which supports countries to strengthen their financial sector policy framework, build institutional capacity to function competitively in markets (including rural, microfinance and SME sectors). The policies explicitly recognize _specialized institutions_ such as MFIs, as acceptable channels, and support to these institutions is not considered as directed credit. The CGAP program coordinated by the World Bank has introduced a new institutional approach anchored on a business-like partnership in which the roles and responsibilities of the donor and MFI partner are clearly defined and delineated. The donor assumes the role of an investor, with institutional perfornance of the MFI substituting for dividends a its return on that investment.<sup>35</sup>

# **Final observations**

98. The usefulness of the model for a regulatory framework developed in this paper will depend on the collection and organization of operating and financial information on a timely basis, under a wellorganized and orderly reporting system. The comprehensive and integrated risk management partnership among the key players requires the provision and sharing of information among the key players about their discharge of respective responsibilities. Since the organization and preparation of financial and operating information can become an additional burden to the staff and resources ofMFIs there is need to continue the effort to simplify information requirements for government agencies and donors.

99. Building the institutional capacity ofMFIs enables microfinance practitioners as a group to influence the design of policies and information reporting standards set by government agencies and by donors. For instance, the Regional Action Research model encourages the development and formation of microfinance networks and has been an important tool for enhancing the capability of MFIs to work closely together in their dialogue with donors and policy makers. 36 The build up of institutional capacity should enable the directors and managers of MFIs to develop efficient management information systems for identifying and managing risks and satisfy relevant data and information requirements of stakeholders. There is an urgent need for donors to synchronize their information requirements to avoid imposing undue additional costs and operating burdens on MFIs. In this regard, the collaborative work of CGAP and the Microfinance Program of the Economics Institute to establish a database through the _MicroBanking Bulletin_ can be an indispensable foundation for synchronized standards of inforrnation.

100. For MFIs the principal challenge is to build up the institutional capacity to expand client outreach and secure the financial sustainability of their operations. Some microenterprise development programs provide both financial and non-financial services to their clients. Non-financial services vary widely according to the socio-economic environment and the perceived constraints -- lack of business skills, market connections, etc. -- faced by the target clientele. For these institutions, there is a distinct need to introduce and adopt sound commercial practices into their financial activities as well as to forrmalize the provision of operating information. These are best achieved through exposure to and application of best practice techniques for managing risk, reducing administrative costs, increasing revenue and collection and organization of information which is necessary for internal management and control systerms.

> 35 "Anatomy of a Micro-finance Deal: The New Approach to Investing in Micro-Finance Institutions", Consultative Group to Assist the Poorest, The World Bank, Focus Note No. 9, August 1997.

> 36 "Regional Action Research on Sustainable Micro-Finance Institutions in Africa: Basic Guidelines", The World Bank, Washington, DC (1997). The five-year action-research program, which was initiated in 1994 to support innovative techniques and effective networking, currently covers six countries in the Africa region: Kenya, Ghana, Zambia, Ethiopia, Cameroon and Mozambique.

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