Microenterprise: Laying the Foundation 

for Economic Development

Report Microenterprise Results Reporting for 2002

U.S. AGENCY FOR

INTERNATIONAL DEVELOPMENT
Photo by EnterpriseWorks Worldwide

EWW holds its first cashew processing training in Guinea. The training session was the first in a series of cashew processing trainings to be

held by the Guinea Cashew Processing Project. Funded by USAID, the

project aims to assist in the development of a cashew processing industry

by introducing improved methods and technologies and creating 

sustainable commercial links among small processors, commercial 

distributors and local equipment suppliers. 

August 19, 2004

USAID/Bureau for Economic Growth, Agriculture and Trade/

Office of Poverty Reduction/Microenterprise Development

Division (USAID/EGAT/MD)

by Stacey Young

USAID/EGAT/MD

and Catherine Neill and Sharon Williams

Weidemann Associates, Inc. 

Contract Number: AMAP GEG-I-00-02-00025-00 

Task Order #1
Microenterprise: Laying the Foundation 

for Economic Development

Report Microenterprise Results Reporting for 2002

U.S. AGENCY FOR

INTERNATIONAL DEVELOPMENT

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Microenterprise Development: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

What is Microenterprise Development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Microfinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Business Development Services (BDS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Enabling Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Microenterprise Funding in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Overall Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Uses of FY 2002 Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Funds for Enabling Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Funds for Very Poor Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Funds for US Private Voluntary Organizations (PVOs) and Networks . . . . . . . . . . . . . . . . . . . . .20

Results from USAID-Supported Microenterprise Institutions in 2002 . . . . . . . . . . . . . . . . . . . . . . . .23

Microfinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Business Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Policy Advocacy and Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Table 1. Sources of USAID Funds for Microenterprise by Appropriation Account, 1991-2002 . . .14

Table 2. FY 2002 Funding in Regions by Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Table 3. FY 2002 Funding to Regional Activity by USAID Bureau . . . . . . . . . . . . . . . . . . . . . . . . .16

Table 4. Funding for Microfinance and Microenterprise Enabling Environment, 1998-2002 . . . .17

Table 5. Percentage of Funds Benefiting the Very Poor, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Table 6. Percentage of Funds Benefiting the Very Poor by Region, 2000-2002 . . . . . . . . . . . . . . .19

Table 7. Annual Funding to PVO Networks, 1997-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Table 8. Clients of Lending Institutions in 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Table 9. Average Loan Balance and Percentage of Women Clients, 2002 . . . . . . . . . . . . . . . . . . .25

Table 10. Clients with Poverty Loans, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Table 11. Number of Savers and Savings Amounts, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Table 12. Leading Savings Institutions or Networks Supported by USAID, 2002 . . . . . . . . . . . . . . .27

Table 13. Location of Microfinance Clients, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Table 14. Portfolio at Risk and Loan Loss Rates, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Table 15. Sustainability of USAID-Supported Institutions Reporting in Both 2001 and 2002 . . . . . .28

Table 16. Clients of USAID-Funded BDS Programs (Providers and Facilitators), 2002 . . . . . . . . . . . .29

Figure 1. Three-year Averaged USAID Funding to Microenterprise Development, 1993-2002 . . . .13

Figure 2. Percentage of Total Loan Portfolio held by Microfinance Institutions in 2002,

by region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Microenterprise: Laying the Foundation for Economic Development

Microenterprise: Laying the Foundation 

for Economic Development

Successful small businesses are the primary engines of economic development,

income growth, and poverty reduction in much of the developing world. These

businesses can also build foundations for stable communities, civil society, and

gender equality. However, poor infrastructure, weak public services, inadequate

mechanisms for dispute resolution, and lack of access to markets and formal

financing remain major impediments to small business growth.

The United States, the multilateral development agencies, and many bilateral

aid donors are working to improve this situation by developing new programs

that help microenterprises — small, locally owned businesses with up to 10

employees — contribute to dynamic, competitive industries. Over the past five

years, America's average annual funding for microenterprise has been around

$155 million. This support has reached more than 3.7 million microenterprises

worldwide — whose activities include producing goods for export, such as

footwear, furniture, agricultural crops, and other foods; providing services 

ranging from equipment repair to information technology; marketing raw 

materials to manufacturers; and trading a wide variety of goods. As these businesses expand and integrate into the formal economies of their countries, they

empower the world's poor, create higher incomes and more jobs, contribute to

economic growth, and strengthen democratic societies.

I am proud of America's key role in promoting microenterprise. U.S. objectives

are threefold: to improve access to financial services for the world's poor; to

support access to business services that specifically address constraints felt by

poorer entrepreneurs; and to improve the business climate through regulatory,

legal, and policy reforms. Our efforts are global, from Mali in Africa and Jordan

in the Near East to Azerbaijan in Europe and Peru in Latin America. Our successes will be universal, with the concerted efforts of the international community. I hope you will join us in taking action towards that goal.

Colin L. Powell

U.S. Secretary of State 
Microenterprise: Laying the Foundation for Economic Development
Microenterprise: Laying the Foundation for Economic Development

USAID’s Microenterprise Development Program

Recognized as Global Leader

USAID is committed to ensuring that our microenterprise development programs make a powerful contribution to improving the lives and economic

opportunities of poor and very poor individuals around the world, and to facilitating the integration of microenterprises into the larger economy to maximize

their contribution to overall economic growth. The Agency has a strong track

record of leadership and effective assistance in this sector. 

This track record enjoys worldwide recognition. A recent “aid effectiveness”

peer review of 17 donor agencies active in microfinance rated USAID in the

highest category for overall effectiveness, with top rankings in accountability for

results, staff capacity and effectiveness of assistance instruments. The Agency

also received high ratings in relevant knowledge management and strategic 

clarity (USAID’s rank in this last area was the highest received by a bilateral

organization).

The reviews were organized by the Consultative Group to Assist the Poor

(CGAP), a 28-donor partnership that develops industry standards and identifies

and promotes best practices in microfinance. The donor institutions that 

were reviewed included bilateral donors, development banks and multilateral

organizations. 

The review of USAID’s performance concludes that “With over 25 years of

experience, USAID rightly describes itself as a pioneer and a leader in the field

of microfinance.” The report also notes:

 “USAID programs have helped many institutions increase access to financial

services for millions of poor people.”

 “USAID has largely contributed to the field by funding some of the most

prominent MFIs and networks (such as [Indonesia’s] BRI, Grameen replications, ACCION, FINCA, Banco Ademi, WOCCU, etc.) and by launching

research programs that have produced significant knowledge and become

public goods for the international community.”

 “USAID can work directly with the private sector through appropriate grant

instruments. There is widespread evidence that the private sector is more efficient at delivering financial services than governments. USAID has a comparative advantage in this area since many other donors are constrained to implement programs through government institutions.”

USAID’s microenterprise program is one of which the Agency can justifiably be

proud. 
Microenterprise: Laying the Foundation for Economic Development
Microenterprise: Laying the Foundation for Economic Development 1

Executive Summary

As the leading bilateral donor for microenterprise development, USAID over

the past two decades has played a critical role in creating and advancing an

approach that meets the needs of individuals and entrepreneurs for financial and

business development services, and promotes policy changes that facilitate the

creation of enabling environments for microenterprises. USAID’s partnerships

with U.S. private voluntary organizations (PVOs) and other microenterprise

practitioners have also demonstrated that these services can contribute to poverty alleviation in a commercially viable way. 

In 2002, 568 institutions had active microenterprise agreements with USAID.

Of these, 440 institutions (77 percent) reported data on their activities, which

forms the basis of the findings presented in this report.1 The 440 reporters

included 325 microfinance institutions, 87 business development services (BDS)

institutions and 28 policy institutions. 

USAID support for microenterprise development continues to rise.

Funding supports financial services, business development services and

enabling environment activities in all four regions in which USAID 

operates.

 In FY2002, USAID exceeded the funding target of $155 million by providing $170.4 million in support of microenterprise programs worldwide. This

amount reflects a steady upward trend in funding by USAID over the past

ten years. As in prior years, approximately two-thirds of total microenterprise

development (MED) funding was used to promote access to credit and other

financial services through funds for loan capital, loan guarantees, technical

assistance, and policy and regulatory reform; the remaining third was used to

expand business development services and encourage policies favoring

microentrepreneurs. 

