[House Report 107-453]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-453

======================================================================



 
     MICROENTERPRISE ASSISTANCE REAUTHORIZATION AMENDMENTS OF 2002

                                _______
                                

  May 10, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hyde, from the Committee on International Relations, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4073]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on International Relations, to whom was 
referred the bill (H.R. 4073) to amend the Microenterprise for 
Self-Reliance Act of 2000 and the Foreign Assistance Act of 
1961 to increase assistance for the poorest people in 
developing countries under microenterprise assistance programs 
under those Acts, and for other purposes, having considered the 
same, reports favorably thereon with an amendment and 
recommends that the bill as amended do pass.

                           TABLE OF CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     4
Background and Need for the Legislation..........................     5
Committee Consideration..........................................     7
Votes of the Committee...........................................     7
Committee Oversight Findings.....................................     8
New Budget Authority and Tax Expenditures........................     8
Congressional Budget Office Cost Estimate........................     8
Performance Goals and Objectives.................................    10
Constitutional Authority Statement...............................    10
Section-by-Section Analysis......................................    10
New Advisory Committees..........................................    12
Congressional Accountability Act.................................    12
Federal Mandates.................................................    12
Changes in Existing Law Made by the Bill, as Reported............    12

                             The Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. AMENDMENTS TO THE MICROENTERPRISE FOR SELF-RELIANCE ACT OF 
                    2000.

    (a) Purposes.--Section 103 of the Microenterprise for Self-Reliance 
Act of 2000 (Public Law 106-309) is amended--
            (1) in paragraph (3), by striking ``microentrepreneurs'' 
        and inserting ``microenterprise households'';
            (2) in paragraph (4), by striking ``and'' at the end;
            (3) in paragraph (5)--
                    (A) by striking ``microfinance policy'' and 
                inserting ``microenterprise policy'';
                    (B) by striking ``the poorest of the poor'' and 
                inserting ``the very poor''; and
                    (C) by striking the period at the end and inserting 
                ``; and''; and
            (4) by adding at the end the following:
            ``(6) to encourage the United States Agency for 
        International Development to develop, assess, and implement 
        effective outreach methods and tools to ensure that all 
        microenterprise assistance authorized under this title, and the 
        amendments made by this title, is used to assist the greatest 
        absolute number of economically viable clients among the very 
        poor, and that at least 50 percent of all microenterprise 
        assistance authorized under this title, and the amendments made 
        under this title, is used in support of programs or lines of 
        service that target the very poor.''.
    (b) Definitions.--Section 104 of such Act is amended--
            (1) in paragraph (2), by striking ``for 
        microentrepreneurs'' and inserting ``to microentrepreneurs and 
        their households''; and
            (2) by adding at the end the following:
            ``(5) Very poor; poorest people in developing countries.--
        The terms `very poor' and `poorest people in developing 
        countries' mean those persons living either in the bottom 50 
        percent below the poverty line as established by the national 
        government of the country or on less than the equivalent of $1 
        per day.''.

SEC. 2. AMENDMENTS TO THE MICRO- AND SMALL ENTERPRISE DEVELOPMENT 
                    CREDITS PROGRAM UNDER THE FOREIGN ASSISTANCE ACT OF 
                    1961.

    (a) Findings and Policy.--Section 108(a)(2) of the Foreign 
Assistance Act of 1961 (22 U.S.C. 2151f(a)(2)) is amended by striking 
``the development of the enterprises of the poor'' and inserting ``the 
access to financial services and the development of microenterprises''.
    (b) Program.--Section 108(b) of such Act (22 U.S.C. 2151f(b)) is 
amended to read as follows:
    ``(b) Program.--To carry out the policy set forth in subsection 
(a), the President is authorized to provide assistance to increase the 
availability of financial services to microenterprise households 
lacking full access to credit, including through--
            ``(1) loans and guarantees to microfinance institutions for 
        the purpose of expanding the availability of savings and credit 
        to poor and low-income households;
            ``(2) training programs for microfinance institutions in 
        order to enable them to better meet the financial services 
        needs of their clients; and
            ``(3) training programs for clients in order to enable them 
        to make better use of credit, increase their financial 
        literacy, and to better manage their enterprises.''.
    (c) Eligibility Criteria.--Section 108(c) of such Act (22 U.S.C. 
2151f(c)) is amended--
            (1) in the first sentence of the matter preceding paragraph 
        (1)--
                    (A) by striking ``credit institutions'' and 
                inserting ``microfinance institutions''; and
                    (B) by striking ``micro- and small enterprises'' 
                and inserting ``microenterprise households''; and
            (2) in paragraphs (1) and (2), by striking ``credit'' each 
        place it appears and inserting ``financial services''.
    (d) Additional Requirement.--Section 108(d) of such Act (22 U.S.C. 
2151f(d)) is amended by striking ``micro- and small enterprise 
programs'' and inserting ``programs for microenterprise households''.
    (e) Availability of Funds.--Section 108(f)(1) of such Act (22 
U.S.C. 2151f(f)(1)) is amended by striking ``for each of fiscal years 
2001 and 2002'' and inserting ``for each of fiscal years 2001 through 
2004''.
    (f) Conforming Amendment.--Section 108 of such Act (22 U.S.C. 
2151f) is amended in the heading to read as follows:

