Click here to download the paper as a pdf file . In order to fulfill the Microcredit Summit's goal of reaching 100 million of the world's poorest families with microcredit by the year 2005, we must ensure not only that more resources are dedicated to promoting microcredit but also that resources are provided to the institutions in cost-effective ways. Donor agencies generally provide funds as grants or low-interest loans to microcredit programs, often with government involved as a guarantor. The administrative cost of providing these funds is often unacceptably high, and the amount that reaches the poor as loans is probably quite low.
Several limitations exist in current methods of fund distribution by donor agencies.
One significant limitation is an over-reliance on consultants, many of whom do not have the skills necessary to successfully advise and assist microcredit donors and practitioners. In order to strengthen their capacity to reach the poorest, donor agencies should declare what percentage of funds going to the microfinance sector will be committed to loans to the poorest and require each local office to produce annual reports on its contribution to achieving its country goal. A clear policy should be established to ensure that funds go to the poorest. Moreover, agencies should create a country-level CGAP mechanism and hold at least one meeting each year to review progress and discuss upcoming plans. Initiatives must be taken to build non-governmental, sustainable, wholesaler MCFs at the local level and channel donor funds to these institutions to initiate and support MCPs.