The World Bank's Consultative Group
To Assist The Poorest:
Opportunity Or Liability For The
World's Poorest Women?

Policy Critique by Nan Dawkins Scully and Daphne Wysham

Executive Summary

The Consultative Group to Assist the Poorest (CGAP) is a multi-donor pilot program created by the World Bank to "systematically increase resources in micro finance." Officially launched in 1995, Bank officials originally announced a $200 million budget for the program. $30 million of this amount was a cash contribution supplied by the World Bank. The remaining $170 million was a portfolio of the existing or planned microcredit programs of CGAP's member donors. CGAP originally envisioned a growing portfolio of member donor programs, but as of January 1997, CGAP could not supply a list of either the programs originally pledged by member donors, or any new programs initiated since CGAP's inception. CGAP's real budget is the $30 million cash contribution initially pledged by the World Bank.

CGAP will not make direct loans to poor borrowers. Rather, this program seeks to provide grant money to selected microcredit programs, improve donor coordination, and promote 'best practices' for practitioners. To date, CGAP has approved $9.6 million in disbursements. Roughly $8 million was allocated to practitioners; the remainder was dedicated to 'best practice' and policy reform workshops.

This report examines CGAP according to the World Bank's characterization of the program, that is, a program for "The globe's poorest citizens, particularly women". Two-thirds of the world's poor are female. The factors that make and keep women poor are manifold, including lack of access to health care, educational opportunities, job opportunities, credit, and land ownership rights. While microcredit is not a panacea for poverty eradication or a substitute for health, education and other social sector expenditures, it is a small ray of hope - one that has emerged largely from the South. There, advocates for the poor have created microcredit institutions which specifically, and often exclusively, target the poorest women. Many of these institutions have targeted women for the simple reason that women tend to be a good investment for poverty eradication: Women invest their earnings in 'social capital' - food, education, and health care for their families - more reliably than men.

CGAP was ostensibly created as a result of the Bank's growing recognition that women are key players in poverty eradication; it represents a clear departure from the traditional large infrastructure and structural adjustment loans the Bank is known for. When it was launched, CGAP was promoted by the Bank as evidence of its growing to women and as a response to the demands of women's advocates who have long called for greater investment in credit programs that benefit the poorest women.

The authors of this report were initially encouraged by the direction the World Bank and CGAP appeared to be taking, and the potential CGAP held both for the world's poorest women and for overall reform of Bank lending and practice. However, on closer examination of the program, we found that CGAP's strategy for facilitating microfinance is based on the traditional hallmarks of World Bank development initiatives: privatization, deregulation, and policy reforms which favor the agenda of bilateral donors, commercial banks, transnational corporations, and others who benefit from open markets and free trade. CGAP's strategy is designed to increase the supply of credit available on the free market and wrongly assumes that the benefits of such an increase will naturally accrue to the poorest women.

CGAP has reaped enormous public relations benefits as an initiative which attempts to redress the Bank's poor performance on gender issues. Indeed, CGAP is persistently and specifically used by Bank staff to defend themselves against charges of failing to adequately address the needs of women. We are deeply concerned that CGAP's activities may fail to honor its name and the publicly proclaimed promise that the World Bank has specifically made to women. We call attention to five areas of concern relating to CGAP's policy and procedures:

1. 'BEST PRACTICES'

According to CGAP's policy framework a primary objective of the program is to establish 'best practices' for microlending. CGAP's 'best practices' emphasize a lender's ability to reach commercial viability (i.e., profitability) quickly. This may require lenders to charge usuriously high interest rates in order to cover the high costs of small loans for the poorest women, and/or include non-poor (generally male or less poor female) borrowers as a substantial portion of the clientele. It may also put pressure on lenders to expand their scale of operations. In fact, CGAP's eligibility requirements specifically exclude small practitioners. Such organizations are often the indigenous women's empowerment organizations which provide training, mentoring and child-care in addition to credit services. This vision of 'best practices' for microlenders does not represent a global consensus among all practitioners, particularly those small, indigenous practitioners targeting services to the poorest women. Further, CGAP's 'best practices' may have negative consequences for small, grassroots microcredit initiatives specifically targeting the poorest women and may inhibit the proliferation of such programs in the future.

2. WEAK COMMITMENT TO THE POOREST WOMEN

Many advocates, practitioners, and researchers agree that achieving commercial viability while providing credit services to the poorest women is a difficult challenge. In order for commercially viable credit services to significantly impact poverty, lenders must explicitly target the poorest women as borrowers. CGAP's eligibility criteria indicate a weak commitment to women in this regard. Any institution with a client base of 50% women qualifies for CGAP funds. This criterion applies only to the World Bank's $30 million; member donor programs are not subject to CGAP's eligibility requirements regarding women. In addition, CGAP's eligibility criteria do not require practitioners to incorporate lending features that implicitly favor women, such as waived collateral requirements.

