Introduction For many years, Egypt has been the leading country in the Arab World in the area

of microfinance, with the highest number of active microfinance borrowers and the largest outstanding loan portfolio. However many challenges remain and in order to address them constructively, the UNDP, KfW and USAID have jointly funded a project entitled Building a National Strategy for Microfinance in Egypt: A Sector Development Approach. The project aims at creating consensus among stakeholders as to the nature of the challenges facing the industry and the priority measures that need to be taken by the various parties involved in order to enable the industry to become more market-driven. The project was advised by a steering committee consisting of the executing partner (EBI) the funding donors (UNDP, KFW, and USAID), and the Social Fund for Development (SFD), which is mandated under Law No 141 of 2004- The Small Enterprise Development Law- to set the development strategy of the small and micro enterprise sector. This document represents the outcome of 18 months of activity that has entailed round table discussions, workshops, study tours and extensive desktop research with the aim of formulating a strategy that is most appropriate to the development of Egypts microfinance industry. The stakeholders who have participated in the process are microfinance practitioners, representatives of ministries, donors, policy experts and representatives from MFI networks. There is a consensus about a number of issues relating to what the industry lacks and accordingly what is needed.

The microfinance industry in Egypt lacks clear direction and coordination - with institutions that face legal and regulatory obstacles, and an underserved market that is not being offered a sufficient range of demand-driven microfinance products. Accordingly, there is a need for the combined engagement of banks, non-government organizations (NGOs), and the private sector, all of whom would be operating in a rational legal and regulatory environment to provide non-conventional products and services. Moreover, setting standards of performance for the industry, coordinating between the activities and resources of the government and donors, are perceived as crucial to the sound development of the sector. The Framework and Objective of the Strategy The proposed strategy targets the economically active poor, meaning those who are not destitute. 1 The economically active poor include the micro enterprise sector, and the vulnerable poor who are employed in lowsalary jobs, both of whom are excluded, or underserved by the formal financial system. Accordingly, the development of effective, wide-spread, sustainable access to microfinance is perceived as contingent on building inclusive financial systems whereby the financial services needed by the poor, and the institutions that provide and support them, are integrated into the formal financial sector. Such integration ensures that the poor will have the necessary financial resources that enable them to make critical decisions about their work, their life, and the welfare of their households. The objective of the strategy is to develop, within the next five years, a microfinance industry in which sustainable

financial services for lower market segments are integrated into the overall development of a broad, inclusive, and diverse financial sector. This will be achieved through adopting a Sector Development Approach, the success of which is ultimately measured by the involvement of non-conventional 2 commercial financial players (multi-purpose banks, dedicated banks, credit-only financial institutions, NGOs, Cooperatives, etc.) in supplying different microfinance services to currently underserved client groups (most notably women, the rural poor, youth, and start-up businesses). This requires a broader, inclusive, multi-tiered financial system with lower barriers-toentry, where a variety of public and private market players provide a broad range of services to micro enterprises and the poor in a sustainable and competitive sector. Stakeholder commitment to placing the commercialization of microfinance at the heart of Egypts development agenda is critical to ensure that the proposed strategy, with its concerted vision and carefully crafted measures of reform, will yield the expected benefits. Building a National Strategy for Microfinance in Egypt: A Sector Development Approach is a project with the objective of developing a strategic framework for increasing the efficiency and effectiveness of concerted governmental, non-governmental and donor efforts to promote the development of microfinance in Egypt. Implemented by the Central Bank of Egypt (CBE) represented by the Egyptian Banking Institute (EBI), this project is co-funded by the United Nations Development Program (UNDP), the United States Agency for

