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3Income generation and self-reliance are encouraged in Mbuyathrough Bread for Life, a microfinance program that has providedmore than a thousand small loans for small business investmentand skills training through the Roses of Mbuya, a tailoring workshop that targets unemployed HIV-infected women.Is this exactly how all microfinance programs are focused? No.But it does illustrate well the profound impact that American foreign aid can have on real human lives when the tools of microenterprise are put to work. I hope we can continue the discussionof this topic constructively today and I can firmly say that thisSubcommittee, and I do believe the Full Committee as well, will remain involved in this very important area.[The prepared statement of Mr. Smith follows:]PREPARED STATEMENT OF THE HONORABLE CHRISTOPHER H. SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY AND CHAIRMAN, SUBCOMMITTEE ON AFRICA, GLOBAL HUMAN RIGHTS AND INTERNATIONAL OPERATIONSGood afternoon. I would like to welcome fellow Members, our witnesses, and othervisitors to this hearing of the Subcommittee on Africa, Global Human Rights andInternational Operations. Today we will review a topic of great interest to me andto other Members of this Subcommittee for many years—microfinance.While the term ‘‘foreign aid’’ can sometimes assume a rather negative connotation,the tools of microfinance and microenterprise provide a shining counterpoint toother programs that just don’t perform.It was not uncommon in the past to see foreign aid delivered in a top-down manner to corrupt governments and organizations, where it could never realisticallyreach its intended recipients. Such programs never delivered the benefits they promised.Microenterprise, on the other hand, takes advantage of a very different method.It uses a ‘‘trickle-up’’ approach that focuses on helping the most impoverished peopleof the world build themselves up, little by little, into self-sufficiency by providingthem with access to financial services like small loans and savings accounts.The sum of 58 does not sound like a great deal to most of us in the developedworld, but this is precisely the amount that helped change forever the life of JanetKorutaro, a widow from Nsike Village, Uganda.Opportunity International, represented today at our hearing by its Senior VicePresident, Susy Cheston, provided Janet with a loan in this amount so that shecould expand the small grocery store that she runs in her house. This loan and twosubsequent loans ( 115 and 171) have allowed Janet to significantly expand herbusiness, adding sugar, salt, eggs, and a refrigerator to hold juice, soda, and fruits,along with other improvements.Janet’s daily net profit is just 1.15, but this goes far in Uganda. These threesmall loans have helped take a widow in Africa from barely surviving and not daring to dream, to believing that all of her dreams might actually come true. Today,Janet anticipates being able to educate all of the children in her care, buy land, andbuild a little house.Similar microloans have benefited over 5.8 million other clients of USAID-assistedmicro programs in Fiscal Year 2005. The result is clear—microenterprise has thepower to dramatically change lives for the better.Success stories like Janet’s are what microfinance and the Microenterprise Results and Accountability Act of 2004, PL 108–484, are all about. When I authoredthat legislation, we worked very hard in the House and the Senate with both theAdministration and with non-governmental organizations to encourage the best possible microfinance programs, allowing us to reach the greatest possible number ofpeople with services that truly have an impact on their lives.The Act directs USAID to report to Congress on the status of the Agency’s microenterprise programs each year at the end of June, and I am pleased to have readand reviewed the first such report, which covers USAID’s activities through FY2005. It is a comprehensive, thorough and informative report that will benefit notjust the United States Congress, but the whole industry. While I’m sure that Members will have several questions today concerning the content of the report, I wantto congratulate and thank USAID for such a quality product.VerDate Mar 21 200217:02 Sep 19, 2006Jkt 000000PO 00000Frm 00007Fmt 6633Sfmt 6621F:\WORK\AGI\072706\28970.000HINTREL1PsN: SHIRL

