Research & Analysis

Improving Effectiveness from Within: SmartAid for Microfinance Index

Quality, not just quantity, of aid matters. But measuring the quality of development assistance has continued to elude the development community. The SmartAid for Microfinance Index is an innovative tool that measures one part of the effectiveness equation: funders’ internal management systems.

In the development world, the focus usually is on how much money is spent and not so much on how effectively it is spent. Staunch advocates of development assistance make loud and clear calls for increasing aid amounts. Skeptics, on the other hand, question whether aid works at all and argue for cutting aid budgets. Debates on “more aid” and “dead aid” often do not address a more relevant need: “better aid.” Some of the obstacles to better aid are beyond the influence of donors and public investors. But other obstacles relate to funders’ own internal systems, and they should be able to overcome them.

At the 2006 “Better Aid for Access to Finance” meeting, 29 major development institutions took one step toward better aid by asking CGAP to develop an index that rates how well equipped they are to design, implement, and monitor microfinance programs and investments. The result is the SmartAid for Microfinance Index.

There are numerous steps along the complex development path to achieve positive impact on the lives of poor people. SmartAid focuses on one of these steps and is built on the premise that strong internal management systems lead to better programs on the ground.

SmartAid was developed based on more than five years of collaboration with a broad range of microfinance funders. From this collaboration, five elements emerged as key to effectiveness: strategic clarity, staff capacity, accountability for results, knowledge management, and appropriate instruments. With the help of academics and aid effectiveness experts, the five elements were translated into the nine indicators embodied in SmartAid.