FINANCIAL INCLUSION IN MALAWI (FIMA) PROJECT Terminal Report PROJECT ID: MWI 000557581 PROJECT TITLE: Financial Inclusion in Malawi (FIMA) Project IMPLEMENTING PARTNER: Ministry of Finance
Contents 1. FIMA PROJECT SUMMARY... 3 2. PROJECT DESCRIPTION... 3 3. PROJECT OVERVIEW... 4 4. PROJECT RESULTS SUMMARY... 6 5. PERFORMANCE REVIEW... 11 6. IMPLEMENTATION STRATEGY REVIEW... 18 7. IMPLEMENTATION ISSUES... 18 8. SUMMARY OF KEY EVALUATION RECOMMENDATIONS... 19 9. LESSONS LEARNT... 21 10. RECOMMENDATIONS AND LESSONS LEARNT... 22 11. DELIVERY ON FINANCIAL RESOURCES... 22 12. SUCCESS STORIES... 24
1. FIMA PROJECT SUMMARY Project Title: Financial Inclusion in Malawi (FIMA) Project UNDAF Outcome 5: Good governance, gender equality, and rights based approach to development enhanced by 2011 Expected CP Outcome 5.3: Gender Equality and women s empowerment enhanced Expected CP Output 5.3.4: Strengthened Women s Access to financial services and markets to promote women s engagement in economic life Implementing Partner: Ministry of Finance Other Partners: Government of Malawi, UNCDF and CORDAID Award ID: 00047744 Project Duration: 4 Years Extension(s): None Total project funds for the whole Period: $ 5 Million Allocated resources: Regular UNDP: USD 2,000,000 Other: UNCDF: ( USD 2,000,000 CORDAID: USD 1,000,000 2. PROJECT DESCRIPTION Financial Inclusion in Malawi (FIMA) Project s main objective was to contribute to poverty reduction by increasing access to financial services (loans, savings, payment services, money transfers, and/or insurance) for poor and vulnerable populations, with priority given to increasing access to rural areas where demand for services was greatest. The project took a sectoral approach, situating the development of microfinance in the overall financial sector including banking and capital markets. The project strategy supported three key components: a) Nurturing a policy dialogue among stakeholders to support the development of an inclusive financial sector b) Supporting innovations in financial Markets that deepened and broadened access to services focusing on agricultural finance and mainly to women, savings services, and electronic banking applications 3
c) Building the capacity of key institutions supporting micro, rural and agricultural finance including Reserve Bank of Malawi, the Malawi Microfinance Network, the Government, and other financial institutions, particularly in the areas of financial transparency, outreach and sustainability. The project s planned results included: a) Appropriate mechanism(s) established to promote an effective policy dialogue for the development of an inclusive financial sector; b) Innovations in financial markets that extend financial services (savings, loans, payment services, money transfers, or insurance) to low-income groups, primarily in rural markets mainly women; c) Capacity of institutions operating in financial sector strengthened to increase outreach and sustainability of the sector Financial institutions Microfinance network Reserve Bank of Malawi Local Service Providers It is expected that the number of household savers will increase by 50% by the end of the Project with a baseline (June 2006) of 283,000 thus 141 500 additional new household savers (764 100 people) 1; the number of household borrowers by 50% with a baseline (June 2006) of 183,000 thus 91 500 new household borrowers (494 100 people) and the number of households rural clients by 40% with an estimated number of 100,000 (2006). Women should represent 50% of the total clients. The maximum number of new households having access to financial services, whether savings or credit, is 141,000. This number is inclusive of the other targets. The total budget of 6, 233,827 USD is co-financed by UNCDF (2,000,000 USD) and UNDP (2,000,000 USD). The Project should mobilize the balance (2,233,827 USD) from other sources. 3. PROJECT OVERVIEW FIMA Project was a Government of Malawi initiative established in 2007 with initial support from United Nations Development Programme (UNDP) and UN Capital Development Fund (UNCDF) in order to create an inclusive financial sector in Malawi. The project took a sectoral approach and had specific interventions at the macro (policy and regulatory), meso, micro (retail) and client levels of the financial sector. FIMA Project was launched by the Minister of Finance in June 2007 following approval of the project document in May 2007. The project also aimed at contributing to the achievement of the Malawi Growth and Development Strategy (MGDS), by helping expansion of sustainable access to financial services to the poor and excluded population and the Millennium Development Goals (MDGs), notably goal number one of halving poverty by 2015. The project s logic was to create an enabling environment, provide catalytic investments in Inclusive Financial Institutions (IFIs) and supporting industry infrastructure in order to strengthen the micro- 4
