Good Practice Guidelines for Funders of Microfinance (Microfinance Consensus Guidelines)

This paper sets out certain guidelines to raise donor staff awareness of good practice and to improve the effectiveness of donor operations in microfinance. The paper argues that:

• Microfinance should provide poor clients with a variety of financial services such as credit, savings, transfers, payments and insurance;
• Financial services for the poor should be integrated into overall financial systems. Donor funds should complement, not replace private capital and accelerate innovative market solutions.

The paper identifies micro, meso, and macro levels at which microfinance should operate:

• Micro level: Donor funds should support financial and non-financial institutions that provide services directly to poor clients and help them reach financial sustainability;
• Meso level: Donors should support the overall infrastructure of the financial system comprising quality auditors, rating agencies, networks and associations, credit bureaus, transfer and payment systems, information technology and technical service providers;
• Macro level: Donor support should aim to create a stable macro-economic and policy environment. Donors should not support the direct provision of financial services by governments.

Each donor should act upon its comparative advantage. Donor agencies should define their strengths and identify partners that complement their capacities.The paper concludes by identifying certain areas where microfinance good practice still needs to be defined.