Towards the sustainability of microfinance services: the role of client impact monitoring

Abstract

[Abstract]: Over the last few decades microfinance has become an integral part of the economic development of the less developed countries with regional governments, the multilateral donor agencies such as the World Bank and the Asian Development Bank and other donor organisations investing in the industry to build its capacity and widen the outreach. Further, the World Bank has highlighted the need to help the poor achieve self-sustainability as much more than just a social issue. In fact, in their view, the long-term financial growth of the Developed countries will be largely determined by the expansion of the Third World as their future client base. Those who are interested in economic development in the less developed countries strongly believe that microfinance will be an effective tool of alleviation of poverty and developing prosperity for the poor. For this reason microfinance is considered as one of the effective way of achieving Millennium Development Goals (MDGs). Central to the success of microfinance is the distribution of capital from the wealthy to the poor in a manner which encourages accountability and responsibility from the recipient, while at the same time allowing donors to see appropriate stewardship of their funds. This is measured through the achievement of financial independence of the group being studied. The role of implementing agencies in facilitating this efficient and accountable transfer of capital is seen to be crucial to the ongoing development of microfinance. The interrelation between donors and these agencies requires a high degree of trust and mutual accountability, in many cases built up through years of hard work and experimentation. The policy framework and legislative environment for microfinance is still evolving. For instance some countries are still developing the regulatory environment to monitor the transparency of the industry. Furthermore, there are some growing concerns on the level of efficiency of the delivery of microfinance in making an impact on projects or at least making an impact on alleviation of poverty. In order to contribute to the latter, this study investigates a major microfinance operation in the Philippines to examine whether it is consistent with the wider international practices, particularly in achieving the MDGs. The study uses a survey tool developed by the donor agency to monitor the quantitative and qualitative aspect of the microfinance operation and benchmark them against similar operations within the Asian region. The results show that, in the majority of cases, the Philippines operation has outperformed their counterparts. However, there is considerable room for improvement to maintain the sustainability of the operation. These experiences of successes and failures need to be recorded and delineated to build on existing achievements and support an environment geared towards substantial growth in the funding of microfinance in the future. It is the intention of this study to highlight these experiences and draw attention to the very real achievements currently being experienced through some effective microfinance projects.