Abstract
Final evaluation of a matching grant (MG) to Food for the Hungry International (FHI) to start a microfinance program in East Africa (4/95-3/01). The MG established two leading microfinance institutions (MFIs) -- Faulu Uganda and Faulu Kenya -- that are on the path to becoming commercial profit-making companies reaching the working poor with microfinance services. However, they still require 2- 3 more years to achieve their commercial and self-sustaining objectives. Assuming that all goes well, their capacity to deliver services to ever greater numbers of the poor will be established. In terms of service delivery, then, the MG, through its provision of seed capital for the two MFIs, is a success. (USAID and FHI agreed not to move forward in Ethiopia because of a weak enabling environment). The success of the two Faulu field programs largely rests on strong staff that followed microfinance best practices and established necessary MFI systems to manage for results. On the other hand, it is not clear whether the two successes can be replicated in other countries. What little microfinance development capacity exists in FHI will be fully utilized over the next few years supporting the two existing programs. FHI should examine its experiences and capabilities to see what might be successful strategies for further microfinance development after Faulu Kenya and Uganda. FHI's separate office for microfinance has not worked well in terms of expanding microfinance programs within FHI. There has been no expansion of the Faulu network since 1995 when the Uganda program was started. Faulu has not had any measurable impact on FHI country programs, which remain without MFI activities. Outside of the two Faulus themselves, FHI field staffs have little capacity to develop and manage MF programs. While FHI has attracted substantial donor assistance, including three additional grants from USAID, all funds have been used to strengthen and expand the existing programs. The time, effort, and money required to develop and support Faulu Kenya and Uganda (and initiate Ethiopia) has been great. The task is larger than FHI leadership envisaged at the start of the MG. That 6 years has passed since the last Faulu was started suggests that little can be expected in the future. This reinforces the question about what capacity has been built at FHI through the MG. During the course of the MG, the original concept of an FHI regional bank failed. What eventually emerged was a traditional structure of autonomous country programs supported by a unit in headquarters and all linked in a network council. A lesson learned is that an MG that seeks to develop capacity of a PVO in a technical field new to the organization greatly increases the risk of failure if field implementation also tries to be innovative and on the cutting edge of the technical field. In hindsight, if FHI had set about establishing Faulu as a series of independent MFIs supported by a small headquarters office, much time and money would have been saved. The plan for a regional bank was innovative in many aspects, but it could only have been truly tested with a deep and rich knowledge of MF practices and field experiences.