 In 2002, USAID-supported business development services (BDS) programs

assisted more than 690,000 microenterprise clients. An estimated 2 million

rural Bolivian households received market information through a single

USAID-assisted institution, Sistema Informativo de Mercados Agropecuarios.

Marketing services and management training were the most widely offered

services by BDS providers. USAID continues to channel support to those

organizations that offer demand-driven services and that are working to open

or expand markets for micro-entrepreneurs. 

 Policy advocacy organizations worked to improve the enabling environment

for both microentrepreneurs and microfinance institutions. Sixteen of the 28

USAID-supported policy institutions reporting on their 2002 activities were

engaged in improving microfinance regulation, credit information services, or

the supervision of retail lending institutions. Other policy work focused on

facilitating microenterprise development through such activities as helping

1 Table 18 breaks out these figures by institution type.
2 Microenterprise: Laying the Foundation for Economic Development

countries streamline their business registration process so that microenterprises are more willing and able to formalize; building the capacity of

microentrepreneurs to work through independent business associations to

advocate for policy reforms; and promoting anti-corruption efforts or tax

reform.

 Africa region obligations accounted for $35 million, or more than one-fifth,

of the total USAID microenterprise assistance. Historically, funds from the

Africa region have been split closely between microfinance and BDS programs; this was also the case in 2002. 

 Asia and the Near East (ANE) programs also obligated more than one-fifth

($39 million) of total USAID assistance, with 90 percent of that amount

applied to microfinance programs. 

 Europe and Eurasia accounted for more than $40 million in 2002, with

three-quarters of that amount used for microfinance. 

 Latin America and the Caribbean (LAC) obligated nearly $43 million. More

than 40 percent of the funds from the LAC region were used to promote

business services to microentrepreneurs; the remainder supported microfinance. USAID also supported programs headquartered in the U.S. or Canada

that served MED field operations worldwide. 

31%

69%

FY2002 Funding 

by Type of Activity 

$13.20

$35.00

$38.90 $40.80

$42.50

■ Africa

■ Asia/Near East

■ Europe/Eurasia

■ Latin America/

Caribbean

■ Worldwide

FY2002 Funding 

by Region 

US$ (Millions) 

■ Financial Services and

Microfinance Related

Enabling Environment

■ BDS and Microenterprise

Related Enabling

Environment
Microenterprise: Laying the Foundation for Economic Development 3

USAID’s investment in microenterprise development aids the very poor,

particularly women. When the Microenterprise for Self-Reliance and

International Anti-Corruption Act of 2000 was signed into law, it established

microenterprise development as an integral part of U.S. foreign assistance. The

law authorized grants by USAID to support poor microentrepreneurs, further

specifying that half of all funds must benefit the very poor2; and it set a funding

target of $155 million for FY 2002. USAID partners with more than 500 U.S.,

local and international organizations to implement this initiative. The great

majority are private-sector providers of financial and business services targeted

to the microenterprise sector.

 USAID MED funds that benefited the very poor (FVP) in FY02 supported

institutions providing poverty loans; funds for other MED activities – for

example, business development services – can also be shown to have 

benefited this group. Using the measures established by the U.S. Congress, the

portion of USAID’s FY02 MED funding that benefited the very poor was 50

percent.3

 Women clients constituted more than two-thirds of the total clients of all

microfinance institutions (excluding Bank Rakyat Indonesia – BRI).4 In the

Near East, the percentage of women clients has more than doubled since

2000, rising from 27 percent to 55 percent. 

2 The definition of “very poor” established by the law is someone living on less than US$1/day purchasing power parity, or falling among the bottom 50% of people living below the national poverty line.

3 See the Methodology Annex in the full report for a discussion of how the funds that benefit the very poor (FVP) is calculated.

4 BRI’s numbers are typically excluded from analyses of USAID microenterprise development funding because the Bank’s client base is so large it

would skew the findings for the rest of the institutions that receive USAID support.

44%

47%

35%

71%

77%

Africa Bureau

Asia/Near East Bureau

Europe/Eurasia Bureau

Latin America/Caribbean

Bureau

Global Bureau

FY2002 Percentage

of Funds Benefiting

the Very Poor 

by USAID Bureau 

Percentage of Funds (FVP)
4 Microenterprise: Laying the Foundation for Economic Development

 Poverty loans – defined for FY02 reporting by regionally adjusted loan limits set by the U.S. Congress in the Microenterprise for Self-Reliance Act of

2000 – comprised almost two-thirds (63 percent) of all loans held by

microfinance institutions reporting data in 2002. 

USAID microfinance support combines breadth and depth of outreach

with an emphasis on sustainability. USAID-supported microfinance institutions reported 2.7 million clients, with a loan portfolio of nearly $1.3 billion.

Another 2.9 million clients received loans through BRI, which had a loan portfolio of $1.3 billion. Two-thirds of the loan portfolio for all institutions (excluding BRI) was held by institutions in Latin America. 

 The average loan balance for all regions was $465, ranging from $117 in

Asia to $774 in the LAC region. The Latin America and the Caribbean

region has the most mature microfinance industry and hence more longterm

clients who have built the capacity to use larger loans. 

 USAID-supported microfinance institutions (excluding BRI) reported 3.2

million savings clients with combined savings deposits of $779 million, or

$242 per client. Eight large savings networks accounted for more than 40

percent of the total savings clients. BRI reported 28 million savings clients

with deposits of $2.6 billion. 

 Almost half (49 percent) of USAID-assisted institutions reporting were fully

financially sustainable.5 These institutions provided services to 71 percent of the

loan clients and held 83 percent of the total loan portfolio. 

5 Full financial sustainability occurs when the institution is able to cover all operational expenses, plus the cost of raising any additional loan funds

from commercial sources, adjusted for the effects of inflation and subsidies.

49%

47%

55%

67%

71%

88%

FY2002 Women as

Percentage of ME

Clients by Region

Percentage of Total Clients

Africa

Asia

Near East

Europe/Eurasia

Latin America/Caribbean
Microenterprise: Laying the Foundation for Economic Development 5

USAID continues its strong support to the development of PVO networks

and other direct service providers. Private voluntary organizations (including

cooperative development organizations) are the backbone of U.S. assistance to

the microenterprise development field. The share of USAID funding received

directly by U.S. PVOs, NGOs, cooperatives and credit unions for services to

poor entrepreneurs was 45 percent. The actual extent of USAID funding to

these traditional USAID microenterprise partners is even higher: of the funds

awarded to consulting firms, a significant portion (often more than 50%) is typically designated for direct service providers including PVOs, NGOs, cooperatives and credit unions. USAID funding for other types of important direct

service providers, such as banks and business associations, complements this

longstanding support to the non-profit sector and helps ensure access to diverse

financial and business services for a growing number of clients. 

49%

11%

40% ■ Fully Sustainable

■ Operationally Sustainable

■ Not Yet Sustainable

FY2002

Sustainability of

USAID-Supported

Institutions
6 Microenterprise: Laying the Foundation for Economic Development
Microenterprise: Laying the Foundation for Economic Development 7

Microenterprise Development: An Overview

In many countries, microenterprises – small, informally organized businesses

that are owned and operated by poor or low-income people – constitute the

majority of businesses, in most cases by a very wide margin. They account for a

substantial share of total

employment and GDP,

and they contribute significantly to poverty

reduction and mitigation.

They are often the chief

economic defense of vulnerable households in

higher-risk environments.

As the predominant

source of income and

employment for hundreds

of millions of people

worldwide, the microenterprise sector’s influence on individuals and households as well as national

economies is clear and profound. The poorer the economy, the more pronounced this phenomenon is. 

Recognizing the key role that microenterprises play in both household survival

and national economic vitality, support for microenterprise development has 

featured importantly in U.S. foreign assistance for the past three decades. The

United States Agency for International Development (USAID) is the U.S.