finance sector and achieve its desired outcomes including improved outreach especially to the rural poor and women, more sustainable IFIs that were capable of attracting capital and more appropriate financial services developed for the poor. Through grants, on-lending funds and technical assistance made available to various IFIs and industry support institutions, the project supported innovations in product development, delivery channels, and operating systems thereby enhancing capacity of the sector to expanding financial access to the poor and vulnerable population. The IFIs supported by the project had in turn improved their capacity to provide appropriate financial services to women, the poor and rural communities. Using this approach the project made significant contribution to outcome 5 of the UNDAF (2007 2011) which was aimed at achieving good governance, gender equality, and rights based approach to development by 2011. The project also contributed to output 5.3 of the Country Programme (CP) which aimed at attaining gender equality and women s empowerment. The project among other things contributed to these wider objectives through interventions aimed at removing barriers and building capacity at the policy, meso and retail levels of the financial sector. In its mandate to create an inclusive financial sector in the country, FIMA Project focused on the following strategic areas: a) Support development of policy and regulatory framework to create a favourable environment for microfinance to flourish. b) Support the development of industry infrastructure to improve coordination, establish standards, create incentives for investors, protect consumers, make information available to stakeholders, improve transparency and enhance procedures for comparing effectiveness of Financial Service providers (FSPs) c) Support innovations to improve access to financial services by increasing availability of services, improving efficiency and making access more affordable d) Build capacity of FSPs in order to enhance performance and sustainability e) Support innovations in the financial sector that can translate into affordable access to financial services by the poor and rural communities f) Increase product choice, availability and reduce cost of access for the poor and rural communities g) Develop and implement financial literacy and consumer protection interventions To realize this mandate the project utilised the following instruments: a) Capacity Building Grants (Maximum $ 200,000): Funds provided to strengthen the capacity of existing operations, focusing on transparency, accountability, innovative projects, product development, and new ways of delivering financial services. b) Credit Guarantee Mechanism (Maximum $ 300,000): Applied for FSPs requiring funds beyond the limits of FIMA loans but qualified to obtain such loans from the commercial banking sector with the exception that they lacked collateral. c) Technical Assistance (Maximum $ 200,000): Grants to facilitate coordination and dialogue among stakeholders in developing an inclusive financial sector with a special focus on the poor, notably the rural sector and particularly women d) Market based Loans (Maximum $ 300,000): These were loans at or near-market rates for activities aimed at strengthening the financial base and performance of the FSP. e) Seed Capital (Maximum $ 200,000): Long-term non-interest bearing loan; convertible into equity if conditions permitted. 5
Table 1: FIMA Project background information Table 1: FIMA Project Background Original FIMA Project design formulated FIMA Project formulation completed FIMA Project document approved Signing and launch of agreement between Government of Malawi, UNDP and UNCDF Recruitment of staff Nov-04 Jun-05 May-07 Jun-07 Jun-08 Total budget $6,233,000 Financing gap $1,233,000 Project duration 2007-2011 Implementing partner Programme partners MoF GoM, UNDP, UNCDF & CORDAID The Table above summaries key background information about the FIMA Project. The project was launched in June 2007 and had a planned budget of $6.2 million. The project was housed within Ministry of Finance premises and its main partners were Government of Malawi, UNDP, UNCDF and CORDAID. 4. PROJECT RESULTS SUMMARY The project document outlines specific outputs that were planned to be achieved at the end of the project life span. The table below analyses the progress made towards each output and target as specified in the project document. 6
PROJECT RESULTS SUMMARY Table 1: FIMA: Goal, Objective and Output CP Outcome: s PROJECT RESULTS SUMMARY Gender equality and women s empowerment enhanced. Goal Contribute to the achievement of the Millennium Development Goals, mainly the goal number one of halving poverty by one in Malawi by 2015 and to the goals of the Malawi Growth Development Strategy by increasing sustainable access to financial services to the poor and low income people. Outcome Relevant Indicators to increase number of savers and borrowers by 50% to 283,000 and 183,000 respectively, with 50% being women. Increase access in rural areas by 40%. Output 1 Appropriate Technical Working Group established to promote an effective policy dialogue for the development of an inclusive financial sector (Policy). Output Targets 1.1 Macro Financial Sector Deepening Group Established within the Microfinance Forum: 7 Year 1 Technical Working Group in place and operational; Year 1 Survey carried out; Year 1 Approval of draft NSFI and donor roundtable; and Year 2 and sq.: Implementation and monitoring of the Action Plan. a) Financial Sector Deepening Group was established before Programme Management Unit was set up. b) Technical in place but only a few meetings were conducted due to a large number of technical working groups that required support c) In order to inform the formulation of the National Strategy For Financial Inclusion (NSFI), the following diagnostics were carried out to provide the relevant background data: (i) FSAP with support from World Bank in 2007 ii) FinScope demand side and supply side surveys were conducted in 2008 and 2009 respectively (iii) Microfinance assessment was carried out with support from FIMA Project resources in 2009 d) Drafting of the NSFI commenced in 2009, validation and launched in 2010. Development of the strategy was delayed due to late start of project implementation and the need to conduct diagnostics prior to strategy formulation. e) Donor round table not yet carried out. Ministry of Finance yet to call for a donor round table f) Some components of the action plan are already being implemented e.g. (financial literacy).