``SEC. 108. MICROENTERPRISE DEVELOPMENT CREDITS.''.

SEC. 3. AMENDMENTS TO THE MICROENTERPRISE DEVELOPMENT GRANT ASSISTANCE 
                    PROGRAM UNDER THE FOREIGN ASSISTANCE ACT OF 1961.

    (a) Findings and Policy.--Section 131(a) of the Foreign Assistance 
Act of 1961 (22 U.S.C. 2152a(a)) is amended to read as follows:
    ``(a) Findings and Policy.--Congress finds and declares that--
            ``(1) access to financial services and the development of 
        microenterprise are vital factors in the stable growth of 
        developing countries and in the development of free, open, and 
        equitable international economic systems;
            ``(2) it is therefore in the best interest of the United 
        States to facilitate access to financial services and assist 
        the development of microenterprise in developing countries;
            ``(3) access to financial services and the development of 
        microenterprises can be supported by programs providing credit, 
        savings, training, technical assistance, business development 
        services, and other financial and non-financial services; and
            ``(4) given the relatively high percentage of populations 
        living in rural areas of developing countries, and the combined 
        high incidence of poverty in rural areas and growing income 
        inequality between rural and urban markets, microenterprise 
        programs should target both rural and urban poor.''.
    (b) Authorization.--Section 131(b) of such Act (22 U.S.C. 2152a(b)) 
is amended--
            (1) in paragraph (3)--
                    (A) in the first sentence of the matter preceding 
                subparagraph (A), by striking ``targeted to very poor 
                entrepreneurs'' and all that follows and inserting 
                ``used in support of programs or lines of service under 
                which 50 percent or more of the incoming or prospective 
                clients are initially very poor.''; and
                    (B) in subparagraph (A)(i) , by striking 
                ``entrepreneurs'' and inserting ``clients''; and
            (2) in paragraph (4)(D)--
                    (A) in clause (i), by striking ``very small loans'' 
                and inserting ``financial services to poor 
                entrepreneurs''; and
                    (B) in clause (ii), by striking ``microfinance'' 
                and inserting ``microenterprise''.
    (c) Monitoring System.--Section 131(c) of such Act (22 U.S.C. 
2152a(c)) is amended by striking paragraph (4) and inserting the 
following:
            ``(4) adopts the widespread use of proven and effective 
        poverty assessment tools to successfully identify the very poor 
        and ensure that they receive needed microenterprise credits, 
        loans, and assistance.''
    (d) Development and Application of Poverty Measurement Methods.--
Section 131 of such Act (22 U.S.C. 2152a) is amended--
            (1) by redesignating subsections (d) and (e) as subsections 
        (e) and (f), respectively; and
            (2) by inserting after subsection (c) the following:
    ``(d) Development and Certification of Poverty Measurement Methods; 
Application of Methods.--
            ``(1) Development and certification.--(A) The Administrator 
        of the United States Agency for International Development, in 
        consultation with appropriate microfinance institutions, 
        microenterprise institutions, and other appropriate entities 
        shall develop no fewer than two low-cost methods for measuring 
        the poverty levels of the current or prospective clients of 
        microenterprise organizations for purposes of assistance under 
        this section. In developing such methods, the Administrator 
        shall give consideration to methods already in use by 
        practitioner institutions.
            ``(B) The Administrator shall field-test the methods 
        developed under this paragraph, and as part of the testing, 
        institutions and programs may use these methods on a voluntary 
        basis to demonstrate their ability to reach the very poor.
            ``(C) Not later than October 1, 2004, the Administrator 
        shall, from among the low-cost poverty measurement methods 
        developed under this paragraph, certify no fewer than two of 
        such methods as approved methods for measuring the poverty 
        levels of the current or prospective clients of microenterprise 
        organizations for purposes of assistance under this section.
            ``(2) Application.--Beginning on and after October 1, 2004, 
        assistance furnished under this section to a program or to a 
        line of service within an institution shall qualify, in whole 
        or in part, as targeted assistance to the very poor if one or 
        more of the measurement methods approved under paragraph (1), 
        or one or more of the measurement methods approved in 
        accordance with paragraph (1) after October 1, 2004, verifies 
        that at least 50 percent of the incoming or prospective clients 
        of the program or line of service are initially among the very 
        poor.''.
    (e) Level of Assistance.--Section 131(e) of such Act, as 
redesignated by subsection (d), is amended by inserting ``and 
$175,000,000 for fiscal year 2003 and $200,000,000 for fiscal year 
2004'' after ``fiscal years 2001 and 2002''.
    (f) Definitions.--Section 131(f) of such Act, as redesignated by 
subsection (d), is amended by adding at the end the following:
            ``(5) Very poor; poorest people in developing countries.--
        The terms `very poor' and `poorest people in developing 
        countries' mean those persons living either in the bottom 50 
        percent below the poverty line as established by the national 
        government of the country or on less than the equivalent of $1 
        per day.''.

