Managing the Floodgates - Making the Most of International Flows of Microfinance Funding

This paper was commissioned by the Microcredit Summit Campaign in 2006. The note summarizes the quality, flow and quantity of international public-private funding for microfinance, identifying the following six types of primary funders of microfinance:

• Bilateral donors;
• Multilateral development banks and organizations;
• International financial institutions (IFIs);
• Private foundations;
• Private individual and institutional investors;
• Private individual/institutional donors.

It describes the levels through which microfinance funding flows down from the primary funders through diverse intermediaries, to financial institutions serving the poor. The document lists the following trends in microfinance funding:

• Private flows from foundations and social and commercial investors are increasing;
• Public flows continue from bi- and multi-lateral donors;
• IFIs are an increasing source of direct funding;
• Most funders fund intermediaries rather than support microfinance providers directly;
• Many new apexes are springing up - often with significant donor funding;
• The number of stand-alone microfinance programs is increasing;
• Investments remain highly concentrated.

The note discusses:

• Challenges to microfinance funding;
• The importance of transparency, performance measurement and partnerships;
• Suggestions for various kinds of donors.

It concludes that:

• Private players could provide a boost to financial access, by taking smart risks and introducing innovations necessary to achieve massive scale;
• Traditional development agencies need to concentrate on areas that w ill not attract private funds;
• All funding sources need to concentrate on core strengths to provide rational and robust funding decisions.