The Microcredit Summit's challenge: Working toward institutional financial self-sufficiency while maintaining a commitment to serving the poorest families

Publication Date: 2000
Published by: The Microcredit Summit Campaign (MCS)

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What are the means to the end of delivering efficient microcredit and financial products to the poor?

The paper addresses operational self sufficiency (OSS), institutional financial self-sufficiency (IFS) and adjusted return on assets (AROA) and shows that they are attainable by microfinance institutions (MFIs) motivated to reduce poverty by providing savings and loans in a efficient way. It examines the cases of CRESCER in Bolivia, FINCA in Uganda and CARD in the Philippines and looks at their sustainability, profitability, targeting, administrative efficiency, field staff efficiency, management information systems, portfolio quality, financial product development, setting of interest rates and Yield Gap Analyses. The results show that to provide services in a sustainable way:

• cost effectiveness should be increased so interest rates for the poor and poorest are minimised
• this can be systematically planned and implemented in order to reduce time required to attain institutional financial self-sufficiency
• by ensuring adequate funding for financial break-even
  Moreover the results show that steps to increasing institutional self-sufficiency are:
  • cost-effective targeting
  • maximising both institutional and field-staff efficiency through management information systems, formal business planning, maintenance of loan portfolio quality with client and staff incentives
  • customising financial products
  The article recommends leveraging as a means to achieve these aims quickly. To work with commercial banks the authors give the following tips:
  • Gurantee funds and quasi equity like soft loans could help to initially attract banks
  • the reliability of loans recovery and soundness of financial management will determine to what degree banks can leverage their equity
  • Monitored five year plans can attract the interest of banks
  • The example of Cashpor financial and technical service in India showed that a rating by an independent microfinance institution rating agency can be useful in securing lines of credit