SEC. 4. REPORT TO CONGRESS.

    Not later than July 1, 2004, the Administrator of the United States 
Agency for International Development shall submit to Congress a report 
that contains--
            (1) a description of the interim poverty measurement 
        methods developed and implemented pursuant to section 131(d)(1) 
        of the Foreign Assistance Act of 1961, as added by section 
        3(d);
            (2) an analysis of the results of the application of such 
        interim poverty measurement methods to sustainable poverty-
        focused programs under such section; and
            (3) a description of the proposed final poverty measurement 
        methods to be implemented beginning on October 1, 2004, in 
        accordance with section 131(d)(2) of such Act, as added by 
        section 3(d).

                          Purpose and Summary

    H.R. 4073, a bill making amendments to the Microenterprise 
and Self-Reliance Act of 2000 and the Foreign Assistance Act of 
1961, as amended, (FAA), as reported out of the Committee on 
International Relations, reauthorizes and increases authorized 
funding levels for microenterprise programs under the authority 
of the Administrator of the U.S. Agency for International 
Development. The bill amends the Purposes and Definitions 
sections of the Microenterprise and Self-Reliance Act of 2000, 
and also amends the Findings and Policy, Eligibility Criteria, 
Additional Requirement, and Availability of Funds subsections 
of Section 108 of the FAA (concerning the Microenterprise 
Development Credits program). The bill also makes amendments to 
the Findings and Policy, Authorization, Monitoring System and 
Definition subsections of Section 131 of the FAA (concerning 
the Microenterprise Development Grant Assistance program), adds 
an additional subsection on Poverty Measurement (Section 
131(d)), and also requires a report to Congress concerning the 
implementation of this subsection. Specifically, H.R. 4073 
reauthorizes microenterprise grant assistance for an additional 
2 years, through FY2004, providing authorization for $175 
million in 2003 and $200 million in 2004
    The goals and objectives of this legislation are to amend 
the Microenterprise and Self-Reliance Act of 2000 and the 
Foreign Assistance Act of 1961 to reauthorize microenterprise 
assistance, to better focus assistance on the very poor, and to 
make definitional and other amendments to update language of 
both acts concerning rural lending, the provision of financial 
services, and the development and application of poverty 
measurement tools for the purpose of ensuring U.S. 
microenterprise assistance reaches the very poor.

