In spite of the considerable innovations in microfinance in recent years, millions of people in the world still do not have access to basic financial services. The vast majority of those without access reside in developing countries, particularly in rural areas where it is more difficult and costly to extend these services. Although progress has been made on how to supply rural financial services in a sustainable way, no agreed body of best practice is currently available in designing institutions and products to meet the demand of this more challenging clientele. Many players are looking at ways to extend the frontier of sustainable microfinance by overcoming cost barriers, mitigating risk, and exploring technological and methodological innovations. They actively support experiments, innovations and research in rural finance.
A promising area that is attracting attention is the partnerships and alliances between formal and less formal institutions as an alternative way of expanding financial services into rural areas. The essence of the partnership approach is to bring together complementary resources and skills from diverse sources, drawing on each partner’s core strengths. Partnerships are useful when they afford all of the partners the opportunity to overcome weaknesses and constraints that they cannot easily overcome on their own.
Linkages can have positive outcomes at the level of both financial institutions and rural clients. Through linkages, financial institutions may be able to expand the scale and scope of their rural operations resulting in greater profits and better financial and institutional sustainability. New clients may be reached and existing clients may be offered a broader and/ or cheaper range of financial products and services.
In this context, we are seeing the emergence of commercial banks and apex organizations linking to less formal institutions, such as microfinance institutions, savings and credit cooperatives, and in some cases NGO's to extend the reach of their services, while affording the informal institutions better access to needed capital. Other linkages are between financial institutions and non-financial organizations which have a wide distribution system such as retail outlets and postal services. Linkages are also in some cases aimed at broadening the range of services beyond credit – for example, deposit, insurance, money transfer and payment services.
But forging these alliances, in many cases with non-traditional partners, may require a different skill set than is currently present in traditional MFI's or Banks. One of the most significant observations emanating from research undertaken is that linkages between two financial institutions are rarely spontaneous. The evidence indicates that the direction of or impetus for the linkage is often from the more formal to the less formal, and the driver or motivator for the linkage is often external rather than internal or spontaneous.
Building on the previous work undertaken by FDC, the BWTP network and from the Asia Microfinance Forum, in Beijing, which explored the area of partnerships and innovations in some depth, it was felt by the BWTP network that much more could be done to further investigate, disseminate and support such an approach. The BWTP is working in collaboration with the Food and Agricultural Organization (FAO) which has completed a major research study on this area.
The BWTP network with its diversity of members is well placed to act as a champion for the partnership approach. In this context, a central focus of the BWTP strategy for the next few years will be to contribute to expanding the outreach and quality of financial services to remote areas and to maximize the impact of these services on clients livelihoods, through innovative approaches involving partnerships between organizations engaged in the sector.
Objectives of the program are therefore to:
Although there is a growing appreciation from within all sectors for both the need for, and the opportunities provided by, partnership models, good partnerships are far from ‘business at usual’ and they require a mind set and a skill set different to those traditionally utilized. Partnerships are not appropriate in all circumstances, carry significant risks and hidden pitfalls, are rarely easy, and can take far more time and resources to establish and maintain than may first appear. However, when implemented well and appropriately, the resulting win-win solutions can have profound effect. There is, however, little theoretical, empirical or case study research that examines formal-informal linkages, and dissemination has been limited, especially to smaller informal organizations. There is a need to promote the approach among probationers while building their managerial and technical capacity to develop such linkages with partners at all levels.
The need for capacity building is at two levels. First, and the most obvious, there continues to be a significant need to build the capacity of informal actors, to enable them effectively to manage their traditional financial service business, if they are to engage with commercial banks, apexes or insurers. On a second, deeper level, there is a need for strengthening MFI’s capacity to increase the awareness and capacity of organizations to partner effectively and in the mechanics of building and maintaining these linkages or partnerships with new partners.
In this context activities will focus on:
The curriculum will concentrate on partnership awareness-raising and basic skills, to help to spread the multi-stakeholder partnership approach while promoting realism about what partnership involves and what it can hope to achieve. It will also provide a basic introduction to some of the skills needed to make partnerships work, based, to the extent possible, on real-world examples in which participants are engaged.
This set of session guides is designed to assist trainers who want to help MFI and formal financial institution (FFI) staff to identify and manage such linkages more effectively, for the ultimate benefit of their clients.
Training would aim to promote deeper understanding of:
The training material will be delivered through a 3 day national workshop. The number of participants would not exceed 30 to keep the workshop manageable. The training course would identify a balance between the type of participants – e.g. NGO’s, commercial banks and other financial institutions (such as Insurers).
Participants should come from the mid/high level management of their institution to be able to disseminate what they have learned and advocate in their own institutions the partnership approach.
The training courses will be conducted at the national level. The experience of running workshops in the different countries would be captured and used continuously to improve the quality of future workshops as well as the curriculum material.
The training course will be managed by the BWTP team with expertise in Microfinance and Partnerships. An individual/organization – ideally drawn from our BWTP members - will be identified and will be the “champion” of the partnership approach at the national level (further advocating and disseminating the approach by participating in events, distributing available material to other organizations, approaching participants of the workshop to assess needs for follow up, approaching training schools for the adoption of the curriculum, etc.). In kind support from BWTP members, such as training facilities, will be sought. As a final stage, once sufficient promising individuals have been identified, a network of microfinance partnership facilitators could be developed to encourage peer-to-peer learning and provide a powerful, integrated force to facilitate the scaling up of the use of partnerships in Microfinance.
Partnership Brokering Curriculum
The BWTP network will seek additional support to proceed to a second stage, which would involve a deeper set of training material for partnership brokering, as described below, and piloting the design and implementation of concrete partnership projects.
Partnership Brokering training
This training will target institutions that already have a high awareness of linkage possibilities, or have begun to engage in such approaches, that need support in moving forward to conclude and implement a partnership agreement. Such training aims to develop capacity of “brokers” (either “internal” – within one of the partner institutions, or neutral “external” parties) to drive forward the practical requirements for entering into and maintaining a partnership – including, importantly, the design and negotiation of some form of partnership agreement. These individuals would then be in a powerful position to bring potential partners together and have the skills to help make new partnerships successful. They may come from the institutions themselves, but also from other external institutions such as training schools to enable broader replication.
The curriculum would include:
- An introduction to the partnering cycle.
- Identifying key challenges and stakeholder consultation.
- Building a partnership and resource mapping.
- Partnership governance and management: an exploration of different structures.
- Developing partnership agreements
- Measuring and reviewing a partnership
Brokering partnership agreements for concrete projects
Projects would aim to replicate/scale up existing successful linkage approaches, or pilot promising new innovations. Projects would be strategically chosen and systematically designed and implemented, based on best practices in partnering. The program will thoroughly document the experiences – positive and negative – from the very beginning of the process, and provide an unparalleled learning opportunity.