Building demand-led and pro-poor financial systems

What is microfinance?
 Microfinance is provision of a broad range of client-responsive financial services (loans, savings, insurance) to poor people through a wide variety of institutions.
 Microfinance includes urban microfinance, rural finance through cooperatives, credit schemes to small-scale fisheries, and credit components in larger projects such as integrated rural development projects.
 As of June 2002, NORAD, The Ministry of Foreign Affairs (MFA), Norfund and 13 Norwegian NGOs were involved in microfinance activities, with a total of 160 projects.

NORAD intends to:
 Continue working through Norwegian NGOs.
 Advocate a pro-poor financial system approach and follow international good practices and principles.
 Promote pro-poor innovations in close cooperation with other donors.
 If working directly with MFIs, cooperate closely with other donors at the country level.
 Maintain the excellent coordination and exchange of information between Norwegian actors.
 Continue to be active within CGAP and advocate social aspects of microfinance.

Why microfinance?
 Financial services for the poor can be a powerful tool for poverty reduction by enhancing the ability of poor people to increase incomes, build assets, and reduce vulnerability in times of economic stress.
 Microfinance fits well into Norwegian development cooperation's rights-based approach to poverty reduction and private sector development.
 The vision of building permanent pro-poor financial systems through donor coordination and harmonisation is coherent with the principles behind new development cooperation practices.

How to promote pro-poor financial systems?
 Listen to and understand poor people's need for and use of financial services.
 Be sensitive to MFIs' various needs, as well as location-specific and socio-cultural factors.
 Focus on building local markets, including local providers of technical and support services.
 Assess carefully the role of donors and the role of subsidies.
 Acknowledge governments' role in promotion of an enabling environment and coordination of stakeholders.
 Follow basic donor guidelines on selecting and supporting MFIs.
 Follow basic guidelines for donor support.
 Monitor the dual objectives of financial and social performance.