#tbt: Lobbying the World Bank, Part II

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“We measure what we value and we value what we measure. It is clear that donor agencies value strong financial performance because they require their clients to measure their financial performance precisely. Except for USAID, other donors still do not demonstrate a similar value on measuring the poverty level of entering clients.”
Read the entire 2004 State of the Campaign Report.

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We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2004. The RESULTS International Conference is this weekend (July 18-21), and grassroots activists from the U.S. and around the world will be in D.C. to lobby the USAID Administrator and World Bank Directors. In reviewing advocacy fights in the early 2000s, we remember our campaign to push the World Bank to mandate the use of poverty measurement tools by their partners.


In this introduction to the State of the Microcredit Summit Campaign Report, rather than presenting a neat, uncontested picture of the field of microcredit seen solely from the Campaign’s perspective, we think it useful to listen to the challenges and opposition to what the Campaign and these parliamentarians have championed, coming as it does from some of the most influential institutions in development. In the pages that follow, we invite you to listen in on debates that contrast the views of the World Bank and CGAP with those of industry leaders like BRAC founder Fazle Abed, Grameen Bank founder Muhammad Yunus, and the Microcredit Summit Campaign. What follows are excerpts from the World Bank and CGAP’s responses to the 700 parliamentarians, along with reactions from the Microcredit Summit Campaign.

In his response to 188 British Parliamentarians, World Bank President James Wolfensohn wrote, “I very much agree with your observation that microfinance has a demonstrated, powerful impact in improving the livelihood of the poor, and a crucial role in reducing poverty. Access to financial services for the poor is a critical condition for the attainment of the Millennium Development Goals.”…This show of support is important, but the words must be followed by more effective action.

Wolfensohn asked officials from the World Bank and the Consultative Group to Assist the Poor (CGAP), to jointly address the detailed issues raised in the parliamentarians’ letter…

Continuing from Part I

WB/CGAP: We of course agree that conventional microfinance does not automatically push itself deeper to reach poorer clients. In fact, many MFls do move away from poorer clients to those who are better-off, under the assumption that better-off clients pose lower risks and the larger loans they would be taking would increase institutional profitability and sustainability. We believe, therefore, that there needs to be a sustained effort at trying to reach poorer people. This needs to come from understanding client needs and developing products and services that are useful to them. It needs to come from developing better targeting tools and identifying, encouraging and funding innovations that enable sustainable financial services to the very poor. It needs to come from greater transparency so that information is made available on whether institutions are actually reaching very poor clients. What is required is a set of incentives that promote such activities and ongoing demonstration [that] financial services to the very poor is a feasible and sustainable business.

Download the full 2011 State of the Campaign Report in our Resource Library

Download the full 2011 State of the Campaign Report in our Resource Library

MCS: What greater incentive is there for promoting outreach to those below $1 a day than for an MFI to know that the World Bank and other donors want them to use a cost-effective poverty measurement tool? Wouldn’t this give us “greater transparency so that information is made available on whether institutions are actually reaching very poor clients?”

Advocacy efforts to ensure that donor efforts in microfinance reached the very poor began in 1986. There has never been a greater move to ensure that the very poor are reached than has occurred since the U.S. legislation became law in 2003. This change took 17 years and a Congressional mandate. With the Millennium Development Goals due in just 11 years, another decade of soft incentives is insufficient. Freedom from Hunger’s Chris Dunford argues that we measure what we value and that we value what we measure. It is clear that donor agencies value strong financial performance because they require their clients to measure their financial performance precisely. Except for USAID, other donors still do not demonstrate a similar value on measuring the poverty level of entering clients.

WB/CGAP: Many of the poorest people with no sources of income require grants, employment and other services, rather than microcredit. Donor support for developing models that “graduate” them from welfare-type safety net programs to where they have sufficient incomes to productively use financial services, is far more important than credit per se. Credit is, after all, debt, and under certain circumstances it can make the extremely poor more vulnerable, not less vulnerable.

MCS: “Donor support for developing models that ‘graduate’ them from welfare-type safety net programs to where they have sufficient incomes to productively use financial services” is important, but which donors are leading in this area and how extensive is that leadership? The impression is given that very poor families should not access microfinance but instead choose the services they need as if these services are readily available. This is a false choice for the very poor when 29,000 of the children of the poorest die each day from mostly preventable malnutrition and disease, when 104 million of their primary-school aged children are not in school, and when the services they desperately need are not likely to be available today or in the near future.

World Bank and CGAP officials say that “Credit is, after all, debt, and under certain circumstances it can make the extremely poor more vulnerable, not less vulnerable,” but it is the debt that they have taken on from unscrupulous moneylenders that mires hundreds of millions in a life of grinding poverty. As Karen L. McGuinness of Princeton University wrote in a letter for The New York Times, “The reality in most poor countries is that the poorest are already saddled with incredible debt at usurious rates from local moneylenders. This is the fundamental predicament that microfinance institutions have effectively addressed for nearly three decades now.”

WB/CGAP: We fully agree that there is a need for cost effective poverty measurement tools. Much greater transparency is required on whom financial institutions are reaching. CGAP has been very active in developing tools to encourage a deepening of microfinance outreach. It has developed a “Client Poverty Assessment Tool” and a “Poverty Audit of Microfinance Institutions’ Pro- Poor Services” for donors to determine whether their funded institutions do indeed try hard and succeed in working with the very poor. Recently, CGAP has also been working with financial institutions to assist them to develop their own simple and cost-effective poverty assessment tools.