                Background and Need for the Legislation

    The Microenterprise for Self-Reliance Act of 2000 (PL 106-
309) authorized U.S. microenterprise programs under the 
authority of the Administrator of the U.S. Agency for 
International Development (USAID). PL 106-309 authorized these 
programs for an initial 2-year period, which expires on 
September 30, 2002. Mr. Smith of New Jersey and Mr. Roemer each 
introduced bills to reauthorize microenterprise programs, and 
H.R. 4073 as reported represents a compromise draft that 
incorporates significant aspects of each bill. H.R. 4073 would 
increase U.S. funding to $175 million in FY2003 and $200 
million in FY2004, and makes a number of important definitional 
changes.
    In reauthorizing the Microenterprise for Self-Reliance Act, 
the Committee has provided significant increases in authorized 
funding levels for microenterprise development grant programs 
in recognition of the effectiveness of these programs, the 
unmet need for credit, savings and other business and financial 
services among millions of poor people, and the capacity of 
microenterprise development programs globally to put additional 
resources to good use.
    The Committee recognizes the valuable contributions that 
USAID has made to the development and expansion of financially-
sustainable microenterprise institutions during the initial 
authorization period. The amendments in H.R. 4073 are intended 
to encourage USAID to apply an equal level of creativity and 
innovation to promote outreach to the very poor. By designating 
at least 50 percent of all assistance to programs or lines of 
service that target the very poor, the Committee seeks to 
encourage microenterprise institutions to develop and expand 
programs that specifically target the very poor. While 
recognizing that poor people at all levels of poverty require 
greater access to financial and non-financial microenterprise 
development services, the Committee emphasizes that all 
microenterprise assistance authorized by H.R. 4073 should be 
used to assist the greatest possible number of the very poor. 
In support of this goal, the 50 percent of funds designated for 
programs or lines of services targeting the very poor shall be 
considered as a minimum, and not a maximum.
    The Committee intends that the term ``program and lines of 
service'' should include not only the provision of direct 
financial services but also other programs that serve the very 
poor by building capacity and reducing poverty. The Committee 
further intends that the term ``program and lines of service'' 
shall include those poverty-focused services within larger 
institutions. This provision ensures that poverty-focused 
services within larger institutions can be eligible to receive 
resources targeted to the very poor, even if the institution as 
a whole does not serve a majority of very poor clients. Such 
institutions are eligible to receive those resources targeted 
to the very poor if those institutions develop particular lines 
of service under which 50 percent or more of the incoming or 
prospective clients are initially very poor.
    H.R. 4073 requires USAID, in consultation with the 
microenterprise community, to develop ``poverty measurement 
methods'' in order to enable microenterprise organizations to 
identify which of their prospective clients meet the definition 
of ``very poor.'' Section 131(b)(3) of the Foreign Assistance 
Act currently requires that 50 percent of all microenterprise 
assistance be targeted to very poor entrepreneurs (defined as 
those living in the bottom 50 percent below the poverty line). 
Because it is expensive and technically difficult to 
``measure'' poverty of potential clients, USAID has used loan 
size when measuring implementation agency compliance with the 
50 percent requirement. Many academics and practitioners do not 
agree that loan size is a valid proxy, nor are they in 
agreement on how best to measure poverty (income alone is not 
considered a valid indicator). H.R. 4073 will require that by 
October 1, 2004, the Administrator certify no fewer than two 
low-cost methods for measuring the poverty levels of the 
current or prospective clients of microenterprise 
organizations. The bill also requires that after October 1, 
2004, the Administrator use these new methods to determine 
which programs meet the criteria of targeting the ``very 
poor.''
    The Committee has expanded the definition of the very poor 
to include those severely poor people living on less than $1 
per day and has provided clear guidance to USAID for the 
development and use of cost-efficient practical poverty 
measurement tools that can be applied by practitioner 
organizations. The Committee has included language that directs 
that beginning on October 1, 2004, at least half of all 
microenterprise development grant resources shall go to 
programs that can demonstrate by use of a USAID-certified 
poverty measurement method that 50 percent or more of their 
incoming or prospective clients are initially very poor. This 
change creates substantially greater incentive for USAID to 
find and support financially-sustainable lines of 
microenterprise development service that favor the very poor, 
while allowing up to half of the funding to support other lines 
of service that serve poor people who are somewhat better-off. 
The Committee expects that this provision will provide a 
clearer, more meaningful guideline that will create 
substantially stronger incentive for USAID and its grantees to 
push the frontiers of microenterprise development to include 
more of the very poor than are currently being reached by USAID 
supported microenterprise development programs and services.
    The Committee has also broadened the definition of 
microenterprise development services in recognition of the 
importance of delivering both financial and non-financial 
services to the poor, and has emphasized the importance of 
providing these services to rural as well as urban areas, given 
the concentrations of poverty often found in rural areas.
    The Committee recognizes that USAID has included some 
incentives for poverty outreach in its procurement process. 
However, after a review of the current procurement guidelines, 
the Committee finds that the current incentives and guidelines 
are inadequate to encourage innovation and support the rapid 
expansion of financial services to the very poor and others 
currently underserved or excluded from microenterprise 
programs. H.R. 4073 addresses these inadequacies by requiring 
the development of poverty-measurement methods. The Committee 
hopes that these methods will enable microenterprise 
institutions to demonstrably reach the greatest number of the 
very poor with sustainable and cost-efficient programs.
    The Committee recognizes that microfinance networks are 
efficient vehicles for rapidly expanding access to financial 
services by the poor. These networks build new microfinance 
institutions in underserved areas and provide technical 
assistance, systems support, quality control, and research. 
Microfinance networks also raise substantial private-sector 
funding assistance for their partner microfinance institutions 
around the world. Investing in microfinance networks is an 
efficient and appropriate use of U.S. government foreign 
assistance. The Committee strongly encourages analysis from 
USAID on how the establishment of an ``Accelerated Growth 
Fund'' would assist in the promotion of microenterprise 
networks. In the Microenterprise for Self-Reliance Act of 2000, 
Congress requested the Administration to prepare a report 
assessing the need and structure for an Accelerated Growth Fund 
within 180 days of the enactment of the Act. USAID is currently 
delinquent in submitting the report, which has prevented the 
Committee from properly evaluating proposals to capitalize such 
a fund in the reauthorization process. The Committee expects 
that the report will be forthcoming in the near future, and 
seeks to work with the Administration and the microenterprise 
development community to develop and establish an Accelerated 
Growth Fund in the future, if appropriate.
    The Committee recognizes that credit unions in developing 
countries are vital delivery channels for financial services to 
the very poor. USAID should continue supporting the approach 
used by the World Council of Credit Unions (WOCCU) for the 
delivery of microenterprise services. WOCCU's approach builds 
safe and sound financial institutions and provides additional 
capacity in credit unions to meet members' savings and loans, 
microenterprise loans, and education needs. The Committee 
intends that the term ``program and lines of service'' shall 
include the types of cost-efficient, sustainable programs that 
build capacity and reduce poverty, such as those implemented by 
the World Council of Credit Unions.
    The Committee supports the use of debt financing 
instruments for use as loan capital, as microfinance 
organizations mature and move away from donor dependence. To 
stimulate collaboration with the commercial banking sector and 
encourage their participation, government assistance is 
necessary. Instruments such as the Development Credit Authority 
(DCA) and the Overseas Private Investment Corporation (OPIC) 
will stimulate the participation of the private and government 
financial sectors in providing resources for economic 
development.