Government’s lead agency for bilateral foreign assistance and humanitarian aid,

and directly implements the U.S. Government’s microenterprise development

activities. USAID promotes microenterprise development by:

 providing financial and technical assistance to institutions and networks that

offer sustainable credit, financial services and business development services

(BDS) to low-income and underserved households; 

 promoting policy reforms that improve the enabling environment for the

smallest businesses and their service providers, thereby leveling the playing

field so they can compete against larger firms and achieve their income and

job creation potential; and

 supporting experimentation and research to identify and promote best practices worldwide.

As the leading bilateral donor for microenterprise development, USAID’s 

support for microenterprise development over the past two decades has been

critical in creating and advancing an approach that meets the needs of individuals and entrepreneurs for financial and business development services, and 

Dolores Mendoza Lopez,

Client of Financiera

Compartamos

Photo: Rohanna Mertens for ACCION International
8 Microenterprise: Laying the Foundation for Economic Development

promotes policy changes that facilitate the creation of enabling environments

for microenterprises. USAID’s partnerships with U.S. private voluntary organizations (PVOs) and other microenterprise practitioners have also demonstrated

that these services can contribute to poverty alleviation in a commercially viable

way. 

When the Microenterprise for Self-Reliance and International Anti-Corruption

Act of 2000 was signed into law, it established microenterprise development as

an integral part of U.S. foreign assistance. The law authorized grants by USAID

to support poor microentrepreneurs, further specifying that half of all funds

should benefit the very poor. It set a funding target of $155 million for FY

2002. USAID partners with more than 500 U.S., local and international 

organizations to implement this initiative. The great majority are private-sector

providers of financial and business services targeted to the vibrant microenterprise sector.

As a result of U.S. government support, well over 2 million poor people

throughout the developing world have access to credit from a wide range of

institutions. They use loans to raise their incomes, build assets and improve

their lives. They also prove their creditworthiness, achieving repayment rates

that typically exceed 95%. More than 3 million poor people are depositing their

savings in such institutions, allowing them to better plan for their families’

futures and cope with crises. More than 690,000 clients benefit from USAIDsupported business development services, which help

them reach new markets,

improve their skills and productivity, and raise their

incomes.

USAID provides the majority

of its microenterprise development support through its field

missions in developing and

transitional countries.

Currently, approximately 70

USAID missions support microfinance and microenterprise development programs. Funding is divided roughly equally among the four USAID regions –

Africa (AFR), Latin America and the Caribbean (LAC), Asia and the Near East

(ANE) and Europe and Eurasia (E&E). 

Photo:©2001 CARE/Josh Estey

Woman bee-keeper, client of CARE/India’s

microenterprise program.
Microenterprise: Laying the Foundation for Economic Development 9

What is microenterprise development?

Microenterprise development involves support for programs and institutions

that provide assistance to the microenterprises operated by low-income households. Access to capital, information, inputs, technologies and markets enables

poor entrepreneurs to seize new opportunities and create better lives for themselves and their families. Effective market access, buyer-supplier linkages and

technology transfer have generated impressive income gains for low-income

families, while access to financial services helps poor households generate

increased income from existing micro-scale activities, create new enterprises and

build business assets. Access to these services also helps low-income households

cope with the risks associated with business opportunities as well as the financial

instability that can result from household emergencies or broader economic

downturns.

Support to microenterprises can be targeted to institutions and activities that fall

into three main areas of strategic support: microfinance, business services and

policy/enabling environment.

Microfinance

To grow and prosper, businesses of all sizes and in all countries need access to

financial services. Such access is a particular challenge for the poor families

around the world who need credit and savings to establish, sustain and expand

small businesses and microenterprises. Once considered peripheral to mainstream development policy, access to microfinance is now at the forefront of a

global anti-poverty strategy that has a tremendous potential to generate income

and expand employment at both the local and national levels.

As important as financial services are in enabling businesses to start, grow, create jobs and contribute to economic growth, these services are equally important in protecting households against the unforeseen consequences of illness,

incapacity or death of a breadwinner, natural disasters, war and other crises.

With financial services, poor families can send their children to school, buy

medicine and get through lean times when cash and food are scarce.

USAID’s microfinance strategy is three-fold, and includes: investing in diverse

retail financial institutions able to serve a variety of markets/clientele; tailoring

product features and service delivery techniques to meet the needs of various

clients; and, in countries with more mature microfinance markets, complementing support for individual retail institutions with broader support to the microfinance industry as a whole and to the market infrastructure it needs to thrive. 

When this field was in its infancy, microfinance meant small loans for microentrepreneurs to use in starting or expanding their businesses. The predominant

methodology was the group loan, based on the Grameen Bank model, which

required individual entrepreneurs to receive loans in groups, attend weekly

meetings and take responsibility for all group members’ repayment. Over the
10 Microenterprise: Laying the Foundation for Economic Development

years, microfinance has grown to include a variety of lending methodologies.

Loans can be offered on a group or individual basis, with amounts and repayment terms increasingly flexible and tailored to the needs of the client.

Microfinance is now also understood to encompass the full range of financial

services offered to any clients who need them for any purpose they determine.

Loan products may meet a wide variety of financial needs, including school fees,

housing or emergency consumption. Non-credit services include savings deposit

services, insurance and transfer/remittance services. The list continues to grow

as microfinance institutions develop new products in response to client demand.

Roughly two-thirds of USAID microenterprise funds support development of

credit and financial services targeted to low-income entrepreneurs and their

households. Over the past two decades, USAID support has led to the development of a number of successful microfinance methodologies adapted to a wide

variety of settings and client groups. For credit programs, repayment rates typically exceed 95 percent.

USAID’s support for microfinance focuses on two equally important objectives.

The first of these is the development and expansion of strong microfinance

institutions (MFIs) — those with effective governance structures and credible

business plans to cover all operating expenses, including the cost of capital,

through operating income within a reasonable timeframe. The second objective

is the promotion of client-responsive products and services with the potential to

reach more poor and very poor entrepreneurs, especially underserved populations such as the rural poor, women and those in conflict or crisis situations.

More than half of USAID funds for microfinance support very poor entrepreneurs estimated to be well below the poverty line in their countries (as directed

by Congress, the proxy of regionally-adjusted loan sizes is used to determine

poverty status).6 Program features that are appropriate for poorer clients may

include group guarantees (as a substitute for traditional loan collateral) and very

small loan sizes with frequent loan repayments. Grouping clients also offers

MFIs a way to achieve economies of scale and recoup their costs despite the

very modest revenue generated by each transaction. An important savings innovation for poorer households involves permitting clients to make frequent, very

small deposits, reflecting the actual availability of cash in the household.

6 USAID Microenterprise Results Reporting, 2002, p. 18 (table).

Section 105 of P.L. 106-309 added a new Sec. 131 to the Foreign Assistance Act, which requires that 50 percent of all microenterprise resources

be targeted to very poor entrepreneurs, defined in the law as those living in the bottom 50 percent below the poverty line as established by the

national government of the country. The section also sets out loan sizes in different regions to serve as a standard for measuring the poverty level

of clients, with loans in 1995 United States dollars of $1,000 or less in the Europe and Eurasia region; $400 or less in the Latin America region;

and $300 or less in the rest of the world.
Microenterprise: Laying the Foundation for Economic Development 11

Business Development Services (BDS)

Business services are offered to microentrepreneurs by a variety of organizations

to help increase business returns, build capacity, initiate new economic activities

or increase their leverage in the marketplace. They include marketing assistance, product development, business

training, advisory or information services, assistance with productivity-enhancing technologies and linkages to financial services. USAID does not support

direct subsidization of business services

for microentrepreneurs. Instead, it supports the development of commercial

BDS markets by helping BDS providers

extend services that boost microenterprise income and competitiveness.

Service providers often need help to 

tailor their services to poorer clients.

The potential for sustained poverty

impact is especially powerful when

microentrepreneurs have access to

appropriate financial as well as business services to help them seize new economic opportunities.

Linking small producers to larger firms and more lucrative markets is often the

key to success.

 In Bangladesh, the USAID-supported JOBS program supports firms producing hand-made sandals for export to Paris. With project assistance, the larger

exporters organized groups of smaller producers to supply this market, providing them with inputs, designs and quality control in addition to export

services. The business services facilitated by JOBS helped flexible, labor-intensive micro-firms enter emerging niche markets for which larger firms are less

well suited. As a result, individual microentrepreneurs working as part of a

cluster saw income increases ranging from Taka 2000-5000 ($40-$100) per

month, depending on their skill level.

