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Full ReportREACHING DOWN AND SCALING UP: Meeting

the Microenterprise Development ChallengeU.S. Agency for International DevelopmentMicroenterprise Results Reporting for 1997

Partners inMicroenterpriseDevelopment

A & L Business Center

Abkhazeti

ACCION

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ACDI/VOCA/Cape Verde

ACLAM

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ACME

ACOPACC DE R. L.

ACP/Peru

ACTIONAID

Activists for Social

Alternatives (ASA)

ADAC

ADEL MORAZAN

ADEX

ADRA

ADRA/Armenia

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Agrobased Industries

and Technology

Ahon Sa Hirap Inc. (ASHI)

AID

Aid to Artisans

Aid-to-Artisans/Ghana

Al Majmoua

Alalay Sa Kaunlaran

Sa Gitnang Luzon

Albert Luthuli Local

Business Support Center

Alexandria BusinessAsso. ABA

Alliance of MicroEnterprise

Development

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Antique Development

Foundation, Inc.

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& Credit Coop

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Bukidnon Integrated

Network of House

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Bulgarian American

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CAEB

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Credito Cruz de

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a la Microempresa

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for Progress

CANEF

Capiz Women Inc.

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Assoc (CACA)

Carana

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and Rural Development

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Transformation Inc.

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and Productivity

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(CMES)

Centre for Self-Help

Development

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y Pequenas

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de Estudios Sociales

CESIDE

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Child Welfare Society

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Intergracion y Recon.

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Investigacion de Rec. Nat. y

Citizens Democracy Corp

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del Carmen

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(ACACU)

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Credit Guarantee Corporation

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CRESA

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CRS/Ecuador

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CRS/Ethiopia

CRS/Gambia

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CRS/Haiti

CRS/Indonesia

CRS/Lebanon

CRS/Nicaragua

CRS/Peru

CRS/Philippines

CRS/Senegal

Cubucare Associations

DAI

DAI/Haiti

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First Polish Credit Union

FODEPE

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Food for the Hungry

Foundation for Development

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Evolution

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FUNDENUSE

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Development

Get Ahead Financial Services

GKF

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GOP National Credit Council

Grameen Bank Eastern

Grameen Trust

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& Credit

H.A. Moznosti

Haitian Development

Foundation

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International Development0

Heifer Project

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Hermandad de Honduras

HORTEXA

HRDA Clark Atlanta University

Human Service Association

Hurgada Foundation

IDEA Cooperatives

IDEAS

IDESI

IESC

ILO

Impumelelo Savings &

Credit Coop

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Reaching Down and Scaling Up:Meeting the Microenterprise

Development Challenge

U.S. Agency for International DevelopmentMicroenterprise Results Reporting for 1997

September 1998

i

iii

Table of Contents

AcronymsKey Accomplishments

Introduction 1

Microenterprise Development and Outreach to the Poor 3

The USAID Microenterprise Initiative 4

USAID Supports Microenterprise Development 6

Delivering Services 6Improving Policies and Regulations 9Building the Microenterprise Development Field 10Emerging Trends in the Microfinance Field 11

USAID’s Microenterprise Funding 14

Trends in Microenterprise Funding 14Use of Funds 14Poverty Lending 16

Findings from the Financial Institutions Survey 17

Overview of Lending Programs 17Selecting Development Partners 22The Need for Safe Savings Instruments 23

Annex A: Microenterprise Results Reporting 25Annex B: Sources of Microenterprise Funding 29Annex C: GNP Per Capita and Poverty Loan Size in Selected

USAID-Assisted Countries 33Annex D: Africa: A Closer Look 35Annex E: Europe and the New Independent States: A Closer Look 39Annex F: Centrally Funded USAID Programs Supporting Microenterprise

Development 43Annex G: Summary of USAID Microenterprise Funding by Country,

1991-1998 45

This report was prepared by Elizabeth Hunt and Catherine Neill, under the direction ofKatharine McKee, Director, USAID’s Office of Microenterprise Development.

v

Key Accomplishments

Helping poor entrepreneurs start and build viable, productive businesses— commonly known as microenterprise development — is a key element ofthe United States Agency for International Development (USAID) economicgrowth strategy. These small or microbusinesses provide vital income, assets,and jobs for the poor. Millions of entrepreneurs around the world are runningsuccessful microenterprises; they have created a better life for their families,and many are no longer poor.

USAID has been a worldwide leader in microenterprise development, aleadership role strongly supported by the American people and the U.S.Congress. This report describes USAID’s progress in 1997 toward meetingthe commitments made in the Agency’s Microenterprise Initiative, launchedin 1994 and renewed in June 1997. It also highlights USAID’s priorities formicroenterprise programs and emerging issues in the field.

Microenterprise development involves providing both financial andnon-financial services. These services support disadvantaged entrepreneurswho lack access to credit, safe savings vehicles, and business development ser-vices.

As a result of USAID’s investment in microfinance, by the end of 19971:

■ A record 1.4 million poor clients had active loans from USAID-supported institutions, up 47 percent from the end of 1996.2 The loanswere valued at $645 million, an increase of 113 percent from 1996.Through USAID-supported microfinance programs, most of these entre-preneurs gained access to reasonable and convenient financial servicesfor the first time, enabling them to capitalize on economic opportunitiesand embark on a path toward prosperity.

■ 67 percent of active loans were “poverty loans,” i.e., loans at or below$300 for the Africa, Latin America and Caribbean (LAC), and Asia andNear East (ANE) regions, and at or below $1,000 for the Europe and the

1 Data reported are for fiscal year 1997. 2 The institutions that reported data were those with active funding agreements with USAID. This includes institutions that received funding in 1997 and

those that received prior-year funding and still had active agreements with USAID in 1997. The subset of microfinance institutions that received 1997 obliga-tions reported 1,292,028 active loans at the end of 1997, an increase of 31 percent over the total reported at the end of 1996.

Note: The Microenterprise Results Reporting (MRR) activity, which collects and analyzes the data for this report, uses a proxy of one loan to represent one client,since most programs do not provide clients with more than one loan at a time.

vi

operational expenses of and techni-cal assistance to microfinance institu-tions. Slightly less than 70 percentof overall microenterprise fundingsupported credit provision andother microfinance activities.

■ The average annual growth in thenumber of clients served by USAID-supported financial institutions was150 percent.

■ The Agency ensures that the microfi-nance organizations it supports havea credible plan for achieving fullfinancial sustainability within sevenyears. A survey of microfinanceawardees found that 26 percent ofthose reporting already are coveringall their financial and operationalexpenses, putting them on the roadto financial independence and theend of donor support. This will per-mit scarce development resources tobe channeled to new institutions andneeds.

■ In 1997, 481 institutions receivedUSAID funding, either directly orthrough an umbrella grant to anintermediary organization. Thisbrings the total number of microen-terprise development institutionswith active funding agreements to613.

■ Of these partners, U.S. private vol-untary organizations (PVOs) com-prised 22 percent, local non-gov-ernmental organizations (NGOs)48 percent, and credit union orga-nizations 14 percent.

New Independent States (ENI)region. Poverty lending received 68percent of microfinance funding, upfrom 58 percent in 1996.

■ There were 2.1 million clients par-ticipating in the savings programs ofUSAID-supported institutions. Theclients had $372.8 million in savings,an impressive accomplishment forpoor families, particularly those liv-ing on the margin of survival.

■ Women were two-thirds of the totalclient base.

■ The average repayment rate for thelending programs was 94.8 percent.

1997 was also a record year forUSAID funding investments in microen-terprise development. The Agency con-tinued its role as the leading grant donorworldwide. In 1997, USAID recorded thefollowing accomplishments:

■ A total of $165.1 million in fundingsupport for microenterprise devel-opment.3 Estimated 1998 funding is$144.0 million. Since 1994, whenUSAID first announced itsMicroenterprise Initiative, microen-terprise funding has increased slowly,despite cutbacks in overall Agencyfunding.

■ Microenterprise development fund-ing by USAID missions and centraloffices supported both financial andnon-financial services in 62 coun-tries. “Financial funding”4 includesmonies for loan capital, and related

3Of this amount, $14.1 million was carryover of FY ’96 funds and $18.9 million was a one-time endowment to Fundusz Mikro by the Polish American EnterpriseFund.

4The term “financial” is used rather than “credit” to reflect the fact that many microfinance programs provide financial services beyond credit, such as sav-ings and insurance. To reflect this broader scope of services, “microfinance” is emerging as the preferred term in the field of microenterprise development.

vii

Acronyms

ACLEDA Association of Cambodian Local Economic DevelopmentAgencies

ANE Asia and the Near East Region (USAID)ATAG Aid to Artisans/Ghana BHR/PVC Bureau for Humanitarian Response/Office of Private and

Voluntary CooperationCCB Cambodia Community BuildingCGAP Consultative Group to Assist the PoorestCRS Catholic Relief ServicesDA Development AssistanceENI Europe and New Independent States Region (USAID)ESF Economic Support FundsFATEN Palestinian Corporation for Microcredit and DevelopmentFFH Freedom from HungerFSA Freedom Support ActFY Fiscal YearGDP Gross Domestic ProductGNP Gross National ProductGGLS Group Guaranteed Lending and Savings IBRD International Bank for Reconstruction and Development

(i.e., the World Bank) IDB Inter-American Development Bank IFC International Finance Commission of the International

Monetary FundIGP Implementation Grant ProgramLAC Latin America and the Caribbean Region (USAID)MRR Microenterprise Results ReportingNGO Non-Governmental Organization NOA New Obligating AuthorityPRIME Program for Innovative Microenterprise ExpansionPVC Office of Private and Voluntary CooperationPVO Private Voluntary OrganizationSAI Special Assistance InitiativeUNDP United Nations Development ProgramUSAID United States Agency for International DevelopmentWOCCU World Council of Credit Unions

Around the world, millions of poor entrepreneurs are building betterlives for themselves and their families by starting and expanding tiny busi-nesses or “microenterprises.” USAID has stood behind their initiative, hardwork, and dreams of prosperity and dignity, through its funding of microen-terprise development. For over a decade, Agency funds totaling more than $1 billion have supported hundreds of partner organizations in dozens ofcountries that provide microenterprise development services to the poor.

Microenterprise development has emerged as a priority for the Agencybecause of its power to contribute to the key goals of U.S. development aid.Poor families launch microenterprises to improve their economic status,achieve higher and more secure incomes, and build savings and other assetsas a cushion against natural disasters, illness or death, and other crises. Asthese enterprising households pull themselves out of poverty, they canimprove their access to safe drinking water and more nutritious food, improvetheir housing, and educate their children. In most countries, women own themajority of microenterprises, and as their income, assets, and entrepreneurialsuccess grows, the women become empowered to make decisions thatstrengthen their families, businesses and communities.

The benefits of successful microenterprise development extend to thebroader society. In both transition economies and the developing world,microenterprises play an important role in economic growth and job creationfor those unable to find employment in the formal sector. Through microen-terprise development, the poor can become business owners, build assets, andinvest in their community’s well-being, contributing to an “economic democ-racy.” This route has proven to be a vital ingredient in building vibrant civilsocieties and thriving democracies around the world. Thus, investment in suc-cessful microenterprise development pays dividends across the U.S. develop-ment agenda.

The enterprising individuals described in this report hail from many dif-ferent places, including Cambodia, Bolivia, Ecuador, El Salvador, Ghana,Honduras, Latvia, Mali, Nepal, Uganda, and the West Bank. They all sharecommon traits: They are succeeding due to their hard work, determination,and willingness to take risks, often in the face of daunting challenges. Theyrepresent the more than 1.5 million entrepreneurs worldwide who benefitedfrom access to USAID-funded services in 1997.

Another common factor in these entrepreneurs’ success has been theiraccess to reliable support, both financial and non-financial, from USAID’smicroenterprise development partners. Not only have these

Introduction

preneurs. An impressive array ofmicrofinance institutions worldwideare balancing these goals, and, insome countries, commercial institu-tions are also beginning to show aninterest in this market. This reporthighlights some promising examplesof these trends.