Output 2 Innovations in financial markets and investments in financial service providers promoted to expand sustainable access to financial services (savings, loans, payment services, money transfers or insurance) to low income groups, particularly women in rural markets. Output Targets 2.1 Micro Partnerships established with three institutions to develop financial market innovations. a) Partnerships were established as planned The project partnered with 12 FSP resulting in signing of 14 performance based agreements since its inception as follows: i) In 2008 FIMA signed one performance based agreements. ii) In 2009 FIMA signed six performance based agreement. iii) In 2010 FIMA signed five performance based agreement. iv) In 2011 FIMA signed three performance based agreement. b) Out of the 12 partner institutions 4 were mostly supporting innovations 2.2 Micro The number of savers in low income groups is expanded including 50% women. As of December 2011, proportion of female clients for FIMA supported FSPs had improved to 55%. 2.3 Micro Demand driven financial services available to agricultural markets (savings, loans and transfers) increase 10% in each of the first four years of the project. The total number of clients for FIMA supported FSPs increased by 358,661 between December 2009 and December 2011 representing a 40% increase. Output 3 Capacity of institutions operating in the financial sector strengthened to increase outreach and sustainability of the sector. Output Targets 3.1 Meso The number of local service providers supporting microfinance markets increase from 3 to 6 by Year 3. One local service provider supported. 3.2 Meso Secretariat Resource Centre website established and financial transparency training (MIS etc.) carried out: Year 1: Secretariat; Year 2: Financial Transparency training carried out; Year 3: Resource Centre and website functioning; and Year 4: Credit Reference Bureau. a) Limited training was carried out. b) MAMN website was developed in 2010. c) The project participated and provided resources for the recruitment of an Executive Director of MAMN. d) The project facilitated Financial Transparency Workshop in 2010 e) Resource Centre was established. f) FIMA participated and contributed in the review and passing into law of the Credit reference bureau. To date 2 credit reference bureaus have been licensed by RBM. 8
3.3 Micro Management capacity of MFIs strengthened: 3.4Macro 3.5 Meso Micro Year 1: Network members with RBM participation agree on reporting requirements and standards; Year 2: Trainings and customized technical support provided by network and project; Year 3: Members of MAMN reporting according to internationally recognized standards; RBM capacity strengthened to effectively play its relevant role in financial sector development. Baseline: Year 1: Collaboration with RBM and other partners on evaluation of legal and regulatory framework including knowledge transfer and exposure visits; and Year 2: Key indicators for microfinance lines of business reporting agreed with practitioners. Technical support provided to MFIs sector wide and IT suppliers on effective management information systems to support financial transparency and innovation: Year 1: Assessment of MIS needs of MFI sector; Year 2: Training conducted through the Network and technical support for self assessment of IT systems; Year 3: 5 Key players have adequate MIS systems to support internationally recognized standards and electronic banking applications developed in the project; Year 4: 7 players have adequate MIS systems to support international recognized standards and electronic banking applications developed in the project; and Year 5: 7 (total) players have adequate MIS systems to support international recognized standards and electronic banking applications developed in the project. a) Standards were not developed due to change in priorities by RBM. b) The network organized a number of training including the following areas: Micro insurance, financial management and credit risk management c) The project supported attachments, study tours and relevant trainings to build capacity of RBM staff. d) Limited technical training was conducted. Collaboration was completed and key indicators were discussed - The project collaborated with the RBM in the review of financial sector related bills including microfinance, financial cooperatives and financial services bills. a) No formal assessment of MIS needs by MAMN. The project however supported a number of FSPs in improving their Management Information Systems (MIS) on a need basis. For instance the project supported MLF, MUSCCO, FINCA and FIMA to improve their MIS. b) Limited IT training was provided. 9
Output 4 The Project is well monitored and its results are evaluated through an outcome evaluation. Output Targets 4.1 A RA is hired and the project implementation arrangement RA was recruited 19 months after the project was launched. implemented: Year 1: a PBA Work plan approved implementation of the work plan. 4.2 An accurate and timely reporting system in place in Year 1. Completed mid-2009. 4.3 Appropriate backstop system in place. Done 4.4 Annual audit. One review completed by staff and one by UNCDF South Africa regional office. 4.5 Outcome evaluation (Year 3). Done 10
1. PERFORMANCE REVIEW In order to contribute to the achievements of CPAP outputs and outcomes, FIMA project had specific interventions at the macro, meso and micro levels of the financial sector. This section analyses the progress and impact the project made during the implementation period. 5.1 Progress review Analysed below is an outline of the progress the project has made towards development outcomes through interventions at the policy and advocacy, infrastructure and retail capacity levels of the financial sector. 11