International Development (USAID), and the German Government via the German Development Bank (KfW). Managed by the UNDP with the technical support of the United Nations Capital Development Fund (UNCDF), the project is advised by a project steering committee (SC) comprised of representatives from these organizations.The Social Fund for Development (SFD) is also represented in the steering committee, in recognition of its role as the entity designated for national coordination of all SME related activities, including the provision of financial and non-financial services. The project is based on a consultative process which brings stakeholders together to deliberate on the challenges and constraints facing the microfinance sector in Egypt, as well as to identify the priority actions needed to address these in a manner that reflects commitment to a market oriented industry. To that end, the project included a number of activities aimed at providing the optimum setting and information required to ensure fruitful and productive deliberations. Moreover, the flexibility of the project design allowed for adjustments that recognized and accommodated developments taking place both in the economy and at the policy and industry levels. Background Research relying on both primary and secondary sources was undertaken to determine the main issues confronting the sound development of the microfinance industry in Egypt and to explore the experience of other countries that have dealt with similar issues. Interviews with stakeholders were conducted and various relevant literature and databases were reviewed. The output, in the form of background reports, focused on the

following: 1. Microfinance Sector Stakeholders Identification, indicating the degree of influence and involvement of different stakeholders in the microfinance sector; 2. The Institutional Framework for Microfinance Development in Egypt, highlighting the different lending instruments, as well as modalities and best practices from different countries; 3. The Legal and Regulatory Framework Affecting Microfinance, reviewing the different laws and legal changes required to enhance the microfinance sector; 4. Institutional Needs Assessment of Microfinance Institutions (MFIs), identifying the means for further development of different types of MFIs; and, 5. The Orientation and Interest of the Private Sector with regard to the microfinance industry in Egypt, providing a clearer understanding of the potential for its increased involvement in microfinance markets. Based on the results of the research conducted, Round Tables (RTs) were organized with the objective of gaining a common understanding of key obstacles confronting the sector, and achieving consensus on priority areas for follow-up. Roundtable participants included microfinance practitioners; representatives of various banks, NGOs, ministries, donors, and MFI networks; in addition to local and international experts. An issue paper was prepared for each RT, and was disseminated to participants prior to the meeting. Accordingly, seven issue papers were prepared, and the RTs conducted corresponded to the following topics: 1. How to Best Utilize Banks in Microfinance;

2. The New Small Enterprise Development Law # 141/2004; THE FRAMEWORK OF THE STRATEGY The proposed strategy targets the economically active poor, and is based on the premise that the commercialization of the microfinance industry promotes competitiveness and continued innovation, thus redirecting the trajectory of this sector from a subsidy-based to a marketinduced approach. Accordingly, the way to ensure the development of effective, large- scale sustainable access to microfinance is to build inclusive financial systems that integrate the financial services needed by the poor, and the institutions that provide and support them into the overall formal financial sector, thereby empowering the poor to make critical decisions about their work, their life, and the welfare of their households. Gender equality, independence from donor support, and industry coordination are guiding principles for the strategy. The strategy is built upon two core beliefs. The first being that the economically active poor and microenterprises will be best served when they have ACCESS to a wide range of services for the BEST possible PRICE; a CHOICE between different financial services and multiple providers; and access to accurate INFORMATION on which to base their choices. The proposed strategy is therefore pro-poor in the sense that rather than discriminating in favor of one target group to the exclusion of others, the services and products that are made

available on the market are more attractive to the poor than they are to the non-poor. The second core belief is that the achievement of the above objectives is most likely to occur when there is a free market for microfinance with multiple competing providers that are able to develop and deliver services that respond to client needs. Therefore, the private sector must play a dominant role; and the government must foster an enabling environment, which encourages private sector engagement. The time horizon for the implementation of this strategy is 5 years. The strategy describes the main constraints/challenges that need to be addressed to develop the microfinance sector. Integral to the strategy is an action plan and time line specifying the measures that need to be enacted in the short (1 year), medium terms (2-3 years) and long term (4-5 years), as well the resources required for implementation. The commitment of stakeholders to place the commercialization of microfinance at the heart of Egypts development agenda is critical to ensure that the proposed strategy will yield the benefits that are expected from concerted vision and carefully crafted measures of reform. 1. THE VISION Effective and sustainable access of economically active poor men and women and microenterprises to a broad variety of financial service products and service providers, through a vibrant and viable microfinance market with engaged stakeholders. 2. THE OBJECTIVE