 In Haiti, 37 coffee grower associations (representing 25,000 small growers)

were assisted in development of a common logo for the “Haitien Bleu” premium coffee brand. Backed by consistent quality standards and a targeted

market, Haitien Bleu has provided the micro producers significantly higher

returns. 

Shamama Mirzayeva,

client of ACDI/VOCA’s

USAID-funded Food

Preservation Project in

Azerbaijan. The project

taught her and other

internally displaced people

(IDPs) living in a tent

community the skills 

to launch a vegetable 

preservation and canning

business. Selling to local

grocers and restaurants,

the business has operated

at a profit since its 

inception.

Photo: Heather A. Luca, ACDI/VOCA
12 Microenterprise: Laying the Foundation for Economic Development

Enabling Environment

A supportive policy environment, including a favorable business and investment

climate, is critical to successful, sustainable microenterprise development.

USAID supports reform of laws, regulations and policies to create a more

enabling environment for microenterprises and expand access to financial and

other services by poor and underserved clients. This can include helping countries streamline their business registration process so that microenterprises are

more willing and able to formalize; building the capacity of microentrepreneurs

to work through independent business associations to advocate for policy

reforms; and promoting anti-corruption efforts or tax reform.
Microenterprise: Laying the Foundation for Economic Development 13

Microenterprise Funding in FY 2002

Overall Funding 

USAID has tracked its funding to microenterprise development since 1988.

During this time, the Agency has been the world’s leading bilateral donor to

microenterprise development, providing more than $2 billion in assistance to

build a thriving network of microenterprise assistance institutions serving millions of microenterprise households around the globe. 

In FY 2002, USAID surpassed the funding target of $155 million by contributing $170.4 million to microenterprise development programs. This represents a

10 percent increase over FY 2001 funding.

Figure 1 shows the amount of USAID funding annually to microenterprise

development over the past ten years. Many USAID funding agreements to

microenterprise activities extend over a period of three to five years; a 3-year

average softens the peaks and troughs of this funding cycle. A steady upward

trend in USAID funding is captured by a rolling 3-year average. 

Table 1 illustrates the different sources of funding within USAID for microenterprise development. 

The Development Assistance (DA) account is used by USAID to fund longrange development objectives in Africa, Asia, the Near East, Latin America and

the Caribbean. (USAID’s activities in Europe and Eurasia are supported with

monies from other accounts.) Typically, funding from this account comprises 50

percent or more of the total amount for microenterprise development. In 2002,

DA funds were 47 percent of the total. 

Economic Support Funds (ESF), authorized through the U.S. Department of

State, increased in FY 2002 by 18 percent over FY 2001 funding levels. These

funds typically contribute between 14 and 21 percent of total funds for microenterprise programs. In FY 2002, ESF funds were 19 percent of the total. ESF

funds have been programmed for microenterprise development in all regions. 

1 The average of current fiscal year plus two prior years’ funding to microenterprise development. 

20

 0

40

60

80

100

120

140

160

180

FY Funding

3-Year Average

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Fiscal Year

US $Millions

Figure 1. Three-Year

Averaged1 USAID

Funding to

Microenterprise

Development,

1993-2002

(US$ Millions)
14 Microenterprise: Laying the Foundation for Economic Development

The Freedom Support Act (FSA) account, also authorized through the State

Department, funds programs in Russia, Ukraine, Moldova, the Caucasus and

the Central Asian Republics. FY 2002 funding for microenterprise from the

FSA account surpassed the record amount of funding from this account in FY

2000. The $33.4 million for FY 2002 was a 70 percent increase over funding in

FY 2001. The increase in total funding in the region since 2000 reflects added

support to the Central Asian Republics (Kazakhstan, Kyrgyzstan, Tajikistan,

Turkmenistan, Uzbekistan) which have seen strong growth in funding: from $5

million in 1999 to over $10 million in 2002. In addition, program support to

microenterprise programs in both Ukraine ($15.3 million) and Azerbaijan

($15.2 million) was significant over the 3-year period.

Funds appropriated for activities in Central and Eastern Europe under the

SEED Act, or Special Assistance Initiatives, have gradually decreased in the last

three years as several USAID field offices in Europe have closed. 

Local currency used for microenterprise (from the monetization of Title II

funds under P.L. 480 or balance of payments support) increased by 35 percent

from FY 2001. Local currency from Food for Peace was programmed for

microenterprise support in Peru, Guatemala, Ghana and Morocco. Local currency from balance of payments support was programmed in Egypt. 

Table 1. Sources of USAID Funds for Microenterprise by Appropriation Account, 1991-2002 

(US$ Millions) 

Fund 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

DA1 40.2 61.3 51.6 89.2 93.3 72.9 83.3 79.9 74.3 88.9 87.4 80.7

ESF 43.2 34.4 20.8 31.6 22.9 16.1 24.5 27.2 32.9 19.5 27.9 32.9

FSA 5.4 20.6 14.3 12.8 30.2 19.6 33.4

SEED/SAI2 4.7 24.8 4.6 13.0 9.2 7.6 4.4

CACEDRF3 3.2 8.0

CSD/HIV4 .8 .5 .5

Local 30.2 30.6 23.6 16.6 17.3 12.2 11.8 12.4 17.3 8.8 13.7 18.5

Currency

Total 113.6 126.3 96.0 137.4 133.5 111.4 165.0 138.4 153.5 165.4 156.7 170.4

1 Development Assistance funds include the Development Fund for Africa.

2 Funds appropriated under the Support for Eastern European Democracy (SEED) Act; also includes funds appropriated under Special Assistance

Initiatives (SAI). 

3 Central America and Caribbean Emergency Disaster Recovery Fund

4 Child Survival and Development/HIV. These funds are from the Child Survival Account; the agency does not count them toward the overall

microenterprise funding target. 
Microenterprise: Laying the Foundation for Economic Development 15

Uses of FY 2002 Funding

In FY 2002, 69 percent of total USAID funding went to financial services programs for loan capital, operational expenses, technical assistance and microfinance policy work. Much of USAID’s work in the area of microfinance supports

capacity building for microfinance institutions. Through its Development Credit

Authority, USAID also provides loan portfolio guarantees to established MFIs

that are ready to significantly expand their operations, to permit them to access

commercial loans for expansion. 

The remaining 31 percent of funds supported business development programs

or policy advocacy to improve the enabling environment for microentrepreneurs

and microenterprise development programs. 

Funding in Africa continues to focus on strengthening microenterprise access to

appropriate business development services (BDS), while building institutional

capacity in the area of microfinance. BDS is a funding priority in most African

countries where weak markets and traditional technologies constitute major

income constraints for rural microenterprise households. USAID Missions in

Ghana, Kenya, Mozambique and Tanzania provided sizable funding for ongoing BDS programs. New microfinance and business development initiatives in

the Democratic Republic of Congo, Eritrea, Namibia and Nigeria also received

funding in 2002. 

The great majority of funds in the Asia and Near East region have been used for

microfinance programs. One-third of all the funds ($66 million) to the region

for the period 1998-2002 can be attributed to one office, USAID’s field mission in Egypt, which has a large microfinance program that, by the end of FY

Table 2. FY 2002 Funding in Regions by Activity (US$ Millions)

Financial Services & BDS & MicroenterpriseMicrofinance-Related Related Enabling

Enabling Environment Environment Total

Amount Percent Amount Percent Amount Percent

Africa $15.3 44 $19.7 56 $35.0 20

Asia/Near East $35.4 91 $3.5 9 $38.9 23

Europe/

Eurasia $30.7 75 $10.1 25 $40.8 24

Latin America/ 

Caribbean $24.6 58 $17.9 42 $42.5 25

Worldwide1 $11.4 86 $1.8 14 $13.2 8

Total $117.4 69 $53.0 31 $170.4 100

1 Refers to funds provided to North American headquarter operations for institutions operating worldwide. 
16 Microenterprise: Laying the Foundation for Economic Development

2002, was serving 131,000 clients through NGOs and banks.7 USAID offices

in the Philippines and Jordan have also funded comprehensive microfinance

programs during this period. New microfinance initiatives in Vietnam and

Mongolia were assisted in 2002. In Indonesia, USAID has funded several institutions to promote much-needed policy reforms to level the playing field for

microenterprises and microfinance institutions. 

