Grameen Trust on CGAP Views To Expand Microfinance for Poverty Alleviation, What is the Main Constraint? Capital or Capacity Building? ——Grameen Trust Experience By Lamiya Morshed *

1. If it is really true that there are large amounts of unspent money available for microfinance, most practitioners don't know about it or about the process involved in accessing these funds.Practitioners around the world, including Grameen Trust partners, are poised to expand quickly to reach large numbers of poor, but have struggled desperately to access funds in the amounts necessary to fuel their expansion.

2. The answer to the question, "Is it Capacity Building that is needed or Capital?" is clearly, both. An organization that does not have well-trained staff, where training is provided by an experienced practitioner on the ground, is unlikely to progress very far even when funding is available. Lack of training results in costly mistakes for microcredit programs.

3. With respect to the provision of training, the CGAP paper observes that donor staff do not have the capacity to provide reliable and consistent technical expertise. Instead of trying to provide training directly, donors could support wholesale funds that provide both funding and training/TA, such as what Grameen Trust and Palli Karma Sahayak Foundation (PKSF) have been doing since their inception. Grameen Trust (GT) and many ofestablished partners in other countries have developed training centers which have been providing cost effective, tailor made training to newcomers in the field within their own countries as well as abroad.

4. The paper argues that donor subsidies are discouraging established microcredit organizations from sourcing commercial funding. In reality, there aren't sufficient donor subsidies available at all, to meet the funding needs of the established microcredit programs particularly on their path to financial self sufficiency. The reality for microcredit practitioners is that there are insufficient donor subsidies on the one hand, and continued lack of access to commercial sources, on the other.

5. The paper states that donors too often hanker after the same successful microcredit programs instead of finding new ones to fund. This is a niche that GT has been filling since inception. Its growing network enables it to identify new organizations entering the field of microcredit for the poor. Grameen Trust is unable, however to meet the need of the many organizations that have applied to it for start up funds.

6. The point raised in the paper about narrow targeting of donor funds as a reason why microfinance for the poor is not expanding quickly enough is correct. Donor pre-conditions such as funds only for operationally self sufficient microcredit programs, discourage many promising MFIs from applying.

7. The point made in the CGAP paper that donors' country level programming often prevents funding to regional or global network is relevant to Grameen Trust which finances organizations all over the world. The experience too often is that the head office of the donor organization will refer GT to its country office and the country office in turn will say "Sorry, we can't fund because you are providing funds to other countries". That is where the process gets stuck. Existing mechanisms of funding by certain donors and their difficulty in moving away from them, has been a reason why wholesale funds such as GT have not been able to access funds.

8.The paper explores the reasons why microcredit organizations do not access guarantee facilities to support their programs. In the case of Grameen Trust there is the basic foreign currency risk issue. The condition in many cases is that the guarantee fund would be held in a bank account against which GT could borrow up to the amount (and eventually more than the amount of guarantee fund), to lend to local MFIs in local currency. However, in case of default, GT would be required to replenish the guarantee fund in hard currency. GT and other organizations like it, would find it difficult to undertake this responsibility. Social investors could rethink such issues and work out more appropriate mechanisms to cover currency risk.

9.The recommendation at the end of the paper that donors should fund small riskier organizations, fits exactly with the way Grameen Trust has been working. Instead of funding directly, however, it would be most effective for donors to channel their support through wholesale funds such as GT and PKSF, which have the mechanisms in place to reach small programs. The paper says that more up-to-date information on small MFIs and where they work should be made available. The Microcredit Summit already reports on 2,600 organizations in 120 countries. GT reports on 108 organizations in 34 countries. A review of the performance of Grameen Trust and that of its partners, could be a good starting point for donors.

Grameen Trust Performance

To date, GT has supported 108 programs in 34 countries of Asia, Africa, Latin America, Europe and the Pacific. From 18,000 members in 1993, Grameen Trust partners had reached by June 2001 nearly 740,000 families. Assuming that each family has five members, then the benefit of these loans have accrued to approximately 4 million poor persons. Up to June 2001, Grameen Trust has disbursed US$ 9.2 million as loans to its partners. The cumulative loan amount disbursed by GT's partners to poor families up to June 2001 is US$ 272 million. The overall repayment rate of GT partners at their field level is 96%.

PKSF Performance

It is also worth looking at the experience of PKSF Bangladesh which was set up in 1990 to provide financing and training to microcredit programs that work with the poor in Bangladesh. By the end of 2000, PKSF Bangladesh had supported more than 189 partner organizations in Bangladesh. It had disbursed US$ 140 million to these organizations. The partner organizations affiliated to PKSF in their turn have extended around US$ 411 million loans to borrowers. The loan recovery of its partner POs at the field level is 99%.PKSF has made a very significant contribution towards the growth of a vibrant microcredit sector in Bangladesh.

Conclusion

GT and PKSF already have effective mechanisms in place to support microfinance directly. GT, with its experience in support for microcredit programs around the world, has the capacity to scale up its support to its partners and to undertake microcredit programs for the poor directly in any locality or region. Wholesale funds such as GT and PKSF are able to screen and monitor large number of microcredit programs according to standard criteria. They are able to keep costs down because of their location in a developing country. Wholesale funds contribute to good management practices and standard reporting systems, doing away with the need for multiple reporting to multiple donors. They provide a convenient one-stop source of fundingwhich can provide uninterrupted refinancing for microcredit programs. Wholesale funds, therefore, are an efficient, quick and cost effective way of supporting microcredit. They play the important function of financial intermediation and also contribute towards development of sustainable microcredit programs.In the search for new approaches, donors will find that the wholesale fund is an appropriate and effective vehicle for supporting microcredit for the poor. The author is an Assistant General Manager of Grameen Trust