To develop within the next five years a microfinance industry in which sustainable financial services for the lower segments in the market are integrated in the overall development of a broad, inclusive, and diverse financial sector. Fulfilling the vision and achieving the objective requires the following: The Government of Egypt (GoE) will pursue market-oriented financial policies and will work with the various stakeholders to pass the necessary legislation to promote a more enabling environment for an inclusive financial sector in the country. Ministries which have been working to develop the sector or to promote a specific segment of it, will continue doing so, coordinating with other stakeholders in order to make sure that their efforts are consistent with the direction of the National Strategy for Microfinance.29 29 This refers specifically to the Ministry of Finance, the Ministry of Industry, the Ministry of Planning, and the Ministry of Insurance and Social Affairs, who have had programs dealing with the sector at the policy level. THE NATIONAL STRATEGY FOR MICROFINANCE The SFD will provide wholesale funds and technical assistance to MFIs according to internationally established practices in order to promote and expand industry standards for the sector. Donors will assist in activities that lead to the broadening and deepening of microfinance services. They will work with the government and the SFD to support a more enabling policy environment; building MFI capacity

to enhance the performance and outreach of a diverse range of service providers; promoting successful experiences and best practices in microfinance; and, facilitating linkages within and outside of the industry, and so forth. Non-MFI Commercial Banks will provide wholesale funds and other services to MFIs. NGO-MFIs will continue providing microfinance in the areas where banks and eventually other financial institutions are absent. Otherwise, NGOs will provide the link between the poor and the microfinance institutions. More MFIs (banks and NGOs) will be market-oriented, professionally managed, sustainable institutions committed to serving the poor, and low-income entrepreneurs, with relevant and cost efficient services, independent from donor subsidies. 3. THE ORIENTATION Only through the mobilization of commercial capital can the provision of financial services be increased sufficiently to satisfy the vast demand for access to such services that the economically active poor and microenterprises require. This will be achieved through adopting a Sector Development Approach, which targets the full integration of microfinance in the formal financial sector, through the concerted action of respective government bodies, donors and financial intermediaries. The success of the sector development approach is ultimately measured by the involvement of non-conventional30 commercial financial sector players in addressing the demand for different microfinance services by various client groups that are currently underserved (most notably women, the rural poor, youth, and startup businesses). This

will require a broader, inclusive, multi-tiered financial system with lower barriers-to-entry, where a variety of public and private market players (multi-purpose banks, dedicated banks, credit-only financial institutions, NGOs, cooperatives, etc.) provide a broad range of services to small enterprises and the poor through a market-based, sustainable, and competitive sector. In order to realize the vision and objective of the strategy, actions are needed on three levels: 3.A. THE MICRO LEVEL: the development of a variety of effective and efficient financial institutions that compete to effectively service the financial needs of microenterprises and the poor.Their role will be determined by the policy framework and by their comparative advantage in providing financial services that are client driven. 3.B. THE MESO LEVEL: the development of an effective infrastructure that provides financial institutions with the required human, financial, capital and information resources to provide effective services. 3.C. THE MACRO LEVEL: the development of a policy and regulatory environment that protects and promotes the viability of the financial system and supports the growth and development of the financial sector at the bottom of the market. This means gradually moving towards removing existing distortions in the financial market, increasing transparency, and implementing a marketoriented interest rate policy. 15 THE NATIONAL STRATEGY FOR MICROFINANCE 30 Other than government allocations, donor funds, and selfhelp groups.