■ A microloan is rarely sufficient tohelp a poor entrepreneur build a suc-cessful business and escape poverty.Access to other financial services(such as savings and insurance) andnon-financial services (such as moreproductive technologies, improvedmarket access, and increased techni-cal and managerial skills) plays animportant role in building sustainablemicroenterprises. This report illus-trates how USAID’s partners areseeking to provide cost-effective,non-credit services. Also included areexamples of successful USAID-assisted efforts to create a moreenabling policy environment forpoor microentrepreneurs and theinstitutions that serve them.

■ USAID and its partners continue tolearn much about the challenge ofsustainability for microenterprisedevelopment organizations. Thereport shares our partners’ experiencein balancing poverty outreach withthe bottom line. Also included aredescriptions of how USAID and itspartners are approaching microenter-prise development in the Africaregion and the ENI region, tworegions with less well-developedmicroenterprise development sectorsthat face particular challenges.

2

committed organizations reached out tothe truly poor and disadvantaged entre-preneurs who lack access to credit, safesavings vehicles, and business develop-ment services, they are also committed tobuilding sound, sustainable institutionswith “staying power” to provide servicestailored to their clients’ changing needs.USAID and its partners believe that it isonly by tackling these challenges in tan-dem, reaching out to the very poor andbuilding sustainable institutions, thatmicroenterprise development can reach itsfull potential of helping millions of poorfamilies pull themselves out of poverty.

Last year’s report, “Small LoansMaking a World of Difference,” focusedparticularly on the challenge of reachingthe entrepreneurs most in need throughpoverty-lending institutions. Whiledescribing the continued progress inpoverty lending, this year’s report has abroader focus: the challenge of helpinglarge numbers of microentrepreneurs suc-ceed over time.

Several valuable lessons haveemerged from experience in the microen-terprise development field.

■ It is possible to design financiallyviable microcredit programs thatserve large numbers of poor entre-

Reaching Down and Scaling Up

Opportunity International photo

U.S. Agency for International Development Microenterprise Results Reporting for 1997

World Relief/Cambodia: Charp Sok

Charp Sok had a lot weighing her down two years ago. Her hus-band’s job, cutting wood for someone else, brought in only enoughmoney for them to eat rice and water twice a day; their only otherfood was the vegetable greens that grow wild around them.Today, the family has their own home and land and eats threemeals a day.

Two years ago, when World Relief first began helping poorwomen in her neighborhood start a community bank, Sok wantedto join. The other women, who were a little better off than Sok, feltthat her extreme poverty made her too high a risk. But a WorldRelief staff member felt more confident about Sok’s determinationand ability than did her neighbors. He brought Sok together withsome other very poor women and helped them to form a villagebank.

When Sok got her first loan of $20, she bought the materials fora cart. She purchased a supply of wood from the rubber tree plan-tation and hauled it back in her cart. Her family worked hard tosaw and chop the wood; then she sold it as firewood in the mar-ket. Sok never missed a weekly loan repayment, and she’s now onher sixth loan. Her business has gradually expanded so that thefamily now uses two carts to haul all the wood back and forth. Thebusiness brings in about $3.50 a day in profits.

Source: World Relief.

3

Microenterprise Developmentand Outreach to the Poor

USAID defines a “microenterprise” asa firm with a total of 10 or fewer employ-ees. Many microenterprises involve onlyone person, the owner-operator or“microentrepreneur.” In some cases, amicroenterprise employs the owner andunpaid family workers; in other cases,there are paid employees. Few microen-terprises are formally registered, or taxed.Most are found in the informal or unregu-lated sector and are often itinerant busi-nesses. A minority of microenterprisesgrow into small or medium-sized busi-nesses; most remain tiny in size yet arecritical to the family’s economic liveli-hood.

Typical microentrepreneurs are ven-dors working on the street, in marketstalls, or out of their homes. They mayproduce handmade items or provide ser-vices such as simple repairs and dressmak-ing. They are involved in food processingand tiny agro-processing operations suchas rice husking, and other usually low-technology, labor-intensive activities.5

USAID uses a second defining char-acteristic of microenterprises: the low level ofassets and income of the business and its owner.Within this group, special efforts are madeto serve those facing socioeconomic dis-advantages, such as women in developingcountries. These women often have severeeconomic constraints and are among themicroentrepreneurs who depend mostheavily on income from microenterprisesfor survival. As a result, female entrepre-neurs are a group of special concern toUSAID.

Thus, by policy, USAID targets its

5As a matter of USAID policy, lending for agricultural production credit per se is not classified as microcredit. However, in rural areas many households engagein multiple farming and microenterprise activities, making a complete separation difficult. The most effective lenders to microenterprises generally do not attemptto restrict the use of funds by borrowers.

World Relief/Jon Warren photo

USAID launched its 1994 MicroenterpriseInitiative, the Agency accepted this stan-dard (pegged to 1994 dollars), althoughnot without some reservations as to itsapplicability across all regions andeconomies.7 With increased funding ofmicroenterprise support activities in theENI region, USAID established a $1,000ceiling for poverty loans in that region.

The USAID MicroenterpriseInitiative

To focus increased attention withinthe Agency on microenterprise develop-ment and to highlight its work for a wideraudience, USAID launched itsMicroenterprise Initiative in June 1994.Three years later, in June 1997, USAIDrenewed the Microenterprise Initiative ina ceremony attended by numerousMembers of Congress and First LadyHillary Rodham Clinton.

With the Microenterprise Initiative,USAID has committed to:

(1) Maintain women and the poor as itsprimary emphases, particularlythrough support for poverty lending;

(2) Help implementing organizationsreach greater numbers of people;

(3) Support institutional sustainabilityand financial self-sufficiency amongimplementing organizations; and,

(4) Seek improved partnerships withlocal organizations.

4

support to microenterprises owned andoperated by the poor.6 In practice, eachUSAID mission then attempts to identifywho and where the poor are, and developsa strategy to target these individuals andcommunities for microenterprise develop-ment services.

Growing field experience suggeststhat, rather than denying services to thenon-poor, successful microenterprise pro-grams tailor their services to fit the spe-cific needs of the poor, thereby attractingthe targeted clientele. This approachincludes offering small loans and using“collateral substitutes” such as group guar-antees rather than formal collateral toencourage repayment.

To have a rough proxy for targetingmicrocredit to the poor, microfinancepractitioners, policy makers and donors inthe late 1980’s established a loan size of$300 as an upper boundary for loans tothe poor, i.e., “poverty loans.” When


6Identifying the poor is not easy because it depends on the existence of national census data which many governments do not have the resources to collect.The LAC Bureau, for example, adheres to definitions of poverty used by the World Bank and the Inter-American Development Bank (IDB), where extreme povertyis defined as having income of $1 or less per day and moderate poverty is income of up to $2 per day. Not surprisingly, countries with the worst poverty oftenhave the worst data, or none at all. Seven LAC countries — Bolivia, Ecuador, El Salvador, Guyana, Haiti, Nicaragua and Paraguay — have no national data avail-able.

7A number of key microfinance players have become concerned about the limitations of the $300 standard in the face of variation in national economies, theexpansion of successful clients’ credit needs, and inflation. Leading members of the microfinance community including USAID are beginning to explore alterna-tives. To illustrate one option under consideration, Annex C compares the per capita GNP in many countries where USAID programs operate, to the relevantpoverty lending amount ($300 or $1,000).

Save the Children photo


The ENI Bureau pledged to helpincrease the capacity of the region’s newlyestablished microenterprise institutions,foster regional exchanges and networkingamong practitioners, encourage theEnterprise Funds to establish or expandmicrolending programs, charge regionalpolicy reform projects with examining thepolicy and regulatory problems affectingmicroenterprises and microfinance institu-tions, and train additional ENI staff inmicroenterprise program design. (SeeAnnexes D and E for details on microen-terprise programs in Africa and ENI.)

In addition, the renewal of theInitiative included a number of ambitiousquantitative targets for the Agency and itsawardees.

■ At least half of all microenterpriseclients of the institutions that USAIDsupports will be women.

■ At least half of all the USAID fundssupporting microfinance institutionswill go to poverty lending.

■ At least two-thirds of the clients ofUSAID-supported microfinanceinstitutions will receive loans of lessthan $300.

■ The average repayment rates formicrofinance institutions receivingUSAID support will be 95 percent orabove.

■ Every USAID-supported microfi-nance organization will have a planto reach full financial sustainability ina reasonable period of time.

In addition, USAID has set a targetof 15 percent per year growth in the num-ber of clients receiving services.

As discussed above, USAID substan-tially met or surpassed all of these targetsin 1997.

As part of the renewal of theMicroenterprise Initiative, the Agencyidentified the Africa and ENI regions asareas of special emphasis in building themicroenterprise field. Toward that end,the Africa Bureau has pledged to intensifythe dialogue between its field missionsand practitioners to identify on-the-ground opportunities, give increasedattention to capacity-building formicroenterprise development institutions,and heighten efforts to ensure that largerpolicy reform activities include the allevi-ation of legal and policy biases that hindermicroentrepreneurs and/or microenter-prise assistance institutions.

5

FINCA photo

USAID Supports MicroenterpriseDevelopment

To fulfill the goals of theMicroenterprise Initiative, USAID’s strat-egy has been to:

(1) Improve the performance and out-reach of organizations that directlydeliver financial services and non-financial assistance to microenter-prises, and,

(2) Improve the policy and market envi-ronments where microenterprisesoperate.

USAID is also making investments tobuild knowledge, skills, and capacity inthe microenterprise development field.Key elements of the USAID strategy aresummarized below:

Delivering Services

USAID has invested in many differ-ent approaches and types of institutions,including business associations, coopera-tives, credit unions, finance companiesand other for-profit companies, govern-ment agencies, NGOs, PVOs, andresearch institutions.

FINANCIAL SERVICES

Two-thirds of USAID funding sup-ports the provision of financial services topoor microentrepreneurs. Financial ser-vices include credit, safe savings mecha-nisms, insurance products and other ser-vices. Experience has shown that, if eachis available, at any given moment morepeople, including the very poor, will usesavings vehicles than need access tocredit.

USAID’s approach has been to fosterthe development of viable financial insti-

6

WOCCU/Latvia: Janis Vorza

For Janis Vorza in Latvia, the reorganization of the Soviet farmingand monetary systems meant unemployment and the gutting of hissavings from extraordinarily high inflation. Needing a loan to startlife anew and support his large family, Janis went to commercialbanks but was denied financing because he lacked collateral.

Then Janis went to his credit union, Ligatnes Druva, and received a$1,000 loan to purchase a chain saw. He hired two other peopleand started a small business in the wood industry, supplying lum-ber to builders. As his business grew, Janis repaid his first loan andtook out two more loans from his credit union to buy a car and avan to transport his employees to work.

Today, six credit unions in Latvia serve over 4,500 members. Thecredit unions’ assets are more than $700,000, and their loansexceed $670,000. The loans meet the basic finance needs ofmembers with average loans across the six credit unions rangingfrom $240 to $946.

Source: WOCCU


WOCCU photo


Katalysis North/South DevelopmentPartnership/Honduras: Luisa Zelaya

When Luisa Zelaya started a small business in Honduras sellinghousehold goods, she had no assets or capital. She financed herpurchases by borrowing from loan sharks who charged exorbitantdaily interest rates, rates so high that they ate up most of her prof-its, and kept her on the margin of survival despite her dawn-to-duskefforts.

Then Luisa joined a Community Bank started by the Organizationfor Women’s Enterprise Development (Organizacion de DesarrolloEmpresarial Femenino or ODEF). As a community bank member,Luisa received a loan of $68, business training, and support fromother women. With this help, she opened a fish stand in Lima’sbusy marketplace. Netting more and more sales, Luisa nowemploys three people (including her husband) and expanded herproduct line to include vegetables, fruit, and natural medicines.

ODEF is a leading microfinance institution in Honduras and a mem-ber of the Katalysis North/South Development Partnership. Luisa isone of over 20,000 microentrepreneurs served by the KatalysisPartnership.

Source: Katalysis

tutions offering unsubsidized,8 high-qual-ity financial services to poor microentre-preneurs.

USAID has had a longstanding rela-tionship with national credit union move-ments. Where local credit unions arestrong, they have large numbers of mem-bers and correspondingly large loan port-folios. USAID has provided support tostrengthen credit unions’ capacity to meetthe microfinance needs of the poor.

