In Central America, between 50% and 90% of the population has no access to financial services and the vast majority of poor must constantly resort to semi-formal or informal sectors (relatives or private lenders), that often lead them deeper into debt and dependency. NGOs and cooperatives specialising in microfinance offer short-term loans. The majority of these institutions lead a tenuous existence, are little diversified in their products and over-dependent on subsidies.
The PROMIFIN strategy is based on solutions to the following three problems:
- The effectiveness of the institutions
- The lack of diversity in financial services and of coverage of rural areas
- The lack of sustainability and solidity of the system as a whole
Launched in 1999 in Nicaragua, Honduras and Salvador the PROMIFIN programme has been able to improve the financial services on offer thanks to efforts at various levels.
Strengthening the capacities of microfinance institutions
PROMIFIN focuses on improving the capacities of the microfinance institutions (MFIs) at the level of decision making, effectiveness, geographical coverage, greater sensitivity in products and policies, etc. The institutions supported by PROMIFIN have not only registered the most impressive growth rates in this sector in terms of the number of clients served (doubling their clientele compared to an increase of just 50% for the institutions not supported) but have also significantly improved the quality of their portfolios (the institutions supported cut the rate of default by half, while unsupported institutions saw their rate double). More than 70 MFIs received support. They serve about one million clients equal to about 70% of the national market for microfinance.
Support for training and services
PROMIFIN also organises the training of specialist consultants on whom the institutions can call for assistance. The programme disseminates standard tools developed by the MFIs in collaboration with local consultants, who in turn are given support in sharing the experience with other MFIs. The 50-odd local consultants operate as two-man teams: one microfinance specialist and one IT specialist. These consultants have replicated more than 55 management tools in the institutions of Nicaragua, Honduras and Salvador. In return PROMIFIN takes advantage of regional exchanges between consultants and the institutions to make public the know-how thus acquired. In parallel PROMIFIN has improved the infrastructure required to strengthen the financial system, notably by facilitating the development of a market of services in support of MFIs, including technical assistance and the training of consultants. PROMIFIN also supported the regionalisation of a microfinance training programme provided by the universities of Honduras and Nicaragua, each year producing more than 100 newly trained professionals. PROMIFIN also supports the consolidation of complementary services for microfinance institutions, e.g., through the exchange of information via a central “risk free” unit in Nicaragua (SINRIESGOS), and support for the creation of a system of reciprocal guarantees in Honduras.
Strengthening the sector’s framework conditions
PROMIFIN has helped to improve the political and legislative framework for microfinance. In particular the programme has provided support to NGOs and regulatory and supervisory bodies for the development of a framework more favourable to MFIs in rural areas. In this way PROMIFIN encourages specialisation and involvement of the public sector in the promotion and regulation of financial services for low-income segments of the population while facilitating coordination, exchanges of experience and consensus-building between such key players as refinancing banks, microfinance networks and associations, banking authorities, and the community of donors. Coordination between funding agencies and the government Coordination between donors and the government is particularly important in Nicaragua and Honduras, where donors are especially numerous. Dialogue between these players helps to prevent the financing of projects with contradictory objectives and distortions in the financial market. In microfinance it is particularly important to create standards of measurement to which all institutions refer and framework conditions that foster the growth of this sector. According to the “Review of the Effectiveness of Assistance in the Domain of Microfinance” published by a consortium of 30 donor agencies (CGAP) PROMIFIN plays an important role in promoting dialogue between donors and the governments of Nicaragua and Honduras. In both these countries, SDC is known for its long-term strategic vision of a financial system accessible to all regardless of gender. In El Salvador PROMIFIN has entered into a strategic partnership with the state refinancing bank in an effort to transfer know-how gained through the programme to local consultants.
Improving the quality of life for low-income groups The institutions assisted by PROMIFIN have systematically improved their performance indicators. These institutions focus their efforts on low-income segments of the population: more than 50% of clients are women, and 40% are in rural areas. A follow-up of 1200 clients of MFIs supported by PROMIFIN showed income growth of almost 40%. This growth helped to finance improvements in nutrition, home comfort, care related to the health of family members and the schooling of children. The decision-making power of female clients has been strengthened.