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into a “fund for inclusive finance” that manages the resources with oversight from the
Central Bank and assistance from UNCDF advisers. Within such a fund, development
partners can jointly…
(a) Tailor investment packages to draw upon their comparative advantages;
(b) Issue and review requests for proposals from financial service providers;
(c) Utilize standard performance-based agreements and reporting formats with financial
service providers;
(d) Supervise the technical assistance provided; and
(e) Conduct M&E exercises.
UNCDF has developed a global mechanism to support UN Joint Programmes for the
development of inclusive financial sectors, and its MicroLead Facility promotes South-
South cooperation. The MicroLead Facility has a special post-conflict window, and most
of its approved proposals are in post-conflict countries.
Capacity development support is central to livelihoods and economic recovery programming
for the financial sector. Central Banks may need strengthened regulatory and
supervisory capacity. Support for institutional capacity development of the local audit
industry can enhance transparency and help to attract commercial sources of funds.
Development of the capacity of credit bureaux can help to reduce transaction costs.
Capacity at the retail level is especially important for reaching crisis-affected communities
and businesses. Financial service providers—commercial banks, non-bank financial
institutions, microfinance institutions, credit unions, and village savings and loans—often
Box 4.6. Microfinance development in Sierra Leone: Lessons learned
UNCDF and UNDP, with complementary funding from KfW and Cordaid, supported a project to build an inclusive financial sector in Sierra Leone between
2004 and 2009. With initial funding of US$ 15 million, the Microfinance Investment and Technical Assistance Facility (MITAF) focused on building an inclusive
financial sector. A National Micro-Finance Policy, developed through a participatory process, represented a shared vision that provided a solid foundation for
the project. Microfinance training at the Boulder Institute of Microfinance in the U.S. was a useful investment in terms of developing the capacity of industry
leaders. The final evaluation found that MITAF was instrumental in building an inclusive financial sector in Sierra Leone and that it successfully improved institutional
capacity at the micro, meso, and macro levels. At the time of the evaluation, the lending institutions financed by MITAF were serving nearly 120,000
clients and had achieved broad geographic coverage, which was “particularly impressive considering the difficulty of reaching rural areas.”
The project had limitations, however, and yielded many important lessons. The sustainability of project results was challenged by weaknesses in the operating
environment and internal capacity. Only one of the lending institutions covered a major part of the country itself. The principal lessons learned included the following:
1. Microfinance activities can be effective when introduced soon after stability is achieved as long as separate institutions deliver grants and loans and the
grant or loan conditions are communicated clearly.
2. Only institutions with the capacity to ensure repayment should provide loans; otherwise, the credit culture can be undermined.
3. The potential for resistance to the entry of new financial service providers into the market by existing local providers should be factored into the programme
design.
4. Lengthy conflicts deplete in-country human capacities and limit the ability to rebuild with local talent. To ensure that poor and conflict-affected individuals
receive financial services as quickly as possible, external management support for financial service providers may be required, using South-South cooperation,
while local capacity is developed.
5. The external capacity of microfinance institutions (measured by outreach to clients) and their internal capacity (measured by internal systems) are equally
important. A project’s targets should not focus excessively on outreach.
6. Microfinance is not for everyone, especially in its early stages, and has the greatest effect when available broadly to low-income people. Targeting specific
groups can slow down the process. In particular, many young people have insufficient experience to manage debt, and credit officers may fear following
up on loan collections when the borrower is an ex-combatant. Grants and training may provide more effective livelihood assistance options for youth and
ex-combatants.
Livelihoods & Economic Recovery in Crisis Situations