Microfinance Donor Peer Reviews

DANIDA

DANIDA Letter to Management
May 2003

Executive Summary

A team comprising Doris Wong of CIDA, Kathi von Daeniken of SDC, and Xavier Reille and Eric Duflos of CGAP conducted a Donor Peer Review of DANIDA in Copenhagen from 28 April to 1 May, 2003. The review is part of a 17-agency initiative launched by Development Ministers, Head of Agencies, and CGAP to concretely tackle aid effectiveness by using microfinance as a test case.

The Peer Review team focused on the internal procedures, practices and processes of DANIDA to identify the success factors and constraints that influence the effectiveness of the agency’s microfinance operations. The Technical Assistance Services (TSA) department, provided the team with an orientation to DANIDA and organized meetings with 32 people throughout the agency, including consultation with field- level staff and partners. The team briefed the Secretary of State for the South Group Carsten Staur, the Under Secretary of State Peter Lysholt Hansen, and several department heads and staff on its initial findings on 1 May.

The Peer Review team found its visit to be timely given the current reforms at DANIDA aimed at improving development cooperation overall. The team hopes that this letter to management will enrich the internal discussions and provide specific ideas of how DANIDA can increase its effectiveness in microfinance. This letter outlines DANIDA’s strengths and weaknesses, and presents specific recommendations. A matrix at the end of the letter provides a summary. The Peer Review Team makes six concrete recommendations to management to enable DANIDA to improve its microfinance operations. The team hopes these recommendations will also prove helpful for enhancing DANIDA’s overall aid effectiveness.

• Decide on the future level of involvement in microfinance. In light of DANIDA’s limited comparative advantage in microfinance, management should decide, together with its partners, whether it wishes to expand, maintain or reduce its microfinance portfolio.
• Build a common vision on the role of microfinance. DANIDA needs to articulate a clear and consensus-based vision of the role of microfinance, embed its microfinance operations in private sector development, and ensure that staff internalize the new vision.
• Implement microfinance good practices. DANIDA needs to develop simple tools (e.g. a list of “dos and don’ts”, a two-page note on what works, and a tick sheet to be used by the involved parties during program preparation and approval and integrate these tools into  the aid management guidelines and other key document.
• Develop a performance measurement framework. DANIDA should include a set of 4-5 microfinance indicators in the design, monitoring and evaluation of its microfinance operations; analyze performance; compare it with international benchmarks; and adapt funding accordingly.
• Improve technical capacity and knowledge management. To ensure quality and effectiveness in microfinance, DANIDA should create a full-time microfinance focal point and further train its staff in basic knowledge of microfinance good practices.
• Work through strategic partnerships. DANIDA should identify global, regional, and country microfinance leaders (donors and practitioners), study their respective strengths, and establish strategic partnership agreements with them.
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