PROGRESS REVIEW Outcome: Gender equality and women s empowerment enhanced. Output: Indicator(s) End of Project Target Achievements since inception Remarks Output 1 Policy, institutional capacity and systems in place to increase women's access to financial services and markets. A national strategy for Financial Inclusion in Malawi developed and approved POLICY AND ADVOCACY a) Facilitated the development, validation and launch of the National Strategy for Financial Inclusion. b) Supported establishment of the Financial Sector Development Policy Unit within the Ministry of Finance. c) The project facilitated establishment of both the National and Technical Committees for the development of the Malawi Financial Literacy Framework. d) Supported development of Financial Literacy Framework. The initiative is ongoing and a total of USD 200,000 disbursed. e) Contributed in the review and passing of the Microfinance bill, financial cooperatives bill, financial services bill and other financial sector related bills into law f) Supported dissemination of the Microfinance Act, and directives to MFIs. g) Reactivated policy dialogue through support to MAMN and the Microfinance Forum h) Improved awareness of the financial inclusion agenda among key policy stakeholders including GoM, RBM and BAM through study tours and training a) In comparison to other levels of the inclusive financial sector, policy and advocacy utilized less resources but had the biggest impact especially in enhancing awareness of the financial inclusion by policy makers. b) The national strategy is a single important document that has outlined the road map and action plan for improving financial access c) The project with support channeled through MAMN facilitated policy dialogue on pertinent issues affecting the sector including curriculum of microfinance, validation of national strategy for financial inclusion including an ongoing formulating the Malawi Financial Literacy Framework. 12
Indicator(s) End of Project Target Achievements since inception Remarks Output 2 Capacity of RBM, MAMN and Government of Malawi enhanced. Capacity building and infrastructure support rendered to RBM, MAMN and Government of Malawi. INDUSTRY INFRASTRUCTURE SUPPORT a) Contributed to the maturing of the Malawi inclusive finance sector both within the GoM and among other meso level stakeholder groups through facilitation of financial sector diagnostics, leading the formulation process for development of National Strategy for financial inclusion and by encouraging dialogue among industry infrastructure stakeholders. b) Played an important role in enhancing the commitment and awareness regarding inclusive finance within the MoG and the RBM by among other things facilitating exposure visits e.g. Study tour to Madagascar in 2008. c) Supported capacity development at MoF and RBM mainly through high level training in microfinance like Boulder Microfinance Training d) Provided technical and financial support to BAM in the development of Malawi Financial Sector Charter. The charter which will be launched in December 2011 will assist commercial banks design a no frills savings account for low income people. e) Provided capacity development, advisory, training support to MAMN and enhanced its ability to support and disseminate microfinance best practices to the sector. f) Advocated for credit reference bureau that incorporates the microfinance sector. To date Credit reference bill has been passed into law and two institutions have been awarded licenses one of which will focus on credit references services for the Microfinance industry. a) Since its inception the project enhanced capacity of Malawi Government, Malawi Microfinance Network and Reserve Bank of Malawi in order to effectively play their roles for development of microfinance in the country. b) The financial sector charter is an initiative by the BAM that will contribute to the financial inclusion agenda through development and delivery of a no frills deposit product for low income people. 13
Indicator(s) End of Project Target Achievements since inception Remarks Output 3 RETAIL CAPACITY Increased capacity and outreach by Qualifying FSPs.. a) Sign at least 4 performance based agreements with FSPs and Industry support institutions. b) Increase number of household savers and borrowers by 141,000 and 91,500 respectively. c) Proportion of female clients to reach 50%. a) As of October 2011 the project had established partnership with 12 FSPs and signed 14 performance based agreements. In the course of 2011 the project provided support to 3 FSPs. A summary of the FIMA Investment Portfolio is included in Annex 1 below. The support provided assisted FSPs enhance outreach as outlined in (b) below. b) Enhanced capacity of IFIs making them more capable of increasing outreach and improving their ability to offer affordable financial services in a sustainable fashion. As of December 2011, FIMA supported FSPs had increased their number of savers and borrowers by 424,439 and 181,214 respectively as analyzed in table 4 below. The proportion of female clients in supported institutions improved from 46% to 55% (Refer to tables 2 and 3 below. c) Supported innovations that have potential to deepen and broaden access to financial services by targeted groups e.g. Development of microinsurance products with CUMO New products targeting women at MUSCCO and FINCOOP (Mwai wa amai) and Use of point of sale devices and biometrics to serve rural communities at MRFC. Financial literacy campaigns with OIBM d) Supported development and piloting of Mobile Money initiative by Airtel Malawi which when implemented will allow poor people use a cheaper alternative to transfer money and other services. e) FIMA contributed and participated in encouraging Malawian MFIs to practice transparent pricing. Data collected from participating MFIs can be viewed on MFTransparency website: http://www.mftransparency.org/data/countries/mw/ This initiative will go a long way in assisting MFIs to embrace transparent pricing of financial services which is an important aspect of consumer protection. Part disbursements made to MUSCCO, CARE and CUMO during 2011. Final trances for the three institutions will be made next year upon attainment of agreed indicators. 14
5.2 Impact Analysis Through the sector approach with specific interventions, FIMA Project made significant contribution in creation of an inclusive financial sector in the country. The impact of financial inclusion initiatives can be assessed by a number of indicators including outreach as measured by total number of active clients, proportion of women clients, increase in number and value of loans, increase in number and value of savings, portfolio quality and sustainability. Below is an analysis of the impact the project has made since its inception. It should be noted however that the impact highlighted below is not attributed to FIMA Project interventions only. There are other factors that may have directly and indirectly contributed to the results. Table 2: Analysis of total clients and proportion of women as of December 2009 Institution Total Clients No. of women Percent 31-Dec-09 31-Dec-09 1 MRFC 75,364 24,116 32% 2 CUMO 42,171 36,688 87% 3 MUSCCO 97,874 24,931 25% 4 MLF 19,400 19,400 100% 5 NBS 343,500 131,345 38% 6 OIBM 254,380 144,816 57% 7 FINCA 16,689 12,648 76% 8 FINCOOP 29,315 9,418 32% 9 PRIDE 7,513 4,207 56% 10 ASAP 2,478 1,215 49% 888,684 408,784 46% Due to late start of project implementation most of the projects initial investments were made in 2009. As such to assess the impact of interventions to the inclusive financial sector data for partner institutions as at 31 December 2009 can be regarded as baseline data. As of this date FIMA Project s 10 partner institutions had a total of 888,684 clients out of which 408,784 representing 46% were women. Table 3: Analysis of total clients and proportion of women as of December 2011 15 Institution Total Clients No. of women Percent 31-Dec-11 31-Dec-11 1 MRFC 81,763 30,252 37% 2 CUMO 58,798 47,038 80% 3 MUSCCO 126,328 40,425 32% 4 MLF 22,064 22,064 100% 5 NBS 405,193 198,545 49% 6 OIBM 411,840 247,104 60% 7 FINCA 22,395 14,781 66% 8 FINCOOP 23,442 11,955 51% 9 PRIDE 9,147 5,122 56% 10 ASAP 7,846 5,939 76% 11 CARE 78,529 63,126 80% 1,247,345 686,352 55%