                        Committee Consideration

    On April 25, 2002, the Committee on International Relations 
marked up the bill, H.R. 4073, pursuant to notice, in open 
session. The Committee adopted an amendment in the nature of a 
substitute offered by Mr. Smith of New Jersey. The Committee, a 
quorum being present, agreed by voice vote to a motion made by 
Chairman Hyde to favorably report the bill, as amended, to the 
House of Representatives.

                         Votes of the Committee

    There were no recorded votes during the consideration of 
the bill.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R.4073, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 2002.
Hon. Henry J. Hyde, Chairman,
Committee on International Relations,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4073, a bill to 
amend the Microenterprise for Self-Reliance Act of 2000 and the 
Foreign Assistance Act of 1961 to increase assistance for the 
poorest people in developing countries under microenterprise 
assistance programs under those acts, and for other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Joseph C. 
Whitehill, who can be reached at 226-2840.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable Tom Lantos
        Ranking Democratic Member
H.R. 4073--A bill to amend the Microenterprise for Self-Reliance Act of 
        2000 and the Foreign Assistance Act of 1961 to increase 
        assistance for the poorest people in developing countries under 
        microenterprise assistance programs under those acts, and for 
        other purposes

                                SUMMARY

    H.R. 4073 would authorize the appropriation of $175 million 
in 2003 and $200 million in 2004 for grants and credits to 
microenterprise development programs, or programs that would 
provide access to financial services to poor persons in 
developing countries. The bill would place emphasis on 
assistance to persons living within the bottom 50 percent below 
a country's poverty line or living on less than the equivalent 
of $1 per day. CBO estimates that implementing H.R. 4073 would 
cost $328 million over the 2003-2007 period, assuming the 
appropriation of the authorized amounts. Because the bill would 
not affect direct spending or receipts, pay-as-you-go 
procedures would not apply.
    H.R. 4073 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 4073 is shown in the 
following table. The estimate assumes this legislation will be 
enacted by the beginning of 2003, that the specified amounts 
will be appropriated before the start of each fiscal year, and 
that outlays will follow historical spending patterns. The 
costs of this legislation fall within budget function 150 
(international affairs).

                                    [By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                              2002     2003     2004     2005     2006     2007
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Spending Under Current Law for
Microenterprise Assistance Programs:
    Budget Authority \1\..................................      155        0        0        0        0        0
    Estimated Outlays.....................................      131      118       66       34       18       10

Proposed Changes:
    Authorization Level...................................        0      175      200        0        0        0
    Estimated Outlays.....................................        0       23       91      113       67       34

Spending Under H.R. 4073 for
Microenterprise Assistance Programs:
    Authorization Level \1\...............................      155      175      200        0        0        0
    Estimated Outlays.....................................      131      141      157      147       85       44
----------------------------------------------------------------------------------------------------------------
\1\ The 2002 level is the amount appropriated for that year.

