The 2001 ASEAN Roundtable is concerned with issues of financial sector development, considered in the light of the setback to growth and development from events in the region in the late 1990s. Its terms of reference include consideration of financing for recovery, how further financial deepening may be achieved, and the need to develop new financing mechanisms and vehicles while managing the process of liberalisation better in future. The challenges of corporate and bank restructuring, the appropriate role for development assistance and the public/private balance are other considerations. Further we are asked to consider how the financing needs of SMEs can be met more effectively and whether microfinancing has the capacity to make credit available to a wider spectrum of people. It is necessary to repeat here a point made in the introductory section of this paper, that there is a clear distinction between the economic activities and financial service needs of the SME sector and those of the clients of microfinance institutions. The latter operate on a much smaller scale. While there may be some overlap between the bottom end of the SME sector and the poor and lower-income people who form the constituency of microfinance, it is the needs of the latter to which this paper has been directed.
It should be clear from the country case studies in this paper that financial liberalisation suppports the development of effective microfinancing mechanisms and institutions. Freedom to set interest rates is essential for sustainable microfinance. Such freedom may be conferred by government fiat (as in Indonesia after 1983) or exist by default, because MFIs are simply able to take matters into their own hands (as in Bangladesh since Independence) because of the weakness of the regulatory authority.
Issues of financial sector deepening give rise to considerations of equity and participation, at least from a microfinance perspective. Extending the outreach of microfinancial services is a contribution to financial deepening, although more important qualitatively than quantitatively. This is because, to repeat a point made several times in this paper, the money value of microfinance assets and liabilities is not likely to become a significant element in the consolidated balance sheets of financial sectors in the region. However, there is a yardstick, other than the monetary one, which has relevance to the issue of financial deepening. That other yardstick should measure the impact financial deepening has on the number of people who are drawn in to participate in the financial system, by virtue of their gaining access to financial services which meet their needs.
The search for new financial instruments and platforms for the provision of financial services has its counterpart in the world of microfinancing. The country studies in this paper have attempted to convey something of the diversity of models and institutions, some of them imported, some of them home-grown, which are being applied in ASEAN countries. A diversity of approaches is appropriate; narrow prescriptions concerning “the” model appropriate to the region or to any single country within it are unlikely to be helpful. It is better to set operational performance standards as benchmarks against which the various models in operation can be measured. The need for financial sustainability is increasingly understood by the voluntary sector agencies which have entered microfinance, while the high standards of certain formal regulated institutions, notably BRI and BAAC, have demonstrated to governments the possibility of sustainable rural sector financing. It is also interesting to note the relative resilience of many MFIs in the face of the Asian crisis. The challenges confronting microfinance in Southeast Asia, then, include the need to achieve operational and financial sustainability for MFIs, and to achieve this while
integrating the institutions which practice microfinance within the broader financial system, as part of a financial deepening process. They include the need to achieve good governance within MFIs serving constituencies of the poor and to avoid the politicisation of financial service delivery. And they include the need to achieve good governance at the system level, by instituting appropriate policy regimes and forging effective systems of regulation and supervision for microfinance service providers.
In regard to the role of donors, experience noted in the country case studies indicates their best function may be assist with forms of financial sector development which increase the access of poor and low-income people to financial services delivered on a sustainable basis. This suggests the need for intervention at the system level, to assure an appropriate policy and regulatory environment for sustainable microfinance to flourish. At the firm-level, it suggests the desirability of support to assure the creation and trialing of institutional models of MFI which can achieve outreach to unserved or underserved strata of populations in a sustainable fashion and which can function as organic entities within the broader financial system. This formulation implies a role for the private sector in such provision, but does not imply that private investors should be responsible for all the costs of establishing such systems and the institutions within them. Subsidies or external assistance, however, are best directed to establishment and capacity-building costs; financial self-sufficiency in routine operations is a separate and essential goal for all microfinancing institutions.