Linking Debt Relief to Microfinance - An Issues Paper

This concept paper provides a framework for ongoing field operations by the 'Social Finance Programme', advising governments and social partners on building pro poor sustainable microfinance capacities. The paper:

• Tries to make a brief appraisal of the potential for linking the issues of debt-relief and microfinance development.
• Focuses on Sub-Saharan African countries to develop its ideas and to review the current practices.

The paper is structured in three sections as follows:

• Section one:
  • Looks at theoretical issues;
  • Establishes the necessary conditions for donor operations on debt relief to be optimal interventions;
  • Focuses on additional resource generation and the desirability of earmarking;
  • Applies this general conceptual frame to 'debt-for-microfinance swaps'.
• Section two reviews linking practices that are already active.
• Section three suggests some practical steps for further study and operational networking on the issue.

The paper:

• Divides the total impact of debt relief initiatives into two components:
  • The impact on the amount of resources available and their productivity;
  • The way donors try to influence the use of funds.
• Describes micro, sector and macro-earmarking.
• Examines the integration of microfinance into debt-relief, including the practice of debt-swaps.
• Explains various ways in which debt relief is useful in microfinance to correct market failure.
• Presents examples of debt relief and microfinance.