Building Demand-led and Pro-poor Financial Systems

In this position paper, the Norwegian Agency for Development Cooperation (NORAD) emphasizes the need to focus on poor people's demand for services. NORAD stresses that microfinance is a vehicle to create a financial system according to poor people's needs and perspectives.

The paper has the following three sections:

• Introduction of the concept of microfinance in Section I;
• Description of the agency's principles and focus in Section II;
• Explanation of the agency's involvement in microfinance in Section III.

NORAD emphasizes the importance of moving away from uncoordinated, individual microfinance schemes to actual financial systems designed for the poor. Its guiding principles for building pro-poor financial systems include:

• Donors and capital providers need to understand the specific needs of poor people and MFIs;
• Funders must also support the establishment of government policies to create a space ready for a microfinance system;
• Donors should enhance transparency and establish better reporting methods/policies;
• Donor practices must improve.

NORAD also needs to understand donor's guiding principles in selecting microfinance service providers:

• Institutional assessment criteria:
  • Institutional strength,
  • Quality of services and outreach,
  • Financial performance.
• Strategies for donor support:
  • Appropriate use of grants,
  • Suitable use of loans from donors,
  • Commercial sources of funds,
  • Coherence of donor policies.