How Donor Funds Could Better Reach and Support Grassroots Microcredit Programs Working Towards the Microcredit Summit's Goal and Core Themes

This paper discusses how funds are currently spent by multilateral and bilateral agencies supporting microcredit. It suggests ways to improve these funding mechanisms so that a greater percentage of resources reach the poorest.

The paper highlights the need to dedicate more resources to microcredit, and ensure that these resources are provided to institutions in cost-effective ways, in order to fulfill Microcredit Summit's goal of reaching 100 million families with microcredit by the year 2005. It states that several limitations exist in current methods of fund distribution by donor agencies. These include high costs and an over-reliance on consultants, many of whom do not have the skills necessary to successfully advise and assist microcredit donors and practitioners. The paper discusses new funding mechanisms that are cost effective and also describes the role of donors in creating a microfinance friendly regulatory framework. In order to strengthen their capacity to reach the poorest, the paper recommends that donor agencies should:

• Declare what percentage of funds going to the microfinance sector will be committed as loans to the poorest;
• Require each local office to produce annual reports on its contribution to achieving its country goal.