Donor Support for Microfinance Activities: Opportunities and Best Approaches

This paper discusses the role of donors in microfinance development.

The donor community spends an estimated US $800million – US $1billion per annum on microfinance globally. Donors value microfinance because of its role in poverty reduction. They can promote the development of MFIs by identifying and supporting promising local organizations whose objectives and operations they can support. Donors can provide technical assistance for institutional capacity building. They can also support MFIs by having a credible work plan and strategy for reaching sustainability.

Donors support should, however, be temporary. Donors should:

• Develop a clear strategy for microfinance that adheres to accepted good practices and forms an integral part of the financial sector;
• Establish consensus on when and how subsidies should be used to support microfinance;
• Take risks by working with less well-known, but promising institutions;
• Introduce appropriate financial instruments that address the needs of the poor;
• Collaborate and cooperate globally and at the country level;
• Review progress towards sustainability;
• Promote advocacy and implement pilot microfinance programs that target private sector-led approaches in financial intermediation.