The two tables above among other things show a remarkable increase in outreach from 888,684 clients in December 2009 to 1,247,345 in December2011 representing 40% growth. On the other hand the two tables show that the number of female clients for FIMA partner institutions increased from 408,784 in December 2009 to 686,352 in December 2011 representing 68% growth. Furthermore, between December 2009 and December 2011, the proportion of women improved from 46% to 55%. Table 4: Analysis of loans and savings FIMA Partners Loans and Deposits 31 December 2011 No. of Active Borrowers Credit Value of Loans (USD) No. of Depositors Savings Total Savings (USD) Baseline (December 2009) 331,780 140,878,151 761,057 243,596,011 31 December 2012 512,994 185,169,179 1,185,496 336,693,896 Change from Baseline 181,214 44,291,028 424,439 93,097,885 Change from Baseline % 55% 31% 56% 38% The table above show that number borrowers improved by 55% with a corresponding increase in value of loans of 31% from December 2009 to December 2011. During the same period, the number of depositors improved by 56% with a corresponding growth of 38% in value of loans. The number of depositors includes both voluntary and involuntary savings. A higher increase in number of borrowers and savers than a corresponding increase in values show that more smaller borrowers and savers were added to the formal financial system. Table 5: Portfolio quality and sustainability Analysis of portfolio quality and sustainability 31 December 2011 Baseline (December 2009) Collection Performance (PAR) Ratio > 30 days Sustainability OSS annualized 8% 93% December 2011 11% 101% Change from Baseline 3% 8% 16
Table 5 above shows that portfolio quality as measured by portfolio at risk above 30 days for FIMA supported financial service providers declined from an average of 8% to 11% from December 2009 to December 2011. The major reason for the decline in portfolio quality is poor performance of agricultural lending that has affected most FSPs especially those that had significant portfolios in tobacco farming. On the other hand the average operational self sufficiency ratio of FSPs supported by FIMA improved slightly from 93% in December 2009 to 101% in December 2011. The sustainability ratio would have improved by a better margin had it been not for the poor performance of agricultural loans. 17
2. IMPLEMENTATION STRATEGY REVIEW The FIMA Project implementation strategy for supporting inclusive financial sector included the following aspects which also contributed to its success: a) The project partnered with relevant players taking into account their areas of competency and ongoing initiatives, for each area targeted for support; b) The project supported demand-driven projects that met the needs of FSPs and also required contribution on the part of the supported partners. c) The project used an eligibility criterion that would identify institutions that had potential for sustainability. d) In order to ensure accountability for performance on the part of the beneficially institutions, the project used performance-based agreements which included indicators. Beneficiary institutions were required to report performance on a quarterly basis. e) The project had a Steering Committee which was co chaired by UNDP and the Ministry of Finance and comprising of representatives from the Ministry of Industry, Trade and Private Sector, the Ministry of Agriculture, the Ministry of Economic Planning, MAMN, the Reserve Bank of Malawi, UNCDF, USAID, and the Bankers Association which insured participation of key stakeholders. The committee in general provided overall guidance and oversight of the project, mainly on the policy issues. f) As regards the quality of partnerships, with key stakeholders, the project had an investment committee which comprised donor agencies that contributed to the fund like UNDP, UNCDF and CORDAID. On the other hand, some donor agencies were part of the IC despite not contributing to the fund like USAID and AfDB. The committee further included membership from the RBM, MAMN and Ministry of Finance and Ministry of Industry and Trade. g) In terms of taking into account gender issues, the project ensured that supported institutions had clear strategies for ensuring gender equality in the delivery of financial services. 3. IMPLEMENTATION ISSUES During the implementation period FIMA Project faced both management and sector related challenges as outlined below: 3.1 Challenges related to project management a) It took over one year for implementation to start mainly due to delayed recruitment of project staff. This resulted in a compressed implementation schedule that consequently affected implementation of some activities. b) FIMA Project had inadequate staff which affected implementation of project activities. The recommended staff compliment was only available for two out of the four year project implementation period. 18
