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Innovative Lending Instruments in Microfinance – Lessons from the Africa Region
Finance Forum 2004 – September 24, 2004Workshop on Microfinance OperationsKoro Ouattara - AFTFS Africa Region -World Bank
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Adaptable Program Loan: APL – General Features
APLs are used:– When sustained changes in institutions,
organizations, or behavior are key to successfully implementing a program;
– To support a phased program of sector restructuring, or systemic reform in the sector where time is required to build consensus.
– For a series of loans that build on the lessons learned from the previous loan(s)
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Adaptable Program Loan: APL – General Features
APL involves agreement on:– The Phased long-term development program to be
supported by the loan– Sector policies relevant to the phase being
supported– Priorities for sector investments and recurrent
expenditures– Triggers for when to move to next phase
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Why an APL for Madagascar Microfinance?
Reasons for Madagascar APL:– Long term Capacity building commitment needed to
build financially self-sustainable institutions– Support systemic reform in the microfinance sector
where time is required to build consensus – Focus on program ultimate objective which is long-
term in nature
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Madagascar Microfinance APL Project Background
Project Data:– IDA credit amount: US$16.4 million– Board Approval: May 20, 1999– Effectiveness date: October 28, 1999– Closing date: December 31, 2005– Number of extensions: 1– Implementing agencies: Central Bank of Madagascar
and AGEPMF is PIU
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Madagascar APL -Project Description and Objectives
The microfinance project : 1999-2005 – Project is phase 1 of a 15 year APL microfinance
program divided in 3 phases of 5 years each.
Objectives of Phase 1 of Project– Provide access to financial services to low-income
Malagasy by building sustainable microfinance finance institutions (MFIs) and adoption of an appropriate legal and regulatory framework.
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Madagascar APL Project Other Phases
Phase 2: Support the consolidation of Savings and Loans Associations (SLAs) by expanding coverage in the areas where they are established, and, if feasible, achieving penetration into other areas to reach a sustainable scale and cost structure; and implementation of the microfinance training program.Phase 3: support strengthening of the financial core of SLA networks and its evolution into full-fledged self-sustainable financial institutions.
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Madagascar APL - Project Phase 1 Components
Project components (4)– Improve legal and regulatory framework for
microfinance – Develop capacity of MFIs– Build skills in microfinance with national training
program – Undertake studies including audits and impact
studies
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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APL1 Project Achievements in Legal and Regulatory Component
Strenghtening of legal and regulatory framework– Law for savings and loans associations (SLAs)– Management and Prudentiel rules for SLAs– Draft law for all MFIs
Capacity building at Central Bank of Madagascar – Creation of a microfinance supervision unit – Training and field visits for Central Bank staff
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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APL1 Achievements in Scaling up Microfinance Institutions (MFIs)
Performance indicators as of 12/31/2003:– Number of MFI networks: 4– Number of retail MFIs: 130– Membership: 98,695– Savings: Fmg 62.038 billion (US$9.544 million)Loans outstanding: Fmg 33.5 billion (US$5.1 million)
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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APL1 Achievements in Scaling up Microfinance Institutions (MFIs)
Performance indicators at beginning (12/31/1999– Number of networks: 2– Number of retail MFIs: 59– Membership: 22,818– Savings deposits: Fmg 8.3 billion– Loans outstanding:Fmg 5.5 billion
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Scaling up of MFIs- Membership Growth
Membership growth of MFIs in the project: 332%
Performance - clientele
0
20000
40000
60000
80000
100000
1999 2000 2001 2002 2003
Annee
N m
embr
es
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Scaling Up of MFIs – Savings Deposits
Growth in Savings deposits: 300%
Performance - epargne
0
10000000
20000000
30000000
40000000
50000000
1999 2000 2001 2002 2003
Annee
Epa
rgne
FM
G(0
00)
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Scaling Up of MFIs – Credit Growth
Growth in Credit: 1,025% Performance - credit
0
5000000
10000000
15000000
20000000
25000000
1999 2000 2001 2002 2003
Annee
Enc
ours
cre
dit F
MG
(000
)
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Scaling Up of MFIs – Sustainability
Operational Self-sufficiency: 65% - 93%Factors that can affect viability and sustainability of MFIs: – MIS System – Meeting Central Bank reporting requirements– Governance Structure– Cost of managing network and ability to cover those
costs with revenus
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Madagascar APL – Next Steps
APL2 & 3 to reach15-year Program Goals:– Effective supervision of Licensed MFIs– Implementation of appropriate law and regulations – Centralization of Services to MFIs: Inspections
(auxiliary supervision?) &“back office” activities– Automatization of MFI activities– Consolidation of networks, expansion and greater
outreach.
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Madagascar APL- Lessons Learned
APL still best instrument for project because:– Institution building of MFIs until sustainability is long
term process by experience– Law and regulations in microfinance are new and
slow to put in place– Building of supervisory capacity is long and tedious– APL phases allow to take stock and make
adjustments before moving forward– APL2&3 still needed to reach ultimate goals.
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Learning and Innovation Loan (LIL) - General Features
LIL Focus on:– Experimentation– Learning and Piloting for development solutions
LIL Design Features:– Size of loans limited to US$5 million– Prepared and approved in 6-9 months– Implementation period of 3.5 years
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Features of Tanzania LIL
Experimentation in microfinance Narrow focus on regulatory frameworkComplement of other donor activitiesSeize Comparative Advantage of BankSmall loan size of US$2 millionWas originally a component of a complex project
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Tanzania Rural and Microfinance Project – LIL Background
Project Data of Tanzania LIL:– IDA Credit amount:US$2 million– Board Approval:08/26/99– Effectiveness date:06/15/2000– Closing date:12/31/2004– Number of extensions:2– Implementing agency:BOT (Bank of Tanzania)
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Tanzania Rural and Microfinance LIL- Objectives
Project Objectives – Development of a common policy framework based
on internationally recognized best practices – Establish an enabling environment for rural and
microfinance in Tanzania and increase the quality and returns of investment in the sector
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Tanzania LIL- Project Components
1.Development of a National Microfinance Policy2. Design of legal and regulatory framework for microfin.3. Provision of operational guidelines for Gvmt and Donor
support in microfinance sector.4.Capacity building at Directorate of Microfinance at the
Bank of Tanzania and at Ministry of Cooperatives for supervision.
5. Knowledge and Skills enhancement in Microfin Sector
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Tanzania LIL - Achievements
Project Achievements:– Adoption of National Microfinance Policy– Law on microfinance companies– Adoption of Regulations for microfinance – Database on microfinance organizations in Tanzania– Operational Guidelines for Saccos (in progress)– Guidelines for donor support (in progress)
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Tanzania LIL-Scaling Up
Probable Impact of Enabling Policy and Regulatory Environment:– Scaling up of microfinance NGOs– Scaling up of SACCOS– Creation of new microfinance companies– Downscaling of banks into microfinance
Madagascar Microfinance APL and Tanzania Rural and Microfin LIL
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Tanzania LIL- Lessons learned of Operational Relevance
LILs can be used in all sectorsLILs can be used to address policy issuesLILs are as expensive to supervise as standard investment loansLILs can require a long period of implementationTZ LIL experience to be captured by QK