Marked Progress in the Transparency of Cross-Border Funding

2011 has been a good year for aid transparency. At the 4th High Level Forum on Aid Effectiveness in Busan, Korea, the international development community endorsed “transparency and accountability” as one of the shared principles of international development cooperation. And on words followed actions: during and following the Busan High Level Forum Canadian CIDA, the Inter-American Development Bank, the United States, CDC and UN Capital Development Fund (UNCDF) joined the International Aid Transparency Initiative (IATI), a multi-stakeholder initiative that develops international standards and guidelines for publishing information about aid spending.

Transparency on funding for microfinance also made significant progress over the last decade. The latest CGAP Brief builds on four years of comparable data from the major cross-border funders, both public and private, which had committed at least US$ 24 billion to microfinance as of December 2010. More than 60 funders regularly report data on their microfinance portfolios to CGAP, with increasing levels of detail. Reporting on microfinance investment vehicles follows common standards, with Symbiotics and MicroRate offering extensive data and analyses. The MIX Market’s database sheds light on the funding structure of MFIs.

There are strong reasons to believe that transparency contributes to more effective and more responsible funding. Feedback from CGAP members (all of whom participate in the CGAP Funder Survey) suggests that better data on funding flows helps analyze funding gaps and allows funders to compare their portfolios with their peers. Many funders use the individual funder snapshots to check and communicate whether what they fund is in line with their strategic commitments. Ultimately, this should lead to better informed funding decisions.

However, there is still room for improvement. First, CGAP data only captures cross-border funding. Better country-level data and better data on local funding sources would facilitate coordination among funders and would make data more relevant for local stakeholders and recipients.

Second, funding data is still based on commitments, i.e. total project funding, whether disbursed or not. It is hard to understand the lack of better data on actual disbursements, not just on funders’ commitments.

Third, while data suggests high concentration of funding in strong, mostly larger MFIs (so called tier-1), little data is publicly available on how much funding specific MFIs receive, to what terms and from whom. Improved transparency on recipients and loan terms would make it possible to monitor whether public funding actually helps pave the way for private investment and help detect cases of crowding out.

Progress over the last few years is encouraging. Let’s make 2012 an even better year for transparency.