4The Microenterprise Results and Accountability Act of 2004 also includes a number of other provisions that we believe will improve the quality of microfinance initiatives around the globe.Among these are provisions that mandate the development of more reliable poverty assessment tools and of systems to measure the effectiveness of for-profit contractors and not-for-profit partners. In addition, we included directives on USAIDcentral funding and on microenterprise programs for people afflicted with HIV/AIDSand for victims of human trafficking.The final question that we must examine is this: Are these programs focusedenough on directly benefiting the poor and other groups who would benefit the mostfrom the tools of microfinance? Our witnesses today, who represent the Administration and the non-profit, consultant, and academic communities, will help to provideus with answers to this vital question.I will conclude with a story. When I went to Uganda just a few months ago, Ivisited Mbuya Reach Out, a faith-based organization under the auspices of OurLady of Africa Church in Mbuya, Kampala. This center, like many others aroundthe world, is using microcredit to transform lives, serving over 1,800 HIV-positiveclients and their families.Income generation and self reliance are encouraged at Mbuya through ‘‘Bread forLife,’’ a microfinance program that has provided more than 1,000 small loans to clients for small business investment, and skills training through ‘‘Roses of Mbuya,’’a tailoring workshop that targets unemployed HIV-infected women.Is this exactly how all microcredit programs are focused? No, but it illustrateswell the profound impact that American foreign aid can have on real human liveswhen the tools of microenterprise are put to work. I hope that we can continue thediscussion of this topic constructively today, and I can firmly say that this Subcommittee will certainly remain involved in this very important area. Thank you.I now yield to my good friend and colleague from New Jersey, the Ranking Member Mr. Payne.Mr. SMITH. And having said that, I would like to now introduceour very distinguished witnesses. We will begin first with the Honorable Jacqueline Schafer, who is Assistant Administrator of theBureau for Economic Growth, Agriculture and Trade of the U.S.Agency for International Development since November 2005. Priorto joining USAID, Ms. Schafer served as Director of the ArizonaDepartment of Environmental Quality, as Assistant Secretary ofthe Navy, and a member of President Ronald Reagan’s Council onEnvironmental Quality. And I would also point out that she haslived in New Jersey, in Haddon Heights, and went to school in Teaneck, New Jersey.So, my fellow New Jerseyan, welcome and please proceed as youwould like.STATEMENT OF THE HONORABLE JACQUELINE E. SCHAFER,ASSISTANT ADMINISTRATOR, BUREAU FOR ECONOMICGROWTH, AGRICULTURE AND TRADE, U.S. AGENCY FORINTERNATIONAL DEVELOPMENTMs. SCHAFER. Thank you, Mr. Chairman, and Members of theSubcommittee, for the opportunity to appear before you today to report on USAID’s progress in implementing the Microenterprise Results and Accountability Act of 2004. I respectfully request, Mr.Chairman, that my entire written statement be included in the official record of this hearing.Mr. SMITH. Without objection, so ordered.Ms. SCHAFER. In fiscal year 2005, USAID obligated 211 millionfor microenterprise development, which supported 435 institutionsin 68 countries throughout the developing world. USAID-assistedmicrofinance institutions served 5.8 million loan clients as well as6.4 million savings clients. Enterprise development support reachedVerDate Mar 21 200217:02 Sep 19, 2006Jkt 000000PO 00000Frm 00008Fmt 6633Sfmt 6601F:\WORK\AGI\072706\28970.000HINTREL1PsN: SHIRL

5more than 690,000 clients. In Africa and Asia in particular, institutions serving these clients also implement programs that aim to increase the productivity and profits of smallholder farmers throughaccess to more and better inputs, improved practices, value-addedprocessing, and access to high value markets.Sixty-one percent of the clients that benefited from USAIDmicroenterprise support were women, like Maria Terese Perez, anentrepreneur I met in Mexico City who has after 2 years of loansfrom FinComun, a USAID-supported microfinance institution, expanded her business of sewing and selling school uniforms andchildren’s clothing to the local market. Although Mrs. Perez is notamong the poorest clients that benefited from USAID microenterprise support, the impact of the loans that she received extends toher nine employees, who now have higher incomes and can investin their own family’s futures by meeting their education and healthcare needs.Mr. Chairman, I say that she is not the poorest, but her workroom is maybe 10-by-10, including storage for the cloth, and a thirdfloor walk-up in what we might call a rough part of town. She wascheerful, hopeful and appreciative of the services of FinComun andaware that the United States supported her business in an important way.The impact of USAID microenterprise programs extends beyondpeople like Mrs. Perez, her family, her employees, and her customers to Mexico’s entire financial sector, which is undergoing along-term structural change, integrating poor households and enterprises into the vision, business model and product range of