Expanding the Frontier in Rural Microfinance

Financial Linkages and Strategic Alliances
ISBN 978-185339-666-4
Published in association with the Food and Agriculture Organisation of the United Nations

Edited by Maria Pagura


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Despite significant innovations in rural microfinance over the years, millions of people around the world still do not have access to financial services. Can linkages and strategic alliances between formal and informal financial institutions and private firms help resolve this problem? Drawing on 12 case studies and 1 review conducted in 11 countries in Africa, Asia, and Latin America, the author shows how formal financial institutions and companies use a variety of less formal, often rural, organizations to overcome the information and enforcement problems of serving rural clients.This book is of interest to all involved in rural development, particularly those concerned with financing economic development and innovation.

Published in association with the Food and Agriculture Organization of the United Nations


This book reports on the study of one important strategy that innovative financial institutions are pursuing to help meet the challenge of sustainably serving additional poor clients in rural areas. This strategy involves the creation of linkages between two or more formal and informal institutions through which they expect to capture the comparative advantages that each possesses in offering financial services... An important strength of the research was that a common research framework was used by the authors to study eleven linkage cases selected for study in Africa, Asia and Latin America. Several of the findings were unexpected...The lessons extracted from these linkages provide a rich variety of lessons for policy makers and donors, and for both formal and informal intermediaries. The general conclusion is that in fact formal and informal institutions do have comparative advantages in supplying rural financial services, but tapping these advantages has not been easy. The book provides further evidence in support of the view that there is no simple silver bullet to solve the rural finance challenge.
Richard L. Meyer,Professor Emeritus,The Ohio State University

About the editor

Maria Pagura is a Rural Finance Officer at the Food and Agriculture Organization in Rome, Italy. At FAO she helps design and review programmes and projects in rural finance. Currently she is working on financial products and services for agribusinesses and strengthening formal-informal financial sector linkages. She has over 14 years experience examining rural and micro finance and small enterprise development issues in Africa and Asia, with extensive experience in Mali. She has facilitated project evaluation training in
South Africa and Uzbekistan and reviewed microfinance sectors in Bangladesh, India, Indonesia, Mali, Peru and Rwanda. She is fluent in French and holds a Masters in Economics and a PhD in Agricultural Economics from The Ohio State University.

About the contributors

Chet Aeschliman is an Investment Officer for the Food and Agriculture Organization (FAO) Subregional Office for Africa, in Libreville, Gabon. Chet has 35 years of broad experience in rural and micro finance throughout the developing world, specializing in French-speaking Africa, and has worked in the rural finance arena in over thirty different African countries, including every West and Central African country but three. He previously carried out
consultations for USAID, the World Bank, the French AFD, and was a Chief of Party for an MFI development project in Togo for seven years, an MFI adviser and microenterprise officer for 2 years in Mali, and adviser to an MFI network in Cameroon for 4 years. He has substantial experience in financial analysis, accounting and financial systems development, database design, project formulation, technical manual writing, and technical training, mastering all components of MS Office, including automation with Visual Basic for Applications. He has an MBA in Finance, from the University of Washington in Seattle and is fluent in English and French, with a working knowledge of Spanish, Continental/African Portuguese and certain African languages.

Iketut Budastra is an independent consultant. Born in 1961, he completed undergraduate study in Agricultural Economics at Mataram University in 1987, then proceeded to Master of Regional Planning from Cornell University in 1996 and to Doctor of Agribusiness from Queensland University in 2003. He has been a senior lecturer in Agribusiness Mataram University since 1987. He is also a senior researcher in several research centres within Mataram University.

John Conroy has been a development economist since 1968, with extensive periods of residence in Papua New Guinea and Indonesia, and field experience in much of South and East Asia. He is co-author of two books on linkages, Banking with the Poor, (FDC, 1992, republished by Verlag Breitenbach, 1993), and Best Practice of Banking with the Poor, (FDC, 1995). He co-authored a seven country comparative study, Getting the Framework Right: policy and regulation for microfinance in Asia (FDC, 1997) and a 12 country comparative study, The Role of Central Banks in Microfinance (ADB, 2000). He was consultant to the government of Mexico on microbanking during that country's chairing of the APEC process in 2002. More recently he has conducted studies for the World Bank in Fiji and post-conflict East Timor, and for FAO in Indonesia.

Mayra Falck is a Honduran macroeconomist specializing in development policies and rural development topics. Her broad experience includes work in applied research, teaching and project development. During nearly 30 years of professional life she has worked with universities and other public institutions and international bodies on agricultural and environmental projects at regional and national levels. Her areas of specialization include financial services, analysis of policy impact and design of markets for environmental services among others. She has carried out consultancies for various bilateral and multilateral organizations, such as the World Bank, GTZ, UNDP, FAO, European Union and
has presented her work in meetings with the Governors of the IDB, at the Microcredit Summits and other international fora. Presently she is a teacher, researcher and director of the Carrera de Desarrollo Socioeconómico y Ambiente de Zamorano. She has been acknowledged for the Best Graduation Index of the Faculty of Economic Sciences from the UNAH, and she has been honoured by the Junta Interamericana de Agricultura for her contributions as a female researcher in rural development. She holds a Bachelors degree in Economics from the UNAH and a Masters degree in Agricultural and Rural Development
Policies in Latin America and the Caribbean from the Rural Federal University of Rio de Janeiro and the University of Naples, Italy.

