Building demand-led and pro-poor financial systems for the poor

This NORAD (Norwegian Agency for Development Cooperation) position paper discusses the role of microfinance in poverty reduction and in Norwegian development cooperation, and outlines the future principles and focus of NORAD's involvement in microfinance.

The paper also discusses briefly the role of microfinance and poverty reduction, and microfinance market niches and approaches.

Main outcomes of the paper include:

• microfinance fits well into Norwegian development cooperation’s rights based approach to poverty reduction and private sector development
• building permanent pro-poor financial systems through donor coordination and harmonisation is coherent with the principles behind new development cooperation practices

NORAD’s strategy for promoting pro-poor financial systems includes:

• be sensitive to MFIs' various needs, as well as location specific and socio cultural factors
• focus on building local markets, including local providers of technical and support services
• assess carefully the role of donors and the role of subsidies
• acknowledge governments' role in promotion of an enabling environment and coordination of stakeholders
• follow basic donor guidelines on selecting and supporting MFIs
• follow basic guidelines for donor support
• monitor the dual objectives of financial and social performance

[Adapted from authors]