PVOs and NGOs are also well-estab-lished microfinance partners with USAID.USAID’s current portfolio includes hun-dreds of U.S. PVOS and local NGOs thatprovide microcredit and other financialservices. Many institutions that workedtraditionally with USAID in disaster reliefand food aid programs recently haveentered the microfinance arena.

As the original pioneers in deliveringmicrocredit have succeeded in providingcost-effective services to large numbers ofpoor clients, some NGOs are seriouslypursuing options for additional services,such as providing savings to the generalpublic, insurance, leasing arrangements,and debit cards. The provision of theseservices poses new challenges. Acceptingdeposits from the general public, forexample, likely will increase regulation bynational banking authorities.

BUSINESS DEVELOPMENT SERVICES

Sometimes getting a loan is only thefirst step for a microentrepreneur. If a newentrepreneur does not understand basicaccounting, sales, or marketing, she willhave a hard time growing her business andboosting her income over time. A numberof microenterprise sectoral studies stressthe importance of non-financial con-

7

Katalysis Partnership photo by Colleen Donvan

8A financial institution is said to be providing financial services on a “subsidized” basis if the interest and fees collected from clients for those services fail tocover the institution’s full long-run costs. An institution is expected to operate with sufficient efficiency, management skill, and a price structure to reach a sig-nificant scale and fully cover all operational and financial costs, including inflation, within seven years of initiating operations.

straints on the growth and prosperity ofmicroenterprises.9 For many activemicroentrepreneurs, inadequate businessmanagement and marketing skills, andlimited knowledge of improved produc-tion techniques and market opportunitiespose more serious barriers to growth thanthe lack of credit.

To meet these needs, many microen-terprise development programs offer avariety of non-financial services to entre-preneurs. Effective organizations, workingdirectly with microentrepreneurs, will tai-lor their business development services toclient needs. Non-financial services maybe offered on a stand-alone basis or as partof a larger package that includes credit.

Some organizations are working todevelop new marketing channels or tointroduce improved technologies. Thechallenge in providing business develop-ment services to microenterprises is todevelop methodologies that can be cost-effective and sustainable. USAID prefersfunding experimental programs that maylead to improvements both in cost recov-ery and service delivery. For example, arecent grant supports a direct electroniclink between poor microentrepreneurs inGuatemala and the Philippines with over-seas markets and product design services.However structured, business develop-ment services must be driven by marketdemand.

8

Market Development and Training in Ghana

The USAID/Ghana mission supports Aid to Artisans/Ghana(ATAG), a local affiliate of the U.S.-based PVO. ATAG promotesthe development of entrepreneurial, technical, and marketing skillsof microentrepreneurs who produce export-quality handcraftedproducts such as wood carvings and brass objects. ATAG worksto help Ghanaian microentrepreneurs develop new product linessuitable for the international market and to increase export sales ofGhanaian crafts by fostering links between producers and foreignbuyers. In 1997, ATAG linked rural artisans with a large foreignbuyer, MARMAXX, which purchased over $1.2 million of hand-crafted products. More than 100 artisans including 40 womenparticipated in production for the MARMAXX order.

Source: USAID Ghana


9See, for example, the USAID-sponsored GEMINI (Growth and Equity through Microenterprise Investments and Institutions) technical report series ofmicroenterprise surveys in Africa, in particular, Technical Reports 14, 16, 24, 25, and 46. Technical Report No. 75, “Micro and Small Scale Enterprise in Kenya:Results of the 1993 National Baseline Survey,” states that Kenyan microentrepreneurs view the lack of access to markets and inputs as greater constraints thanlack of access to capital.

Krofofrom Brass Makers Enter New Markets

In the small village of Krofofrom, wherethere is no electricity, artisans have a longtradition of making brass objects for theircountry’s tribal leaders. They use lost-waxcasting and recycled brass techniquesfrom the last century. As local demand fortheir work decreased, however, unem-ployment rose and the youth began toleave Krofofrom for the cities. ATAG,under USAID’s Trade and InvestmentProgram, was invited to work with the arti-sans. Together they quickly developednew product lines of candle holders, nap-kin rings, art objects, and decorative com-ponents for wood products. Now U.S.importers have added the Ghanaian arti-

sans’ work to existing product lines. For example, the Gumps cat-alog recently featured a Ghanaian votive candle holder. Today,there is full employment among the artisans in Krofofrom, and entre-preneurs from the village are traveling to international markets tosell their products.

Source: Aid to Artisans

AID TO ARTISANS photo


Banco Solidario/Ecuador: Emma Lagla Correa

What seems to be the problem? Your nerves? Low energy? Anulcer? Your love life? Evil spirits? Emma Lagla Correa has an herbalcure.

Coming from a long line of herbal practitioners, Emma openedan herbal shop in Ecuador. To get her business started, Emma bor-rowed $880 from moneylenders, which she secured with herapartment. The interest was 10 percent a month, but she had topay $17 every day. With sales of only $22 a day, she did nothave much left for feeding and clothing her four children.

One day Emma heard a radio advertisement for Banco Solidario,an ACCION affiliate in Ecuador. Emma immediately applied for aloan, and in eight days she received a loan which she used to payoff the moneylender. This loan had an affordable interest rate, andfrom then on, Emma was never late in her payments. Two subse-quent loans helped her build inventory and sales. The business isnow providing stable support for Emma and her family.

Source: ACCION

GUIDING PRINCIPLES FOR SERVICE DELIVERY

USAID considers that an effectiveservice or program is only successful if itreaches a significant number of people.This belief is shared by many practitionerswho have honed their methodologies toaddress the needs of a larger clientele.Microlenders have standardized serviceunits, cut costs, and facilitated expansionof lending services. By demonstrating theeffectiveness of their outreach strategy,they are more likely to attain donor fund-ing on a large scale, permitting the orga-nization to serve even greater numbers ofclients. This volume of lending, in turn,not only covers the lending program’scosts but generates a profit and the possi-bility of self-financing growth. This is fullsustainability. USAID’s strategy is to buildthe sustainability of its development part-ners so as to stretch scarce fundingresources.

The USAID strategy also considersthat people’s willingness to pay for ser-vices is a direct indication of the valuethey place on those services. The institu-tions that survive this “market test” willhave the best chance of achieving full sus-tainability. USAID encourages competi-tion among providers as a means of pro-moting efficiency and reducing costs ofservices to poor customers.

Improving Policies and Regulations

Frequently, USAID’s limitedresources can have the greatest effect atthe policy level. To this end, a number ofUSAID missions have focused on policyreform. Inflation management, agricul-tural policy, utilities regulations, and tradeand exchange rate policies are some areaswhere USAID is working to achieve morerapid, sustainable economic growth in thedeveloping world. Improvements in theeconomic arena will tend to benefit bothmicroenterprise owners and their employ-

9

ACCION photo by Jessica Boyatt

10

ees, through stronger growth in productdemand and by providing the impetus forthe creation of higher-paying jobs.

Financial and non-financial policiesand regulations affect microenterprises.Typically, the financial policies arenational in scope, while the non-financialpolicies are more local in nature. On thefinancial front, often the most beneficialpolicy intervention for microenterprises isthe removal of outdated financial laws andregulations that unintentionally workagainst the efficient provision of microfi-nance services. In addition, the removal ofinterest rate restrictions can benefit themicroenterprise sector. These restrictionsset artificial limits on loan pricing and canseverely limit the ability of microfinanceinstitutions to provide services on a sus-tainable basis. Another potentially coun-terproductive policy is requiring banks tochannel a specified share of their lendingto small and microenterprises. Suchrestrictions frequently lead to poorlydesigned programs and methodologiesthat undermine the strength of legitimatemicrofinance players.

Non-financial policy constraints onmicroenterprises are no less important,and USAID has supported policy andregulatory reform to address these barri-ers. The following list illustrates how non-financial policies affect microenterprises.

■ Poorly defined access to space inurban markets exposes vendors toharassment by police and other ven-dors.

■ Inheritance and property laws pre-vent women from obtaining title tobusiness property.

■ Discretionary allocation of foreignexchange and import licensesinhibits small and micro-scale firmsfrom gaining access to importedinputs.


Building the MicroenterpriseDevelopment Field

To maximize its resources and toextend its outreach to poor entrepreneurs,USAID:

■ Develops strategic partnerships withimplementing partners and otherdonors to leverage additionalresources for microenterprise devel-opment activities;

■ Strengthens the institutions that deliverservices to clients, helping them expandtheir outreach and increase their finan-cial sustainability; and,

■ Promotes the development of effec-tive methodologies, collaborativeresearch, evaluation and monitoringtools, and documentation onmicroenterprise practices, both suc-cesses and failures.

As a leader in supporting “best prac-tices” efforts worldwide, USAID is work-ing to accelerate the learning curve. Forexample, the Agency sponsors innovativetraining activities designed to increase thenumber of people trained in microenter-prise development.

The Agency is also engaged activelyin the search for better poverty yardsticksand in conducting field-based analysis ofthe impact of microenterprise develop-ment programs on the poor. USAID hasbeen an active participant in the world-wide dialogue on these issues that was setin motion by the 1997 MicrocreditSummit.

Finally, as a lead funder in the sector,the Agency has helped spearhead donorcooperation initiatives including the cre-ation of the Consultative Group to Assistthe Poorest (CGAP), which is housed atthe World Bank and now numbers 27 mul-tilateral and bilateral donors in its mem-bership.


COUNTRY PROFILE: Financial Services in Cambodia

In Cambodia, USAID sponsors three complementary initiatives. Thefirst, undertaken with the United Nations Development Program(UNDP) and the International Finance Commission (IFC) of theInternational Monetary Fund, provides technical assistance andtraining support to transform the Association of Cambodian LocalEconomic Development Agencies (ACLEDA), the leading nationalmicrofinance institution, into a commercial bank. ACLEDA hasexpanded rapidly and currently provides credit services, though33 branches, to almost 50,000 clients, the majority of whom arewomen.

The second involves Catholic Relief Services (CRS), which plansover the next five years to transform its village banking programinto a wholesale lending institution. A subsidiary corporate struc-ture will provide financial and non-financial services to NGOs. Thiswill allow the CRS poverty lending program to expand its scopefrom 5,000 to 25,000 women, working with 10 local partnerinstitutions.

The third initiative is World Relief’s Gateway II program, an inte-grated credit, savings, maternal and child health, and communityorganizing program that teams up with a local organization,Cambodia Community Building (CCB). To date, they have estab-lished nearly 300 community banks that serve the financial needsof over 8,000 women living in squatter slums in Phnom Penh andin rural areas. Another 500 village banks serving 15,000 clientsare projected by the year 2000, when CCB plans to be self-financing.

Source: USAID/Cambodia

USAID’s Microenterprise Develop-ment Office and other Washington-basedbureaus and offices initiate and fund a largeportion of the Agency’s “field-building”work. Annex F summarizes USAID centraloffices’ microenterprise development activ-ities.

Emerging Trends in the MicrofinanceField

NGOS AND THE MICROCREDIT REVOLUTION

Many microfinance institutions beganby pioneering or adapting methodologiesfor providing the poor with small, timely,accessible, and relatively inexpensive busi-ness loans. With maturity, some microfi-nance organizations have realized full prof-itability; many others will likely reachprofitability soon. NGO microfinanceorganizations are achieving this importantgoal through a variety of strategies. Somehave achieved profitability and large-scaleoperations solely by providing very smallloans; others have chosen to provide a mix-ture of loan sizes.

Many village banking programs, forinstance, are electing not to “graduate”clients to other programs or banks thatprovide larger loans; instead, they areopening separate group solidarity or indi-vidual loan windows for clients who haveprospered and have growing financialneeds. Generally, they restrict these win-dows to their own long-term clients whoare established as good credit risks. Thisapproach serves both the clients, who pre-fer to remain with the organization, andthe organization, which can operate moreprofitably with a mixed portfolio of largerand smaller loans. In addition, the moreprofitable larger loans cross-subsidize thesmaller ones.10

11

10PRODEM, for example, is a Bolivian NGO with an explicit policy of cross-subsidizing smaller loans by maintaining a portfolio of larger loans. The small-est loan size is $47, the largest $4,664. Many credit unions also tend to have a mixed clientele ranging from the very poor to the working class. The strategy ofextending loans of different sizes can reduce risk to the lender, promote portfolio diversity, and help modulate cashflow.

establishing new rules and standards foreffective, appropriate, and prudent regula-tion of microfinance institutions that wantto accept deposits from the general public.In Bolivia, Ecuador, Ethiopia, Honduras,and Peru, for example, this type of regula-tory activity is moving ahead with USAIDinvolvement.

