Paper short abstract:

Working with microfinance institutions, donors and investors, the Consultative Group to Assist the Poor (CGAP) plays a central role in shaping microfinance into a viable financial sector. But their policies and recommendations have not always worked well due to local contexts and infrastructure.

Paper long abstract:

During the last fifteen years or so, the Consultative Group to Assist the Poor (CGAP) has played a crucial role in consolidating microfinance worldwide into a viable financial sector serving the so-called unbankable "working poor". Housed in the World Bank, supported by over thirty multilateral and bilateral donors and foundations focusing on international development, and employing experts with long careers in the microfinance sector, it has the legitimacy to carry out research, develop standards, innovate, and to make recommendations to governments, microfinance organizations, donors and investors. During the last decade, CGAP has promoted policies to separate microfinance institutions from their NGO and humanitarian origins and turn them into fast-growing, efficient, sustainable and profitable financial organizations capable of attracting both commercial and social investors. However, these policies have not been uniformly successful. The lack of adequate microfinance legislation, regulation and supervision as well as infrastructure including credit bureaus in many countries has led to problems when NGOs apply CGAP philosophy and 'best practices'. Fast growth has not infrequently led to overindebted clients and debt crises, and to a backlash against microfinance organizations. High profits can conflict with the humanitarian values of many practitioners. Thus CGAP policies have led to some unexpected outcomes - their 'ideal' is not equally ideal in every local context. This paper departs from interviews with microfinance clients and staff in Bosnia and Herzegovina, where microfinance was implemented through the World Bank as part of the postwar reconstruction effort.