Designing Microfinance from an Exit Strategy Perspective

This paper states that exit strategies or hand over phases of microfinance programs in bilateral projects have not proven to be very successful. Paper explores the critical issues raised by the exit strategy approach used at the outset in the Chongqing Comprehensive Poverty Alleviation Project (CCPAP) in designing its microfinance program. Looking at factors responsible for the poor success of the CCPAP exit strategies, the paper says that the:

• Internal monitoring and governance structure was not adequately institutionalised to carry on after the project;
• Momentum that the project had built up during its life had not created the necessary infrastructure nor a sound enough governance base to carry it across the gap and enable it to operate at the standards required to obtain a secure external capital investment.

States that when designing a microfinance program, it is necessary to filter all design decisions and every element of the microfinance program in the arena of:

• Management and monitoring;
• Management information systems (MIS);
• Field delivery resources.

It concludes that institutions, groups and processes whose sole purpose is to facilitate the project implementation rather than to promote post project sustainability tend to develop a vulnerability that usually leads to failure of the microfinance program. The paper recommends that a clear distinction must be made between the outcome(s) of community participation, training and income diversification activities and whether any of those outcomes contribute to a sustainable exit strategy oriented microfinance program.