COMMERCIAL BANKS: THE NEW KIDON THE BLOCK

In the past, commercial banksshowed little interest in working withsmall accounts or poor borrowers. Thesuccess of the NGO and credit unionlending programs with poor customers hasnot gone unnoticed by commercialbankers, however. In recent years, largecommercial banks, building on method-ologies pioneered by private non-profits,have been entering the market by openingmicroloan windows and offering productsaimed at the smallest enterprises. More areexpected to follow, either as direct lendersor by wholesaling loan capital to special-ized microfinance institutions. This trendoffers the potential to expand greatlymicrofinance services available to poorentrepreneurs.

To meet the growing interest amongcommercial bankers, in 1998 USAID spon-sored two seminars in Chile and Kenya. InApril, USAID sponsored a conference inSantiago, Chile, for Latin American com-mercial bankers who are actively enteringthe microcredit market. It drew representa-tives from 16 banks in 10 countries. Thesebanks had a combined outreach of over300,000 microfinance clients and a loanportfolio of about $450 million. To reachthis new market, the banks are focusing onoperational issues that will help themreduce transaction costs; many are usingcomputer technology to facilitate thisprocess. They are also hiring staff trainedby NGOs to assist them.

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THE SAVINGSCHALLENGE TOINSTITUTIONS

Considerableevidence existsthat the poor, andespecially microen-trepreneurs, place ahigh value onaccess to safe, con-venient, and liquidsavings depositfacilities. Savingsfacilities requiredifferent methodsand mechanismsthan credit, andmany microfi-nance institutionsare finding thatsuccessfully addingdeposit services isa complex under-taking.

While credit unions are designedwith the express purpose of helping theirmembers save, many NGOs have beenrestricted in their savings activities. Inmost countries, NGOs are not regulatedas financial institutions and are not per-mitted to mobilize savings from the gen-eral public. A number of NGOs are nowready to become more formal, regulatedinstitutions that can accept deposits. Avery few of these former NGOs havebecome fully licensed banks. USAIDactively supports the transition of NGOmicrofinance institutions that seek toexpand their range of services and “gradu-ate” to the ranks of formal financial insti-tutions.

For many other microfinance institu-tions, regulatory changes are under waythat will affect their ability to do business.Discussions with governmental authoritiesinvolved with banking supervision are


World Education photo byKathryn Matchett


Policy and Regulatory Reform in Honduras

The USAID/Honduras mission has contributed to the strengtheningof the indigenous microfinance sector for a number of years. Inaddition, several USAID-supported institutions are activelyengaged in a national-level policy dialogue focusing on microfi-nance issues. For example, the Covelo Foundation drafted a reg-ulatory framework that will permit qualified PVOs to mobilize cap-ital from the public. When approved by Congress, this frameworkwill require that the National Bank and Insurance Commission pro-vide prudential supervision of these PVOs to protect the depositorsas well as the institutions.

Interest from commercial players isnot limited to Latin America. A similarconference in May, in Nairobi, Kenya,attracted over 100 bankers, microfinancepractitioners, and financial policy makersfrom a dozen anglophone African coun-tries. The discussion was on the potentialfor commercially viable microfinance ser-vices in Africa. More seminars are plannedfor the next two years.

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Opportunity Inetrnational photo

USAID’S MicroenterpriseFunding

From this point forward in thisreport, the focus is on the information col-lected for 1997 on USAID’s programs andthe achievements of its microfinance part-ners. The originating USAID field missionor office provided the funding data.

Trends in Microenterprise Funding

USAID’s strong commitment tomicroenterprise development is clear.Historical funding trends are risingdespite reductions in overall Agency fund-ing and without earmarked funds for eco-nomic growth.

USAID substantially exceeded its1997 targets for microenterprise funding. Inthe Microenterprise Initiative, USAID com-mitted to spending at least $120 million for1997. Overall funding in 1997 was $165.1million, a 48 percent increase over the 1996funding level of $111.4 million. $33 millionof 1997 funding was “carryover” and a one-time investment by the Polish AmericanEnterprise Fund.

Because funding in 1996 was lowerthan expected due to the late receipt ofAgency funding, it may be more appropri-ate to average the past two years; this resultsin an average of $138.2 million per year for1996 and 1997. The average places annualfunding well above the pledge of $120 mil-lion.

The current 1998 estimate is roughly$144 million.

Use of Funds

All USAID bureaus, with the excep-tion of the Africa Bureau, are spendingmore than two-thirds of their funds to pro-mote sustainable financial programs formicroenterprises.

14 Reaching Down and Scaling Up

TABLE 1: Microenterprise Funding by USAID Bureau,1997, Millions of Dollars

Credit Programs Non-Credit Programs TotalAmount Percent Amount Percent Amount Percent

Africa Bureau 8.7 34 17.0 66 25.7 100

Asia/NearEast Bureau 28.8 78 8.1 22 36.9 100

Europe/NIS Bureau 34.8 77 10.6 23 45.4 100

Latin America/Caribbean Bureau 14.5 72 5.6 28 20.1 100

Central Bureaus 26.9 73 10.0 27 36.9 100

Total 113.7 69 51.3 31 165.0 100

FIGURE 1: Ten Years of USAID MicroenterpriseFunding, 1988-1997 (actuals)


The Africa Bureau warrants specialmention because it used a greater proportionof its funds to promote non-financial assis-tance to microenterprises. The Bureau isfunding support for productivity-enhancingskills training for microentrepreneurs, mar-ket development, and policy reform. A num-ber of U.S.-based PVOs, includingTechnoServe, Volunteers in TechnicalAssistance, World Education, and Africare,are involved in providing these non-finan-cial services in Africa.

With Central Bureau funding allocatedto the regions, the distribution of USAIDfunds changes to the proportions shown inTable 2.

The Office of Private and VoluntaryCooperation in USAID’s Bureau forHumanitarian Response (BHR/PVC) hasprovided significant funding to U.S.-basedPVOs for financial programs in Africa. Inaddition, the Africa Bureau has funded theAfrican Revitalization Project to rebuild andstrengthen a number of credit unions. TheMicroenterprise Development Office’sPRIME and IGP grant mechanisms have alsosupported financial programs in Africa.11

The microenterprise development pic-ture in Africa is changing. In recent years,there has been an international awakeningof interest, and many African governmentsare becoming supportive of microenterpriseservices. With a more promising policyenvironment, many missions in Africa arenurturing nascent financial services pro-grams, both through direct mission fundingand in conjunction with BHR/PVC. Some ofthese programs are taking off with greatrapidity. While the provision of non-finan-cial business services is likely to continue asa mission emphasis in the Africa region,financial services will play an increasing rolein many USAID field missions’ microenter-prise portfolios.

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TABLE 2: Microenterprise Funding by Region ofUtilization, 1997, Millions of Dollars

Credit Programs Non-Credit Programs TotalAmount Percent Amount Percent Amount Percent

Africa 20.0 53 18.0 47 38.0 100

Asia/Near East 34.5 81 8.3 19 42.8 100

Europe/NIS 34.9 77 10.6 23 45.5 100

Latin America/Caribbean 23.3 80 6.0 20 29.3 100

North America 1.0 11 8.4 89 9.4 100

Total 113.7 69 51.3 31 165.0 100

11Among the African microfinance programs receiving funding from central funding sources are: CARE/AVFS/Ethiopia, CRS/Senegal, FINCA/Uganda, Foodfor the Hungry/Faulu (Kenya), Freedom from Hunger (Mali, Ghana, Uganda, Burkina Faso), Opportunity International/Zambuko Trust (Zimbabwe), Save theChildren (Ethiopia and Mozambique), World Relief (Burkina Faso, Mozambique, and Rwanda), and World Vision (Uganda and Tanzania).

Poverty Lending

Table 3 presents 1997 funding toinstitutions engaged in poverty lending.Funding for poverty lending has increasedfrom 54 percent in 1996 to 86 percent in1997 for the ANE region and from 15 per-cent in 1996 to 31 percent in 1997 for theENI region. Overall USAID funding forpoverty lending went from 58 percent ofcredit funding in 1996 to 68 percent in1997.


TABLE 3: Percentage of USAID Funds Committed toPoverty Lending by Region,1997

Percent ofTotal Credit Programs Credit

Microenterprise FundingFunding Amount Percent of for Poverty

(US$ millions) (US$ millions) Total Lending

Africa 25.7 8.7 34 85

Asia/Near East 36.9 28.8 78 86

Europe/NIS 45.4 34.8 77 31

Latin America 20.1 14.5 72 42

Central Bureaus 36.9 26.9 73 72

Total 165.0 113.7 69 68

FINCA/Uganda: Balidawa Robinah

Balidawa Robinah is a woman competing successfully in a man’sbusiness — brickmaking. Robinah learned the trade through watch-ing her husband, but used her own initiative to start the business,after she realized how marketable bricks were. Robinah is the soleproprietor. Placing her manufacturing site beside a road hasattracted business for Robinah and making a high-quality brick hashelped her compete with other brickmakers. As a result, she notonly sells lots of bricks, she has been able to hire two employeesto assist her in the business.

Before she became a FINCA client, Robinah could make only1,000 -1,500 bricks at a time. By investing her FINCA loans inraw materials, Robinah now makes 5,000 bricks at a time, earn-ing about $200 per 40 bricks. After expenses, she turns a profitof $40. These profits have helped her to pay school fees for herseven children.

Source: FINCA

FINCA photo


FIGURE 2. USAID-Supported MicrofinanceInstitutions Responding to 1997 Survey

Findings from the FinancialInstitutions Survey

Over the spring and summer of 1998,USAID missions distributed a question-naire to the financial institutions withwhich they have active funding agree-ments, and 295 institutions responded.12

In this year’s survey 71 percent of theinstitutions with funding for microfinancereported, an increase from 53 percent in1996. In analyzing the data, eight differ-ent types of organizations reported deliv-ering financial services: banks; businessassociations; cooperatives and creditunions; finance companies and other “forprofit” companies; government agencies;NGOs; PVOs; and an “other” category,which included several research institu-tions. Ten institutions reported engagingin the delivery of both financial and non-financial services.

Overview of Lending Programs

Figure 3 and Table 4 below demon-strate some of the regional differencesamong USAID-funded programs in 1997.

INCREASE IN ACTIVE LOANS

USAID’s partner institutionsreported a total of 1,447,297 active loansat the end of 1997, and roughly the samenumber of clients. This represents anincrease of 465,643 loans or a 47 percentincrease over the 981,654 active loansreported at the end of 1996. This majorincrease reflects the successful outreachprograms of USAID’s partner institutions.

Both the LAC and ANE regions havenoticeably larger numbers of clients thaneither Africa or the ENI regions. For thissurvey, 117 institutions from the LAC

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FIGURE 3. NUMBER OF CLIENTS REACHED BYREGION, 1997

12See Annex A for details on the data collection methodology.

region and 86 institutions from the ANEregion reported data on their lendingactivities. USAID received completedquestionnaires from 60 African programsfor 1997; many of these programs arenewer and thus smaller than the moreestablished efforts in the LAC and ANEregions. In the ENI region, 29 institutionsresponded. One reason for this relativelylow number is that USAID activity in theENI region is more recent. In addition,and for somewhat different reasons, theinstitutional capacity to provide microfi-nance services is less well developed in theAfrica and ENI regions than elsewhere.

GROWTH IN LOAN PORTFOLIOS

In terms of the lending volume or thevalue of the active portfolio, the amountreported was $645.0 million, an increaseof more than $200 million in 1997. TheLAC programs are by far the largest, andis older and more well established thanmost programs in the other regions. Thereis also a relatively large number of creditunions reporting from the LAC region.They tend to have many members and awide range in the size of the loans out-standing; as such, they contribute a largenumber of relatively larger loans.

In the LAC region, there is a historyof USAID support for microfinance devel-opment, including regulatory and bankingsector reform and longstanding support toleading PVOs, such as ACCION’s workwith solidarity group lending and FINCA’spioneering efforts in developing villagebanking. Both methodologies involveincreasing loan sizes with repeat loans.This strategy coupled with aggressiveexpansion has meant dramatic portfoliogrowth over time.