Claudio Gonzalez-Vega, economist and lawyer from Costa Rica, has been Professor of Agricultural, Environmental and Development Economics and Professor of Economics at OSU since 1982 and currently is Director of the Rural Finance Program, a centre of excellence in finance and development. With his colleagues at OSU, he received the Distinguished Policy Contribution award from the American Agricultural Economics Association in 1989. Over two decades of association with OSU as professor, researcher, and consultant have resulted in theoretical contributions and policy recommendations that have established him as one of the world leaders in the field. He has conducted pioneering research on rural financial markets, financial reform, and microenterprise
finance in several countries. Recently, he has investigated issues related to rural poverty in Latin American countries. He has published extensively in the areas of finance and development, rural financial markets, microenterprises, macroeconomic management and commercial policy in developing countries.

Malcolm Harper was educated at Oxford University, the Harvard Business School and the University of Nairobi. He worked for nine years in a medium- sized household hardware manufacturing business in England, mainly in marketing. He then taught in Nairobi, from 1970 to 1974, before coming to Cranfield School of Management, where he was Professor of Enterprise Development. Since 1995 he has worked independently, mainly in India. He
has published over twenty books and numerous articles on various aspects of self-employment, enterprise development and microfinance. His research and consultancy work has been supported by a wide range of national, international and non-government development agencies. He has advised and evaluated a number of enterprise development and microfinance programmes and institutions in India and in East and West Africa, Latin America and the Caribbean, the Middle East and Gulf area, South and South East Asia, as well as in the United Kingdom. From 1996 until 2006 he was Chairman of Basix Finance of
Hyderabad, a leading 'new generation' micro-finance institution, and he is Chairman of M-CRIL of New Delhi, the pioneer of micro-finance credit rating in Asia. He was also the founding Editor-in-chief of the journal Small Enterprise Development, and is a director and trustee of a number of other institutions, including Homeless International, EDA (UK) Limited, APT Enterprise Development and Intermediate Technology Publications in the United Kingdom.

Marié Kirsten is the coordinator for the Institutional and Financial Programme in the Research Unit in the Development Bank of Southern Africa (DBSA). Marié is also on the Board of Directors of the Small Enterprise Foundation, South Africa's most successful and currently only sustainable microfinance NGO. Marié has a Masters degree in Economics from the University of Stellenbosch, and has worked at the DBSA for over 15 years. During this time she has been seconded to the United Nations FAO in Rome and to the South African Department of Trade and Industry. She specializes in microfinance and poverty related research.

Janina León is an Associate Professor and Director of the Masters Programme in Economics at Pontificia Universidad Católica del Perú. Her teaching areas include applied microeconomics, development and labour economics. She is an expert in the following research areas: microenterprise and microfinance; efficiency of microfinance institutions; poverty and labour markets. Besides short articles, her recent consultancy and publication work include: Incorporación de género en la investigación CIES: Balance y propuestas; Typology of Rural Microfinance Institutions: literature review; Evaluation of the National Programme for Microenterprises in Mexico Pronafim; Microfinance for Microenterprises: the state of the art; Cost Efficiency of Peruvian Municipal Banks.

Fiacre Murekezi is a financial accountant with 20 years of experience in the community-based development sector, including developing microfinance businesses with international and local organizations. He led the Rwandan Microfinance Network to promote and implement national policies of microfinance institutions in Rwanda. In this capacity he conducted microfinance studies, developed business tools and advised organizations. Recently, he has started a non-profit association, whose main work is to strengthen linkages between savings and credit groups and formal banks in Huye District, Southern Province of Rwanda.

Jean-Paul Ndoshoboye is an economist and certified trainer of CAPAF (Renforcement des Capacités des institutions de microfinance en Afrique Francophone/CGAP) in capacity-building of microfinance institutions. With a bachelors degree in economics, he has over seven years work experience in the microfinance sector. He coordinates the 'Family strengthening and poverty reduction program' for SOS Rwanda Foundation.

Maria Pagura is a Rural Finance Officer at the Food and Agriculture Organization in Rome, Italy. At FAO she helps design and review programmes and projects in rural finance. Currently she is working on financial products and services for agribusinesses and strengthening formal-informal financial sector linkages. She has over 14 years experience examining rural and micro finance and small enterprise development issues in Africa and Asia, with extensive experience in Mali. She has facilitated project evaluation training in
South Africa and Uzbekistan and reviewed microfinance sectors in Bangladesh, India, Indonesia, Mali, Peru and Rwanda. She is fluent in French and holds a Masters in Economics and a PhD in Agricultural Economics from The Ohio State University.

