Binh Nguyen, Asian Development Bank, Philippines, Research Symposium, Effective Practices in Microfinance and Financial Inclusion

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Why Microfinance Rocks

Asian Development BanksMicrofinance Assistance Program, 2000-2010Key Findings of an Independent Evaluation18th Microcredit Summit: Frontier Innovations in Financial InclusionAbu Dhabi, 17 March 2016

Asian Development BankIndependent Evaluation DepartmentBinh T. Nguyen

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#BackgroundIn May 2000, the Asian Development Bank (ADB) issued a microfinance development strategy to provide broad guidance to its microfinance operations.

The goal was to ensure permanent access to institutional financial services for a majority of poor and low-income households and their microenterprises.

The strategy focused on: (i) creating a policy environment conducive to microfinance; (ii) developing financial infrastructure; (iii) building viable institutions; (iv) supporting pro-poor innovations; and (v) supporting social intermediation.

This presentation is based on the evaluation Microfinance Development Strategy 2000: Sector Performance and Client Welfare conducted by ADBs Independent Evaluation Department in 2012. It focuses on the key findings of this evaluation.

The report can be downloaded at: http://www.adb.org/sites/default/files/evaluation-document/35899/files/ses-microfinance-strategy-0.pdf

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#Objectives of the Evaluation

Assess the performance of the microfinance assistance program provided under the strategy [in developing viable and sustainable microfinance systems for majority of the poor]

Assess the welfare effect of microfinance

Provide recommendations for future interventions

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#Scope of WorkPortfolio assessment: Portfolio 2000-2010: 78 microfinance projects of $2.5 billion in 21 member countries Evaluation criteria: relevance, responsiveness, and results Projects were rated individually and the scores were aggregated to country, regional, and overall portfolio scores, weighted proportionally to the program size

Six case countries: Cambodia, Pakistan, Papua New Guinea, Philippines, Uzbekistan, and Viet Nam: 33% of ADB microfinance portfolio during 2000-2010 Interviewed 15 MFIs, rural banks, credit and savings cooperativesSurveyed 56 service providers (MFIs, rural banks, credit and savings cooperatives) and 608 clients

Two impact evaluations:Pakistan Microfinance Sector Development Program, 2000-2008Viet Nam Rural Enterprise Finance Project, 2000-2007

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#ADBs Microfinance Portfolio 20002010Intervention ModalityNumberAmount($ million)PercentProgram and sector development loans131,864.1066.77Project loans and private sector investments12773.8027.72Microfinance componentsa1381.302.91Grants and technical assistance 5072.702.60Total882,791.90100.00

a The amount listed is the allocation for microfinance components only. Source: Asian Development Bank project database. Portfolio of assessment: 78 projects, $2.5 billion, 21 countries(excluding 10 regional projects).

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#TA = technical assistance.Source: Independent Evaluation Department calculation based on Asian Development Bank project database.

Overall Portfolio ScoresKey Findings

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#SummaryInterventions were well designed and aligned with government sector development strategies. However, they were less than effective in delivering intended results. Intervention modalities: Program and sector development loans scored highest. [They were most effective in improving the overall policy environment and in easing the constraints to expansion of microfinance services. Support was most effective in countries where the government was committed to reforms to allow policies, operating framework, and MFIs to flourish.] Grants and technical assistance activities scored second. [Due to the good scores in strengthening the capacity of MFIs and in improving the sector environment.] Projects with microfinance components scored lowest. [These projects viewed credit as a binding constraint, but this was not always the case. Policy environment, institutional capacities were usually overlooked.]Scores for results: Reaching poor and low-income households (35%) Sustainability of MFIs (35%) Development of institutions (46%)

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#Six Case Countries: Key Findings

1. Loans, Savings, and Number of Active Clients: Steadily increased, but percent of women clients decreased.Source: Independent Evaluation Department surveys conducted for this study.