In the ANE region, there is also anumber of well established programs. Thehigh volume of loans is due to a combina-tion of factors: Egypt is home to several

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TABLE 4. Active Portfolio for Lending Institutions1997

Total PercentLoans of Total

(U.S.$ millions) Portfolio

Africa 29.4 4.6

Asia/Near East 116.3 18.0

Europe/NIS 12.3 1.9

Latin America 487.1 75.5

Total 645.1 100.0


CRS/El Salvador: Tereso Granados

When an earthquake hit San Salvador in 1986, Don Tereso losthis home and his possessions; in addition, many in his family wereseriously injured and unable to work. To gain an income, DonTereso used a small amount of money to set up a tortilla business.The business was surviving, but it was not until a local communitybank was inaugurated that Don Tereso received a loan to expand.With this loan, his business is thriving, and he was able to expandinto propane gas distribution in his community.

Don Tereso is now the treasurer of the “New Victory” communitybank and a firm believer in microentrepreneurship. He believes thatthree factors contribute to his ongoing success: the training hereceived, special attention to his clients, and quality products.

Source: Catholic Relief Services


Freedom from Hunger/Kafo Jiginew/Mali: KadiaCisse

Kadia Cisse is a participant in Kafo Jiginew’s “Credit withEducation” program sponsored by Freedom from Hunger. Shecame from Koury, a town on the border of Mali and Burkina Faso,and has three daughters.

Kadia says, “One year ago, thanks to the assistance of a KafoJiginew field agent, I joined a credit association with 32 members.Together, the association members received a group loan fromwhich each individual member took a loan of $43. When Ireceived this sum, I bought a large sack of millet and increased myproduction of moni (enriched millet porridge, a Malian staple).Within a few days my profits increased many times over. I had noproblem making my weekly payments. I was able to purchaseclothes for my children, as they had been wearing nothing butrags.”

In the second four-month cycle, Kadia received a loan of $65,and in the third cycle, a loan of $87. Today, Kadia can easily buytwo sacks of millet and earn much more money. She has alsobecome treasurer of her credit association.

Source: Freedom from Hunger

successful programs, almost all with aver-age loan sizes between $500 and $1,000;Bangladesh and Cambodia have institu-tions with over 50,000 borrowers, so thateven with small loans, the portfolios arebetween $5 million and $8 million; and SriLanka’s credit unions account for morethan $38 million (and 280,000 clients).ANE is also the site of several highly suc-cessful microfinance institutions that nolonger require USAID support. In achiev-ing this level of success, they have pro-vided an important marker for the field’sdevelopment.

The relatively smaller scale of theloan portfolios in Africa and the ENIregion graphically illustrate why USAIDidentified these regions for priority atten-tion when the Agency renewed theMicroenterprise Initiative in 1997. Both

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Freedom from Hunger photo by Jan Kingsbury

TABLE 5. Average Loan Size and Percentage ofWomen Clients, 1997

Average PercentageLoan Size of Women(U.S.$) Clients

Africa 176 85

Asia/Near East 190 68

Eastern Europe/NIS 703 66

Latin America/Caribbean 746 62

Worldwide 445 67

regions have large populations dependenton microenterprises for survival and bothoffer promising opportunities to buildfinancial and human capital. Investmentsin microenterprise development capacitytailored to each region’s economic circum-stances are likely to yield rich dividends.Annexes D and E describe recent Agencyefforts to realize this potential.

AVERAGE LOAN SIZE

The data on average loan size alsoreveal differences among the regions. Inthis case, the ENI region joins the LACregion at the high end of the spectrum,and the institutions in the Africa and ANEregions cluster together at the lower end,a pattern also seen in 1996.

In both Africa and Asia, where aver-age loan sizes are smaller, many USAID-supported programs are quite new. Morethan a few are seeking to replicate themodel of Bangladesh’s Grameen Bank.

Average loan size in the ENI regionhas decreased from $1,104 in 1996 to$703 in 1997, reflecting the growingemphasis in the ENI region on outreach topoorer clients.

In Latin America, the higher averageloan size is linked to the maturity of manyinstitutions, and data from a large numberof credit unions with a typically widerrange of loan sizes. The case study ofBolivia illustrates how the higher averageloan size of many LAC programs obscuresthe fact that many large institutions alsohave large numbers of very small loans.The larger loans cross-subsidize smallerloans, as noted earlier. In addition, withthese more mature microfinance institu-tions, over time a significant number ofclients have progressed from small loansto large ones as their businesses havegrown.

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The Case of Bolivia

The most sophisticated country in the Americas in the area ofmicroenterprise, Bolivia illustrates how different methodologies andtypes of institutions each play a part in serving the poor. EightUSAID-supported financial institutions reported microfinance datafor 1997. Reporting were credit unions, one of the very few com-mercial banks in the world devoted exclusively to microfinance, afinance company, and five non-profit organizations. One non-profitis in the process of becoming a regulated financial institution andtwo others are also on track to do so. The smallest loan size for theinstitutions ranges from $19 to $187, the largest loan size from$287 to $30,000.

The eight institutions reported 222,415 microenterprise loans out-standing. This represents 24 percent coverage of a total potentialmarket estimated by local researchers at 925,000 people. Sincemost of these organizations are growing rapidly, there should be amarked increase in market penetration in the next few years.

While the combined average loan size of these Bolivian microfi-nance institutions is $1,177, this number disguises the fact that justa few institutions are serving a very large number of poor people.Of the 222,415 microenterprise loans reported, 31 percent or68,067 were loans in amounts of $300 or less.

BancoSol, the commercial bank, provided poverty loans to almost25,000 clients. Two NGOs, CRECER and Promujer, have villagebanking programs, which together provide poverty loans to19,000 clients. A third NGO, PRODEM, uses a solidarity groupmethodology and reported 14,351 poverty loans for 1997.Finally the credit unions, often overlooked as microenterpriselenders, reported 10,130 poverty loans.



WOMEN AS CLIENTS

All regions report that women com-prised more than 50 percent of the clientsreceiving services, fulfilling theMicroenterprise Initiative’s pledge on gen-der. Programs in Africa report by far thehighest percentage of women clients: 85percent. The other three regions sur-passed the 50 percent mark by a solid mar-gin: 68 percent in ANE; 66 percent inENI; 62 percent in LAC.

RURAL VS. URBAN CLIENTS

Microfinance programs also vary byregion in the location of clients served.The majority of clients in microfinanceprograms in the ANE and Africa regionslive in rural areas, while the majority inthe LAC and ENI regions reside in urbanareas. Worldwide, 52 percent of clients ofUSAID-supported microfinance institu-tions reside in rural areas.

SMALL LOANS FOR POOR CLIENTS

USAID continues its strong supportof “poverty lending” programs; these pro-grams have a significant portion of theirportfolio devoted to small loans, as Table6 illustrates. This data is presented basedon the program’s location rather than byfunding source.

Among African institutions, 89 per-cent of their loans are in amounts of $300or less. The ENI region, where povertyloans are $1,000 or less, is next highest at83 percent, while the ANE regionreported 76 percent of its loans were inthe poverty lending range. The microfi-nance programs in all geographicalregions have more than half of total loansin poverty loans. When looked at on aworldwide scale, over two-thirds of allloans are poverty loans.

21

FIGURE 4. Location of Clients: Rural vs. UrbanSetting

TABLE 6. Poverty Loans by Region, 19971

Total Poverty Poverty PovertyMicro Loans Loans as Loans asLoans % of Total % of

(thousands) (thousands) Loans Portfolio

Africa 151.2 135.2 89 70.1

Asia/Near East 554.4 424.0 76 46.0

Europe/NIS 13.7 11.4 83 31.6

Latin America 615.3 327.8 53 13.1

Total 1,334.6 898.4 67 21.3

1Includes only those institutions reporting their poverty lending activities.

TABLE 8. Sustainability of Institutions Supported byUSAID, Percent

Not yet Operational FullySustainable Sustainability Sustainable Total

Africa 72 7 21 100

Asia/Near East 72 4 24 100

Europe/NIS 61 7 32 100

Latin America/ 57 13 30 100Caribbean

Total 65 9 26 100

Selecting Development Partners

USAID chooses its developmentpartners through competitive review.Implementing institutions are evaluatedboth in terms of outreach to target groupsand projected sustainability. These twocriteria together, outreach and sustainabil-ity, can ensure permanent or at least long-term access to services for large numbersof the poor. Award agreements incorpo-rate quantitative and qualitative perfor-mance targets tailored to these two fac-tors.

Investments in training and capacity-building support the objective of achiev-ing quality in service delivery, as doesconscientious monitoring of awardees’performance and timely help when prob-lems arise. In all cases, institutions areexpected to operate using sound financialmanagement practices.

PORTFOLIO QUALITY

Two measures of progress toward sus-tainability are repayment rates and degreeof financial self-sufficiency. Repaymentrates13 for USAID-supported institutionsare expected to be 95 percent or higher.Table 7 shows the repayment rates for insti-tutions reporting 1997 data. Loan loss rate,or the average of losses over several yearsas a percentage of active loans, is a secondmeasure of portfolio quality.

PROGRESS TOWARD FULL SELF-SUFFICIENCY

USAID expects microfinance institu-tions to move beyond dependence on out-side subsidies to self-sufficiency over time.USAID-supported institutions are re-quired to have a credible plan for achiev-ing full financial self-sufficiency within


13The repayment rate used here is based on the amounts of unpaid loan balances with payments outstanding for 90 days. Since a portion of these unpaid bal-ances often are repaid subsequently, this measure overstates non-repayment.

TABLE 7. Average Repayment and Loan Loss Ratesfor Microcredit Institutions by Region, 1997

Repayment Loan LossRate Rate% %

Africa 95.0 2.5

Asia/Near East 95.9 0.7

Europe/NIS 93.6 1.0

Latin America/Caribbean 93.9 2.4

World 94.8 1.8


seven years of initial funding.14 Prior to fullfinancial self-sufficiency, an organizationshould reach operational sustainability,whereby client revenues are sufficient tocover all administrative costs, including loanlosses.

Need for Safe Savings Instruments

The number of savers in USAID-sup-ported institutions exceeds the number ofborrowers. The total amount of savings iscurrently considerably less than the loanportfolio, however. As more microfinanceinstitutions become regulated and are ableto offer liquid savings instruments and com-petitive interest rates on deposits, this num-ber is expected to soar. Historically, wherepoor communities have both options avail-able, savings surpass loans by a considerablemargin.

CECI/Nepal: Kaushila Chand

Kaushila Chand is 27 years old and has a 10-year--old daughter. Her husband left her seven years ago.Through the Women’s Economic EmpowermentProject with USAID/Nepal support, a savings andcredit group was started in Kaushila’s village by theCanadian Center for International Studies andCooperation. Kaushila took the little money she hadfrom raising goats, joined the savings and creditgroup, and invested her earnings. Kaushila took aloan from the group to buy a few goods from themarket to sell in her village.

Kaushila continued to invest her earnings in newactivities, such as buying improved breed goats toraise and growing vegetables to sell in the off-sea-son. The money Kaushila is making from her veg-etables, goats, and shop is ensuring her daugh-ter’s education, which is a priority for Kaushila.Seeing her initiative and active interest, the groupelected her chairperson of the savings and creditcommittee. Since she became chairperson, shehas seen the value of being able to read andwrite, and wants her daughter to be educated.

Source: USAID/Nepal

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TABLE 9. Number of Savings Members and SavingsAmounts by Region, 1997

Number of Savings Savings AmountsMembers (U.S.$ millions)

(thousands)

Africa 145.0 20.0

Asia/Near East 1,008.0 92.5

Europe/NIS 17.5 3.5

Latin America/Caribbean 948.8 256.8

Total 2,119.3 372.8

USAID photo

14Full financial sustainability refers to the case where an institution is able to fully finance the cost of all its operations, including the cost of obtaining fundsand allowing for inflation, with client revenues.

ANNEX AMicroenterprise Results Reporting (MRR)15

Methodology

The MRR team collected the data in this report from USAID officersand microenterprise program staff. USAID officers reported 1997 fundingand then disseminated a questionnaire to all microfinance institutions andumbrella organizations receiving funding for microfinance activities.16

Programs supported by BHR/PVC and the Global Bureau’s Office ofMicroenterprise Development reported data on their activities directly to theMRR team. The Statistical Annex contains the 1997 MRR Questionnaire.