MCS: While the work of CGAP is appreciated, it has not created the breakthrough in thinking and action that the new U.S. law has forged. Developing new tools can still be a far cry from ensuring their use. Even though CGAP’s Poverty Measurement Tool has been available for at least four years, not more than a handful of CGAP’s 29 members have ever used it. The slow pace of voluntary implementation is insufficient for ensuring the change necessary for cutting absolute poverty in half by 2015.

WB/CGAP: We are aware of the microfinance legislation passed in 2002 by the U.S. Congress. In fact, at the urging of its bilateral and multilateral donor members, CGAP launched a discussion on its website on whether the approach promoted by such legislation could be more broadly applicable to other donor agencies. A very active discussion followed and the result was that many senior members of the microfinance community were opposed to the extension of such mandates in other donor agencies. (The discussion submissions can be found on the internet under US Poverty Mandate Discussion at www.microfinancegateway.org.)

MCS: It is true that many senior members of the microfinance community were opposed. In fact, the first four statements posted were from CGAP Executive Committee members, all of whom were opposed to adoption of the new mandate by other aid agencies. On the other hand, the mandate had the support of Fazle Abed, Chairman of BRAC, Shafiqal Haque Choudhury, Managing Director of ASA, Muhammad Yunus, Managing Director of Grameen Bank, Chris Dunford, President of Freedom from Hunger, Anton Simanowitz, Director of ImpAct, Didier Thys, CEO of The MIX, Alex Counts, President of Grameen Foundation U.S.A., and other key players. These are the opinions from leaders of some of the largest and most successful poverty-focused microfinance institutions in the world.

Relevant reading

#tbt: A New Law and New Hope

#Tbt_5

Lea en español *** Lisez en français


We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2004. The RESULTS International Conference is only three weeks away (July 18-21), and grassroots activists from the U.S. and around the world will be in D.C. to lobby the USAID Administrator and World Bank Directors. Therefore, in the weeks leading up to that great event, we’ll review advocacy successes and struggles in the early 2000s wherein we achieved breakthroughs in poverty measurement in order to target the extreme poor and other concessions from USAID and the World Bank.


The revolution in reaching the very poor is most evident in a new U.S. law and the resistance to it by some leaders in international development. The law, which was enacted in June 2003, calls for the U.S. Agency for International Development (USAID) to develop and certify two or more cost-effective poverty measurement tools that measure $1 a day poverty. The new tools are to replace loan size, which is currently used and has proven to be inadequate for poverty measurement. As Freedom from Hunger President Chris Dunford remarked, “The average loan size for entering clients tells you more about the institution making the loan than it does about the poverty level of the person receiving it.”

Download the full 2011 State of the Campaign Report in our Resource Library

Download the full 2004 State of the Campaign Report in our Resource Library

After the newly mandated tools are certified, institutions receiving microenterprise funds from USAID will be required to use one of them and report the number of entering clients who start below $1 a day. The law is an effort to bring accountability and transparency to the long-standing Congressional commitment to have at least half of USAID microenterprise funds benefit very poor clients. This new law, particularly if it is adopted by other aid-giving countries and institutions, would have a great impact on the Microcredit Summit’s commitment to reaching the very poor and provide tremendous support to the MDG focused on halving the number of families living below $1 a day by 2015.

While the new law demonstrates the revolution that is taking place in microfinance, efforts to expand the revolution have been met with resistance. This resistance comes from major development institutions that have been asked to adopt policies similar to the new U.S. law — The World Bank, the regional development banks, and the United Nations Development Program (UNDP).

In November 2003 more than 700 parliamentarians from the United States, the United Kingdom, Canada, Japan, Australia, India, and Mexico wrote to the heads of the World Bank, the Asian, African, and Inter-American Development Banks, and UNDP. The parliamentarians lauded the institutions’ commitment to achieving the Millennium Development Goals (MDGs) which they said are “crucial to building a safer and more equitable world — and will show our constituents that development programs are truly making a difference.”

The parliamentarians continue with a concern that:

…sustainable microfinance for the very poor has not received sufficient priority in your policies and practice aimed at cutting absolute poverty in half by 2015, the most crucial — and most difficult — of the MDGs. As important as it is to support well-designed health, education, and good governance programs, these interventions alone will not ensure that some 600 million people move out of poverty.

The parliamentarians ask the heads of these powerful institutions for the following:

  • Increased funding for microenterprise: We urge you to make substantial increases in the proportion of your institutions’ lending and grants that go to microenterprise and actually reach clients. For example, the World Bank estimates that an average of $168 million in funding, less than one percent of Bank resources approved annually, is approved each year for microenterprise. We believe resources devoted to microenterprise should at least be doubled (emphasis added).
  • At least 50 percent of funds reaching the poorest: By December 31, 2004, we would like to see your institutions make the commitment to having at least 50 percent of your microfinance funds reach clients who are below US$1 a day when they start with a program.
  • Use of cost-effective poverty measurement tools to ensure meeting the target: By December 31, 2005, the microenterprise institutions should be required to use cost-effective poverty measurement tools that can determine which families start below US$1 a day and use the same or similar tools to show which families have moved above US$1 a day.
  • Annual reporting of results: By December 31, 2006, we would urge your institutions to report, on an annual basis, the amount of funds provided for microenterprise and the percentage of those funds that reach families who begin with a program at below US$1 a day.

In their letter, the parliamentarians discuss the new U.S. law and say, “We believe your institutions should be a vital part of this process and urge you to adopt a similar procedure.”

Relevant resources