c) Lack of proper mechanisms for utilization of Government resources earmarked for financial inclusion activities. d) The virtual basket fund arrangement for the project caused delays in disbursement of funds to partner institutions. The advantage of this arrangement however is that it allowed programme partners and stakeholders to participate in the fund. e) There were deficiencies in communication to broader stakeholder group and within programme partnership and donor community. a) The project faced challenges in getting AWPs approved on time which had impact on implementation of activities. f) Staff turnover within implementing partner affected smooth implementation of project activities. g) Challenges to organize some important meetings due to unavailability of key stakeholders. 3.2 Microfinance industry related challenges a) Donor coordination has been a challenge especially the cooperation aspect. b) Performance of many MFIs although on an improving trend is still poor. More capacity building initiatives are still required for the microfinance sector. c) There is a serious shortage of management and well trained staff for the microfinance sector. Just like a number of countries in the sub-sahara region it is imperative that Malawi should develop a microfinance curriculum to be taught in some academic institutions to address the shortage of qualified workforce for the microfinance sector. d) There is still limited outreach especially, to the rural areas and particular population segments like small scale farmers. Of particular importance is lack of deposit products for rural communities as MFIs did not have a legal framework to intermediate deposits. The new microfinance act however provides an opportunity to licensed MFIs to take deposits. e) Many MFIs in Malawi are unable to expand services due to the serious shortage of capital. Apart from capacity building grants, resources for enhancing capital for on-lending should be identified. f) Funds available under FIMA were inadequate to fully respond to the needs of the sector. The World Bank led Financial Sector Technical Assistance (FSTAP) that includes a component for inclusive finance is a welcome development. g) The microfinance sector has experienced high non repayment rates for agricultural loans which has had a negative impact on loan portfolio quality and sustainability. 4. SUMMARY OF KEY EVALUATION RECOMMENDATIONS 19 4.1 General recommendations a) FIMA has accomplished a good deal of its mandate despite its compressed schedule. Launching the program without a management team in place had considerable negative impacts on stakeholders perception of the program and did not allow sufficient time for strategic planning, prioritization and strategic decision making in response to ongoing events. b) Lack of strategic oversight compounded this problem. A key functionality feature of many UNCDF programs, FIMA included, is strategic and managerial implementation flexibility. The success of this approach relies, however, on good program governance and in the absence of such, FIMA experienced three notable and likely avoidable issues: c) The first was to allow a demand-led proposal process to over-concentrate PIFI grants on innovation for outreach over capacity building at the expense of greater sustainability. Less a
threat to immediate sustainability of institutions, over emphasis on outreach represents a lost opportunity to help PIFIs prepare to meet requirements of the Microfinance Act (MFA), which will be inevitably difficult and expensive. Performance trends have been modestly positive but PIFIs still show balance sheet weakness and are not financially self-sufficient. More and better market analytics going beyond demand numbers would have provided a clearer view of product demand. A challenge fund call for proposals approach based on a more nuanced demand analysis would retain the positive aspects of a demand driven proposal process, but one more focus on soliciting capacity building projects. d) The second issue was a failure to develop and implement a funding and communications strategy. In addition to simply providing greater and more precise knowledge about FIMA to a broader group of stakeholders, a communication program may have addressed three important emergent issues. The first was communicating to stakeholders legitimate reasons for start-up delays, particularly the challenge of sourcing the CTA candidate. The second was to ensure program management transparency, particularly related to GoM involvement in the program (see xxviii). Finally, better communications may have facilitated greater donor participation in the program including funding and co-funding of projects. e) The third issue to arise was that many stakeholders believed FIMA s relationship with the GoM was too close and that the government had too much influence on the program. While the review could find no evidence of overt influence, simply the perception of influence negatively affected stakeholders opinion and action. Perception was reinforced by several incidences, the most sensitive of which being FIMA s management of the National Financial Inclusion Strategy development process which gave stakeholders less than 24 hours to verify the draft plan before its official launch. Better communications would have improved negative perceptions to some extent. f) These issues aside, the confluence of improved government management and involvement in the economy, stable and good economic growth, financial sector reform and increased competition in the IF sector is propelling the sector on a positive trajectory. FIMA has played a solid if uneven role in the development of the sector by supporting innovations and capacity building, contributing to a better enabling environment and supporting financial sector infrastructure at the meso level. Given its short-time frame and lack of governance support, both the management and the programs Investment Committee (IC) should be commended for its accomplishments. 20 4.2 FIMA Wind-Up Convene UNCDF and UNDP program meeting in first quarter 2011 to discuss and strategize windup and/or plan an extension. a) Should a second phase of FIMA be proposed: b) Consider focus on support to PIFIs transforming to formal financial institutions per the MFA; and c) Consider locating program outside of GoM. d) In the event of either wind-up or a second phase, collaborate with the new World Bank (WB) and Department for International Development (DifD of the United Kingdom) program to avoid overlap of interest, and allow transfer of knowledge and possible future collaboration; e) Greatly intensify work with MoF to build its IF sector development capacity and knowledge; f) Communicate and transfer knowledge to IF sector stakeholders prior to and during project wind-up;
