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MICROFINANCE SECTOR DEVELOPMENT

MICROFINANCE SECTOR DEVELOPMENT. Man. Arrangement: DEX Project Duration: 1 year (April 2005-April 2006) Budget: US$ 160,000 (TRAC) Objectives: Observing Year of Microcredit at the national level and promotion of microfinance as a tool for poverty reduction.

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MICROFINANCE SECTOR DEVELOPMENT

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  1. MICROFINANCE SECTOR DEVELOPMENT • Man. Arrangement: DEX • Project Duration: 1 year (April 2005-April 2006) • Budget: US$ 160,000 (TRAC) • Objectives: Observing Year of Microcredit at the national level and promotion of microfinance as a tool for poverty reduction

  2. Background Information/UNDP’s involvement • Micro-Start initiative in 1997 • Microfinance Sector Assessment Report • Comments on legislation • Consultancy on UNDP’s support…. • Need for further knowledge and dialogue on microfinance • Look into project, institutional and sector development approaches SECTOR DEVELOPMENT and FINANCIAL SECTOR DEEPENING

  3. Findings of Sector Assessment and other studies • Very limited supply of microfinance activities in Turkey • Traditionally by state banks Ziraat Bank and Halk Bank through cooperatives (collateral!!) • Legacy of subsidized, supply-driven loans • No clear policy of government with regard to microfinance services • Potential target market 2 million clients (self-employed people w/ no access to finance) • SME loans constitute only 4 % of the total loan amounts in Turkey

  4. Institutional support • Institutional expertise • UNCDF (consultative/advisory support, project implementation and funding) • CGAP (a consortium of 28 institutions: policy advice and strategy formulation) • UNDP (project implementation on poverty reduction and MDGs)

  5. Microfinance Sector Development • Strategy based on two main pillars: • Filling information gaps and raising awareness • - A Virtual Microfinance Center • - Roundtables on selected themes • 2. Developing National Guidelines and support to legal environment • Ultimate objective: • Incorporation of microfinance in efforts to reduce poverty towards an enabling environment

  6. Microfinance Info. Center in operation through 2005 Dissemination of YoM toolkits and information packages on a weekly basis Web based information library on national and international experience Thematic workshops on specific microfinance issues Support to sector development through advisory services on legal, regulatory frameworks Results Framework Outcome:National policy and legal framework consolidated enabling environment for microfinance • National Com. Established • Steering Com. agrees on membership • National Com. meets at least twice in 2005 • National Com. agrees on Action Plan

  7. PARTNERSHIPS • National Committee established State Planning Organization, Banking Regulation & Supervision Agency, Bankers Union, NGOs, Social Solidarity General Directorate, Ministry of Agriculture, commercial bank representatives, World bank, European Commission, KfW, IFC, …. Ownership?

  8. Results achieved to date • A network built and increased momentum among national partners (especially BRSA) • Recommendations for regulatory framework consolidated by inputs from National Committee members and relevant organizations • Information flow on microfinance (microfinance principles, profitability of microfinance, etc.)

  9. Challenges • National ownership • Legal environment and resistance of commercial banks • Stronger focus on supply side, lack of demand side information • Weak interest of commercial banks and non-existence of other players • Only two examples on microfinance, rest bad experiences of government subsidized loans • Donors waiting for legislation

  10. Opportunities Interest of IFAD, AFD, etc. UNDP well-positioned in microfinance agenda Planned Activities Demand study for Turkish market Conference in Istanbul (international best practices and Turkey) Study on Commercial banks Series of informative meetings in different provinces

  11. Lessons learned • Subsidized credits ruin the market and deteriorate credit culture • Donor Coordination is essential • National ownership is difficult to achieve • Past economic crises reduce trust to financial systems and make governments over-cautious

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