• Guidance and evaluation

Guidance and evaluation

Microfinance has gained increasing credibility and and raised its profile in recent years as an effective poverty alleviation instrument. This has led to a proliferation of microfinance institutions, particularly in Latin America, and to government agency support. For example, the U.S. government government passed a law in 2001 establishing microenterprise development as an integral part of U.S. foreign assistance strategy.

This paper tackles the question of how to ensure this interest in microfinance results in positive outcomes for poor people. It asks: How do government actors ensure that their behaviour will have a positive impact on the microfinance industry? And, what measures are used to determine if this in turn alleviates poverty?

The paper makes the following policy recommendations:

• foster increased transparency for aid agencies: establish clear development policy at the national level and once a plan is established, track progress towards it
• create an enabling environment in the local economy: this includes a wide range of factors from the macro-economy, such as managing currency value and supporting industry infrastructure improvements, such as credit reporting
• involve other stakeholders in decision-making, including NGOs, microfinance institutions and people with no access to credit
• channel remittance flows to product uses via microfinance: government actors can enhance remittance efforts and tie them to productive development, but in order to faciliate this process transfer costs need to be lowered, and recipients provided with incentives to invest their money in MFIs.

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