31 The independent rating by Planet Rating of four USAID funded MFIs (ASBA, SBACD, DBACD, ABA) indicates an average portfolio yield of 27.8 percent which is higher than average due to the maturity and solid financial position of these MFIs, therefore the above estimate is a conservative one. http://www.planetrating.com III. THE MICRO LEVEL To promote the development of a diverse range of sustainable MFIs that compete to offer various effective financial services to microenterprises and the poor, and cater to evolving market demand. 1. ENCOURAGE GREATER ENGAGEMENT BY BANKS IN THE SECTOR While a small number of pioneering banks have already entered the microfinance market at the retail level, the provision of financial services to microenterprises and the poor is not yet a common feature of the banking sector. In order to persuade banks to fully engage their resources in the provision of financial services to the micro segment, it is necessary to eliminate the currently dominant perception that microfinance is simply about providing assistance to the poor, and that micro clients are by definition high risk. Microfinance programs have proved to bear a return on investment (ROI) that highly exceeds that from other banking services. This is evidenced by the commercial yield rate on microfinance portfolios for those banks and NGOs extending MF services, estimated at approximately 23 percent annual percentage rate (APR).31 This is due primarily to the high real rate of return on this kind of credit, and the low risk associated with microloans. Only through banks utilization of excess

liquidity in extending microfinance services can they satisfy the vast demand for microfinance in Egypt. The lucrative nature of microfinance, as well as the credit worthiness of micro borrowers is a message that must be substantiated by tenable success stories and publicized through effective information campaigns. 1.A. PROVIDE CAPACITY BUILDING PROGRAMS FOR BANKERS In order to achieve profits in the microfinance sector, prospective micro-bankers must understand the special characteristics of the target client group, as well as the specific business processes required to be successful. Banks must apply microfinance best practices such as providing mobile banking services (i.e. loan officers that operate outside bank branches), reducing cost structures, streamlining operating and application procedures and incentive systems, developing profit center approaches, and adopting appropriate marketing techniques integral to success in the sector. The EBI could adopt the provision of capacity building programs to both banks and NGO-MFIs. Programs which could be delivered to bankers and MFI credit personnel in coordination with specialized technical service providers, should focus on character-based lending approaches, outreach and client solicitation, client evaluation, simple cash flow analysis, delinquency management, automated loan tracking systems, portfolio monitoring and performance analysis. It is imperative for these training programs to aim at the capacity building of loan officers, as well as the different management and executive levels. Recently, a number of technical service providers have started working

with banks and formal financial institutions to include microfinance as a new and integral product within the bank. 2. EXPLORE OPPORTUNITIES FOR PARTNERSHIPS WITH THE NATIONAL POSTAL AUTHORITY Existing MFIs have not reached the depth and/or breadth of outreach needed to fill the gap between supply and demand. A potential partner through whom private banks can distribute micro-loans to a wider scale of clients is the National Postal Authority (NPA). This institution has an unmatched branch network, with 3,600 branch offices throughout Egypt. While the NPA has achieved significant outreach for saving services among low-income segments of the population, its legal mandate does not allow it to use this capital for the provision of credit. Therefore, banks could extend their breadth and depth of outreach by utilizing the post office network. This would entail one of two modes of operation, the first being to avail funding for on lending to the post office, with loans extended by regular post office employees or new recruits specifically tasked with microfinance. The second mode is to utilize the post office premises, with loans being extended by bank employees. Under the first option, institutional capacity building programs are required to overcome the challenges related to changing the culture of the post office to provide loans instead of only capturing savings. Some of the challenges relate to instituting the culture of customer service and field outreach in service extension, the use of automated loan16 THE NATIONAL STRATEGY FOR MICROFINANCE