In the Europe and Eurasia Region, there has been a steady upward trend in

funding since 1998. The majority of the funding in the region has been used to

support microfinance programs, many of which are newly established. In 2002,

USAID provided more than $6 million to the Central Asian Microfinance

Alliance (CAMFA), a technical assistance consortium designed to build microfinance institutional capacity throughout the Central Asian Republics. Several

countries in the region have invested in business development services to

address key constraints to microenterprise growth in transitional economies;

Ukraine, for example, provided more than $4 million to its BDS program in

2002.

Funding in Latin America and the Caribbean exceeded $42 million in 2002,

with a 15 percent gain over 2001 funding. (The drop in 2001 funding was

associated with the end of special appropriations related to natural disasters and

crises in the region.) In 2002, USAID offices gave strong support to business

development services with a focus on making rural economies more competitive

($9.3 million in Peru and $4.5 million in El Salvador). New microfinance activities in Brazil and Mexico also received funding. 

7 As of April 2004, current active borrowers at USAID/Egypt-assisted microfinance institutions numbered more than 220,000 clients served through

seven NGOs and two banks.

Table 3. FY 2002 Funding to Regional Activity by USAID Bureau (US$ Millions) 

Financial Services & BDS & MicroenterpriseMicrofinance-Related Related Enabling

Enabling Environment Environment Total

Amount Percent Amount Percent Amount Percent

Africa Bureau $9.7 38 $16.0 62 $25.7 15

Asia/Near

East Bureau $31.6 91 $3.1 9 $34.7 20

Europe/

Eurasia Bureau $28.1 75 $9.6 25 $37.7 22

Latin America/ 

Caribbean

Bureau $20.4 54 $17.2 46 $37.6 22

Global Bureau $27.6 79 $7.1 21 $34.7 20

Total $117.4 69 $53.0 31 $170.4 9
Microenterprise: Laying the Foundation for Economic Development 17

Table 3 presents the same data as in Table 2, but from the perspective of the

funding entity within the Agency rather than the destination of funds. The

Bureaus for Europe and Eurasia (E&E) and Latin America and the Caribbean

(LAC) designated roughly equal amounts to microenterprise programs, with

the Bureau for Asia and the Near East (ANE) designating only slightly less.

Funding from the Global Bureau (now the Economic Growth, Agriculture and

Trade Bureau) added another $9.3 million to funds for Africa provided through

the Africa Bureau. Another $12.9 million from the Global Bureau was distributed across the other regions as follows: $4.2 million to ANE; $3.8 million to

E&E; and $4.9 million to LAC.8

Funds for Enabling Environment (EE)

Changes at the policy or regulatory level often have far-reaching effects that

cannot be measured easily in terms of affected households or individuals, or

even institutions. Funding for policy efforts has been tracked since 1998. Prior

to that time, policy efforts were not tracked separately from other activities.

While funding that is used, for example, to develop or promote methods for the

regulation of financial institutions may be small, the effect can be tremendous.

Of the two-thirds of total funding applied to microfinance shown in Table 2

and 3 above, 6 percent or $6.9 million went to financial policy activities aimed

at reforming or instituting laws and regulations affecting microfinance and

microfinance institutions. Ten percent of non-financial funding, or $5.3 million,

went to efforts to create a more enabling environment for microenterprises.

USAID-funded institutions have addressed policies and regulations that affect

the development of the microenterprise sector more generally, as in the areas of

business licensing and registration or dispute arbitration. 

Table 4. Funding for Microfinance and Microenterprise Enabling Environment, 1998-2002 

(US$ Thousands)

Fiscal Year 1998 1999 2000 2001 2002

Microfinance Enabling $406 $3,390 $13,500 $8,307 $6,956

Environment

Microenterprise Enabling $800 $3,700 $5,141 $5,715 $5,295

Environment

Total Funding for MF $1,206 $7,090 $18,641 $14,022 $12,251

and ME Enabling 

Environment

As Percent of Total 0.9% 4.6% 11.4% 8.9% 7.2%

USAID Funding

8 Global Bureau funds are also used for capacity building of PVO headquarters. In addition, funds are used in support of microenterprise research

(e.g., on ways to improve impact assessment), to train staff, for salaries of those who provide technical assistance to field programs, and for MRR,

USAID’s system for tracking microenterprise funding.
18 Microenterprise: Laying the Foundation for Economic Development

Funds for Very Poor Entrepreneurs

The 2000 Microenterprise for Self-Reliance Act mandated that half of all

USAID microenterprise funds should benefit the very poor.9 To report on its

assistance to the very poor, USAID asks its institutional partners to provide

information using measures mandated by the law. For microfinance institutions,

the percentage of FVP, or funds benefiting the very poor, is calculated based on

the percentage of the total loan portfolio held in “poverty loans.” For BDS

institutions, the percentage of funds for the very poor corresponds to the percentage of clients with outstanding loans (from the recipient of USAID funds

or from another source) at or below the amounts designated as poverty loans.

Because there is no client data associated with institutions that are engaged in

policy research, the amounts for policy are excluded from Table 5 and the estimate of funds benefiting very poor households. 

Poverty loan amounts were set by the U.S. Congress as: 

 $300 or less in Asia, the Near East and Africa;

 $400 or less in Latin America and the Caribbean; and

 $1,000 or less in Europe and Eurasia.

The Total Microenterprise Funding column in Table 5 includes all FY 2002

funds that supported field-based microenterprise programs. For all of these programs, MRR requested data on poverty loan clients but it did not in every case

receive the data. MRR calculated the percentages in the remaining three

9 This legislation was amended in 2003, and now defines the very poor as those living on less than $1 a day (purchasing power parity), or the bottom 50% of those living below their country's poverty line. For FY 2002, however, the provisions of the 2000 law were in effect.

Table 5. Percentage of Funds Benefiting the Very Poor, 2002

Total Percent of Percent of Percent of

Microenterprise Financial Funding Non-Financial Total Funding

Funding for Poverty Funding for Pov- Benefiting

(US$ millions) Lending erty Loan Clients the Very Poor

Africa Bureau $24.5 79% 38% 47%

Asia/Near East Bureau $31.2 90% 59% 77%

Europe/Eurasia Bureau $31.8 46% 3% 35%

Latin America/Caribbean

Bureau $35.6 67% 75% 71%

Global Bureau $31.4 42%1 50% 44%

Total all Bureaus $154.52 53% 45% 50%

1 This percentage is influenced by the portfolio guarantees provided to banks through the Office of Development Credit. As banks, their services

are not focused on very poor clients, and typical loan sizes fall at the high end of those considered to fit the definition of “microenterprise loan.”

2 Funds in the amount of $3.652 million used for USAID salaries, training, and research were excluded from this column. Total funds ($12.251 million)

provided to improve the enabling environment for microenterprise development were also excluded. The rationale for excluding them is that the extent

to which they benefit very poor clients is impossible to estimate by the poverty loan proxy mandated by law, since they do not directly serve clients.
Microenterprise: Laying the Foundation for Economic Development 19

columns in Table 5 based on a subset of the funds in the first column – i.e.,

based on those funds that supported programs for which the implementing

institutions provided data on their 2002 activities.10

The data provided to MRR by USAID-supported institutions indicates that the

agency just met its target of directing 50 percent of its funds to benefit the very

poor for 2002.11 Results from previous years have also put the agency very close

to the 50 percent target: 53 percent in 2000 and 2001. (See the Methodology

Annex for a complete explanation of how these calculations were made.)

Table 6. Percentage of Funds Benefiting the Very Poor by Region, 2000-2002

Fiscal Year 2000 2001 2002

Africa Bureau 60% 44% 47%

Asia/Near East Bureau 60% 44% 77%

Europe/Eurasia Bureau 26% 40% 35%

Latin America/Caribbean Bureau 64% 53% 71%

Global Bureau 61% 47% 44%

Total All Bureaus 53% 53% 50%

A key factor that affects USAID’s ability to report accurately on the percentage

of funds benefiting the very poor is that funding is tracked at the time the grant

or contract is made. Because USAID provides assistance to many organizations

for new initiatives to increase their outreach to poorer clients, the activity of the

institution at the outset may not reflect the extent of outreach to the very poor

that will occur as a result of the grant. Nonetheless, MRR must use program

results (often from the period preceding program implementation) as the basis

for calculating funds that can be attributed to benefits to very poor clients.