An important change to the database on USAID-supported microenter-prise programs has been the addition of details on all of USAID’s active portfolio(i.e., organizations with active funding agreements), regardless of the year offunding. This addition provides a more complete picture of USAID invest-ments in microenterprise development worldwide than could be presented inlast year’s report.

In 1996, a total of 310 institutions received funds for either the supportof finance programs or for providing non-financial services. In 1997, 481institutions received assistance for either financial or non-financial activities.In addition, USAID funds were provided to 28 mission activities to be sub-obligated to institutions at a later date. Because a portion of the 1997 fundshad not yet been sub-obligated with specific institutions at the time of report-ing, the total number of implementing entities is under-reported.

This year’s data collection reflects a substantial increase in the reportingrate and number of implementing institutions. The number of institutionsproviding data for 1997 is 295. Of that number a subset, 257, received fund-ing in 1997. The number of institutions reporting data is a subset of the totalnumber of institutions that have received funds for financial programs. (SeeTables 10 and 11 below.)

In 1996, of the 243 institutions that received funding for financial pro-grams, 128 provided data on their operations. Thus, the 1996 findings on

25

15USAID has had a system for tracking its microenterprise support efforts since 1989. The current MRR activ-ity, managed by Weidemann Associates Inc., has been responsible for collecting data from USAID-supported insti-tutions for the past two years.

16Microenterprise funding data are for fiscal year 1997. Institutional data may be for either fiscal year 1997 orthe calendar year.


TABLE 10. Microenterprise Institutions Funded in 1997 by Type

Total Obligations Credit Obligations Non-Credit Obligations

Amount Number Amount Number Amount Number($000’s) ($000’s) ($000’s)

Banks 5,124 19 5,124 19 0 0

Business Assocs. 2,288 17 500 9 1,788 9

Consulting Firms 7,089 11 3,069 5 4,020 7

Coops/Credit Unions 9,428 79 9,068 78 360 1

ForProfits/Finance Cos. 38,302 9 38,102 9 200 1

Gov. Agencies 423 2 163 1 260 1

NGOs 16,386 221 12,412 166 3,974 58

Other Institutions1 8,026 20 3,588 7 4,438 14

PVOs 56,444 103 31,813 59 24,631 44

USAID2 21,562 28 10,001 10 11,561 21

Total3 165,072 509 113,840 363 51,232 156

1Includes institutions that do not fit into other categories, such as research institutions and UN organizations such as the ILO. 2Mission projects that have not yet committed funds to particular institutions, Mission support activities on behalf of microenterprises, and the technical assistanceand support activities of the office of G/EGAD/MD.3Note that the total of all institutions does not equal the number for credit and non-credit institutions, as 10 institutions received funds for both types of activities.


TABLE 11. Microenterprise Institutions in 1997Survey by Type

Type All ReportingInstitutions Data1

Banks 20 16

Business Assocs. 19 8

Consulting Firms 12 0

Coops/Credit Unions 83 77

ForProfits/Finance Cos. 17 11

Gov. Agencies 7 1

NGOs 296 128

Other Institutions 23 2

PVOs 136 51

USAID 38 1

Total 651 295

microfinance institutions reflect data from53 percent of those with credit funding. In1997, 71 percent of the institutions withcredit obligations reported data. Thisimproved response rate is encouraging.17

There continues to be room forimprovement in the data collectionprocess. One area for further refinement ispoverty lending data reporting. While theuniverse of institutions submitting micro-finance data for this report was 295, only238 institutions provided data on povertyloans.18 A number of institutions that arenot accustomed to USAID reportingrequirements have begun to implementsystems that will allow them to report onloans in amounts less than $300 (or$1,000 in the ENI) for the first time. As aresult, a steady improvement is expectedin both data quality and accuracy asreported by institutions that have anongoing relationship with USAID.However, for institutions new to USAIDfunding, there will always be some whosesystems are not prepared initially to han-dle this request.

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17In any given year, some financial institutions have no data to report as yet because the program activity is new. In other cases, data pertaining to the lend-ing activities of a number of local implementing institutions are bundled under a single umbrella. Hence the number of total institutions will always be larger thanthe number shown reporting data.

18One institution not included in the poverty lending numbers, Fundusz Mikro, received funds of $18.9 million in 1997. If it were included, this extraordi-narily large obligation provided through the Polish American Enterprise Fund to a single institution would overshadow all the other activities in the ENI region.Since this funding constitutes a large up-front investment aimed at enhancing Fundusz Mikro’s ability to serve smaller customers, inclusion of the pre-award aver-ages would distort the results for this awardee and the entire survey. Data reported by Fundusz Mikro in subsequent years will provide a more accurate picture ofthe clients reached with USAID support.

1Institutions funded for microfinance activities only.

ANNEX BSources of Microenterprise Funding

Appropriated Accounts

USAID operates with a number of distinct funding accounts determinedby the USAID administration and/or Congress. These include:

■ Development Assistance (DA) to be used for long-term development objec-tives worldwide and often containing substantial Congressionally man-dated earmarks (specific uses);

■ Economic Support Funds (ESF), an account for which the State Departmentdetermines the level an individual country receives based on special eco-nomic, political or military significance, after which USAID is responsi-ble for programming the funds for development;

■ Special Assistance Initiatives (SAI), an account used for specific areas of cur-rent foreign policy interest, most recently the Central and EasternEuropean countries, including the Baltic States, under the Support forEastern European Democracy Act (1989); and,

■ Freedom Support Act (FSA), an account established in 1992 to fund activityin the New Independent States.

The amount these accounts have contributed to microenterprise fundingsince 1990 are shown in the table below.

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TABLE 12. Sources of USAID Funds for Microenterprise by Appropriation Account, Millions of Dollars

Fund 1990 1991 1992 1993 1994 1995 1996 1997

DA1 44.6 40.2 61.3 51.6 51.1 77.5 72.9 83.3

ESF 9.6 43.2 34.4 18.2 31.6 22.9 16.1 24.5

Local 21.0 30.2 30.6 23.6 16.6 13.0 12.2 11.8Currency

FSA 21.9 5.7 5.4 20.6

SAI 2.6 16.2 14.4 4.7 24.8

Total 75.42 113.6 126.3 96.0 137.4 133.5 111.4 165.0

1Development Assistance (DA) Funds include the Development Fund for Africa (DFA).2Total does not add up because data on fund accounts not available for Colombia and Oman.

grammed between the host countrygovernment and USAID. This wasmost common in Latin America,where some $4 billion in ESF wasdeployed over the course of the mid-and late 1980’s, the large majority ofwhich was used for balance-of-pay-ments assistance. This generated alarge amount of local currency thatwas still being drawn down in the1990’s after the actual ESF assistancelevel dropped.

b. PL-480: Under Titles II and III of theAgricultural Trade Development andAssistance Act of 1954, (Public Law480 as amended) agricultural com-modities are donated to least devel-oped countries. The revenue gener-ated by the sale of such commoditieshas been utilized for economic devel-opment activities. Among the usesprescribed for local sales proceedsare activities that promote increasedaccess to food through programsdesigned to boost employment andincomes, such as microenterprisedevelopment programs. In accor-dance with utilization plansapproved by USAID, a number ofTitle II cooperating sponsors haveapplied funds toward microenterprisedevelopment activities.


The New Obligating Authority for1997 vs. Other Sources

New Obligating Authority (NOA)money is that which is appropriated byCongress in a given year. It may be madeavailable to the Agency for use over oneyear, over two years, or for an unspecifiedlength of time, in which case it is referredto as “no year” money. The most commoncase is for the money to be available fortwo years. USAID generally tries to oblig-ate as much of the money as possible in thefirst year of availability; however, especiallyif the appropriation authority comes late inthe fiscal year, money may be “carried over”and obligated in the second year. Anothersource of “older” money is deobligation fol-lowed by reobligation of funds for a differ-ent purpose.

Local Currency

In addition to the accounts appropri-ated by Congress, USAID missions orPVOs may have local currency availablewhich can be used to finance microenter-prise work. This source is particularlyappropriate for capitalizing loan portfo-lios and covering operating costs paid inlocal currency. Only expenditures arereported for local currency, since obliga-tions, as such, do not exist. (There is nolocal currency in the ENI region.) Localcurrency is generated from two sources:

a. Balance-of-Payments Support: Incertain instances, a foreign govern-ment receives ESF to use for balance-of-payments support, in exchange formacroeconomic reforms. Whereinflation is not an issue, local cur-rency is often generated against thevalue of the additional dollars in theeconomy. While this type of localcurrency is owned by the host coun-try, it has often been jointly pro-


In Figure 5, USAID microenterprisedevelopment funding is shown as 1) dollarfunding newly authorized for first use in1997, 2) appropriated dollar funds carriedforward from 1996 or reobligated, and 3)local currency.

Approximately $33 million of 1997funding is carryover from 1996. A total of$22 million of this is in the ENI regionalone, of which $18.9 million is the fund-ing for Fundusz Mikro, a large and suc-cessful microfinance organization estab-lished in Poland by the Polish AmericanEnterprise Fund.

Local currency constitutes $11.8 mil-lion of the 1997 funding, and represents a3 percent decrease from the previous year.This is a 61 percent decrease from 1992,the high point for local currency utiliza-tion in recent years. The amounts esti-mated for local currency expenditures in1998 and 1999 are $19 million and $23million, respectively.

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FIGURE 5. Funding of Microenterprise ActivityShowing New Obligating Authority, Local Currencyand Carryover or Reobligations (U.S.$, Thousands)

U.S. Agency for International Development Microenterprise Results Reporting for 1997 33

ANNEX C

Annex DAfrica: A Closer Look

Africa is a priority region for microenterprise development as identifiedin the renewal of the USAID Microenterprise Initiative. USAID missions inAfrica manage a variety of microenterprise development programs that offerfinancial and/or non-financial services and are often targeted to a rural clien-tele. The following is an overview of these programs:

■ In Africa, microenterprise development has often followed disaster reliefprograms or conflict. In Mozambique and Ethiopia, for example, as thelocal situation stabilized, initial revolving credit funds were followed bylarger-scale credit programs financed by monetized PL-480 food aid.

■ The delivery of non-financial services to microentrepreneurs is a focusarea for many missions. In Ghana and Zimbabwe, where USAID mis-sions principally fund non-financial activities, they have also identifiedlack of access to business credit as a major constraint.

■ USAID missions in Uganda, Kenya, Guinea, and South Africa are fund-ing complementary financial and non-financial activities.

■ A number of missions also have microfinance programs funded byUSAID/Washington that will likely be scaling up in the future.

■ Numerous African missions are working to improve the policy environ-ment for private enterprise, microentrepreneurs, and the organizationsthat are providing microfinance services.

Africa Bureau Programs19

■ Uganda

USAID/Uganda places microenterprise work under its strategic objec-tive of “increased rural household income” and works through the successfulPRESTO (Private Enterprise Support, Training and OrganizationalDevelopment) Project. Designed to address the need of entrepreneurs forsecure credit and savings services, PRESTO established its Center forMicroenterprise Finance (CMF).

35

19These country program descriptions came from overviews provided by mission personnel or were obtained from the mission’s “Results Review andResource Request.”

four components, each managed by anNGO or a private firm.

1. The Financing Growth component isdesigned to build the capacity oflocal microfinance organizations andcreate linkages to the private sector.Managed by DevelopmentAlternatives, Inc., this activityincludes a consultant database, aresource center, a staff training pro-gram for local institutions, institu-tional assessments to help the organi-zations assess their own strengthsand weaknesses, and a monitoringand evaluation component.

2. The Non-Financial Marketing,Technology Development, andBusiness Skills component focuses onagricultural microenterprises and ismanaged by Approtec andTechnoserve.

3. The Policy and RegulatoryRestrictions component, managed bythe International Center forEconomic Growth, is designed toidentify and change restrictive lawsand regulations.

4. Finally, a limited grant componentprovides assistance to local microen-terprise institutions to strengthenservices and outreach.

In 1997, USAID/Kenya obligated $1million for microfinance activities and$1.9 million for non-financial microenter-prise activities. In addition, part of a$533,000 grant by BHR/PVC to Freedomfrom Hunger will be used in Kenya.