g) Work with the GoM to create functioning credit reference bureau serving the low income market; h) Work to strengthen MAMN s capacity to support sector training, network functions and funding base to ensure relevance and sustainability in the future; and i) Work with the GoM to phase out programs and ownership of market distorting IFIs. 4.3 Programmatic Recommendations a) More market-based analytics beyond basic supply and demand numbers, particularly at the beginning of projects (pre project if possible) and consider challenge fund grant-making approach in future; b) Program governance structures must provide a suitable forum for strategic decision-making and accountability oversight on strategic decisions and tasks. UNCDF and UNDP representatives must periodically assess the performance of governance structures and performance; c) Develop standardized UNCDF IF project report templates and definition while maintaining flexibility for program specificity. 5. LESSONS LEARNT In the course of implementation of its activities, FIMA Project learnt a number of important lessons that can improve future inclusive finance initiatives. Outlined below are some of the key lessons learnt: a) All institutional, management and staffing arrangements should be in place before project launch to avoid complications associated with delayed commencement of the implementation process. It is also very important to ensure that adequate staff are deployed over the entire project implementation period. b) While most of the FSPs supported by FIMA are credit only institutions, there is need for efforts to develop affordable deposit products for poor people and rural communities. The passing of the microfinance bill into law and interest by commercial banks in financial inclusion are obvious opportunities that can assist in the development and delivery of appropriate savings products for low income people. c) Communication, monitoring and evaluation not given the full attention they deserve mainly due to a compressed implementation schedule and lack of adequate staff. This is an important area that should be prioritised in future programmes. d) Government of Malawi and donor agencies should agree on mechanisms for disbursement of pledged resources. The project failed to access pledged resources from Government due to lack of clear modalities for disbursement. e) Implementation of both the National Strategy for Financial Inclusion and Finance Sector Development Strategy should be given the necessary attention from all key stakeholders. There is need for a clear monitoring and evaluation mechanism for implementing the two strategies. The capacity of Financial Sector Policy Unit within Ministry of Finance should be enhanced to take up this role. f) Coordination among key stakeholders is a critical success factor for inclusive finance initiates. g) Demand driven approach to supporting microfinance sector may not be the best way to achieve project objectives. 21
h) Virtual fund mechanism resulted in delayed disbursements to partner institutions. New mechanism or improvements in current arrangement should be explored. i) Composition of investment committee and steering committees should be reviewed to avoid a situation where one official sits on both committees. Both committees should undergo an induction to appreciate the project mandate as outlined in project document and criteria for providing support. a) Commercial Banks can also play a vital role in financial inclusion. The initiative by Malawian commercial banks to develop a Financial Sector Charter that will provide the necessary mechanism for banks to contribute the financial inclusion agenda should be supported by all key stakeholders. 6. RECOMMENDATIONS 6.1 Recommendations a) To further the creation of an inclusive financial sector in the country further interventions should focus on financial literacy, rural banking, village loans and savings associations, financial services targeting the youth, remittances; mobile phone based financial services and agency banking. b) More capacity building initiatives are still required for the microfinance sector to enhance performance and sustainability of MFIs. c) Future inclusive finance initiatives should be designed to address the still low level of access to financial services. Development of a successor project to FIMA Project and the World Bank led Financial Sector Deepening Trust are positive initiatives for improving access. d) Many MFIs in Malawi are unable to expand services due to the serious shortage of capital MFIs, resources for on-lending should be identified in addition to capacity building grants. e) To address the shortage of management and well trained staff for the microfinance sector, Malawi should develop a microfinance curriculum to be taught in some academic institutions as is the case in other countries in the sub-sahara region. f) Project management and key stakeholders will explore mechanisms for timely approval of work plans for future programmes g) Develop relevant micro insurance products to mitigate risks associated with agricultural lending. 7. DELIVERY ON FINANCIAL RESOURCES Analyzed below is an analysis of the delivery on financial resources for the period January to November 2011. 22
Table 6: Delivery on financial resources Advances Received Expenditures(Financial Reports submitted to UNDP) Brought forward from 2010 K2,804,844.83 Month Amount Advances Received Amount January K0 Date of advance 1 K 0 February K751,675.78 Date of advance 2 K 0 March K1,226,090.00 Date of advance 3 K 0 April K K827,079.05 Date of advance 4 K 0 May K0 Total K 0 June K0 Balance on Advance Received K0 Total K2,804,844.83 Table 7: Delivery on financial resources 2011 direct payments Direct Payment Requests Total Monthly Total of Expenditures on Direct Payments submitted to UNDP) Month Amount January K 912,012.72 February K 679,513.00 March K679,513.00 April K 4,424,741.42 May K 700,341.42 June K2,568,180.51 July K1,306,449.08 August K835,160.48 September K2,677,961.55 October K34,922,439.2 November K15,683,274.58 K65,389,586.96 During the period January to November 2011 FIMA Project had spent a total of K68.2 million made up of K2.8 million in advances and K65.4 million in direct payments. This expenditure represents about 95% delivery rate. 23
