1) Background: two biggest channels for Canadian Official Development: CIDA and WB

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1 CIDA and World Bank Programming in Microfinance 1) Background: two biggest channels for Canadian Official Development: CIDA and WB Canadians contribute to the social and economic welfare of the developing world by sharing their wealth in two key ways: through private donations (typically to registered charities) and though their government. This latter contribution is called Official Development Assistance (ODA). Official Development Assistance is provided by the Canadian Government through several channels, but the most important ones are the Canadian International Development Agency (CIDA, folded since July 2013 into the Department of Foreign Affairs, Trade and Development) and the World Bank. For ease of communication, we will continue to call the development arm of the Department of the Foreign Affairs, Trade and Development CIDA, given that most of the data in this study is pre-july CIDA and the World Bank have followed two differing tracks when it comes to microfinance. CIDA has historically supported microfinance and has supported initiatives like the Microcredit Summit as a member of its Executive Committee. When in December 2011, the House of Commons Foreign Affairs Committee recommended that CIDA increase its funding for povertytargeted microfinance, the government accepted the recommendation. The World Bank, on the contrary, was initially a bit more reluctant to get involved in microfinance, because its mandate did not allow it to support microfinance intermediaries directly, and because the amounts were often too small to be considered in the same category as say infrastructure projects. The World Bank has gradually changed its position and in IDA 17 (the $16 billion/year window of the World Bank providing grants and virtually interest-free loans), it will track two indicators of access to microfinance, one specifically looking at women s access, to assess its own performance in the fight against poverty. This report will look at the funding provided by both institutions to see whether the rhetoric is matched by the facts. For the two institutions, we will look at both expenditures and commitments. Commitments represent the total sum that an organization pledges to dedicate to particular project, over various years. Expenditures or disbursement represent the actual amount spent in a given year. Under normal conditions, the sum of expenditures for a given project will equal the total commitment for that project. Commitments over the years are usually lumpy and fluctuating, whereas expenditures fluctuate less. Expenditures tell us what an organization gives priority to in each year. Recent commitments are good predictors of future expenditures: i.e. a decline in commitments is likely to eventually lead to a future decline in expenditures.

2 PART 1 - CIDA expenditures for microfinance CIDA did publish in the past its statistics for microfinance expenditures. The latest figure amounted to $32 million in ( N29) This figure cannot be updated easily because it is the product of a project-by-project analysis. We can however use a proxy, which is more restrictive in scope, funding for informal and semiformal financial intermediaries, recognizing that some funding for microfinance could also be captured under funding for formal financial intermediaries or business support services and institutions, for instance. Table 1 - CIDA Disbursements for informal and semi-formal financial intermediaries Year Bilateral Aid- Partnership Aid-CIDA Multilateral+ TOTAL- CIDA OtherCIDA CIDA* Source: International Assistance Statistical Report, Government of Canada, Various years, Millions of Canadian dollars *To get the total amount contributed by Canada to international microfinance, we would have to add Canada s share of the amount channelled to the World Bank, which totalled between 3 and 8 million dollars per year. The figures show a very steady decline in funding after a spike in , probably due to promises related to Canada hosting the Global Microcredit Summit at the end of Note that this decline was taking place in the years where CIDA s budget was increasing! One might have expected the trend to change once CIDA made sustainable economic growth one of its 3 top priorities in 2009, but nothing of the sort happened. What might more disturbing is the near disappearance of microfinance from bilateral programming, i.e. with a 90% drop in funding since (and a 70% drop in funding from an already reduced budget in ) Canada appears to be all but eliminating microfinance from its country-to-country programming.