3. POLICY REFORMS

According to the CGAP policy document, the World Bank will use its influence with governments to promote policies deemed by the Bank as beneficial to microcredit practitioners. These policy reforms mirror the macro level measures favored by the Bank including privatization, deregulation, the elimination of subsidies, and legal reforms that ready markets for commercial banks. We question the Bank's use of CGAP - a program allegedly for women - to promote the same types of economic measures that a growing body of research decries as detrimental to the women of the South. Given the hostile reaction that these types of reform tend to provoke, the Bank should exercise extreme caution and carefully consult with affected populations prior to promoting such reforms. We find three proposed areas of reform potentially problematic: the removal of ceilings on interest rates (usury laws), the removal of subsidized microcredit programs, and stronger debt collection laws.

CGAP proposes removing ceiling on interest rates (i.e., the repeal of usury laws). Many practitioners support raising ceilings on interest rates only to the extent necessary and only where such ceilings impose untenable barriers to providers of microcredit. However, eliminating ceilings completely is a move to deregulate financial markets. Reforms of this nature most serve the interests of commercial banks and profit-seeking lenders. Further, usurious rates of interest may entrap the most desperate of the poor in an upward spiral of debt - an outcome that is inimical to the declared goal of poverty alleviation.

CGAP envisions the complete privatization of microcredit practitioners and advocates the removal of subsidized microcredit practitioners that compete with commercially viable practitioners. If pursued, this reform could undermine practitioners that depend on subsidies for many years in order to cover the cost of making small, unprofitable loans to the poorest women. It could also prevent the proliferation of start-ups and indigenous small-scale initiatives similarly seeking to direct funds toward the poorest women.

CGAP advocates stronger debt collection laws (specifically collateral laws). While strong debt collection laws are important among traditional bankers, they are inconsistent with the notion of microloans for poor women at the local level, where repayment rates are high and collateral is all but unheard of. We fear that more stringent debt collection laws will result in a safer environment for commercial lenders at the expense and risk of poor borrowers.

4. INSUFFICIENT PARTICIPATION

The World Bank and CGAP cite their Policy Advisory Group (PAG) as evidence of a participatory approach. However, this group does not include a full range of practitioners. Solidarity groups, women's empowerment groups, and small, locally-based, indigenous practitioners are insufficiently represented on the PAG. At the recent microcredit Summit held in Washington, D.C., a coalition of 43 African microfinance institutions echoed this concern: "We are concerned that a significant global microfinance fund set up by donors has already bypassed [our] nascent, indigenous organizations." Inclusion of such groups on CGAP's Policy Advisory Group is necessary if voices which advocate for the interests of the poorest women borrowers are to be adequately represented.

5. ACCOUNTABILITY TO WOMEN

CGAP's structure ultimately shields the World Bank from accountability to women. First, CGAP is making grants to organizations versus disseminating loans directly. This may be practical given the Bank's relatively small investment in microcredit; however, it poses certain transparency problems. In the absence of stringent reporting criteria for lenders receiving funds (and public access to such information), women's advocates may never be able to accurately assess CGAP's relevance to the poorest women.

Second, a majority of CGAP's portfolio, i.e., the programs of member donors, are not governed by CGAP nor attributable to the World Bank. In fact, as of January 1997, CGAP was unable to provide a list of programs funded by donors. Since membership in the CGAP does not require agreement to the principle of targeting the poorest women, member donors may or may not choose to fund lenders that target the poorest women.

In addition to these four sets of primary concerns, we remain strongly disturbed about the Bank's continued imposition of Structural Adjustment Programs (SAPs) as a precondition for loans. In theory, microcredit has a potential role to play in both the alleviation of poverty and the negative effects of macro level austerity reforms; however, it is important to keep both microcredit and CGAP in perspective. Microcredit is not a silver bullet for poverty eradication and it cannot replace the need for resource allocation toward health education and 'social capital.' Further, CGAP represents less than one-tenth of one percent of overall Bank lending. Meanwhile, devastating structural adjustment lending continues unabated to the tune of billions of dollars.

We are heartened that the Bank appears willing to reassess the effectiveness of SAPs in conjunction with NGOs and we are encouraged by the potential of microcredit. Nevertheless, in order to demonstrate real commitment to women and the poorest, the Bank must adjust the balance of its expenditures accordingly. Furthermore, the quality of these expenditures - particularly in reference to microcredit - is of crucial importance.