(That is, because assessing the poverty status of prospective clients would be

impractical, USAID directs awardees to assess the poverty status of current

clients at the time the annual MRR survey is conducted.)

A second factor that affects USAID’s ability to report accurately on the percentage of funds benefiting the very poor is that USAID funds have been used to

build microfinance infrastructure; this effort has included supporting the development of national microfinance networks and associations, credit rating agencies and credit bureaus. Because these activities may have no directly associated

client data, they cannot report poverty data for use in the calculation of the 

10 MRR believes it is reasonable to extrapolate from the percent of funds that benefit the very poor derived from this data to the total funds for

field-based ME programs. The rationale for extrapolating from the FVP for activities implemented by those institutions that did report to arrive at

the FVP for all activities is that there is no reason to assume that microenterprise programs implemented by institutions that do not provide data

to MRR serve the very poor at lower rates than programs implemented by those institutions that do provide this data.

In fact, extrapolating from those institutions that report data to all MED activities likely results in a conservative FVP figure. As discussed below in

the Methodology Annex, there is reason to assume that the low response rates among BDS providers/facilitators artificially deflate the estimate of

the FVP associated with BDS activities. This is another reason to infer that measuring FVP using the loan size proxy results in a conservative figure

for the portion of USAID funds that benefit the very poor.

11 See the Methodology Annex below for a full discussion of how the funds that benefit the very poor (FVP) is calculated. 
20 Microenterprise: Laying the Foundation for Economic Development

percentage of funds that benefit the very poor.12 But because these institutions

provide industry-building support to retail microfinance institutions, which are

the basis of the FVP calculation, the FVP calculation is extrapolated to the

funds that support their activities. 

A severe limitation on the reporting of funds for BDS that reach very poor

clients is that many institutions do not track whether their clients have poverty

loans, particularly if they do not themselves provide or package financing to

their clients. Many practitioners have concluded that loan size is such an inaccurate proxy for clients’ poverty levels that they have little incentive to track it,

and if they do collect the data, they face real challenges assessing the quality of

data based on estimates of the extent to which their clients have poverty loans

from other sources. It is likely that the extent of service to very poor clients by

USAID’s BDS partners is significantly understated due to the poor fit of this

proxy with most partners’ activities.

USAID recognizes the limitations associated with using loan size as a proxy

indicator for client poverty level. In response to the amendments in the law in

2003, USAID is developing improved tools for assessing the poverty level of its

microenterprise beneficiaries. The new tools will come into effect in 2006. Until

then, the poverty measurement provisions of the 2000 Microenterprise for SelfReliance Act remain in effect. 

Funds for US Private Voluntary Organizations (PVOs) 

and Networks

USAID has long supported the development of PVO networks (including

cooperative development organizations) that are the backbone of U.S. assistance

to the microenterprise development field. The Office of Private and Voluntary

Cooperation, through its Matching Grants program, has provided annual assistance to strengthen the PVOs, many of which have created extensive multicountry networks. Other USAID missions and offices have also contributed

large amounts of funding to the PVO networks, many of which reach large

numbers of clients. Most of these networks work primarily in the area of microfinance, though some facilitate or provide business development services. Table

7 shows the amounts of USAID support to 20 of the largest PVO microenterprise networks supported by USAID. These 20 PVO networks alone received

36 percent of total funding by USAID to microenterprise development between

1997 and 2002. Other PVOs, NGOs and cooperative organizations received

annual fund averaging an additional $10 million per year during that period.

Total funds to the institution and its network affiliates (which could include

NGOs and for-profits), combining funds from both USAID field and central

offices, are included. 

12 Some microfinance networks and associations do provide funds directly to retail MFIs, in addition to providing technical assistance for the 

industry-wide benefits described above (establishing credit bureaus, etc.). One example is CAMFA (Central Asian Microfinance Association), which

made a grant to the Kazakhstan Community Loan Fund (KCLF) in 2002. The CAMFA funds that passed through to KCLF are included in the calculation of funds for the very poor through the process explained above.
Microenterprise: Laying the Foundation for Economic Development 21

Table 7. Annual Funding to PVO Networks, 1997-2002

PVO Total USAID Awards Avg. Annual Award

Network (US$ Thousands) (US$ Thousands)

ACCION International $18,266 $3,044

ACDI/VOCA $27,730 $4,622

Aid to Artisans (ATA) $14,367 $2,395

CARE International $16,848 $2,808

Catholic Relief Services $28,673 $4,779

Cooperative Housing Foundation $10,715 $1,786

Enterprise Works $20,318 $3,386

FINCA International $47,983 $7,997

Freedom from Hunger $2,238 $373

Katalysis North-South Partnership $5,791 $965

Mennonite Economic Development 

Association (MEDA) $3,033 $506

Mercy Corps $13,413 $2,236

Opportunity International $28,651 $4,775

PLAN International $4,101 $684

Save the Children Federation $20,249 $3,375

TechnoServe $30,847 $5,141

WOCCU $26,429 $4,405

World Education $6,026 $1,004

World Relief Corporation $6,117 $1,020

World Vision Relief and Development $8,586 $1,431

TOTAL Funding $340,381 $56,730
22 Microenterprise: Laying the Foundation for Economic Development
Microenterprise: Laying the Foundation for Economic Development 23

Results from USAID-Supported Microenterprise

Institutions in 2002

USAID-assisted microenterprise development practitioners with active agreements received a survey questionnaire on their FY 2002 activities. All those

institutions with funding in FY 2002, in addition to those with active agreements from prior years, were queried.13

The results of this survey cannot definitively address the question of what the

impact of USAID funding has been. An impact assessment would involve charting the progress of the institution through a period of time, beginning with the

USAID grant. Many institutions included in the current survey have only

recently received USAID funding or the first installment of a multi-year grant.

Furthermore, while some of the institutions surveyed may have received

USAID grants previously, the data reported in this summary should not be

attributed solely to USAID support. Rather, these results could be understood

to be the combined effect of all the prior assistance received by the institution,

which may include support from other donors as well as USAID. 

Microfinance

USAID assistance to the microfinance industry includes funding for a range of

purposes; for example, support to microfinance institutions in the form of loan

capital, portfolio guarantees, funds for operational expenses, staff training, new

product development and new program initiatives. USAID microfinance support has also included efforts to build the broader microfinance industry at the

country level through such initiatives as national practitioner networks, credit

bureaus and credit rating agencies. 

In 2002, 149 microfinance institutions or activities received USAID funding.

Of that number, 119 (80 percent) provided data on their activities. Forty percent or 60 of the 149 were technical assistance providers or apex institutions,

some of which were also engaged in retail microlending operations.14 These 60

institutions served more than 219 additional organizations by providing funds,

management expertise and other services. 

All actively supported institutions in 2002 were requested to provide data on

their operations for 2002. Of 415 microfinance institutions with active agreements, 325 (78 percent) responded to the survey. Of that number, 298 provided data on their retail lending operations; another 27 apex organizations had no

portfolio data to report because they support other MFIs rather than serving as

retail lenders themselves. While the inventory of USAID-supported institutions

changes every year, 58 percent or 174 of these 298 institutions reported data in

both 2001 and 2002. 

13 Many institutions have multi-year agreements that are evaluated against annual performance indicators. Active agreements are those still operating under the contract term. 

14 This category also includes networks that received funds to be further distributed among network affiliates or to build headquarter operations.
24 Microenterprise: Laying the Foundation for Economic Development

BRI, supported by USAID for several consecutive years, will again not be

included in the summary tables due to its size. With more than 2.9 million loan

clients, BRI has as many clients as all the other USAID-supported institutions

reporting data for 2002 combined; including it in the summary tables would

overshadow data from the other institutions in USAID’s portfolio. 

