the national strategy for Microfinance AMINA should develop strong relationship on contractual basis with other donors (CGAP, UNDP MicroStart). This should also be the case for other partners (bank, second-tier organization, or MFI), or technical service providers (as is the case with K-REP and with MEDA). Such contracts should include performance indicators. The AMINA Unit would thus be able, at the end of the pilot phase II, to formulate a Bank Microfinance strategy for the whole continent. The Management s Response and the Consultant s Report are attached.

7 MANAGEMENT COMMENTS ON THE MID-TEM REVIEW REPORT ON ADF MICROFINANCE INITIATIVE FOR AFRICA (AMINA)

8 I. INTRODUCTION Management commends the evaluation team for the participatory approach used in the AMINA Mid-term Review (MTR). The consultations with Bank staff (including the AMINA staff) and partner microfinance institutions (MFIs) provided the opportunity for the team to discuss several issues and questions from different viewpoints, and the approach is well appreciated by Management. However, Management has observed that most of the comments and clarifications provided on the draft report have not been reflected in the final report. Management welcomes the MTR Report because, in many respects, it confirms some of the findings from the internal review and the audit that Management had undertaken in June 1999 and February 2000 respectively. The reports of these earlier reviews by the Bank provided an early start to putting in place some of the recommendations made by the MTR. This Management response, however, focuses on providing more information on the efforts being made at strengthening AMINA and improving its effectiveness even before the results of the Bank s own internal review and audit of the unit, and which Management feels should have been reflected in the MTR report. II. PROGRAM ACHIEVEMENTS 2.1 Program Activities and Output Capacity building a. Selection criteria for partner MFIs The MTR report states that AMINA s MFI selection criteria as indicated in the Policy Guidelines appeared to be vague. However, this purported vagueness has not led to the selection of organizations serving the well off-poor, as implied by the report. From the first appraisal missions in the pilot countries, the Oversight Committee set up by Management, suggested that while attempting to apply the criteria, other factors such as targeting of the poor, good governance, and the potential viability of the institutions should also be considered in the selection of the AMINA partner institutions. The Oversight Committee also recommended that the selection of MFIs should follow a participatory process which involved government ministries of finance, NGO umbrella organizations and donors already operating in the country. This was done in many of the 10 pilot countries. As a result, MFI and NGOs selected for AMINA capacity building effectively target the poor, with several exclusively targeting women. In many pilot countries the geographic (rural versus urban), institutional (credit Union versus Village banking) and lending methodologies (group lending versus individual lending) were considered.

9 b. Capacity building activities The report states that AMINA s training activities started only in the first quarter of 1999 and that there has been a lack of continuity with long periods without activities. However, during the period under review, AMINA was able to organize 25 workshops in the pilot countries. In Ghana and Mozambique, AMINA continued to closely collaborate with UNDP MicroStart 1 in its capacity building interventions. In addition to the training and workshops, several exchange visits were organized for management staff and board members of the partner MFIs to visit more experienced institutions in other countries and to participate in international conferences such as the Microcredit Summit. On-the-job training was also provided in some countries. Approximately 300 participants have benefited from the Capacity Building work of AMINA. Although the impact of such activities varied from one MFI to another, there is clear evidence that most of the partners have applied in one way or another the best practices and principles acquired from AMINA capacity building activities. 2.2 Policy dialogue The report indicates that very limited activities were undertaken in this area. While the uneven focus by AMINA in the implementation of its strategies was demanddriven, being in response to the priority needs in the pilot countries, it is worth noting that AMINA has organised key policy dialogues in some of the partner countries. Policy formulation, however, normally involves a participatory process that is undertaken and owned by national stakeholders. Instead of intervening directly in the process, donors provide support through the financing of studies or stakeholders seminars or exchange visits to expose partners to the experience of countries that are more advanced in the process. It is in this way that AMINA has been most active in the pilot countries, especially in Tanzania, Mauritania, Malawi and Cape Verde. While AMINA has not designed policy documents in any country yet, this activity is planned for implementation at later phases when stakeholders can participate effectively. 2.3 Donor Coordination The report pointed out that donor coordination needed more attention than had been the case. Management s attention had been drawn to this situation from the report of its own earlier internal review that cited only limited collaboration with some bilateral donor agencies, in contrast with AMINA s useful collaboration with GTZ, UNDP, CGAP, and Microcredit Summit. The unit was, therefore, directed to be more proactive in this regard. 1 MicroStart is the UNDP initiative for microfinance, which aims at strengthening the capacity of MFIs as well as providing on lending to microentrepreneurs who have difficulty in accessing to the formal banking system.

