Microenterprise Development:

USAID's Program Has Met Some Goals; Annual Reporting Has Limitations

GAO-04-171: Published: Nov 17, 2003. Publicly Released: Nov 17, 2003.

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Microenterprises--small businesses owned and operated by poor entrepreneurs--have potential to help the world's poorer populations. For this reason, the U.S. Agency for International Development (USAID) included microenterprise development in its programming. In 2001, the agency reported that its was conducting microenterprise projects in 52 countries and had obligated almost $2 billion since 1988 to support its program. The program supports micro loans, among other services, to assist poor entrepreneurs. Since 1996, USAID has annually reported the program's results. To help Congress oversee USAID's management of its microenterprise development program, GAO was asked to (1) determine the extent to which the agency's microfinance activities are meeting the program's key objectives, (2) assess the reliability of USAID's reporting on its overall microenterprise activities, and (3) examine the agency's role in identifying and disseminating microenterprise best practices.

USAID's microfinance activities have met some, but not all, of the agency's microenterprise program objectives. These objectives are to (1) reduce poverty among participants; (2) target the poor and very poor; (3) encourage women's participation; and (4) develop sustainable microfinance institutions (MFI). First, regarding reducing poverty--defined as alleviating its impacts or lifting and keeping a large number of people above the poverty line--GAO found that microfinance can help alleviate some impacts of poverty, incrementally improving borrowers' income levels and quality of life and offering an important coping mechanism to poor workers and their families. However, there is little evidence that it can lift and keep many over the poverty line. Second, microfinance generally has served the poor clustered around the poverty line but not the very poor. Third, USAID has successfully encouraged the participation of women, who have comprised about two-thirds of micro loan clients since 1997. Fourth, USAID has emphasized the importance of MFI sustainability. In fiscal 2001, of 294 USAID-supported MFIs that reported on sustainability, 38 percent reported achieving full sustainability--a percentage consistent since 1999. The basic data in USAID's Microenterprise Results Reporting (MRR) system are reliable, but certain methodological problems may affect the accuracy of some of the agency's reporting on key program objectives. Specifically, USAID may not be reporting accurately (1) the amounts it has obligated to microenterprise activities; (2) whether 50 percent of its resources went to the very poor, as required by Congress; and (3) the sustainability of USAID-supported institutions. Further, although the agency reports annually on the activities of institutions it supports, it does not show the percentage of those institutions' total funding that its contribution represents. USAID has identified and disseminated microenterprise best practices, providing information to its missions and implementing partners through policy guidance, training, and technical assistance. In addition, USAID has collaborated with microenterprise development provider networks and others to publish information about these practices.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Administrator of USAID should review the agency's MRR system with the goal of ensuring that its annual reporting is complete and accurate. Specifically, the Administrator should review and reconsider the methodologies used for MFI sustainability.

    Agency Affected: Department of State: Agency for International Development

    Status: Closed - Implemented

    Comments: In its November 17, 2003 report "Microenterprise Development: USAID's Program Met Some Goals; Annual Reporting Has Limitations" (GAO-04-171), GAO recommended that the USAID Administrator review the agency's Microenterprise Results Reporting (MRR) system with the goal of ensuring that its annual report was complete and accurate. Specifically, GAO recommended that the Administrator review and reconsider the methodologies used for collection, analysis, and reporting of data on Microfinance Institution (MFI) sustainability. In response to GAO's recommendation, USAID has taken a number of actions intended to improve the completeness and accuracy of its reporting on MFI sustainability. These actions include (1) a requirement that each MFI explain its sustainability calculations, (2) USAID review and follow-up on problematic calculations, (3) adding new explanations on how sustainability should be calculated by the MFIs, (4) adding clarifications in its annual report to Congress that highlights the variance in sustainability reporting, (5) efforts to develop international protocols to standardize sustainability calculations to reduce such variances, and (6) adding additional internal controls and data quality checks in its procedural manual. These actions address GAO's concern that reporting on this issue was not complete or accurate.

    Recommendation: The Administrator of USAID should review the agency's MRR system with the goal of ensuring that its annual reporting is complete and accurate. Specifically, the Administrator should review and reconsider the methodologies used for outreach to the very poor.

    Agency Affected: Department of State: Agency for International Development

    Status: Closed - Implemented

    Comments: In its November 17, 2003 report "Microenterprise Development: USAID's Program Has Met Some Goals; Annual Reporting Has Limitations" (GAO-04-171), GAO recommended that the USAID Administrator review the agency's Microenterprise Results Reporting (MRR) system with the goal of ensuring that its annual report was complete and accurate. Specifically, GAO recommended that the Administrator review and reconsider the methodologies used for collection, analysis, and reporting of data on outreach to the very poor. In response to GAO's recommendation, USAID has added clarifying language to its report, citing the limitations of its data on outreach to the poor. This action addresses GAO's concern that reporting on this issue was not complete or accurate.

    Recommendation: The Administrator of USAID should review the agency's MRR system with the goal of ensuring that its annual reporting is complete and accurate. Specifically, the Administrator should review and reconsider the methodologies used for collection, analysis, and reporting of data on annual spending targets.

    Agency Affected: Department of State: Agency for International Development

    Status: Closed - Implemented

    Comments: In its November 17, 2003 report "Microenterprise Development: USAID's Program Met Some Goals; Annual Reporting Has Limitations" (GAO-04-171), GAO recommended that the USAID Administrator review the agency's Microenterprise Results Reporting (MRR) system with the goal of ensuring that its annual report was complete and accurate. Specifically, GAO recommended that the Administrator review and reconsider the methodologies used for collection, analysis, and reporting of data on meeting its spending targets. In response to GAO's recommendation, USAID has made several improvements to improve the collection, analysis and reporting of this data. For example, it issued new guidance on what information should be collected, added requirements to perform spot checks on the data to improve accuracy, providing better instructions to clearly stipulate what portion of USAID assistance to institutions can be reported as microenterprise funding to improve its accuracy, and added clarifications in its annual report to better inform the reader of specific USAID's contribution to the institutions. This action addresses GAO's concern that reporting on this issue was not complete or accurate.

    Recommendation: The Administrator of USAID should review the agency's MRR system with the goal of ensuring that its annual reporting is complete and accurate. Specifically, the Administrator should review and reconsider the methodologies used for the contribution of USAID funding to the institutions it supports.

    Agency Affected: Department of State: Agency for International Development

    Status: Closed - Implemented

    Comments: In its November 17, 2003 report "Microenterprise Development: USAID's Program Met Some Goals; Annual Reporting Has Limitations" (GAO-04-171), GAO recommended that the USAID Administrator review the agency's Microenterprise Results Reporting (MRR) system with the goal of ensuring that its annual report was complete and accurate. Specifically, GAO recommended that the Administrator review and reconsider the methodologies used for collection, analysis, and reporting of data on the contribution of USAID funding to the microfinance institutions (MFIs) it supports. In response to GAO's recommendation, USAID's report will now highlight that USAID funding alone is not responsible for the accomplishments highlighted in USAID's report to Congress. For example, USAID will add language that states that the MRR "cannot definitively address the question of what impact of USAID funding has been; the data reported in this survey should not be attributed solely to USAID support. Rather, these results could be understood to be the combined effect of all the prior assistance received by the institution, which may include support from other donors as well as USAID." This action addresses GAO's concern that reporting on this issue was not complete or accurate.

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