Table 8. Clients of Lending Institutions in 2001 and 200215

Clients 2001 Clients 2002 Client increase

(all institutions) (all institutions) (institutions reporting

(thousands) (thousands) in both 2001 and 2002)

Total 2,907.2 2,731.6 +15%

Since 2001, the number of clients reached with USAID assistance has decreased

slightly (6 percent); however this still represents a 26 percent increase over

clients reported in 2000. For those institutions reporting in both 2001 and

2002, the number of clients increased by 15 percent.16

Loan portfolio value in the LAC region, where average loan size is larger

($774), constitutes more than two-thirds of the total portfolio of USAIDassisted institutions. The amount of total outstanding portfolio for all regions

grew 36 percent in 2002 to nearly $1.3 billion, up from $934.3 million. 

As shown in Table 9, the percentage of women clients in USAID-supported

microfinance institutions is high for all regions. In the Near East, the percentage of women borrowers continues to climb steeply. In 2000, only 27 percent

of the MFI clients in the Near East were women; in 2002, 55 percent were

women. The average loan size in the Near East has decreased (from $498 in

2000) as USAID partners have invested heavily in mostly group lending programs for poor women.

15 The number of loans is used as a proxy for the number of clients. 

16 This excludes WOCCU/Ecuador, which reported 114,452 clients in 2001 and 410 clients in 2002 because it initiated a new activity. 

6% 10%

5%

11%

68%

Figure 2.

Percentage of Total

Loan Portfolio held

by Microfinance

Institutions in 2002,

by region

■ Africa

■ Asia

■ Europe/Eurasia

■ Latin America/

Caribbean

■ Near East
Microenterprise: Laying the Foundation for Economic Development 25

Table 9. Average Loan Balance17 and Percentage of Women Clients, 2002

Average Balance (US $) Percentage of Women Clients

Africa 197 71%

Asia 117 88%

Near East 345 55%

Europe/Eurasia 697 49%

Latin America/ Caribbean 774 67%

Total 465 69%

17 Asia and the Near East, shown together in the USAID funding tables, are presented separately here and throughout the data summaries because 

the regions reflect very different economic and cultural contexts. 

In accordance with the poverty measurement provisions of the 2000

Microenterprise for Self-Reliance Act, MRR requests data from microfinance

institutions on the number and value of "poverty loans" they hold. This loan

size proxy is used to measure the amount of USAID microenterprise funding

that benefits the very poor. Poverty loans are loans that are sufficiently small to

indicate that the borrower can be presumed to be among the very poor. 

Table 10 shows the number of poverty loans held by all institutions with current agreements with USAID, not just those that received funding in FY 2002

as reported in Table 5.

Table 10. Clients with Poverty Loans, 2002

Number of Loans Number of Poverty Percent Poverty

Region (’000s) Loans (’000s) Loans

Africa 655.8 506.0 77% 

Asia/ 531.1 450.7 85%

Near East 238.8 141.2 59%

Europe/

Eurasia 197.6 164.5 83%

Latin America/

Caribbean 1,107.9 446.3 40%

Total 2,731.2 1,708.7 63%

In 2000, MFIs in the Near East region reported that only 31 percent of loans

held were in amounts equal to or less than $300; the share of poverty loans

almost doubled by the end of FY 2002. 
26 Microenterprise: Laying the Foundation for Economic Development

Savings Services

Microfinance practitioners have long understood the value of safe and secure

savings services for households living on the economic margin. USAID has supported the development of financial services that suit the specialized savings

needs of low-income clients. 

Of the 298 USAID-supported microfinance institutions providing data in 2002,

almost two-thirds (66% or 196) reported on their savings programs for

microenterprise clients.18 Of these, most (81%) require that their loan clients

maintain a savings account as loan collateral. Forty-nine percent (96) of the

institutions also offer voluntary savings services. 

Table 11. Number of Savers and Savings Amounts, 2002 

Savings Savings Amounts Average Savings

Region Members (’000s) (US$ millions) Account (US$)

Africa 1,235.3 $104.1 $84

Asia/ 850.9 $18.1 $21

Near East 2.3 $0.06 $26

Europe/Eurasia 143.4 $21.3 $149

Latin America/ 985.6 $635.4 $645

Caribbean

Total 3,217.5 $778.9 $242

Table 12 shows the top eight savings institutions or networks of savings institutions supported by USAID in 2002. These eight accounted for 45 percent of

the clients and 73 percent of the savings held by all the USAID-supported institutions shown in Table 11. Four of the top eight are in Africa, one in Asia, one

in Europe, and two in Latin America. One institution, WOCCU/Mexico,

accounts for 80 percent of the savings portfolio of the top eight, and 59 percent

of the entire USAID savings portfolio shown in Table 11. 

18 Excludes BRI in Indonesia, which has 28 million savings clients with deposits of $2.6 billion. If included, this single, large institution would outweigh the results of all other USAID-supported institutions combined. 
Microenterprise: Laying the Foundation for Economic Development 27

Table 12. Leading Savings Institutions or Networks Supported by USAID, 2002

Institution Name Savings Savings Amounts Average Savings

Members (US$) Account (US$)

WOCCU/Mexico 528,958 $ 458,506,087 $866

WOCCU/Rwanda 318,784 $ 32,553,189 $102

WOCCU/Bolivia 115,675 $ 39,593,376 $342

WOCCU/Romania 115,004 $ 18,563,048 $161

Rural Green Bank 

of Caraga, Philippines 113,536 $ 2,844,437 $25

PAMECAS/Senegal 106,093 $ 9,993,025 $94

Kenya Women’s 

Finance Trust 79,265 $ 6,183,318 $78

Uganda Women’s 

Finance Trust 62,189 $ 1,309,396 $21

Total 1,439,504 $ 569,545,876 $396

The data for each of the WOCCU networks refers to the activities of many local

credit unions located throughout each country. For example, WOCCU/

Romania includes 26 individual credit unions, Bolivia includes 15 credit unions

and Mexico includes savings activities in 31 regions with 365 branch offices.

Table 13. Location of Microfinance Clients, 2002

Rural Percent Urban Percent

Africa 60 40

Asia/ 89 11

Near East 32 68

Europe/Eurasia 33 67

Latin America/ Caribbean 39 61

Total 52 48

Table 13 presents summary data reported on the location of clients of USAIDassisted microfinance institutions. The percentage of rural clients reported in

2002 increased over 2001 for all regions except Africa, which is nearly the same

as in 2001 (61%).

Data on portfolio at risk and loan losses are shown in Table 14. These standard

indicators are used in microfinance to monitor financial performance.19

19 Portfolio at risk is calculated based on the amount of portfolio reported to be in arrears for 30 days or more. Loan loss rates show the percent of

portfolio that must be written off because of delinquent loans. 
28 Microenterprise: Laying the Foundation for Economic Development

Table 14. Portfolio at Risk and Loan Loss Rates, 2002 

Region Portfolio at Risk Loan Loss Percent

Africa 3.9% 2.7%

Asia/ 3.3% 0.7%

Near East 4.8% 0.5%

Europe/Eurasia 1.1% 0.5%

Latin America/Caribbean 7.1% 1.5%

Total 5.8% 1.4%

USAID’s objective is that microfinance institutions be fully sustainable within

seven years of the initial provision of USAID assistance. Full financial sustainability occurs when the institution is able to cover all operational expenses, plus

the cost of raising its loan funds from commercial sources, adjusted for the

effects of inflation and subsidies. An intermediate measure, operational sustainability, refers to an institution’s ability to produce adequate income from interest and fees to cover all its operational expenses, including loan losses. 

About half (49 percent) of USAID-assisted institutions reporting were fully

financially sustainable. These institutions provide services to 71 percent of the

loan clients and hold 83 percent of the total loan portfolio. An additional 11

percent were operationally sustainable. 

Table 15 compares the subset of institutions that reported in both 2001 and

2002. The 174 institutions includes 47 African MFIs, 40 Asian MFIs, 20 institutions located in the Near East, 26 located in Europe or Eurasia, and 41 in

Latin America or the Caribbean. In every region the number of institutions

reporting full financial sustainability increased in one’s year time. The most dramatic increase in reported sustainability occurred in the Africa region where

thirteen additional MFIs of the 47 reported reaching financial sustainability. It

should be noted that in FY 2000, fewer than 15% of MFIs in the Africa and

Europe and Eurasia regions reported full financial sustainability.

