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1. Selection of the new PO

2. Financing the credit programs of the POs

3. Institutional development of the POs

Selection of the new PO:

PKSF apprises the new organizations who are competent to operate microcredit programs for the landless-assetless people and comply with the ideology of the Foundation. The selection procedure is a continuous process and guided by a thoroughly designed 'PO Selection Policy'.

Financing the credit programs of the POs:

After enlisting an organization as PO, PKSF provides loan to facilitate the ongoing microcredit program. The rate of service charge, which varies from 3% to 5%, depending upon the volume of the loan size, is much lower than the bank rate. This loan is recoverable in three to ten years. POs disburse loan among the landless-assetless for off-farm income generating activities and the landless-assetless peoples repay the loan with the service charge (usually at the rate of 15%) in fifty weekly installments.

Institutional development of the PO:

PKSF gives emphasis on institutional development in order to enhance its own capacity as the apex microcredit institution and the capacity of its partner organizations (POs) for on-lending credit to the targeted clients. The institutional program, which is being implemented presently, includes measures to enhance financial sustainability of POs, strengthen accountability, improve staff skills and assess socio-economic impact microcredit programs.

The funds of PKSF, the world's largest apex microcredit funding institution, go to NGOs, cooperatives and the government sponsored ANSAR VDP Bank. PKSF has 174 active partner organizations (POs), including BRAC, PROSHIKA and ASA in 63 districts of the country while the total number of its beneficiaries is about 1.8 million. PKSF not only provides loans to its POs, but also imparts training to their staff members and provides them with institutional development services for better loan management. PKSF also provides interest free loans to its POs for buying computers, motorcycles and bicycles.

A major advantage of autonomous microcredit funds is their ability to screen and monitor microcredit programs (MCPs) according to standard criteria, compared to often inconsistent 'ad hoc' evaluations of individual MCPs by donor and government agencies. Funding and support based on uniform standards create a level playing field. Standard monitoring requirements also contribute to more professional MCPs which may be converted to professional microfinance institutions for poverty eradication. It may be interesting to note how PKSF played the role of both financial intermediary and market developer.

i)   In the beginning, PKSF targeted only small NGOs and heavily invested in their institutional development with the adoption of a conservative loan disbursement approach. Within three years the small partners of PKSF were capable of attracting clients of three big retailing organizations. They quickly responded to this newly created competitive environment. The Bangladesh Rural Advancement Committee (BRAC) started reorganizing their program with more focus on sustainability during 1991-1994. Proshika restructured its microcredit program in 1994. It introduced savings products to its clients only after getting involved with PKSF in 1996. The Association for Social Advancement (ASA) and PKSF have built an excellent partnership since 1992. Following all out cooperation from PKSF, ASA quickly restructured its credit program. ASA grew with PKSF and is now one of the most successful MFIs in the world.

ii)   By 1996 PKSF was able to create a standard for the microfinance sector in Bangladesh. It not only promoted Grameen’s financial technologies, but also accommodated other technologies. Most of the donors agreed that their partners should go to PKSF to expand their MCPs. The World Bank played a key role in this respect. BRAC & Proshika also applied for funds from PKSF. After a rigorous management audit, they were found to be eligible to become PKSF’s POs. It should be mentioned that both gave high value to PKSF’s suggestions as they became convinced that their institutional strength would be further enhanced if they followed PKSF’s instructions. This was not a trivial task of course; PKSF had to earn their respect.

Through 189 POs, PKSF has, to date, disbursed more than US$165 million to over 2.13 million borrowers. Ninety percent of these borrowers are women. PKSF targets people who have up to 0.5 acre (0.2 hectare) of land or a total asset equivalent to the value of 1 acre of arable land (0.4 hectare). All the beneficiaries of PKSF are below the poverty line (2122 k.cal per person per day) and as such all of them are among the 'poorest.'

The core objective of the national and sub-regional MCFs should be “reaching the poor and poorest with financial services through sustainable MCPs under viable institutional arrangements.” While the national and sub-regional microcredit funds (MCFs) may engage in providing a number of diverse services to promote the development of MCPs in their respective areas of operation, two major functions should be focused on: financial intermediation and development of sustainable institutions.

The two major functions mentioned above are expected to produce two important outcomes:

(i)   The microcredit fund (MCF) will mobilize funds from governments and donors, in the form of loans and equity grants, and provide these funds to local MCIs to finance grassroots MCPs. These MCIs must be autonomous and outside direct control of the government and must be engaged in retailing loanable funds to the poor and poorest.

(ii)   The “intermediation role of the MCF will therefore strengthen local organizations’ capacity to provide a sustainable system of financial services for the poor and poorest. This will develop the efficiency and competitiveness of MCIs to provide quick, efficient and cost-effective credit. They will be sustainable, while the ad-hoc and rootless organizations will wither away. At a more mature stage, the MCF can mediate between the MCIs and private capital markets by providing a credit rating of MCIs and securitization of MCI portfolios.