Table 8: Analysis of Project Expenditure Project Expenditure, July 2007 to 21 November 2011 (US Dollars) Total Obligated Balance 2011 expenditure funds to outstanding Source 2007 2008 2009 2010 (Nov) to 31/12/ as of 21/11/2011 2011 21/11/2011 UNDP 7,750 254,532 660,431 524,159 371,013 1,817,885 2,000,000 182,115 UNCDF 100,000 338,534 640,074 333,134 216,697 1,628,439 2,000,000 371,561 CORDAID 0 0 582,209 470,000 80,000 1,132,209 1,000,000-132,209 Annual expenditure 107,750 593,066 1,882,714 1,327,293 667,710 4,578,533 5,000,000 421,467 Total budget 0 941726 1,709,346 1,466,352 735,436 4,852,860 Cumulative delivery n/a 63% 110% 91% 91% 94% rate Financing gap 1,233,827 From Table 8 above it can be noted that FIMA Project had a total budget of USD 5 million with UNDP and UNCDF each contributing USD 2 million and USD 1 million from CORDAID. There was also a financing gap of USD 1.2 million. As of 21 November 2011, UNDP, UNCDF and CORDAID had spent USD 1.82 million, USD 1.63 million and USD 1.13 million respectively. This means that as of 21 November 2011, a total of USD 4.58 million representing 92% of available resources had been spent. 8. SUCCESS STORIES Although implementation of activities started late FIMA Project has many success stories to showcase. Outlined below are some of the stories worth noting. 8.1 ASAP FIMA Project supported A Self Assistance Programme (ASAP) to rollout the Village, Savings and Loan Associations (VSALs) model of financial services in Lower Shire, Mwanza, Neno and Blantyre rural. There is evidence that traditional MFIs avoid the lower shire due to a poor loan nonpayment culture. The VSAL model however has proved successful and over 5000 people have benefited from the initiative. The VSAL model is implemented by group formation and business training for members. Members develop a constitution and begin to save and lend to each other within the group. After about one year the group shares their contributions and interest earned on loans. This has had a remarkable impact as some groups of about 15 people have shared up to K750,000.00 translating to an average of K50,000.00. For some this is the first time they ever had such an amount of money and as such their livelihoods have tremendously been improved. 24
8.2 CUMO Microfinance The Project assisted CUMO Microfinance in developing and rolling out a Hospitalization Benefit micro insurance product. The product operates more or less like an ordinary medical scheme but it is unique in the sense that it targets ordinary low income people in rural areas. Previous CUMO was providing a death benefit micro insurance product that provided cover for loan liquidation and funeral expenses upon death of a client. Of course there was a general outcry from CUMO s clients as to why the institution cared about their death and failed to offer any services to assist them when they fall sick. This outcry prompted CUMO to seek assistance from FIMA to develop and rollout the hospitalization micro insurance product. To date with assistance from FIMA Project, CUMO has launched the service in partnership with NICO and on top of the death cover clients are entitled to have their loan installments and hospitalization bills paid for if they fall sick. The most interesting part is that NICO agreed to provide the additional hospitalization benefit at the same premium for death cover. 8.3 MUSCCO and FINCOOP FIMA Project also provided support to MUSCCO and FINCOOP to among other develop and roll out loan and savings products that target women. An analysis of the two institutions showed that the proportion of women was far too low when compared to financial cooperative in Kenya and Tanzania for instance. The support provided to the two institutions has enabled them to develop a product known as Mwayi wa amayi. The two institutions have since managed to improve proportion of women participating in financial services. 8.4 OIBM The project also assisted OIBM to roll out a financial literacy campaign. To date OIBM has a dedicated mobile team that delivers financial literacy in both rural and urban areas. As a result of the financial literacy initiative OIBM has seen an increase in use of mobile phone by rural communities to access financial services. For instance in the past farmers from Dowa had to travel to Mponela or Lilongwe to check if their tobacco proceeds had been credited to their accounts and in the process wasting time and incurring transport costs. As a result of mobile based services and the financial literacy campaign most farmers are able to check balances using their mobile phones. 8.5 MRFC The Project also assisted MRFC to procure a system that uses biometrics and point of sale devices to deliver financial services to remote areas by use of wireless connectivity. As a result of this support many MRFC s existing clients can afford to carry out several financial transactions close to home that was the case before. A typical example is for people in Khombeza area in Salima district who used to travel all the way to Salima Boma to get loans, make repayments or deposits. With the introduction of the new system the no longer travel to Salima where a number of the female clients had been robbed of their money. 25
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FSP/ Partners ANNEX 1: FIMA INVESTMENT PORTFOLIO AS AT 21 NOVEMBER 2011 Date approved Amount Approved/ Obligated Amount Disbursed FINANCIAL INCLUSION IN MALAWI (FIMA) PROJECT PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2011 Pending Investor/ disburseme Donor nt INVESTMENTS BY TYPE ACL - Grant 2-Mar-10 $35,000 $35,000 $0 UNDP Amount Amount Pending Approved Disbursed disbursement ASAP - Grant 1 31-Jul-09 $295,400 $295,400 $0 CORDAID Grants $3,176,205 $2,848,20 5 $328,000 90% ASAP - Grant 2 2-Mar-10 $115,732 $115,732 $0 UNDP Loans $850,000 $550,000 $300,000 65% CARE Malawi 14-Apr-11 $80,000 $35,000 $45,000 UNCDF Total $4,026,205 $3,398,205 $628,000 84% CCODE 14-Apr-11 $47,000 $0 $47,000 UNCDF INVESTMENTS BY SOURCE CUMO grant 30-Jun-09 $217,000 $177,000 $40,000 UNCDF UNCDF $943,852 $811,852 $132,000 86% Disbursemen t percent FINCA - Grant 24-Mar-09 $199,904 $199,904 $0 UNDP UNDP $1,139,077 $1,058,07 7 $81,000 93% FINCA - Loan 24-Mar-09 $300,000 $0 $300,000 CORDAID CORDAID $1,793,276 $1,453,27 6 $340,000 81% FINCOOP - Grant 2-Mar-10 $220,000 $220,000 $0 CORDAID AGFUND $150,000 $75,000 $75,000 50% FINCOOP - Loan 2-Mar-10 $250,000 $250,000 $0 CORDAID Total $4,026,205 $3,398,205 $628,000 84% MAMN Grant 1 1-Oct-09 $102,876 $102,876 $0 UNCDF MAMN Grant 2 1-Oct-09 $182,876 $182,876 $0 CORDAID Approved grants 79% Approved loans 21% MLF Grant 1 30-Jun-09 $28,000 $28,000 $0 CORDAID MLF Grant 2 30-Sep-10 $163,091 $163,091 $0 UNDP DISBURSEMENTS MADE IN 2011 MRFC Grant 12-Nov-09 $200,000 $200,000 $0 UNCDF Institutio Type of Date Donor n support Disbursed Amount MUSCCO Grant 1 24-Mar-09 $185,350 $185,350 $0 UNDP RBM Grant UNDP Oct-11 $215,000 MUSCCO Grant 2 24-Mar-09 $89,000 $49,000 $40,000 UNCDF ASAP Grant UNDP Oct-11 $91,300 MUSCCO Loan 24-Mar-09 $300,000 $300,000 $0 CORDAID CUMO Grant UNDP Nov-11 $44,000 NBS Bank Grant 30-Jun-09 $199,976 $199,976 $0 UNCDF MUSCCO Grant UNCDF Nov-11 $49,000 OIBM - Grant 2-Mar-10 $100,000 $100,000 $0 UNCDF CARE Grant CORDAID Nov-10 $35,000 PRIDE - Grant 1-Jul-06 $150,000 $75,000 $75,000 AGFUND Total $434,300 PRIDE - Grant 1-Jul-06 $240,000 $159,000 $81,000 UNDP RBM Grant 1 1-Nov-08 $125,000 $125,000 $0 UNCDF RBM Grant 2 30-Sep-10 $200,000 $200,000 $0 UNDP TOTAL $4,026,205 $3,398,205 $628,000 27