■ Ghana

USAID/Ghana works with microen-terprises under its objective to “increaseprivate sector growth.” The mission’soverall private sector program focuses onpolicy reform related to trade and invest-


The CMF is a training center and aninformation clearinghouse for NGOs andbanks involved with microfinance. Inthree years, the CMF has successfully sup-ported new NGO finance programs affili-ated with FINCA, Food for the Hungry,Freedom from Hunger, PRIDE/Africa, andWorld Vision; by the end of 1997, theseprograms alone were serving some 17,000clients. Furthermore, the CMF has beeninstrumental in assisting the UgandaCooperative Bank to establish a successfulmicrofinance unit. The CMF also providestechnical support to some 15 NGOs andbanks for sustainable financial servicedelivery. USAID/Uganda reports that in1997 13,808 new borrowers and 19,313new savers were recruited, up from 5,270and 7,500, respectively, in 1996. TheCMF design concept is being explored byother Africa missions as a model for accel-erating microenterprise and microfinancedevelopment.

The PRESTO non-financial compo-nent is a Local Industries Facility forTraining and Technology, assisting micro-and small entrepreneurs to gain access tomore profitable markets through tradefairs, workshops, and industry network-ing.

USAID/Uganda has provided $8.6million in funding to PRESTO in the pastthree years. This has been complementedby an additional $2 million from the cen-trally funded PRIME Fund and $1 millionfrom BHR/PVC through its MatchingGrant program with Food for theHungry/Faulu, Freedom from Hunger,FINCA, and World Vision/MED-Net.

■ Kenya

The goal of USAID’s four-yearMicro-PED project is to increase microen-terprise employment in Kenya by creating100,000 jobs annually through microen-terprise development. The project has


vides business advisory services to microbusinesses that are linked with a growingnumber of farm producer associations.

World Relief pioneered village bank-ing in Mozambique with funding fromBHR/PVC in 1995, and recently receivedapproval for an FY 98 grant. The programhas 4,900 clients and a quarter-milliondollar loan portfolio, making it the largestmicrofinance program in the country.

BHR/PVC is also funding an exten-sion of a Mennonite EconomicDevelopment Associates (MEDA) smallbusiness credit program in peri-urbanareas.

In 1997, the mission and BHR/PVRobligated just under $3 million for non-financial microenterprise activities.

■ Zimbabwe

USAID/Zimbabwe has focused onthe microenterprise policy environmentto achieve broader local ownership ofbusiness and housing assets. The missionaims to:

1. Increase microbusinesses’ access tocapital by testing microfinance mod-els across different target marketsand modes of operation.

2. Foster growth of a national microfi-nance industry by developing a pol-icy environment that encouragesmicrofinance development andexpansion, “best practices” to ensureoperational and financial sustainabil-ity, and increased professionalism inthe industry through training andresearch.

3. Coordinate the efforts of the majordonors to avoid duplication, sharelessons learned, assure the presenceof clear, consistent donor policies,and support mechanisms for microfi-nance growth.

ment. The mission also promotes thegrowth of private sector-led non-tradi-tional exports through the microenter-prise sector. A recent review of missionaccomplishments reported that “USAID-assisted microenterprises engaged inagribusiness and handicraft productiongenerated revenues of over $2 million in1997, which represented a 200 percentincrease over 1996 levels.”

USAID/Ghana obligated $4.5 mil-lion for non-financial activities in 1997. Inaddition, $100,000 was obligated underthe USAID/Washington PRIME project insupport of WOCCU. BHR/PVC oblig-ated $133,000 for Freedom fromHunger/Ghana.

■ Mozambique:

USAID/Mozambique has recentlybecome involved in enterprise and financedevelopment, as the country recuperatesfrom a long and devastating civil war.

At an April 1998 national workshop,a working group of donors and practi-tioners analyzed the framework for pro-moting microfinance development inMozambique. An Action Plan wasadopted and is being promoted under therural development agency, with WorldBank and USAID sponsorship. The mis-sion is working with banks, governmentagencies, its PVO partners, and otherdonors to see how it can best support animproved policy and regulatory environ-ment for microenterprise growth.

The mission funded a grant to theCooperative League of the USA todevelop a network of economically viableand democratically-managed rural enter-prises in the agricultural province ofNampula. CARE, Africare, and WorldVision collaborated in the promotion ofagricultural technologies, notably edible-oil presses. In addition, Technoserve pro-

37

Poverty, a local CRS-funded institu-tion, to develop a detailed businessplan for consideration by interesteddonors, including USAID.

USAID/Zimbabwe is in the processof phasing out, and obligated $35,000 formicroenterprise development in 1997, aconsiderable decline from its usual annuallevel of about $500,000 over the pastdecade. In addition, BHR/PVC provided$125,000 to Opportunity International in1997 for work with its Zimbabwean affili-ate, Zambuko Trust.

38

USAID/Zimbabwe has supported:

1. The development of theZimbabwean Association ofMicrofinance Institutions (ZAMFI), apractitioner’s body designed toencourage adoption of microfinancebest practices by the membershipand advocate that the Governmentof Zimbabwe create a legislativeenvironment conducive to the devel-opment of a sustainable microfinancesector

2. The Masvingo Credit Against


Annex EEurope and the New Independent States: A Closer Look20

The ENI, like Africa, is a priority region identified in the renewal of theMicroenterprise Initiative. USAID’s ENI missions fund microenterprise devel-opment programs that offer financial and non-financial services; however,these programs differ from other USAID regions. In some parts of the region,economies and physical infrastructure are more developed. In addition, theENI programs have a different origin. The SEED (Support for EasternEuropean Democracy) and the FSA (Freedom Support Act) acts were passedin 1989 and 1992, respectively, by the U.S. Congress to provide U.S. assis-tance in the political and economic transition after the collapse of commu-nism in the Soviet Bloc countries.21

Under the SEED and FSA acts, activities have focused primarily on threeareas: economic restructuring (including privatization of large state-ownedindustries); strengthening democratic institutions; and improving the qualityof life. To date, more than 70 percent of program funding has been allocatedto economic restructuring.

On the basis of most social and educational indicators, Central andEastern Europe (CEE) could be classified as a “developed” region, with GNPper capita significantly higher than that of most USAID-supported countries.Therefore, while the activity mix in Europe has included both non-financialand financial microenterprise development activities, the specific programsreflect the different setting.

In contrast, many countries in the New Independent States (NIS) arepoorer and more similar to the countries where USAID has traditionallyworked. Given this situation, USAID is pulling out of the wealthier countriesin the ENI region and shifting its efforts toward the poorer NIS countries. Inthose countries with continuing programs, an emphasis on traditional devel-opment programming will likely lead to additional support of microenterprisedevelopment.

39

20The USAID Eastern Europe region encompasses: Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Croatia,Bosnia and Herzegovina, the Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, Macedonia, and Romania. The New Independent Statesencompass: Armenia, Georgia, Azerbaijan, Russia, Ukraine, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Turkmenistan, and Uzbekistan.

21Monies appropriated under the SEED Special Assistance Initiative and the FSA are appropriated funds for use only in Central and Eastern Europeand the NIS. Furthermore, very little funding from the DA account and none from the ESF account have been used in this region.

The Opportunity International (OI)credit program, the most mature of theUSAID/Russia-supported programs, pro-vides small-scale credit (loans up to$1,500) to women-owned micro-busi-nesses through group lending. By devel-oping Russian NGO partners, OI has pio-neered womens’ cooperative lending pro-grams and small credit programs in west-ern Russia and developed successful busi-ness incubator and leasing programs inNizhny Novgorod and Rostov. The creditprograms have lent more than 2,000loans/leases to Russian entrepreneurs; 87percent of the borrowers are women; andthe programs are estimated to have cre-ated more than 1,200 jobs. Building on itssuccessful track record, OI received addi-tional funding from sources such as theUnited Nations, CGAP, Mott Foundation,British Know-How Fund, and privateinvestors.

■ Poland

The Polish American Enterprise Fund(PAEF) founded Fundusz Mikro in October1994 to extend loans to the microenter-prise community; PAEF set aside $20 mil-lion from its funds for loan capital, most ofwhich was transferred to Fundusz Mikro in1997 as lending began to take off. USAIDalso provided $4 million for operatingexpenses. The target clients were enter-prises with up to five employees. From thebeginning, Fundusz Mikro set out toemploy best practices and reach full finan-cial sustainability within six years. By theend of the third year, September 1997,Fundusz Mikro had reached 50 percent ofits sustainability goal.

The program has expanded rapidlysince its first full year of operations (1995-1996). In 1996, Fundusz Mikro opened 12branches, followed by another 12 in 1997.By the end of 1997, 80 percent of the 6,000clients were being served using a group sol-

40

U.S. assistance in the ENI economicsector began when the U.S. Congressestablished the independent EnterpriseFunds for several CEE countries at the endof the 1980’s. The Enterprise Funds investin local institutions to promote enterprisedevelopment. Although the EnterpriseFunds are generally focused on largerenterprises, many have opened specialwindows for small and microenterprises,often in partnership with NGOs. Anexample is the Polish American EnterpriseFund’s creation of Fundusz Mikro (seebelow), which is providing loans tomicroentrepreneurs. Enterprise Funds inseveral other countries have establishedrelationships with affiliates ofOpportunity International and FINCA.

Greater Loan Sizes: Given the ENI’slevel of economic development, especiallyin Central and Eastern Europe, loan sizesare generally larger than in the traditionalUSAID regions. USAID has established amicroenterprise loan ceiling of $10,000for reporting purposes.

Higher Poverty Lending Cap: Forthe ENI region, the poverty lending capwas also increased to $1,000.

Larger Job Creation: While the ENIclients of USAID-supported microenter-prise development organizations are fewerthan in other regions, evidence to dateindicates that ENI microenterprises oftengenerate proportionately higher levels ofemployment than elsewhere. FunduszMikro in Poland, for example, reportedthat after three years of operations it hadserved 6,000 clients resulting in 3,000 newjobs within those businesses.

The following is an overview ofselected ENI programs:

■ Russia

USAID-funded pilot microfinanceprograms are showing good results inRussia.



FINCA also provides small business man-agement training to its clients, who areprimarily women. Average loan size is$100. To date, more than $2 million inloans have been extended to clients underthe original USAID grant. With thegrowth of a client savings pool—nowlarger than the loan portion of the originalUSAID grant—another $2.5 million inloans have been made. Now in year three,for every $1,069 in loans from the grant,an additional $1,822 is loaned from thesavings pool.

On the legislative side, the KyrgyzParliament passed two significant com-mercial laws, both written with USAIDassistance. The Foreign Investment Lawencourages foreign investment with pro-tections from unreasonable governmentinterference. The Bankruptcy Law stream-lines procedures to liquidate failed busi-nesses, permits entry of new market par-ticipants, and provides an opportunity forreorganized competitive businesses to geta fresh start.

idarity methodology with four or moreborrowers to a group. In 1998, the programwill have 35 branches.

Fundusz Mikro is planning new prod-ucts, including services for its most success-ful clients and products targeted to poorerclients. The program’s annual report statesthat “we believe our parallel developmentboth upwards and downwards will effec-tively balance the respective social andeconomic considerations.”

■ Kyrgyzstan

USAID funded the development ofcredit facilities and supported policychanges that affect microenterprise devel-opment in Kyrgyzstan.

FINCA has been very successful withits microfinance program, which uses avillage banking/group lending methodol-ogy. FINCA serves more than 6,500clients who are organized into 550 groupsand, by the end of the project, will beoperating in all the oblasts of the country.

41

43

Annex FCentrally Funded USAID Programs Supporting

Microenterprise Development

The Office of Microenterprise Development (G/EGAD/MD) was cre-ated to provide in-house technical resources and funding for collaborativeventures between USAID and private partners in the microenterprise field. Toachieve these objectives, the Office uses several mechanisms. MicroServe isan activity designed to increase the capacity of USAID missions and USAIDpersonnel by providing access to short-term technical assistance in microen-terprise development. Through the PRIME Fund, USAID provides co-financ-ing to USAID missions to improve the quality of and increase mission sup-port to microenterprise programs

The Office of Microenterprise Development also manages theImplementation Grant Program (IGP); the IGP provides grants to U.S. PVOsand other multicountry organizations. The Office selects the organizationsthrough a competitive process. The IGP aims to accelerate the growthprocess of local implementing organizations so that they can reach largenumbers of clients. In the case of microfinance institutions, the emphasis is onbecoming profitable; for other business services, the goal is to reach the max-imum cost recovery possible using known methodologies.