Nilotpal Pathak was a senior analyst for M-CRIL Ltd, the local company employed to conduct the study on AVIVA Life Insurance in India.

Gerda Piprek is a Senior Specialist in enterprise development, micro- and rural finance at ECI Africa (Johannesburg). Other fields of specialization include research (micro and rural finance, benchmarking studies, impact studies) and financial education. She has successfully led and implemented multiple projects in these fields in Mozambique, Angola, Tanzania and South Africa. Ms Piprek was previously a Rural Finance Consultant in the Sustainable Development Division of the World Bank (Washington, D.C.) where she co-authored the publication, Rural Finance: Issues, Design and Best Practices (2007) with Jacon Yaron and McDonald Benjamin (jnr). Before shifting to microfinance, she worked for several years in commercial retail banking and insurance, where she focused on market research, product development, business and marketing strategy. Ms Piprek holds a Bachelor of Economics from the University of Stellenbosch (1984) and an MBA from Georgetown University (1995), Washington, D.C.

Benjamin Quiñones is presently the Chairman of the Coalition of Socially Responsible Small and Medium Enterprises in Asia (CSRSME Asia), an association of organizations from various Asian countries providing technical and consultancy services to SMEs (small and medium enterprises). CSRSME Asia is convenor of the Asian Forum for Solidarity Economy and it operates a financing programme that links socially responsible investments to socially responsible enterprises. Mr. Quiñones previously served as Secretary General (1986-92) of the Asia-Pacific Rural and Agricultural Credit Association (APRACA) in Bangkok, Thailand. He was instrumental in launching the APRACA Project Linking Banks and Self Help Groups. His published works on linkage banking and microfinance include Social Capital in Microfinance; Microfinance and Poverty Alleviation: Case Studies from Asia and the Pacific; Linkage Banking in South Asia - The Experience of India, Nepal, and Bangladesh; and Linking Self Help Groups and Banks in Developing Countries.

Rodolfo Quirós is a Costa Rican economist, with degrees in Economics from the Universidad de Costa Rica and in Agricultural Economics from The Ohio State University. For over 19 years he has been conducting evaluations and research on rural finance and microfinance organizations and projects as well as analysing diverse issues in economic development. He has been a consultant in many Latin American countries for a multiplicity of international organizations, most recently conducting studies in rural finance, agricultural value chain finance, microenterprise technical assistance facilities and investment climate. Until 2004 he worked in Bolivia as development finance specialist and Deputy Director for SEFIR, a financial services project funded by USAID and implemented by DAI. Before and since his work in Bolivia, he has been associated with Academia de Centroamérica, a research institute based in Costa Rica.

Hans Dieter Seibel is emeritus professor at Cologne University and senior fellow at the Development Research Center (ZEF), University of Bonn. He specialized in rural and microfinance, agricultural development bank reform and SHG-bank linkages. From 1999 to 2001 he was Rural Finance Adviser at IFAD in Rome, and author of its Rural Finance Policy. From 1988 to 1991 at GTZ he was teamleader of 'Linking Banks and Self-Help Groups in Indonesia'.

Table of contents

1 Introduction: Linkages between formal and informal financial institutions
2 Strategic alliances for scale and scope economies: lessons from FADES in Bolivia
Claudio Gonzalez-Vega and Rodolfo Quirós
3 Institutional transformation to create linkages that enhance rural access to financial services: the case of the Fundación Integral Campesina in Costa Rica
Rodolfo Quirós and Claudio Gonzalez-Vega
4 Opportunities for the creation of linkages and alliances to expand the supply of rural financial services: the José María Covelo Foundation and its partners in Honduras 
Mayra Falck, Rodolfo Quirós and Claudio Gonzalez-Vega
5 ICICI Bank partnership linkages in India
Malcolm Harper and Marié Kirsten
6 A case study of AVIVA Life Insurance and its linkage with microfinance institutions
Nilotpal Pathak
7 Indonesia: A Regional Development Bank linked with village-based non-bank financial institutions
Iketut Budastra
8 The rich variety of microfinance linkages in Indonesia
John D. Conroy and Iketut Budastra
9 Self-reliance vs. donor dependence: linkages between banks and microfinance institutions in Mali
Hans Dieter Seibel
10 Partnership to expand sources of funds for rural microfinance
in Peru: the case of Confianza
Janina León
11 Financial linkages in the Philippines: constraints and success factors
Benjamin R. Quiñones, Jr
12 Extending the outreach of Rwandan People's Banks to the rural poor through village savings and credit associations
Chet Aeschliman, Fiacre Murekezi and Jean-Paul Ndoshoboye
13 Linking with savings and credit cooperatives (SACCOs) to expand financial access in rural areas: a case study of CRDB Bank in Tanzania
Gerda Piprek
14 Conclusions


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