tracking systems, and the application of an incentive system that is commercially based for loan officers, which would contradict the current payroll system of the NPA. In point of fact, the SFD and the NPA are discussing an arrangement whereby the latter would distribute SFD funds. Similar arrangements could be reached between the NPA and other MFIs. Although utilizing the NPA as an outreach mechanism could entail operational risks, the merits of this option should be determined in view of a full cost/benefit analysis. 3. PROMOTE THE DEVELOPMENT OF PROFESSIONALLY MANAGED, FINANCIALLY SUSTAINABLE MFIS 3.A. SUPPORT PRODUCT DEVELOPMENT AND DIVERSIFICATION AMONG PROVIDERS The product range currently offered by the microfinance market in Egypt is relatively narrow. Until recently, MFIs have not been motivated to develop their existing product offering and services in response to the evolving needs of their clients. In accordance with microfinance best practice, product development is a systematic process that MFIs should undertake or commission to better serve their clients and to ensure the profitability of the institution. Yet, because product development related activities are costly and time consuming, MFIs should carefully weigh the costs of developing new products versus the option of securing them through specialized institutions under agency agreements. This is particularly true for insurance schemes, remittances, rural finance schemes, savings, microfinance housing schemes and so forth. Ensuring that the product development process

is client or market driven is the way to ensure that the MFI retains its attractiveness to clients, and hence continues to operate profitably and on a sustainable basis. Moreover, the role of APEX32 / umbrella institutions like the SFD and CBE/EBI could be to document the lessons learnt from international and national practices, as well as to financially assist MFIs to offset some of the incremental costs arising from trying new and innovative services or service delivery mechanisms. Towards that end, a special fund for innovative products could be established with assistance from donor and government agencies. Donors and relevant government institutions, such as the SFD, have an added role to play in ensuring the capacity development of financial institutions to design and deliver financial products to underserved client groups. Such capacity development should include the design of products that fit the particular needs of these groups, and methods for effective marketing and service delivery. Donor support should complement existing microfinance markets, and encourage the development of new ones. To this end, donors should move away from supporting and financing the provision of services that are currently provided by various market players. Instead, donors can further the introduction of new products in the microfinance market by focusing support to the microfinance sector on product development, rather than on capitalization. Capitalization of service delivery should be limited to services and market segments that are currently underserved (such as women, youth, business start-ups, or rural lending). This can be achieved through donor provision of

investment incentives and partial financing of market research and development costs. Moreover, funding study tours for MFI practitioners to visit countries where practitioners are exposed to innovative products and delivery systems that can be adapted to the Egyptian context is another area where donor support would be worthwhile. Donors should focus their efforts on building MFI capacity to enhance performance, and to facilitate linkages within and outside of the industry. However, while they should encourage the development of products that have the potential to reduce poverty, to promote gender equality, and to redress geographical imbalances, donors should not try and impose specific products onto the Egyptian market. With regards to Gender Support, donors should aim to encourage the creation of products and services that take womens special needs and constraints into account. This includes the design of a delivery system that better enables women to gain access to these products and services. Women, particularly in Egyptian rural areas, have different levels of access to the market as well as different needs from their male counterparts.33 The recruitment of more women employees within MFIs to work with women clients would constitute a significant step in the direction of developing gender sensitive products and outreach mechanisms. 17 THE NATIONAL STRATEGY FOR MICROFINANCE 32 APEX institutions are here defined as providers of wholesale financial resources to retail financial service providers, while Umbrella institutions are those providing wholesale

non-financial services to MFIs. 33 Ghada A. Tawab, CIDA Egypt Program Gender Advisor. Interview in Development Express Newsletter, March 2005, Volume IV Issue 15 With regards to geographical imbalances, rethinking the role of agricultural banks, alternative MFIs and eventually the NPA could pave the way to redressing much of the present inequality among governorates and between urban and rural areas. Setting up Community Investment Initiatives (CIIs) that target and maintain resources within disadvantaged communities could also provide a solution to geographic imbalances. CIIs are deliberate actions taken by the executive to encourage local communities to generate, retain, and reinvest wealth, whether by directly investing in infrastructure, passing legislation in support of private investment, or enhancing the capacity of the target community to attract investment. Such actions lay the foreground for interventions taken by responsible businesses in support of impoverished local communities. The use of smart subsidies that would be directed towards the delivery of services and products that vulnerable groups can afford but that also enable MFIs to maintain sustainability could be considered. These subsidies should be used sparingly and only after poverty mapping and gender analyses have been undertaken to ensure that they are properly targeted and not abused. The Central Bank of Egypt, the Egyptian Insurance Supervisory Authority and other relevant government agencies should re-evaluate their respective regulations and directives in view of their impact on the development and