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Products and ServicesCAMPAKPNGPHIUZBVIEAllCredit100.0100.0100.0100.0100.0100.0100.0Savings33.055.096.0100.03.038.054.8Microinsurance1.027.041.094.43.066.039.5Remittance services19.08.010.029.661.02.021.7Domestic money transfer 27.019.059.052.869.019.041.1Mutual benefit fund0.0100.027.078.70.08.036.2Property insurance 1.00.010.017.694.08.021.7Others3.026.033.028.730.06.021.2

2. Products and Services Used by Sample Clients (%): Generally, countries with integrated microfinance had more diverse products and services. CAM = Cambodia, PAK = Pakistan, PNG = Papua New Guinea, PHI = Philippines, UZB = Uzbekistan, VIE = Viet Nam.Microinsurance includes life, medical, and health insurance. Mutual benefit fund is the fund contributed by borrowers to be used to repay the outstanding loan in case of death of a borrower and provide the deceased clients family with monetary benefits. Others include payment and mobile banking services.Source: Independent Evaluation Department surveys conducted for this study.

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3. Loan Size of Sample Clients ($): Average loan increased over time.Source: Independent Evaluation Department surveys conducted for this study.

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#Poverty LevelCAMPAKPNGPHIUZBVIETotal$1.25 per day 15.07.04.03.70.022.08.6$2 per day46.023.04.010.20.049.021.9

4. Percentage of Sample Clients Below the Poverty Level: Less than 9% lived below $1.25 per day and some 22% lived below $2 per day. = data not available, CAM = Cambodia, PAK = Pakistan, PNG = Papua New Guinea, PHI = Philippines, UZB = Uzbekistan, VIE = Viet Nam.a Global Findex database 2012.Source: Asian Development Bank Independent Evaluation Department, Evaluation team calculations based on the surveys conducted for this study.

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#Welfare Impact EvaluationEstimate the degree to which microfinance interventions hadDirect effects on the well-being of microfinance clients, and Spillover effects on non-clients. Microfinance programs: Pakistan: 2000-2008, $150 million ($80 million microloans for the poor)Viet Nam: 2000-2007, $80 million ($33 million for household income-generating activities and micro enterprises)

Sample: Pakistan: 1813 = 884 clients + 929 non clients Viet Nam: 2170 = 1113 clients + 1057 non clients

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#Estimation MethodsWelfare was measured through 6 categories: household standard of livinghousehold enterpriseslabor force participationhousehold risk-copingeducation of school-age childrenhousehold health for children of 0 5 years

Estimation method: Control function regression

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#Outcome IndicatorPAKISTANVIET NAMADB Credit EffectSpilloverEffectADB Credit EffectSpillover EffectPer capita income--******Per capita expenditure--*****Housing quality index----Household has enterprise-***Household enterprise employees-******Household enterprise employment growth-*--Household enterprise income--******Labor force participation, men----Labor force participation, women----Household has savings accounts*---Household savings balance----Household used credit post-shock----Proportion of boys enrolled----Proportion of girls enrolled----Education expenditure per enrolled child*---Health expenditure per capita ----Height-for-age indicator for children age 0 5 years--Weight-for-age indicator for children age 0 5 years**-

Estimation Results of Welfare Effects = not estimated because 100% of sample households had household enterprises and there was no difference across groups, or omitted due to small sample sizes; = not significant; * = significant at 10%; ** = significant at 5%; *** = significant at 1%.Source: Asian Development Bank Independent Evaluation Department, Evaluation team estimates based on the household survey data collected for this study.

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#Key FindingsWelfare impacts are limited:Some effects on household living standards in Viet Nam, but almost no effects were found for Pakistan program. No effect on labor force participation, house risk-coping, children education and health. Some positive spillovers on non clients, suggesting a justification for public intervention in microfinance.

Trade-off between poverty targeting and effectiveness: Smaller loans were better at targeting the poor, but less effective in producing welfare benefits than larger loans. Pakistan program: Average loan size = $195, 14% of the borrowers below the national poverty line. Barely any effect found.Viet Nam program: Average loan size = $1972, 1.3% of the borrowers below the national poverty line. Some effects found.

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#Key RecommendationsExtend accessibility.Better targeting poor and low-income households by (i) deliberate and innovative approaches and (ii) close monitoring of clients poverty levels during implementation and adjust.

Focus more on demand-side issues.Focus on client needs and demand to make microfinance more beneficial for the borrowers, especially the poor .

Strengthen institutions.When the policy environment is in place, support market infrastructure development to ensure a strong and sustainable expansion of microfinance operations.

Thank you.

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