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Early in 2002, CGAP joined with DFID Secretary of State Clare Short and other Ministers and agency heads to launch a unique aid effectiveness initiative: Microfinance Donor Peer Reviews. A total of 17 bilateral and multilateral agencies signed on to the review exercise. Three field visits to Uganda, India, and Mali have also been completed, and a High Level Meeting among agency heads and leaders was held in February 2004. Participants at the High Level Meeting agreed on a common action plan outlined in a Joint Memorandum, and endorsed the five elements of donor effectiveness in microfinance that emerged from the Peer Reviews.
The Peer Reviews addressed aid effectiveness from a unique perspective. Rather than concentrate on constraints at the country level (governance, corruption, macroeconomic instability, etc.), the reviews focused on what donor agencies can most directly influence: their own procedures, practices, processes and systems.
The reviews identified success factors and constraints to applying good practice in microfinance and provided concrete recommendations in Letters to Management for each agency. To see an assessment of individual agencies along the five elements of effectiveness, please click on the star next to the agency's letter. 
Reviews were collegial, supportive exercises conducted by a team composed of two senior technical staff from donor agencies and two CGAP staff. CGAP facilitated and documented the reviews on behalf of donors, and provides follow-on technical support. The Donor Peer Review Framework provides detailed information on the review methodology.
Letters with Recommendations and Agency Head Responses
The letters outline agencies' strengths and challenges with respect to applying good practice, and present specific recommendations for improving the effectiveness of microfinance operations. Many agency heads found that the analysis and recommendations also apply to other areas of development assistance. Public disclosure of letters to management was at the discretion of each agency reviewed. The individual letters for each of the 17 agencies can be found below. For a compilation of the matrices at the end of each letter to management, please refer to the Summary Matrix: Findings and Recommendations.
| To see an assessment of individual agencies along the five elements of effectiveness, please click on the star next to the agency's letter.
 To read the letters from the Peer Review check-ups, please click on the "check" sign.
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African Development Bank (AfDB)
Agence Française de Développement (AFD) [french version]
Asian Development Bank (AsDB)
Canadian International Development Agency (CIDA) [french version]
DANIDA
Department for International Develoment (DFID)
European Commission (EC)
Gesellschaft für Technische Zusammenarbeit (GTZ)
International Labour Organization (ILO)
International Fund for Agricultural Development (IFAD)
Kreditanstalt für Wiederaufbau (KfW)
Netherlands Development Coorporation System
Norwegian Development Corporation (NORAD)
Swedish International Development Corporation (Sida)
Swiss Agency for Development and Cooperation (SDC)
United States Agency for International Development (USAID)
United Nations Development Programme (UNDP) and United Nations Capital Development Fund (UNCDF)
Review of UNDP Microfinance Portfolio
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Key Documents
Good Practice Guidelines for Funders of Microfinance
The donor guidelines on good practice microfinance provide practical guidance
for donor staff on how to best interact with, and support, the various actors
in microfinance. Through a highly participatory process, including comments
from 20 CGAP member donors and 10 other civil society organizations and
individuals, the authors sought to balance all views in updating the Donor
Guidelines.
Elements of Donor Effectiveness in Microfinance: Policy Implications (April 2004)
This brief paper (8 pages) presents the five core elements of donor effectiveness that have emerged from the Peer Reviews, and illustrates how the elements can help determine an agency's comparative advantage in microfinance, and how agencies can forge partnerships for greater effectiveness.
Global Results: Analysis and Lessons (April 2004)
This comprehensive paper (24 pages) highlights current donor challenges and solutions for the five core elements of effectiveness, with specific examples of good donor practice. It also describes the review methodology and overall trends affecting aid effectiveness, and outlines implications for the future.
Update on Donor Actions Taken (September 2004)
This letter from Mark Malloch Brown and Jean-Michel Severino provides an update
on the 4-step program of work of the Joint Memorandum endorsed by 17 heads of
agency. Together, the agencies that participated in the Peer Reviews, developed
a roadmap to increase donor effectiveness in supporting pro-poor financial
services.
(Previous update notes provide examples of actions taken by individual agencies:
February 2004, October 2003)
Joint Memorandum (February 2004) Spanish Version
Adopted by 17 Heads of Agencies, this 2-page memorandum affirms the continued commitment of all participating agencies to improve aid effectiveness and outlines a four-step program to move forward.
Five Elements of Effectiveness
Five core elements of effectiveness emerged from the 17 Microfinance Donor Peer Reviews. These elements, while not exhaustive, are key to improving aid effectiveness at the individual agency level. These same elements also help determine an agency's comparative advantage in microfinance vis-à-vis other donors when supporting financial services for the poor.
1. Strategic Clarity and Coherence: The extent to which an agency-wide vision of microfinance exists and whether this vision and agency policies are in line with accepted good practice.
2. Strong Staff Capacity: Whether the microfinance focal unit has sufficient capacity and resources to provide skilled technical support to operational colleagues. Also, whether the overall level of technical capacity is adequate to ensure quality operations.
3. Accountability for Results: The level of knowledge of the microfinance portfolio (e.g., whether it is "visible" to the agency) and transparency on portfolio performance.
4. Relevant Knowledge Management: How well the agency learns from its own and others' experience through the creation, dissemination and use of practical, user-friendly knowledge.
5. Appropriate Instruments: Whether an agency has instruments that allow it to work directly with the private sector — a critical pre-condition for effectiveness in microfinance. The quality, range and flexibility of instruments are also crucial.
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