market entry of new financial services. This is particularly important for the introduction of services that are inhibited by the lengthy approval procedures related to entry licensing (especially for insurance and financial leasing) and the high financial resource requirements for licensing fees ( including lump-sum stamp taxes ). The CBE has recently issued a directive for the provision of small loans, which includes the loan amount, risk management functions, and loan provision policies. A similar directive that acknowledges the variation in target groups as well as extension and collection mechanisms is needed for microloans. 3.B. SUPPORT MARKET BASED ORIENTATION IN CAPACITY BUILDING The know-how and institutional capacity to successfully engage in microfinance markets is not widely held in formal financial institutions. While appropriate knowledge and practices in smaller and simpler institutions, such as NGOs, are more established, these institutions continue to rely on external sources to finance their human resource development. Focus should be placed on the establishment and continuous development of high quality human resource and institutional development services and programs that allow institutions to build and continuously update the knowledge, skills and attitudes of their staff according to the evolving needs of the market. A differentiation should be made between equipping MFIs with operational systems needed to adequately perform their service extension, follow-up, performance monitoring, and reporting functions, as opposed to knowledge

and skills required to develop their products and services, as well as strategic and operational tactics to grow and increase the breadth and depth of outreach. While systems that can be developed and tested externally may be easily transferred to MFIs, securing financial resources for MFIs to acquire these systems can be a challenge. In addition, the ability of an MFI to independently assess its requirements relies heavily on the level of sophistication, relevance, and quality of technical assistance services received. HR Capacity Building External support for human resource development in microfinance should be geared towards the development of training services, rather than their delivery. External support for institutions using human resource development training should be limited to the start-up period and should have a clear exit strategy. In absence of such an exit strategy, institutions become dependent on outside sources for a core business function, and will not bear the true cost of recruiting and retaining staff. Human resource development programs should include recruitment norms, gender sensitive working hours, performance criteria and systems of appraisal of personnel. Initiating grants to undertake capacity building and skills development training for directors, loan/business development officers, and management systems are important recommended measures in this area. Support NGO Transformation The process of transformation from one legal identity to another is a complicated and costly one, especially when transforming from a civil society actor (NGO) to a formal financial institution (bank or company). Accordingly,

18 THE NATIONAL STRATEGY FOR MICROFINANCE the transformation process will require a full package of advisory and technical assistance services that will vary according to the legal identity of the institution in question, as well as its stage of maturity and financial position. Attention to the particular challenges of transformation and needs of NGOs, if and when the legal and regulatory environment changes, is in order. This includes TA focused on the managerial, technical and financial skills required (including good governance, board capacity building, internal control and audit) and ensuring that the proper skill sets are available. Also, donor support to the transformation process itself, once this is an option, could be envisaged. The provision of advisory and TA services should therefore be made available at affordable prices, while the scope and timing of services required should differ on a case-by-case basis. 3.C. INCREASE INFORMATION TECHNOLOGY CAPACITY The development, upgrading and institutionalization of appropriate monitoring and control systems (including systems for automated loan tracking, impact tracking and credit scoring) and availing these systems to MFIs at affordable prices should be promoted. Particular attention should be given to supporting the efforts of local MFIs and the private for-profit sector to develop and upgrade their own systems. Moreover, systems that allow for the presentation of sex-disaggregated data should seriously be considered, as they would enable MFIs to accurately