                     PAY-AS-YOU-GO CONSIDERATIONS:

    None.

              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

    H.R. 4073 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments.

                         ESTIMATE PREPARED BY:

Federal Costs: Joseph C. Whitehill (226-2840)
Impact on State, Local, and Tribal Governments: Elyse Goldman 
        (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                    Performance Goals and Objectives

    The goals and objectives of this legislation are to amend 
the Microenterprise and Self-Reliance Act of 2000 and the 
Foreign Assistance Act of 1961 to reauthorize microenterprise 
assistance and to make amendments to update language of both 
acts concerning rural lending, the provision of financial 
services, and the devleopment and application of poverty 
measurement tools for the purpose of ensuring U.S. 
microenterprise assistance reaches the very poor.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 18 of the 
Constitution (relating to making all laws necessary and proper 
for carrying into execution powers vested by the Constitution 
in the government of the United States).

               Section-by-Section Analysis and Discussion

Section 1. Amendments to the Microenterprise for Self-Reliance Act of 
        2000.
    This section amends the Purposes and Definitions 
subsections of the act. Specifically, it amends some of the 
terminology used in these sections, reflecting developments in 
the microenterprise industry. The word ``microentrepreneur'' is 
changed to ``microenterprise household,'' a modification 
requested by the Microenterprise Coalition and endorsed by 
USAID. This section also strikes the term ``microfinance 
policy'' and replaces it with ``microenterprise policy.'' This 
section strikes the phrase ``poorest of the poor,'' and 
replaces it with the phrase ``the very poor,'' which is defined 
later in this section. This section adds an additional 
subparagraph to the Purposes subsection, one that encourages 
USAID ``to develop, assess and implement effective outreach 
tools and methods'' to ensure that microenterprise assistance 
is used ``to assist the greatest absolute number of 
economically viable clients among the very poor, and that at 
least 50 percent of all microenterprise assistance'' is used 
``in support of programs or lines of service that target the 
very poor.'' In the Definitions subsection, ``very poor'' is 
defined as ``those persons living either in the bottom 50 
percent below the poverty line as established by the national 
government of the country, or on less than the equivalent of $1 
per day.''
Section 2. Amendments to the Micro- and Small Enterprise Development 
        Credits Program under the Foreign Assistance Act of 1961.
    This section amends Section 108(a) of the FAA to update 
terminology by adding the concept of ``financial services.'' 
Section 108(b) amended to authorize the President ``to provide 
assistance to increase the availability of financial services 
to microenterprise households lacking full access to credit.'' 
This section also authorizes the appropriation of $1,500,000 
for each of fiscal years 2003 and 2004, the current level for 
the program. This section also amends the name of subject 
program to the ``Microenterprise Development Credits'' program.
Section 3. Amendments to the Microenterprise Development Grant 
        Assistance Program under the Foreign Assistance Act of 1961.
    This section amends Section 131(a) of the FAA by stressing 
the importance of rural development and the access to financial 
services. This section also amends Section 131(b) of the FAA by 
requiring that ``50 percent of all microenterprise resources 
shall be used in support of programs or lines of service under 
which 50 percent or more of the incoming or prospective clients 
are initially very poor.'' This represents a change from 
current law which requires that 50 percent of microenterprise 
resources be targeted to ``very poor entrepreneurs.'' This 
change is based on the proposition that recipient 
microenterprise institutions (as grantees) should demonstrate 
ex ante their commitment to reaching out to the ``very poor,'' 
and that the Administrator should establish special criteria in 
accordance with this amendment to ensure that microenterprise 
institutions target the ``very poor.''
    By establishing this new target that 50 percent of total 
funding to go to programs or services that can verify that at 
least 50 percent of their incoming clients are very poor, this 
section addresses a major shortcoming of existing U.S. 
microenterprise programs. The current target that ``50 percent 
of Microenterprise Development resources go to the poor'' 
cannot be measured cost-effectively, and USAID has never made 
an attempt to prospectively link this target to grant-making 
decisions. The current target is unenforceable and provides 
little incentive for USAID or its grantees to find and support 
financially-sustainable lines of service that favor the very 
poor. In contrast, the target in this section of H.R. 4073 is 
both measurable with low-cost methods and enforceable through 
linkage to grant-making decisions, and will provide substantial 
new incentive for outreach to the very poor.
    This section also amends Section 131(c) of the FAA by 
requiring the Administrator to ``adopt the widespread use of 
proven and effective poverty assessment tools to successfully 
identify the very poor and ensure that they receive needed 
microenterprise credits, loans and assistance.'' This section 
adds a new subsection (d), entitled ``Development and 
Certification of Poverty Measurement Methods; Application of 
Methods'' which addresses Congressional concerns that USAID and 
microenterprise institutions need to find more accurate and 
representative methods for measuring the poverty of current and 
prospective clients. This new subsection requires the 
Administrator of USAID , in consultation with appropriate 
microfinance institutions, to ``develop no fewer than two low-
cost methods for measuring the poverty levels of the current or 
prospective clients of microenterprise organizations'' and that 
the Administrator ``give consideration to methods already in 
use by practitioner institutions.'' This subsection requires 
the Administrator to field-test the methods developed, and 
provides that microenterprise institutions and programs may use 
these methods on a voluntary basis to determine their ability 
to reach the very poor. This subsection further requires the 
Administrator to certify ``no fewer than two of such methods as 
approved methods for measuring the poverty levels of the 
current or prospective clients of microenterprise 
organizations'' no later than October 1, 2004. This section 
further requires that beginning on an after October 1, 2004, 
assistance furnished to a program or to a line of service 
within an institution shall qualify, in whole or in part, as 
targeted assistance to the very poor if one or more of the 
approved poverty measurement methods ``verifies that at least 
50 percent of the incoming or prospective clients of the 
program or line of service are initially among the very poor.'' 
This subsection authorizes assistance in the amount of $175 
million for 2003 and $200 million for 2004.
Section 4. Report.
    This section requires that the Administrator submit a 
report to Congress no later than July 1, 2004, concerning the 
development, application, and analysis of interim poverty 
measurement methods required under Section 3 above.

