The SmartAid for Microfinance Index (SmartAid) measures whether funders are set up to support microfinance effectively. Measuring the effectiveness of funding for microfinance is not easy, given the long chain from project conception, to implementation on the ground, to impact on the lives of the poor. SmartAid focuses on the first part of this chain, funders’ internal management systems, with the simple premise that funders with strong systems are more likely to support better projects on the ground. SmartAid does not evaluate the on-the-ground performance of funders’ microfinance portfolios; other tools (e.g., portfolio reviews) exist for that purpose.
In 2006, 29 major development institutions asked CGAP to create a tool that would help them improve the effectiveness of their support to microfinance. In response, CGAP developed SmartAid. Many factors that affect project performance are beyond funders’ influence, but SmartAid focuses on those factors that funders can have more direct control of—their internal systems. Effective internal systems are a necessary, although not sufficient, condition for successful projects and investments.