The IGP is designed to complement and closely coordinate with theBHR/PVC Matching Grant Program. BHR/PVC has had a long and distin-guished role in helping U.S.-based PVOs in all sectors strengthen their abil-ity to deliver services. Many of the PVOs working in microenterprise devel-opment first partnered with USAID through BHR’s Matching Grant Program.For example, the Matching Grant Program supported Freedom From Hunger’s(FFH) transformation from a PVO focused on food security to one that com-bines microlending with health, nutrition and business education. This eight-year evolution required a new board of directors, new staff, and a new set ofmethodological tools. The Matching Grant Program enabled FFH to developnew systems, build existing staff capacity, use consulting services during thetransformation, evaluate progress over time, and, finally, share its successstory with other PVOs.

The Office of Microenterprise Development also funds and coordinatestwo activities that focus on research and dissemination of new knowledge and successful practices in the sector. Each involves a wide variety of collaborators.


date were recently tested with clients ofODEF (a Honduran affiliate of Katalysis)and those of the village banking windowof Kafo Jiginew (a joint undertakingbetween a Malian credit union andFreedom from Hunger).

In addition to these activities, theOffice manages a series of linkage activi-ties that are designed to foster greaterinvolvement in microenterprise develop-ment on the part of other entities andincrease donor coordination. Theseinclude an agreement with the PeaceCorps to expand microenterprise work,support to interdonor activities, such asCGAP, and cooperative activities under-taken with other donors, such as the Inter-American Development Bank. The Officealso collaborates with other USAIDoffices on topics of mutual interest.

On the capacity-building front, theAgency has been instrumental in develop-ing, with the Economics Institute, a sum-mer training program in Boulder,Colorado, which provides two to sixweeks of intensive training for profession-als involved in the delivery of microfi-nance services. Similiar training was pro-vided in Warsaw for new practitioners inthe ENI.

Finally, the Office manages the MRRsystem that collects microenterprise fund-ing information from USAID offices inthe United States and overseas, and pro-duces an annual report on USAID-sup-ported microenterprise activities.

■ Microenterprise Best Practices (MBP)is a training, research, and informa-tion exchange project that is facilitat-ing a continuing expansion of themicroenterprise knowledge base.With a core research agenda and asub-grant facility to encourage “bestpractices” in the field, MBP worksthrough a consortium of technicalconsultants and practitioners. It isalso intended to help improve thedesign and implementation ofUSAID-supported projects.

■ AIMS (Assessing the Impact ofMicroenterprise Services), a researchand technical assistance program, iscontributing to a greater understand-ing of how microenterprise servicesimprove the businesses and welfareof microentrepreneurs, households,and communities over time. A pri-mary objective is to develop low-costtools that practitioners can use tomeasure the impact of their serviceson beneficiaries. This program alsoinvolves a consortium of technicalconsultants, academics, and PVO/NGO representatives.

The AIMS tools will permit practi-tioners to assess not only their programs’effects on clients, but also clients’ level ofsatisfaction with products and services.Information gathered on clients’ credit usewill provide additional insight into theiroverall strategy for maximizing householdincome and improving their economicand social welfare. The tools developed to

U.S. Agency for International Development Microenterprise Results Reporting for 1997 45

ANNEX G

INDEPCO

Institute for

Development Research

Institute for International

Institute for Liberty

and Democracy

Institute of Cultural Affairs

Institute of Private Enterprise

Development/Guyana

Instituto para el Desarrollo

Hondureno

Instituto Tecnologico de

Santo Domingo

Integrated Development

Foundation (IDF)

Integrated Holistic Approach

Integrated Rural Development

Inter-American

Development Bank

Internat'l Fertilizer

Development Center

International Center for

Economic Growth

International Orthodox

Christian Charities

IRIS/Nepal

Janasewak Savings and

Credit Cooperative

Janashakthi/Sri Lanka

JIGI

Jigiyaso

Jordanian Women's

Development Society(JWDS)

Kabalikat para sa Maunlad

na Buhay, Inc.

Kahublagan Sang Panimalay

Foundation,

KATALYSIS North/South

Development

KATALYSIS/BEST/Belize

KATALYSIS/CDRO

KATALYSIS/ODEF/Honduras

Khuohuka

Kingston Cooperative

Credit Union

KREP/Kenya

Kusile Savings & Credit Coop

KwaZulu Training Trust

La Voz de la Mujer

Lake Mburo

Ligatnes Druva

Lodgecom

LOL/Dairy Farming

Los Andes

Lower Pra Rural Bank

Lubane Savings & Credit Coop

Lukhotse S.C.C.S.

MAG Training Centre

MAGA

Mahila Upakhar Munch (MUM)

Mahila Vikasa

Malarani Savings and

Credit Group

Management Systems

International

Mansoura Foundation

Marano Upliftment

Foundation, Inc.

Masvingo-Credit

Against Poverty

MCC

McFarlane Associate

MEDA

MEDA/CHISPA

MEDA/Phakama Economic

Development Co.(PRT) Ltd

Medical Credit Union

Medunsa Organisation

for Disabled

Mercados Emergentes

Mhlume Workers Coop Society

Micro Enterprise Network

of NGOs

MILAMDEC

Mitra Karya East Java (MIKEJ)

Mount Ayliff Dev.

Movimiento Manuela Ramos

MUDE - Asociacion de Mujeres

en Desarrollo

Mujeres en Desarrollo

Multicredit Bank

Mushroom Women

NACHALA Foundation

Nandom Rural Bank

Nation's Trust

National Bank for Development

(NBD)

National Development

Foundation of Jamaica

National Savings

Bank/Madagascar

National Union of

Eritrean Women

National Council of

Negro Women, Inc

Nazareth Children's Center

& Integrated

Near East Foundation

Negro Women for

Tomorrow Foundation

Nepal Community

Development Center

Nepal National Dalit

Social Welfare

Network of Small Scale

Savings and Credit

NIRDHAN

NIRMALGRAM

Nsoatreman Rural Bank

NTF/Senegal

Nyae Nyae Farmers Cooperative

OEF de El Salvador

Office of the

Presidential Assistant

OI/Albania

OI/Croatia/NOA

OI/Indonesia

OI/Novy Soyuz

OI/Perspective

OI/Philippines

OI/Russia

OI/SEED/S.Africa

OI/Soprichastnost

OI/Vozmozhnost

OIC International

OMAES

Opportunity International

ORES

Organization for Mothers

and Infants

PACT/Nepal

PACT/Peru

PADI

Page-Poverty Alleviation

Pakruojis Farmers Credit Union

Palli Karma Sahayak Foundation

Palli Progoty Sahayak Samity

Passion Fruit Growers

Peace Corps

Pearl S. Buck Foundation

People's Institute for

Development

Peoplink/Guatemala

Peoplink/Philippines

Pietermaritzburg

Business Support

PLAN/HG

PPC

PRADIPAN

PRIDE/Africa

PRIDE/Guinea

PRISMA

Private Sector Foundation

PRODEM

Project Dungganon (PD)

Project Hope/Ecuador

Project Hope/Honduras

PROMUC

ProMujer/Bolivia

ProMujer/Nicaragua

PROPEMI - FUSADES

PROSHIKA

Proyecto Centro Maya

PSBF-Angeles

PSBF-Cebu

PSBF-Manila

PSBF-Olongapo

PVO/Mozambique

PWOFOD

Quebo Associations

Quitafine Associations

RDA

RDRS

REDES

RMCDP

Rodale Institute

ROVA

Rural Credit Union Program

Rural Development Center

for Cambodia

Rural Development Organization

(RDO)

Rural Finance Facility

Rural Financial Markets

Rural Reconstruction Center

Rutec

Salesians Institute

Samaj Bikash Samithi

Samaj Sewa Women Savings

and Credit

SANASA Federation

SANGAMITRA/MYRADA

Saphunila Savings

& Credit Coop

Sartawi

Save/Armenia

Save/Azerbaijan

Save/Bangladesh

Save/Egypt

Save/El Salvador

Save/Ethiopia

Save/Georgia

Save/Haiti

Save/Jordan

Save/Lebanon

Save/Mali

Save/Mali -group

Save/Mozambique

Save/Nepal

Save/West Bank

SEA

SECID

Seed Capital Guarantee

Fund/Ecuador

SEEP Network

Servipro

SETU

SEWA

SEWA/Nepal

Sewela Savings & Credit

Coop Society

SHALE

SHARE

Share/Guatemala

Sharkia Business Association

for Community Development

(SBACD)

Sibonglo Savings & Credit

Coop Society

Sinapi Aba Trust

Sisebenza Nawe Business

Development Network

Sissian Business Center

Siyakhula Savings and

Credit Coop Society

Siyembili Savins and Credit

Small Enterprise Development

Assoc. Port Said

SNAT SCCS

SNF-UNIDAD de Bancos

Del Progresso

Society For Promotion of Health,

Education & Rural Social

Awareness Center

Society for Rural Improvement

(SRI)

Society for Social Service

Sohag CDA

SOLIDARIDAD - CESS

South Asia Research

Society (SARS)

South Cross Business

Development Trust

SOYNICA

SRIZONY

St. Joseph Community Center

Superintendency

of Banks/Bolivia

Support Activities for

Poor Producers of

Svay Rieng Community

Development Project

TACF

Taurene Credit Union

Technology Initiative

for the Private Sector

TechnoServe

Technoserve/Ghana

TechnoServe/Kenya

TechnoServe/Mozambique

Thangamara Mohila Sabuj

Sangha

Thekwini Business

Development Centre

TSPI Development Corporation

TURBO Systems/ Action

for Enterprise

UCC/Cambodia

UDDIPAN

UGAFODE/Uganda

Uganda Flower Growers

Uganda Multipurpose Training

& Export Association

Uganda Vanilla Assoc.

UMCOR (United Methodists)

UNDP

University Research Corp.

International

UNRWA - Income Generation

Office/Gaza

UPAKAAR

Uswag Development

Foundation, Inc.

Veselava Credit Union

Vievio Taupa

Village Institute of Social Action

(VISA)

VITA Volunteers in

Technical Assistance

VITA/Al Amana/Morocco

VITA/Benin

VITA/Guinea

VITA/South Africa

VOCA/ACDI/Romania

VOCA/Azerbaijan

VOCA/Georgia

VOCA/Kazakstan Community

Loan Fund

Volkhov International Education

Foundation

Weidemann Associates

Weidemann/Jamaica

WOCCU

WOCCU/ARP

WOCCU/Bolivia

WOCCU/Ecuador

WOCCU/Ghana

WOCCU/Kenya

WOCCU/Malawi

WOCCU/Mozambique

WOCCU/Niger

WOCCU/Romania

WOCCU/Swaziland

WOCCU/Uganda

WOCCU/Zimbabwe

Women’s Health Improvement

Women in Rural Enterprise

Development

Women's Development

Association

Women's Enterprise

Development Program

Women's Welfare &

Environment Save Center

Wonji Catholic Church

Workers Bank

Working Capital Russia

World Education/Mali

World Education/Ntinga

World Education/PIEC

World Relief Corporation

World Vision Relief &

Development, Inc

World Vision/Armenia

World Vision/Azerbaijan

World Vision/Georgia

World Vision/Mozambique

WRC/Burkina Faso

WRC/Cambodia

WRC/Honduras

WRC/Mozambique

WRC/Rwanda

WSU Small Business Centers

WV/ASODECO/Peru

WV/CAPA/Romania

WV/MED-Net/Uganda

WV/SEDA/Tanzania

WWBG/MASU

Yakan Integrated Resource

Development

YMCA

Youth Charitable Organizations

Zambia Association of Chambers

of Commerce

Zambuko Trust

Zimbabwe Association of

Microfinance

cont

inue

d fr

om in

side

fron

t cov

er

U.S. Agency for

International Development

Washington, DC 20523

The USAID

microenterprise

web site, www.mip.org,

contains the latest

microenterprise research

and reports, and

links to other informative

microenterprise web sites.

Photograph:

Jon Warren,

World Relief

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