VII National Conference Microfinance in Russia:

1

• VII National Conference Microfinance in Russia
• New Technologies of Success
• Workshop on Assessing the Effectiveness of Public
  and Private Microfinance Support Programs
• 21 November 2008
• Severine Deboos
• Social Finance
• www.ilo.org/socialfinance

2
Efficiency a core criteria for decisions on
support to MF

• I- Why public support for MFIs?
• II- Performance of MFIs financial and social
• III. Comparability of performance
• III- A third performance dimension efficiency
• IV- The specific context in Europe and the CIS

3
What is the case for public support to MF?

• Overall amount estimated between 800 million USD
  and 1 billion per year (CGAP, 2005)
• MFIs expected to be self financing, so why public
  support?
• Public support why, when, how, for how long, on
  which conditions?

4
Performance in microfinance between
profitability and social impact

• ILO study of 45 MFIs worldwide
• MFIs inefficient both in terms of social and
  financial performance
• MFIs good as social performers
• MFIs good as financial performers
• MFIs performing well socially and financially

5
Performance two dimensions
6
A closer look at financial performance OSS and
FSS

• 12 lt 100 OSS neither operationally nor
  financially sustainable
• 17 gt operationally sustainable, but not
  financially sustainable
• 16 both operationally and financially sustainable

7
A larger sample 1308 MFIs from the MIX
590 MFIs have OSS gt 100
8
A typical financial performance path
9
Implications for public policy

• So
• Financial sustainability does not necessarily
  mean reduction of poverty
• Good financial performance can cover up
  inefficiencies (situation of monopolist MFIs)

10
Improvements in performance in terms of more
efficiency
11
Efficiency in MF

• Given multiplicity of goal combinations in
  microfinance efficiency is best measured relative
  to a similar institution closest to the
  efficiency frontier the best of the class
• The level of efficiency can be established on the
  basis of input and output variables
• For an MFIs performance to be qualified as more
  or less efficient, there is a need for
  information on a batch of comparable MFIs
• Efficiency best assessed between MFIs of the same
  country
• Some determinants of efficiency can be influenced
  by managers, other not
• They should be held accountable only for
  endogenous drivers.

12
Efficiency does not guarantee profitability
Institution operat. costs./portfolio (efficiency) (RoA) (profitability)
DAI sample 49.4 6.6
BancoSol, Andes, FIE 14.56 0.7
Finamerica, WWBs 19.9 7.8
Adopem 23.2 10.3
Calpia, Enlace 42.7 7.4
Compartamos 59.4 12.1
Confia, finde 23.2 5.3
Visión 21.1 3.2
CMACs 21.5 3.2
Fucac 11.9 0.3
Moyenne excl. Brésil 23.1 3.4
Note n.a. not applicable ROA return on
assets. Source MicroRate website. Ratios are for
June 2001.
13
General public support measures geared to enhance
efficiency

• Apex funds
• Regulation
• Monetary and financial market policies
• Fiscal treatment of MFIs
• Capacity building

14
Public policy measures addressed at individual
MFIs

• Start-up support
• Operating support
• Soft loans
• Capacity building

15
Smart and not so smart subsidies cf J.
Morduch

• The debate on subsidies from anti- position
  formulated in the CGAP Pink Book to a softened
  position
• Smart subsidies
• subsidies are neither inherently useful not
  inherently flawed
• interventions designed to maximize social
  benefits while minimizing distortions and
  mistargeting
• Factors for evaluating
• financial and social opportunity costs and risk
• potential to  crowd in  other donor support
• Smart subsidies are transparent, rule-bound and
  time-limited

16
Subsidies for more efficiency conditionalities

• Link operating support to measurable improvements
  in efficiency in relation to a best in class
• Agree beforehand on efficiency drivers that can
  be influenced by management
• Contractualize the grant
• Make it longer term, but with a definite sunset
  date
• Discontinuation if failure to comply
• transparency

17
Europe and the CIS

• Contextual factors
• Access to funding limitations on savings
  collection and shifting away of donors support
• Competition commercial banks entering the market
  of small entrepreneurs loans
• Legal constraints
• Within this context which public support to
  foster efficiency of MF?

18

• The debate is open!
• Thank you for your attention
• Severine Deboos
• www.ilo.org/socialfinance