Decentralization Empowers Local Technical Staff: Sida's Catalytic Role in Forming a Stakeholder-led Microfinance Network in Nicaragua
In 1998, the microfinance sector in Nicaragua was threatened by strict financial regulation, adopted after the failure of several commercial banks. The Swedish International Development Cooperation Agency (Sida) recognized the threat to the rural poor's access financial services. This paper discusses the impact created by Sida that facilitated the creation of Association Nicaraguenese de Instituciones de Microfinanzas (ASOMIF), one of the first national microfinance networks in Latin America.
In Nicaragua, in mid 1990s, despite increasing demand for microcredit among the rural poor, many banks, including state-run financial institutions, closed and the local MFIs found it increasingly hard to cater to the demand. It was during such times, that Sida, along with a group of diverse MFIs, created ASOMIF to:
- Engage the Government in a dialogue on regulatory and supervisory issues;
- Develop a positive public image for microfinance;
- Share group data and standardize operations to improve transparency.
ASOMIF adopted the following strategic objectives:
- Improvement of the legal regulatory framework for microfinance in Nicaragua;
- Design and execution of a system of indicators to allow local MFIs to analyze performance results;
- Strengthening of the institutional capacity and technical know-how of member MFIs;
- Reduction of MFI institutional risks by creating a risk center for microcredit.
Highlighting the successes of ASOMIF - doubling its membership in six years, creating an autonomous credit bureau and improved transparency in MFI reporting - the paper cites the following reasons:
- Decentralized decision making;
- Use of technical specialists;
- Emphasis on local ownership;
- Investing in a plan, not an activity;
- Limited funding and performance-based objectives.
The paper concludes that technically-skilled Sida employees, working with local specialists, became familiar with Nicaraguan microfinance issues and laid the foundation for an effective ASOMIF initiative.
