SHARE in Andhra Pradesh, India, was established in 1992 by M. Udaia Kumar, with small start-up funds from Grameen Trust (GT) and the Asian and Pacific Development Center (APDC), Kuala Lumpur. It had no difficulty in attracting poor clients and quickly used up these funds. Limited scaling-up funding from GT enabled SHARE to expand its outreach to only 830 clients by March 1995. A year later, SHARE had managed to add another 665 clients. It kept trained field staff on a leash, because the funds were not there to cater to the new borrowers that they could have recruited.

Meanwhile, in March �96, SHARE applied to CGAP of the World Bank for funding in order to scale�up to institutional financial sustainability. This application, along with those of 5 other CASHPOR MFIs, was rejected on grounds that they were not yet operationally self-sufficient. CASHPOR appealed, pointing out that they were �on-track� for attaining operational self sufficiency, and asked CGAP to re-consider at least three: SHARE, CARD and Dungganon. Within a year, CGAP agreed to fund SHARE; in mid-1998 funding to CARD and Dungganon was also approved.

SHARE�s funding problems were over, for the time being. Putting his full attention onto expansion of outreach to institutional financial sustainability, Udaia Kumar added 2,380 clients in the year after he received CGAP funding (more than they had been able to reach in the entire 5 years since SHARE began operations), and another 5,255 in the next year again, more than doubling the total. By the end of September 1999, he was reaching 27,270 poor households, with nearly US$2 million in small loans outstanding to them and 0% portfolio at risk.

SHARE attained 90 percent operating self-sufficiency. This came from increasing its scale of operation and its operational efficiency was 0.18 (meaning that it cost it only 18 cents to keep a dollar outstanding in loans to the poor), and keeping the quality of its loan portfolio high.

Clearly these excellent results show that the management capacity to expand outreach to the poor in a financially-sustainable manner had been there, even in 1996. All that was missing were the funds to finance the operating deficits that would be involved (equity funding). SHARE is the most spectacular case among CASHPOR members in this regard, not the only one. CARD and Dungganon in the Philippines are supporting illustrations of what can be achieved in a relatively short time, if adequate equity funding becomes available.

Like SHARE, both CARD and Dungganon are now virtually self-sufficient operationally, at 0.95 and 0.97 respectively. Interestingly they too have achieved this in the process of scaling�up their outreach to the poor, by increasing their operating efficiency, to 0.42 and 0.39 respectively, and by maintaining high loan portfolio quality, with 0% and 2.1% portfolio at risk respectively. It seems, therefore, that both CARD and Dungganon too had the management capacity to scale-up their outreach to institutional financial sustainability, at least as far back as 1996; but they too had not been able to attract the equity funding for required for such expansion.

Is There Anybody Else?

SHARE, CARD and Dungganon are now accelerating towards significant numbers of poor households. CARD plans to have 150,000 clients and Dunggannon 80,000 in the next five years. In addition, at least three other CASHPOR-members, Nirdhan and CSD in Nepal and CFTS in India, have the management capacity and experience to scale up to very large numbers. Finally, there are two microfincnce promotion organizations inChina, FPC-RDI in Beijing and ARDPAS in Chengdu, that have several member-MFIs that are similarly qualified; and one MFI in Vietnam, CEP Fund of Ho Chi Minh City, is ready also.

Unfortunately for these MFIs in communist countries, the importance of equity funding, not to mention the need to charge clients appropriate interest rates, are not yet widely understood or supported. This will have to change before equity funding will be possible for these MFIs.

But there is no reason to wait in the cases of SHARE, CARD, Dunngganon, Nirdhan Nepal, CSD and CFTS. Within 5 years, they could be reaching together at least a million poor households (containing about 5 million poor people), with financial services, compared to about 120,000 poor households today.

Going for Profits

Grants are scarce in the third millennium. The challenge today is securing equity funding to finance deficits prior to institutional financial break-even--and to leverage the required, increasingly-available, debt funding. So MFI management must try harder to attract individual investors. Over the past years they have strengthened considerably their institutional capacity for achieving operational self-sufficiency, including modest profits. But they have not been managing for profitability per se. This will have to change if MFIs are to be able to offer attractive returns to market and/or social investors.

The need for national or regional equity investment funds particularly in Asia is quite clear. Private equity through a PROFUND-type vehicle for investing in miocrofinance for the poor could meet part of the need; but it is likely that public funds (similarly structured) would be required as well. MFI managers should prepare themselves to meet the likely terms and conditions of such funding.