10 2.4 Bank Group Sensitization and Capacity building The report confirms the usefulness of AMINA s support to Bank Group operations through the review of projects and participation in a number of field missions to ensure good quality at entry as well as the training sessions organized for staff and advisors of the Executive Directors. Management noted the report s observation that, but for staff constraints suffered by the unit much more could have been done in this area. As explained elsewhere (paragraph 3.2), action is being taken to strengthen the unit s staffing situation. Meanwhile, AMINA and the Bank s Country Departments continue to work together to identify relevant training topics with a view to revising the training modules as needed. 2.5 Information Collection and Dissemination The report indicates that very limited activities were undertaken in this area. AMINA s microfinance library has just been set up with documents gathered from CGAP, other donors and partner MFIs. Some of these documents have been shared with partners in the field. The unit is currently in the process of hiring an Information Management (or Data Base) Expert, who will help organise data collection and dissemination more systematically and improve the set up of the library. 2.6 Additional Instruments The report has suggested the introduction of new instruments such as guarantee funds, and grant and loans for on lending. The report s recommendation reflects popular demand by many AMINA partner MFIs. This will, therefore, need to be further discussed, and, especially, the monitoring of such resources would need to be carefully analysed. 2.7 Program Achievements Management would like to draw a caution regarding the measurement of the unit s impact. While it is to be acknowledged that strategies set up in the Policy Guidelines, mainly capacity building and policy dialogue, do not yield direct and immediate results on outreach to the poor, it should also be emphasized that strengthening the financial and institutional viability of MFIs/NGOs, which has been AMINA s focus in the field, is critical for improving medium and long term outreach of the partner MFIs. AMINA s approach in this regard also conforms with the Bank s Vision in poverty reduction, which requires sustainable development effort, including the capacity building of institutions. AMINA s achievements in this area is noteworthy. The tendency of the report to focus on immediate impact of AMINA activities on outreach should, therefore, be considered cautiously. III PROGRAM MANAGEMENT 3.1 Issues raised by the report on the program management, particularly with regards to work planning, staffing, monitoring and evaluation, and funds utilization

11 were also identified in the Bank s own earlier internal review and audit report. Management is, therefore, already aware of these problems and corrective actions are being implemented. Highlights of steps undertaken by management to correct the situation include: 3.2 On Staffing issues: The first two Micro Finance Experts were given a twoyear contract in January In October 1999, a third Micro Finance officer was hired to strengthen the unit. In March/April 2000, Management set up a task force to review the contract situation of the Unit staff. A new draft contract was developed and could be applied to AMINA s fixed-term and short-term staff in the future. With regards to the contract of the current staff, it was specified in the AMINA Board document that only the Coordinator would be regular staff. However, we note the report s recommendation that the staffing of the unit with appropriate staff could improve performance. This recommendation is being reviewed by Management in the context of ongoing work on an organization study of the Bank. 3.3 On Procurement and Disbursement issues: Partly due to the fact that AMINA staff were all new to the Bank s procedures, errors were made with regard to Bank procurement procedures. Management has taken serious consideration of this and necessary steps are being taken by the Unit to correct this problem. Steps have also been undertaken to settle payments due to services contractors who became victims of the Unit s errors in Bank rules and procedures. 3.4 On the issue of fund Utilization: Following the Bank s audit of AMINA, a system has been set up in the Unit to track expenses by country and by component. Moreover, with the introduction of SAP, FACT is now able to prepare financial reports that will provide breakdown of amounts on individual programs within each country. 3.5 On the issue of work planning: Management has required from AMINA an Action Plan, which is designed through a participatory process with the MFIs in the field. All AMINA activities are now implemented according to this Action Plan, which was approved by the Oversight Committee earlier this year. 3.6 Departure of the Coordinator: The Coordinator of the program resigned in February 2000, and the recruitment of a new Coordinator is in process. Meanwhile, a Division Manager, who participated in the design of AMINA and who followed its implementation, was appointed to lead the Unit operation and has been implementing the corrective actions. IV. PERFORMANCE RESULTS 4.1 Impact effect and Contribution to the Development Objective of the ADF The report clearly indicated that AMINA activities, particularly the capacity building of MFIs, policy dialogue and Bank Group capacity building in micro-finance have had

12 positive impact albeit limited. This was mainly due to the management issues and staffing constraints highlighted above and which are now being resolved. The report, however, points out that AMINA s contribution to the objective of ADF is weak and that AMINA has not paid specific attention to poverty reduction. Management has already cautioned that the program was assigned with a long-term strategy for increased outreach to the poor while the report has tended to focus on measuring immediate impact of program activities on outreach. Indeed, the impact of AMINA activities has been positively described by the individual country reports. However, this does not seem to be reflected in the overall conclusion of the report. V CONCLUSIONS AND RECOMMENDATIONS Management hopes that the comments provided in this note will help clarify some of the issues which had been raised at the level of staff review of the draft report, but which were not adequately reflected in the MTR report.