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The Africa Microfinance Network

Membership in Networks of Microfinance Institutions

Accra, Ghana6 – 7 November, 2002

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Summary

Introduction Networks of Microfinance Institutions (MFI) Membership in MFI Networks Conclusion

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Introduction

The fast evolution of the microfinance sector in Africa and the resultant increase in demands for technical and financial assistance has led to the mushrooming and development of MFI networks.Generally, there exists a large diversity of microfinance networks. These can be distinguished by:

Their areas of intervention.Their missions.Their relationships with their members.

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Introduction (Cont.)

Networks can be grouped into the two following maincategories:

Vertical networks.Lateral networks.

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Introduction (Cont.)

a. Vertical NetworksVertical networks are functional alliances between themembers who:Have the same mission. Operate within the same client base.Use the same operating strategies, methodologies and systems.

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Have a leader who is the official representative of the network, manages operations and common resources, and monitors the whole network.

A vertical network is a decentralised institution with limited autonomy of its members. FECECAM in Bénin, FUCEC in Togo and FENACOOPEC in Côte d’Ivoire, as well as FINCA International are examples of vertical networks.

Introduction (Cont.)

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b. Lateral Networks Lateral networks are professional associations of institutions

that seek to improve the capacity of their members. Lateral networks have the following objectives:To improve the different methods and systems used by their members.To exchange information among members.To contribute to the improvement of the policy and financial base of the sector.

Introduction (Cont.)

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In a lateral network, members need not:Have the same mission.Apply the same strategies, methodologies and systems.

The coordination of a lateral network does not require the management of operations and resources of members, resulting in greater autonomy.

Introduction (Cont.)

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Introduction (Cont.)

It is important to note that a lateral network cannot join a vertical network, whereas the opposite is possible and often happens. AFMIN and its members are examples of lateral networks. WWB and SEEP are also lateral networks.

In the rest of our presentation, we focus on lateral networks, with special attention to microfinance networks and their membership issues.

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I. Microfinance Networks

A network of MFIs is an association of institutions of different legal structures and size who agree to mobilise their experiences and expertise to achieve the common objective of developing the microfinance sector.

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I. Microfinance Networks

a. Role of MFI networks

Generally, the goals of MFI networks are to:Assist in the development of knowledge which results in the growth and expansion of MFIs and accelerates the development of young institutions.Develop, promote and ensure adherence to operational and financial performance standards which result in strengthening the credibility of the sector.

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Microfinance Networks (Cont.)

Establish consensus among members on performance indicators and standards, and a system for monitoring performance indicators.Provide technical assistance to build MFI capacity.Promote and facilitate the exchange of best practice among members.Promote sound relations among members, other MFIs, banks, donors and all actors in the public and private sector.

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Develop new products and methodologies that will contribute to the effectiveness of members.Build awareness of the effectiveness of microfinance as an instrument for poverty eradication. Apply members’ collective voice and bargaining power to influence policy decisions that impact the microfinance sector.Develop political will among all key actors and stakeholders.

Microfinance Networks (Cont.)

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b. Main Challenges of MFI Networks MFI networks experience several challenges. The most

important ones include:Being responsive to the specific demands of a heterogeneous group of MFIs at different stages of development.Developing a climate of trust among members, who for the most part are competitors. A climate of trust is necessary for the promotion of transparency and the exchange of best practices.

Microfinance Networks (Cont.)

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Motivating large MFIs to contribute concretely to the capacity building of smaller institutions.Limited know-how among young networks in the development and dissemination of new products and services. Dealing with conflicts between the objectives of certain donors and public authorities, and best practices in microfinance.Reticence of certain members towards shared performance standards, etc.

Microfinance Networks (End)

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2. Membership in MFI Networks

The question of membership in MFI networks is a complex one because of the varied operating contexts in the different countries. The microfinance sector in any country consists of organisations of different sizes, different stages of development, and different legal structures, each requiring different services from the networks. As a result, there is no magical formula to resolve the issue of membership in MFI networks.

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Since 1998, this question has been discussed in several workshops under the programme to build the Africa Microfinance Network (AFMIN). These workshops provided AFMIN members the opportunity to agree on answers to the following key questions:

Membership in MFI Networks (Cont.)

Which types of institutions can become members of MFI networks?What should the membership criteria be?What obligations should members have in order to maintain the sustainability of their networks?

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a. Which Types of Members should MFI Networks Consider?

The following possibilities were discussed:Only MFIs that meet agreed performance standards All MFIs.All interested organisations, including banks, government agencies and donors.

Membership in MFI Networks (Cont.)

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Advantages Disadvantages

Easy to build consensus on key issuesEasy to establish performance indicators and standardsHigh degree of professionalismEasy to collaborate among membersGreater participation by all members

Exclusion of young innovative MFIsRisk of slowing down the growth potential of the sectorExclusion of MFIs that most need the support of the networkMay be perceived as elitistRisk of monopolisation of the sector by a few institutionsMay lead to having several networks in the same countryRisk of limited service offerings

Networks Enrolling only High Performing MFIs

Membership in MFI Networks (Cont.)

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Advantages Disadvantages

Smaller MFIs are motivated to improve their performanceCosts of the network are shared by more organisationsThe network is more representativeAdvocacy activities are more effectiveGreater possibility to innovateMore opportunities for best practice exchangesWeaker institutions are better supported.

Weakened credibility of the networkDifficult to define performance standardsMay be more difficult to build consensus on key issuesMay be more difficult for members to communicateMay have higher operating costsLarger institutions may be demotivated

Networks Enrolling all MFIs

Membership in MFI Networks (Cont.)

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Advantages Disadvantages

Easier to raise fundsParticipation of all organisations enriches dialogueGreater understanding of the problems of the sectorMore effective advocacyDevelopment of research work on the sectorPossibility to develop various programmes for the sector

The network’s identity is not clearly definedNetwork risks being driven by external forcesMore difficult to define performance standardsGreater tendency for conflict among divergent groupsMore difficult for MFIs to be heardLack of transparency among MFIsLack of commitment by MFIs

Networks Including Donors, Researchers and Government

Membership in MFI Networks (Cont.)

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AFMIN members recommend that MFI networks: Include a wide range of MFIs.Put in place minimum standards of performance.Provide provisional or observer status to young MFIs that do not already meet all the performance standards.Do not include public figures, donors and researchers, etc., as members. They may be invited to participate in workshops.

Membership in MFI Networks (Cont.)

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b. Other Conditions and CriteriaFor a network to function well, the following conditions areimportant:

Equality of all members.Absence of competition between the network and its members.Same level of contributions by all members.Cost recovery strategies for services to members Commitment to performance standards by membersVolunteerism of members of network bodies

Membership in MFI Networks (Cont.)

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c. Obligations of MembersTo ensure the sustainability of networks, members should observe the following key principles:

Regular payment of membership dues.Payment for services delivered by network.Active participation in activities of the network.Compliance with code of conduct and performance standards.Regular submission of information to the network.Contribution to the promotion of the network.Demonstration of transparency.

Membership in MFI Networks (End)

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MFI networks play an important role in the development of the microfinance industry. To be effective, they should include MFIs of different sizes, in different stages of development, having different legal structures and requiring different services from the network.It is therefore necessary for these networks to establish, from the beginning, clear and precise membership criteria and to apply them rigorously.

Conclusion