Consultation on draft NGO report focusing on micro-finance issues
11 October 2005
A meeting was held at the World Bank office with a range of individuals working on micro-finance issues (NGOs, apex bodies, regulators, donors and academics – full list in Annex I) as part of a series of thematic discussions[1]on the draft Economics and Governance of NGOs report.
David Hughart (Operations Advisor) kicked off the meeting outlining the rationale and main objectives of the study. He invited everyone to give their candid feedback on the report and stressed how much we valued the expertise around the table. Two presentations followed – one summarizing the draft report (Hassan Zaman) and another on the issues relating to micro-finance (Shamsuddin Ahmad). The floor was then open for comments, summarized below.
Overall comments: The general consensus was that the report was comprehensive and a fair reflection of the current state of the NGO sector. Participants appreciated the balanced view that the report offered and the overall quality of the report. One participant observed that some more sectors could have been covered such as the work of NGOs in environmental issues.
Interest rates: There was considerable discussion on the fact that PKSF instructed its partner NGOs to reduce on-lending interest rates to clients from 15% to 12.5% in June 2005. Certain NGOs claimed they have had to reduce their emphasis on the poorest and curtail their programs in remote areas. PKSF claimed that all their partner organizations (POs)aresustainableeven with lower interest rates and feel that the POs should share their surpluses with the poor by lowering the cost of credit. This discussion was concluded by agreeing that a review needed to be done in the coming months by a research group or apex body of the impact of this policy change on access to the poorest.
Regulatory framework: There was a consensus that the current regulatory framework is outdated, and that changes should focus on NGO governance and not on micro-management of foreign funds to NGOs. The Bank was requested to maintain a dialogue with the Government on the new draft law on micro-finance. NGOs did not feel they had been sufficiently consulted in the preparation of the new law and were concerned that it may contain regressive provisions.
Separation of advocacy and service delivery roles: It was pointed out that it is not always possible to separate the advocacy and service delivery functions of an NGO. The example of legal aid service was cited, which requires advocacy on legal empowerment for the service to be effective. Hence the suggestion in the draft report that this be done for NGOs that want to engage in advocacy on contentious issues needs to be nuanced with the practical difficulties of doing so.
Geographical coverage and targeting the poorest: There was a discussion as to why certain areas are still underserved as well as the problems faced in including the hardcore poor in micro-finance programs. One reason was that certain areas may not have the economic opportunities or the infrastructure available that would make microfinance a profitable venture. Another reason was that the initial set-up cost is quite high in such areas in which cases, subsidies may be justified. There was also a comment that, in the case of the extreme poor, we move beyond microfinance and examine the livelihood constraints and opportunities of the extreme poor and work with a combination of grants and credits to meet their needs.
Financing NGOs: It was questioned whether securitization would be an appropriate instrument as a means of finance since MFIs require perpetual financing. However, it was clarified that microfinance securitization could be carried out on a perpetual basis by setting up such a Trust, or it could be issued from time to time, depending on how often the MFI neededto raise funds from the market. It also has the advantage of removing the microfinance loans from the balance sheet of the MFI through a “true sale.” It was felt that the role of commercial banks in microfinance is understated in the report. Moreover with regard to NGO linked businesses it was pointed out that the rationale for entry could be both as social venture capitalist and to maximize revenues and these are not necessarily alternatives. Another point was that some sort of a trust could be set up to mobilize private charitable contributions for development NGOs.
Other points
- The phrase “franchising model of expansion” should be further elaborated.
- The strategic compact should also incorporate the private sector.
- The role of Bangladesh Bank as a regulator of the financial market could be further explored.
- The compression ratio for NGO salaries may be higher than the 10:1 suggested in the report and PKSF will provide data showing this
Annex I - Attendees:
- Dipal Chandra Barua, Grameen Bank
- Atiqur Nafi, INAFI
- Md. Abdul Awal, CDF
- S.M.A. Rakib, Buro Tangail
- Dr. Masudul Quader, DSK
- Md. Moksud Alam, Swanirvar Bangladesh
- Ms. Lila Rashid, Bangladesh BAnk
- Fazlul Kader, PKSF
- Md. H.H. Siddique, TMSS
- Imran Matin, BRAC
- Sajjad Zohir, BIDS/ERG
- Shaila Khan, UNDP
- Shabbir A. Chowdhury, BRAC
- Tofazzel Hossain, RIC
- Abul Haseeb Khan, RIC
- M. Tajul Islam, FNB
- Zahirul Alam, IDF
- Alexandra Orsola, BRAC
- Vivek Prakash, BRAC
- Syeda Obviada Haq, Shakti Foundation
- Asma Begur, Shakti Foundation
- Md. Giash Uddin Pathan, PROSHIKA
World Bank:
- David Hughart, SACBD
- Hassan Zaman, SASPR
- Shamsuddin Ahmad, SASFP
- Sandeep Mahajan, SASPR
- Yaniv Stopnitzky, SASHD
- Rehnuma Amin, SAREX
- Aneeka Rahman, SASPR
[1] An earlier presentation was made to the Local Consultative Group (LCG) sub-group on NGOs and future meetings are planned on advocacy issues and education issues. A policy level discussion will be held after these thematic consultations.