3 There is a slight growth in multilateral funds going to microfinance, but this is due to the UN system or Regional Development Banks making it a priority, not the Canadian government. The question then arises as to whether this downward trend can be expected to continue in future. The government of Canada does not publish its pipeline of projects but there are two sources of information one could look at. First, Canada publishes its information like other donor countries though the OECD s Creditor Reporting System. This gives us two types of data: annual disbursement figures (comparable to the ones of the table above, minus the multilateral column) which include data up to December 2012, whereas the International Assistance Statistical Report cut off is March 2012; and multi-year commitment figures, which give us a flavour what to expect in future. Table 2 - Canadian Disbursements and Commitments Informal and Semi-Formal Financial Intermediaries, OECD-DAC Year Disbursements Commitments Source: OECD-DAC Creditor Reporting System, Millions of US Dollars The disbursements are very similar, as expected, as the ones in the preceding table minus the multilateral portion. They do confirm, up to December 2012, the continuation of the downward trend. The commitments paint an even bleaker picture, as these represent the future expenditures to come. They are characterized by a drop of two thirds in past two years, announcing further imminent drops in expenditures. Another source of information is available to corroborate this trend. CIDA s Project Browser contains two types of information for every active project: the total sum committed, and the years in which it is expected to be active. This allows us to calculate an average annualized expenditure for the years of the project, which does not necessarily correspond to the cash-flow of the project but gives us an approximation of what disbursements might be. The Project Browser allows to sum up annualized expenditures of all active projects in a given year which involve informal and semi-formal financial intermediaries, as well as the ones which have the word microfinance in their description.

4 Table 3 Planned Average Annual Disbursements CIDA (bilateral and partnership) Components of projects supporting formal or semi-formal financial intermediaries Projects including the word microfinance Source: Project Browser, DFATD; note that, for projects including the word microfinance, amounts for a few multi sector projects were corrected to include only the portion that could reasonably be ascribed to microfinance; millions of Canadian dollars Whether it is the larger category of projects including the word microfinance or the more restrictive one tallying financial support for formal or semi-formal financial intermediaries, the sharp downward trend is clear: if new projects do not come on board before , microfinance will for all intents and purposes disappear from CIDA programming. Already the Project Browser tells us there is no programming at all left in the Americas and Asia; Africa could be next. PART 2 World Bank Disbursements for Microfinance The story on the World Bank side is a bit more upbeat. Just like all donors, the World Bank reports its funding to the OECD through the Creditor Reporting System. Just like we did for CIDA/DFATD we can look at what amounts are reported under Informal and Semi-Formal Financial Intermediaries. Table 4 World Bank(IDA) Disbursements and Commitments Informal and Semi-Formal Financial Intermediaries, OECD-DAC Year Disbursements Commitments Source: OECD-DAC Creditor Reporting System, Millions of US Dollars The amounts in the table are irregular but they do not point to a downward trend, especially since the commitment for 2012 is the second highest in the 5 year period. The World Bank also publishes commitment pipeline information, and it shows an important $300 million future project in Egypt of which 150 million will be for microfinance. This should solidify a bit its microfinance portfolio. The World Bank also publishes, similarly to CIDA s Project Browser, information on both the project commitments and the years in which the project is expected to be active. Unlike CIDA,

5 however, the World Bank does have a microfinance sector for which it collects funding information. The portfolio, differs from CIDA s in its geographical composition: whereas all of CIDA s funding is for Africa, 60% of the World Bank funding is for Asia, indicating a much more balanced picture. By annualizing the funding, we obtain the following planned average disbursements. Table 5 World Bank Average Annualized Disbursements Microfinance Sector $350 million $295 million $97 million Source: World Bank, project figures; only the actual percentage attributed to microfinance by the World Bank is calculated for larger projects, to avoid materially skewing the totals; US Dollars What the table seems to point to is some stability for the portfolio one year into the future, but extreme vulnerability (a potential drop of 75%) two years down the road if no new projects are approved in the meantime. With microfinance outreach being introduced as performance measure of IDA, there will be pressure to maintain a healthy number of projects in the area of microfinance, which may act as a countervailing force. CONCLUSION: The quantitative analysis shows a very different picture in CIDA compared to the World Bank. Clearly the figures at CIDA are very low: considering that IDA is between 3 and 4 times the size of CIDA s budget, one cannot help but notice in tables 2 and 4 that the disbursements and commitments are 5 to 7 times those of CIDA. It is however the trend itself of both the disbursements and the commitments that is worrying, with both a marked drop in funding in the past years, and an expected further one in the near future. The World Bank picture is not worrying in the short term, but does show vulnerability in future years, at a level as worrying as CIDA s with an even sharper potential drop in microfinance disbursements. The foregoing analysis underscores the need for continued vigilance in new project development and approvals.