                        New Advisory Committees

    H.R. 4073 does not establish or authorize any new advisory 
committees.

                    Congressional Accountability Act

    H.R. 4073 does not apply to the legislative branch.

                            Federal Mandates

    H.R. 4073 imposes no Federal mandates.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

             MICROENTERPRISE FOR SELF-RELIANCE ACT OF 2000

                         (Public Law 106-309)

           *       *       *       *       *       *       *


        TITLE I--MICROENTERPRISE FOR SELF-RELIANCE ACT OF 2000

           *       *       *       *       *       *       *


SEC. 103. PURPOSES.

    The purposes of this title are--
            (1)  * * *

           *       *       *       *       *       *       *

            (3) to support and develop the capacity of United 
        States and indigenous nongovernmental organization 
        intermediaries to provide credit, savings, training, 
        technical assistance, and business development services 
        to [microentrepreneurs] microenterprise households;
            (4) to emphasize financial services and 
        substantially increase the amount of assistance devoted 
        to both financial services and complementary business 
        development services designed to reach the poorest 
        people in developing countries, particularly women; 
        [and]
            (5) to encourage the United States Agency for 
        International Development to coordinate [microfinance 
        policy] microenterprise policy, in consultation with 
        the Department of the Treasury and the Department of 
        State, and to provide global leadership among bilateral 
        and multilateral donors in promoting microenterprise 
        for the [poorest of the poor.] the very poor; and
            (6) to encourage the United States Agency for 
        International Development to develop, assess, and 
        implement effective outreach methods and tools to 
        ensure that all microenterprise assistance authorized 
        under this title, and the amendments made by this 
        title, is used to assist the greatest absolute number 
        of economically viable clients among the very poor, and 
        that at least 50 percent of all microenterprise 
        assistance authorized under this title, and the 
        amendments made under this title, is used in support of 
        programs or lines of service that target the very poor.

SEC. 104. DEFINITIONS.

    In this title:
            (1)  * * *
            (2) Microenterprise institution.--The term 
        ``microenterprise institution'' means an institution 
        that provides services, including microfinance, 
        training, or business development services, [for 
        microentrepreneurs] to microentrepreneurs and their 
        households.

           *       *       *       *       *       *       *

            (5) Very poor; poorest people in developing 
        countries.--The terms ``very poor'' and ``poorest 
        people in developing countries'' mean those persons 
        living either in the bottom 50 percent below the 
        poverty line as established by the national government 
        of the country or on less than the equivalent of $1 per 
        day.

           *       *       *       *       *       *       *

                              ----------                              


                    FOREIGN ASSISTANCE ACT OF 1961

           *       *       *       *       *       *       *


                                 PART I

       Chapter 1--Policy; Development Assistance Authorizations 

           *       *       *       *       *       *       *


[SEC. 108. MICRO- AND SMALL ENTERPRISE DEVELOPMENT CREDITS.]