thecountry’s major financial institutions.I would like to update you and the Committee, Mr. Chairman,on the status of activities required by the most recent amendmentsto the statute, including new grant programs, increased assistanceto USAID’s field missions that implement microenterprise programs, and improvements in our data collection system.First, the FIELD-Support Leader’s with Associates cooperativeagreement, LWA, was competitively awarded in 2005 to a team ofhighly qualified organizations led by the Academy for EducationalDevelopment. This team, comprising 10 core members and 17 resource organizations, has a proven track record of reducing povertyand promoting sustained, equitable growth through microenterprise development, microfinance, value chain development, institution and human capacity building, and the promotion of marketbased approaches. This year’s tranche of leader funding from mybureau’s Microenterprise Development Office is supporting initialactivities worldwide that will focus on testing new approaches andsharing knowledge widely within the practitioner community aboutremittances, natural resources management affecting agriculturalproductivity, health services and mapping the social performance ofmicrofinance institutions. I am told that, while still procurementsensitive, in fiscal year 2006 associate awards from our missionswill encumber nearly 20 percent of the 350 million ceiling for this5-year procurement instrument. So we are off to a good start.The Agency will also award grants this year totaling up to 10million through the Implementation Grants Program. These grantswill go to institutions working to increase access to financial serv-VerDate Mar 21 200217:02 Sep 19, 2006Jkt 000000PO 00000Frm 00009Fmt 6633Sfmt 6601F:\WORK\AGI\072706\28970.000HINTREL1PsN: SHIRL

6ices for very poor clients and to link very poor people into markets.In addition, awards under the Grants Under Contract mechanismtotaling almost 3 million will be made to three different types ofinstitutions. The first are institutions working to increase their capacity to learn from their activities and share that knowledge withthe broader industry. The second are institutions working to fundinnovative ways to serve poor and very poor clients in Europe andEurasia, and third are institutions using information technology tobroaden their outreach and reduce transaction costs.USAID also has increased its technical support to missions in2005. Our bureau’s microenterprise technical officers helped regional bureaus and missions to conduct thorough reviews of proposed strategies and activities, and they have been proactive insupporting missions that are developing new strategy elements andcomponents. For example, extensive technical assistance to USAIDAfghanistan has supported a major new rural finance program thatwill extend credit savings and other financial services and supportto tens of thousands of smallholder producers and rural familiesthat have extremely limited access to finance.In this past year our staff has provided on-site assistance toabout 25 other missions, including Sudan, Liberia, Uganda, Tanzania and South Africa, and extensive virtual technical support inboth strategy and activity design for others, including Iraq.In fiscal year 2005, USAID instituted changes to our Microenterprise Results Reporting system to, among other things, identify theportion of obligated funds that are sub-obligated by the original recipient to other awardees, and thus improve our understanding ofwho the ultimate recipients of the funding are. We found, however,that the direct recipients considerably understated the amountsthat will benefit local organizations. So we have revised the datacollection process for 2006 to capture more accurately the portionof funding that is intended for eventual sub-obligation even whenthe sub-obligation is not completed during the fiscal year in whichthe initial award was made. There is some time lag. We expect thischange to yield more accurate details of USAID microenterprisefunding by institution type.With regard to development of the poverty measurement toolsmandated by the Microenterprise for Self-Reliance Act of 2000, arigorous effort involving methodologists, academic advertisers andpractitioners has led to the completion of the development, testingand certification of two new tools that can be implemented by partners beginning in October 2006. While USAID and its partners hadhoped that these two tools that have been developed and certifiedfor use at the regional or international level would predict clientpoverty status with acceptable accuracy, this has not proven to bethe case. The testing process has yielded results that indicate thattools tailored to specific country, and even sub-national, characteristics would achieve significantly better accuracy. Practitioner organizations selected on a competitive basis have received funding tofield-test country-level tools to ensure that these instruments meetthe law’s practicality standard; that is, that the diverse range ofpractitioners with which USAID works can comply at a reasonablecost.VerDate Mar 21 200217:02 Sep 19, 2006Jkt 000000PO 00000Frm 00010Fmt 6633Sfmt 6601F:\WORK\AGI\072706\28970.000HINTREL1PsN: SHIRL

