Making Microfinance Work: Evidence from Evaluations
This paper reviews the findings of Multilateral Development Bank (MDB) evaluation reports to identify factors essential for success of microfinance. It draws lessons and discusses policy issues in the role of MDBs in supporting microfinance operations in developing countries.
Microfinance has emerged as an innovative form of financial intermediation, and the industry has been moving towards greater profitability and commercialization in recent years. This paper discusses the role of MDBs in the evolution of the microfinance industry. It addresses the following areas:
- Overview of the global microfinance industry focusing on diverse lending practices and institutional forms;
- Shift in focus of MDBs from poverty-focused programs to broader financial perspective;
- Lessons from poverty-focused MFIs;
- Lessons from microenterprise lending;
- Issues in measuring impact of microfinance.
The paper suggests that MDBs should ensure their funds do not displace private sources and continue to support infrastructure development and sustainability in microfinance. It recommends greater focus on concessional funds, introduction of monitoring and impact evaluation for MDB-supported projects, use of best-practice evaluation procedures to assess impact of MFIs and measures to minimize foreign exchange risk for direct borrowers.