Table 15. Sustainability of USAID-Supported Institutions Reporting in Both 2001 and 2002

Not Yet Operationally Fully Financially

Sustainable Sustainable Sustainable

Year 2001 2002 2001 2002 2001 2002

Africa (n = 47) 25 16 7 3 15 28 

Asia/ (n=40) 14 8 2 1 24 31

Near East (n = 20) 7 6 6 5 7 9 

Europe/Eurasia (n = 26) 11 11 5 4 10 11 

LatinAmerica/

Caribbean (n = 41) 15 11 7 5 19 25 

Total (n = 174) 72 (41%) 52 (30%) 27 (16%) 18 (10%) 75 (43%) 104 (60%)
Microenterprise: Laying the Foundation for Economic Development 29

Business Development Services

Business services can play a key role in helping microenterprises build skills and

resources that allow them to grow their businesses. Business development services include a range of services, such as product design and development, marketing and market access, business management assistance and skills training, to

name a few. 

Of the 121 institutions with active USAID agreements to provide or facilitate

the provision of BDS to microentrepreneurs in 2002, 87 institutions reported

data on their clients. Fifty-one institutions provided services directly to microentrepreneurs. Forty-nine were engaged in facilitating BDS provision by working

to assist BDS provider organizations to expand markets, build capacity or boost

client demand. (Thirteen organizations were both providers and facilitators.)

One organization, Sistema Informativo de Mercados Agropecuarios (SIMA) in

Bolivia, was responsible for disseminating market information to an estimated 

2 million microenterprise households. (Data from SIMA is not included in

Table 16 because the data is not comparable to other BDS data.)

Table 16. Clients of USAID-Funded BDS Programs 

(Providers and Facilitators), 2002

Number of Micro Percent Percent

Clients Women Rural

Africa (n=43) 549,871 50% 87%

Asia/ (n=14) 32,903 47% 97%

Near East (n=1) 700 100% 5%

Europe/Eurasia (n=10) 42,244 37% 54%

Latin America (n=19) 66,807 41% 82%

Total (n=87) 692,525 48% 85%

BDS Providers

USAID promotes business services that address the primary constraints affecting microentrepreneurs in their local market contexts. Many BDS providers

undertake market research to ensure that their services are relevant and

demand-driven.

The overwhelming majority of BDS clients (85%; see Table 16) reside in rural

areas, where access to market information, product inputs and outlet markets is

limited. USAID has promoted organizations in their efforts to reach rural

clients with quality, demand-driven services. 
30 Microenterprise: Laying the Foundation for Economic Development

Of the 51 direct BDS providers who responded to USAID’s annual survey in

2002:

 More than 80 percent (43) assisted microentrepreneurs to link to new and

better markets.

 More than 80 percent offered business management support (44) or technical training (39) to microenterprise clients. 

 More than 75 percent assisted microentrepreneurs with market research (37)

or provided management counseling (39). 

 Many providers also offered one of more of the following services: new

product development (30 or 59%), access to products (30 or 59%), research

and development of technologies (33 or 65%) and information on taxes and

licensing requirements (18 or 35%). 

 More than 30 percent (16) of the providers had the capability to provide

financing to their clients, and another 55 percent (28) were able to link their

clients to financial services. 

In addition, USAID has encouraged providers to develop a clear exit strategy,

or a plan for continuing services without ongoing donor funding. Nearly 60

percent (29) of the providers surveyed had developed such a plan. 

BDS Facilitators

BDS facilitators are international or local institutions that aim to expand and

improve low-income entrepreneurs’ access to BDS by increasing demand for

new services or supporting BDS providers in developing new services, promoting good practice and monitoring and evaluating performance. 

Of the 49 reporting organizations that served as BDS facilitators in 2002, most

(86% or 42) were engaged in capacity building of BDS providers. Many also

trained trainers (73% or 36) and disseminated best practices (76% or 37).

Monitoring and evaluation of business services was one of the primary functions

performed (80% or 39). Many were also engaged in impact studies of these

services. 

BDS facilitators were also heavily involved in expanding markets for microentrepreneurs. Dissemination of market information was a primary activity (67% or

33).

In addition: 

 80% (39) linked entrepreneurs to new business opportunities or networks

 71% (35) identified new products 

 69% (34) of the facilitators had a plan for leaving – an exit strategy – once

they had built the BDS market. 
Microenterprise: Laying the Foundation for Economic Development 31

Policy Advocacy and Reform

In FY 2002, USAID provided funds to 26 institutions for the purpose of

undertaking policy reform in the areas of microfinance regulation or policies

affecting microenterprises generally. Eighteen reported on their activities. These

18 represented $10.8 million, or 88 percent, of the policy obligations made

during 2002. Another 10 institutions with obligations from prior years reported

on their policy-related activities in 2002. 

Sixteen of the 28 institutions reporting were actively involved in improving

microfinance regulation and supervision, or credit information services. In El

Salvador, for example, USAID has recently funded efforts to assist the

Superintendency of the Financial System to implement a monitoring system for

non-bank financial institutions, under a new law that has given these institutions

full legal status. Funding also supports efforts to build the capacity of bank and

credit union regulators to protect poor people’s savings.

Policy work funded by USAID to create a positive enabling environment for

microenterprises includes a range of activities, such as association building,

export promotion and the removal of unfair barriers to economic participation

by microenterprises. USAID-funded policy work includes helping countries

streamline their business registration process so that microenterprises are more

willing and able to formalize; building the capacity of microentrepreneurs to

work through independent business associations to advocate for policy reforms;

and promoting anti-corruption efforts or tax reform. 
ACRONYMS

ACCION Americans for Community Cooperation in Other Nations

ACDI/ Agricultural Cooperative Development International/ 

VOCA Volunteers in Overseas Cooperation and Assistance

AFR Africa Region (USAID)

ANE Asia and the Near East Region (USAID)

BDS Business Development Services

BRI Bank Rakyat Indonesia

DA Development Assistance

CACEDRF Central American and Caribbean Disaster Relief Fund

CARE Cooperative for Assistance and Relief Everywhere

CGC Credit Guarantee Corporation

CSD/HIV Child Survival and Development/Human Immunodeficiency Virus

ESF Economic Support Funds

EE Enabling Environment

E&E Europe and Eurasia Region (USAID)

FINCA Foundation for International Community Assistance

FS Financial Services

FSA Freedom Support Act

FVP Funds that benefit the Very Poor

LAC Latin America and the Caribbean Region (USAID)

MD USAID/Washington Microenterprise Development Team

ME Microenterprise

MED Microenterprise Development

MEDA Mennonite Economic Development Association

MF Microfinance

MFI Microfinance Institution

MRR Microenterprise Results Reporting

NGO Nongovernmental Organization

PVC Office of Private and Voluntary Cooperation (USAID)

PVO Private Voluntary Organization

SAI Special Assistance Initiatives

SEED Support for Eastern European Democracy

SIMA Sistema Informativo de Mercados Agropecuarios

SOAG Strategic Objective Agreement 

USAID United States Agency for International Development

WOCCU World Council of Credit Unions
The full report is available online at www.mrreporting.org

and www.microlinks.org. The report is also available in hard

copy or on CD-ROM from Weidemann Associates, Inc. Please

contact admin@mrreporting.org to request a hard copy or

CD-ROM.
MicroLINKS, the USAID Microenterprise Development web site

at www.microlinks.org, contains

the latest microenterprise research

and reports, hosts a number of

active communities of practice

convening around subjects central

to microenterprise development,

and offers links to other

informative web sites.

Produced by Weidemann Associates, Inc., 

under the USAID-funded Accelerated

Microenterprise Advancement Project (AMAP)

Indefinite Quantity Contract number: 

GEG-I-00-02-00025-00, Task Order No. 1 

Weidemann Associates, Inc.

933 North Kenmore Street, Suite 405

Arlington, Virginia 22201 USA

Tel.: 703-522-3075

Fax: 703-525-6169

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August 2004

For more information, contact

U.S. Agency for International Development

Washington, DC 20523-1000

Telephone: 202-712-4810

www.usaid.gov