analyze demand of market segments and accordingly design products and services that address unmet demand. The upgrading of systems must be performed not only based on an evaluation of the quality of systems employed, but also of their reasonableness or cost/benefit to the MFI requesting to use the system. To that end, the first requirement is to develop and update a roster of available tested systems, and subsequently, the provision of support to MFIs in securing the best option available, including facilitating access to the required financial resources. Donors, along with government and APEX institutions such as the SFD and the CBE, are best situated to satisfy both of these needs. 3.D. ENCOURAGE ADHERENCE TO REPORTING STANDARDS AND PERFORMANCE BENCHMARKS The adoption and implementation of a clear and unified set of financial reporting standards and key performance benchmarks among microfinance providers, particularly NGOMFIs, will enhance the transparency and professional standards in the industry and ultimately its legitimacy. It will enhance competition and facilitate capital providers to gain confidence in the industry in general, and in microfinance service providers in particular. Industry standards preferably applied through a non-prudential, self-regulatory mechanism should include the following: Unified Reporting and Financial Management Standards Transparency requires clearer industry standards for good practice in poverty-focused microfinance; transparency in reporting on poverty outreach and impact; dissemination of information about best practices to the domestic

APEX organization; knowledge on the amount and percentage of donor funds for the microfinance sector; knowledge on the outreach gap; and the amount disseminated from donor specifications. This requires two major interventions: the first is to avail MFIs with best practice approaches to measuring social impact; and the second is to provide capacity building to the self-regulatory organization (SRO) to promote and follow up on the timeliness and quality of MFI reports on social performance. Accordingly, standard-reporting systems should be implemented and endorsed by the recommended SRO. Moreover, a transparent industry starts with comparable financial data. Accordingly, a common accounting, financial reporting, and financial management standard should be adopted by MFIs. More specifically, clear guidelines for financial statements adjustments should be in place to allow for comparing the performance of MFIs regardless of their size, financing structure, or legal type. To this end, an established self-regulatory mechanism should consider adopting CGAPs financial statement disclosure standards. However, there are difficulties in setting industry standards for a market whose players differ in both structure and mandate. Given that both NGOs and banks are active players in the Egyptian microfinance market, acknowledgement of these differences and their reflection in the design of policies aimed at setting industry 19 THE NATIONAL STRATEGY FOR MICROFINANCE standards in Egypt is important for their effectiveness. There is a need to have a single national body such as

the self-regulatory body previously mentioned responsible for the development and monitoring of industry standards. This body can also be chartered with QA certification and licensing of MFIs and functions independently such as an accreditation agency for universities. In order to ensure that the differences in structure and mandate highlighted above are adequately addressed, it is recommended that this body include representation from governmental and non-governmental agencies, to include the SFD, CBE, as well as national and regional networks. Performance Benchmarks Building on generally accepted accounting and financial reporting standards, a set of key performance indicators, and accordingly trends/benchmarks can be developed. Such a set of benchmarks can be used as a tool for selfevaluation by individual MFIs contingent upon the regular publishing of aggregate industry performance indicators. It will also allow potential MFI finance providers to compare performance between various MFIs. Application of different incentives to MFIs so as to encourage compliance to these standards include giving them priority in receiving funds from donors or APEX institutions, availing them with sector-related information, and encouraging their participation in different capacity-building programs. Another incentive could be affording special recognition on a national scale for those MFIs that apply best practice standards, as well as adhere to continuous reporting to the SRO. 4. STIMULATE THE USE OF ALTERNATIVE LOAN COLLATERAL PLEDGED TO MFIS.

To stimulate lending decisions by financial institutions, particularly for longer-term loans, the current use of collateral should be reviewed in order to facilitate the use of a broader range of mechanisms to secure credit. Such a review should include the study of potential forms of alternative collateral, such as informal housing and properties, movable assets, commercial papers (bills of exchange, bills of debt, and bills to order), social/peer pressure or unconventional collateral mechanisms. In addition, there should be a strict adherence to an industry guideline with reference to checks, promissory notes and other instruments that does not enforce criminal sanctions. Moreover, the application of alternative collateral mechanisms would encourage the provision of microfinance services/products other than credit. 20