1. Danida support to the microfinance industry

2. Overall objectives of Denmark’s development cooperation Overall objective To combat poverty and promote human rights, democracy, sustainable development, peace and stability Green growth Promote sustainable development through green growth, income generation and employment Promote innovative technological and financial solutions Promote resource-efficient food production Promote access to sustainable energy and more efficient use of energy and natural resources Support to financial services is cross-cutting

3. The role of donors in developing financial services Many poor people have got access to financial services, but the percentage of un-served people has probably not decreased Donors to facilitate the on-going positive development of the microfinance industry. Donors to directly or indirectly support the poorest segments (households and micro/small enterprises). Facilitate access to high quality, convenient and affordable financial services Donors to support the development of an enabling environment for financial services (policies, regulatory framework, financial infrastructure, capacity), which can facilitate mobilisation private investments

4. Danida’s financial services portfolio A total financial service portfolio of about DKK 1 billion. Annual spending about DKK 200 million corresponding to about 1.3% of Danida’s total annual development assistance About 30% of the portfolio is microfinance and 70% is MSME finance. More than 80% of the support goes to Africa Support to financial services is often an integrated part of business sector programmes. Often basket funded support together with other donors Support mainly allocated to capacity building, lines of credit and guarantee funds

5. Who are our partners Regulatory authorities (central banks and ministry of finance). Very limited Danish support and mainly together with other donors Apex organisations and BDS providers. Capacity building support Specialised financial intermediates, that implement through financial institutions and specialised NGOs. Trusts like FSDT/Tanzania, PASS/Tanzania, AbI Trust/Uganda, ZART Trust/Zimbabwe or DFIs like KfW/Bosnia & Herzegowina Private commercial banks (e.g. CRDB/Tanzania, ARB Apex Bank/Ghana, RCPB/Burkina, BANPRO & BANCENTRO/Nicaragua) Specialised NGOs working directly with the target groups

6. How do we assess interventions and partners General assessment Will be part of our normal preparation, appraisal and approval process Specific issues to be considered Country context – the political and macroeconomic environment, markets, target groups and their needs etc. Are we alone or together with other donors Time perspective – medium or long-term intervention Legal, financial, institutional and managerial status and performance of partner institutions (pre-qualification, tender and due diligence may be applied) Prefer relatively big, professional and specialised partner institutions with a good track record Agreements with partner institutions including exit strategy and use of possible remaining funds after exit

7. Some general lessons learned from a donor perspective Be prepared for a long-term engagement – often more than 10 years Financial service and capacity building of financial institutions should be closely linked Select (when possible) relatively big, professional and specialised partner institutions with a good track record The exit strategy and procedures should be well defined and clear to all parties The risk of loss and fraud is limited if well prepared Impact can be significant. The best results have generally been achieved within MSME finance

8. A changing microfinance sector How do we define microfinance and MFIs? CGAP survey on the role of MFIs in serving Micro and Small Enterprises Objective: To better understand the current and potential role of MFIs with regard to serving small enterprises Survey based on a sample of more than 350 MFIs in 6 regions and 69 countries Survey conducted in 2011 and study completed in 2012

9. CGAP survey on the role of MFIs in serving Micro and Small Enterprises Main findings: 78% of MFIs reported that serving small enterprises is part of their business strategy 69% of MFIs reported that their small enterprise portfolio is increasing. 16% reported a stable portfolio and only 9% a decreasing portfolio MFIs particularly want to serve small enterprises because of: a) Business growth opportunities, and b) a wish to follow their micro clients graduating into the small enterprise segment 54% of MFI use loan size as criteria to define small enterprises. 33% use number of employees

10. CGAP survey on the role of MFIs in serving Micro and Small Enterprises Main findings continued: 49% of the MFIs have a separate methodology for small enterprise risk assessment; 51% do not! 56% of MFIs monitor micro and small enterprise portfolio separately; 44% do not! 39% of MFIs have dedicated staff for small enterprise clients; 61% have not! Main internal challenges faced by MFIs: Lack of appropriate risk assessment methodologies; lack of specialised staff; lack of internal processes such as MIS