7By October 1, 2006, country specific tools will be available or indevelopment for many countries, including some of those with thelargest microenterprise development programs. USAID will continue to work in partnership with researchers and practitionercommunities to develop and/or certify country specific tools forother countries in which USAID operates microenterprise programs.Mr. Chairman, allow me to touch briefly on the umbrella studythat we referenced in our 2005 report. Generally it found that theability of umbrella programs to work with a range of institutionson a variety of interventions at multiple levels of the financial system results in a more sustainable financial system in which poorpeople are more likely to enjoy the benefits of economic growth.Moreover, the study found that the nature of the program that isumbrella versus single institution was not a factor in determiningeither cost effectiveness or the sustainability of the institutionsthemselves.Mr. Chairman, that concludes my oral statement and I appreciate again the opportunity to present our program.[The prepared statement of Ms. Schafer follows:]PREPARED STATEMENT OF THE HONORABLE JACQUELINE E. SCHAFER, ASSISTANT ADMINISTRATOR, BUREAU FOR ECONOMIC GROWTH, AGRICULTURE AND TRADE, U.S.AGENCY FOR INTERNATIONAL DEVELOPMENTThank you, Mr. Chairman and Members of the Subcommittee, for the opportunityto appear before you today to report on USAID’s progress in implementing theMicroenterprise Results and Accountability Act of 2004, since your September 20,2005 hearing.Generating economic growth in developing countries while reducing poverty is afundamental development challenge. It is also critical to national strategic and security interests, as reflected in the growing role USAID is being asked to play in rebuilding, developing, transforming and sustaining partnership countries.Only a few weeks ago here in Washington, President Bush addressed the privatesector Initiative for Global Development saying that ‘‘the reduction of extreme poverty in our world must be a key objective of American foreign policy.’’ And, thePresident added, the effort to eliminate global poverty ‘‘needs to be part of the calling of the United States in the 21st century.’’ The President also emphasized thathe expected principles of transparency, performance and accountability to be appliedto all our development aid, saying, ‘‘We’re going to be generous in our contributionand demand results in return.’’ So, Mr. Chairman, our assistance programs arebeing held to account by both the Congress and the Chief Executive.USAID’s vision for microenterprise development is to strengthen economic opportunities for poorer households and the business activities on which they typicallyrely to enable these families to build assets, cope with the risks and vulnerabilitythat accompany poverty, and plan for better futures for their children. These strategies support delivery of effective financial and business services that poorer familiesand entrepreneurs need to succeed in these challenges, as well as policy changesthat reward initiative and hard work. USAID’s partnerships with hundreds of diverse U.S. and local microenterprise practitioners have also demonstrated thatmicrofinance and microenterprise development services can contribute to poverty alleviation in a sustainable and commercially viable way.In September’s hearing, the Agency presented the status of our efforts to implement the law in the context of these overall strategies and programs. Today, I willpresent the Agency’s response to the twelve reporting requirements in the Microenterprise Results and Accountability Act of 2004, as well as our implementationof key activities that we know to be of special interest to the committee.RESULTSFunding, client results and program examplesIn Fiscal Year (FY) 2005, USAID obligated 211 million for microenterprise development, supporting 435 institutions (218 of which had new agreements this fiscalVerDate Mar 21 200217:02 Sep 19, 2006Jkt 000000PO 00000Frm 00011Fmt 6633Sfmt 6621F:\WORK\AGI\072706\28970.000HINTREL1PsN: SHIRL

8year) in 68 countries throughout Africa, Asia and the Near East, Latin America andthe Caribbean, and Europe and Eurasia. Nearly 22 million of this support camefrom central programs.USAID’s microfinance support has helped strengthen financial sectors to bettermeet the needs of poor households and new and growing microenterprises. Microfinance institutions (MFI

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