SEC. 108. MICROENTERPRISE DEVELOPMENT CREDITS.

    (a) Findings and Policy.--Congress finds and declares 
that--
            (1)  * * *
            (2) it is, therefore, in the best interests of the 
        United States to assist [the development of the 
        enterprises of the poor] the access to financial 
        services and the development of microenterprises in 
        developing countries and to engage the United States 
        private sector in that process.
    [(b) Program.--To carry out the policy set forth in 
subsection (a), the President is authorized to provide 
assistance to increase the availability of credit to micro- and 
small enterprises lacking full access to credit, including 
through--
            [(1) loans and guarantees to credit institutions 
        for the purpose of expanding the availability of credit 
        to micro- and small enterprises;
            [(2) training programs for lenders in order to 
        enable them to better meet the credit needs of 
        microentrepreneurs; and
            [(3) training programs for microentrepreneurs in 
        order to enable them to make better use of credit and 
        to better manage their enterprises.]
    (b) Program.--To carry out the policy set forth in 
subsection (a), the President is authorized to provide 
assistance to increase the availability of financial services 
to microenterprise households lacking full access to credit, 
including through--
            (1) loans and guarantees to microfinance 
        institutions for the purpose of expanding the 
        availability of savings and credit to poor and low-
        income households;
            (2) training programs for microfinance institutions 
        in order to enable them to better meet the financial 
        services needs of their clients; and
            (3) training programs for clients in order to 
        enable them to make better use of credit, increase 
        their financial literacy, and to better manage their 
        enterprises.
    (c) Eligibility Criteria.--The Administrator of the agency 
primarily responsible for administering this part shall 
establish criteria for determining which [credit institutions] 
microfinance institutions described in subsection (b)(1) are 
eligible to carry out activities, with respect to [micro- and 
small enterprises] microenterprise households, assisted under 
this section. Such criteria may include the following:
            (1) The extent to which the recipients of [credit] 
        financial services from the entity do not have access 
        to the local formal financial sector.
            (2) The extent to which the recipients of [credit] 
        financial services from the entity are among the 
        poorest people in the country.

           *       *       *       *       *       *       *

    (d) Additional Requirement.--Assistance provided under this 
section may only be used to support [micro- and small 
enterprise programs] programs for microenterprise households 
and may not be used to support programs not directly related to 
the purposes described in subsection (b).

           *       *       *       *       *       *       *

    (f ) Availability of Funds.--
            (1) In general.--Of the amounts authorized to be 
        available to carry out section 131, there are 
        authorized to be available $1,500,000 [for each of 
        fiscal years 2001 and 2002] for each of fiscal years 
        2001 through 2004 to carry out this section.

           *       *       *       *       *       *       *


SEC. 131. MICROENTERPRISE DEVELOPMENT GRANT ASSISTANCE.

    [(a) Findings and Policy.--Congress finds and declares 
that--
            [(1) the development of microenterprise is a vital 
        factor in the stable growth of developing countries and 
        in the development of free, open, and equitable 
        international economic systems;
            [(2) it is therefore in the best interest of the 
        United States to assist the development of 
        microenterprises in developing countries; and
            [(3) the support of microenterprise can be served 
        by programs providing credit, savings, training, 
        technical assistance, and business development 
        services.]
    (a) Findings and Policy.--Congress finds and declares 
that--
            (1) access to financial services and the 
        development of microenterprise are vital factors in the 
        stable growth of developing countries and in the 
        development of free, open, and equitable international 
        economic systems;
            (2) it is therefore in the best interest of the 
        United States to facilitate access to financial 
        services and assist the development of microenterprise 
        in developing countries;
            (3) access to financial services and the 
        development of microenterprises can be supported by 
        programs providing credit, savings, training, technical 
        assistance, business development services, and other 
        financial and non-financial services; and
            (4) given the relatively high percentage of 
        populations living in rural areas of developing 
        countries, and the combined high incidence of poverty 
        in rural areas and growing income inequality between 
        rural and urban markets, microenterprise programs 
        should target both rural and urban poor.
    (b) Authorization.--
            (1)  * * *

           *       *       *       *       *       *       *

            (3) Targeted assistance.--In carrying out 
        sustainable poverty-focused programs under paragraph 
        (1), 50 percent of all microenterprise resources shall 
        be [targeted to very poor entrepreneurs, defined as 
        those living in the bottom 50 percent below the poverty 
        line as established by the national government of the 
        country.] used in support of programs or lines of 
        service under which 50 percent or more of the incoming 
        or prospective clients are initially very poor. 
        Specifically, such resources shall be used for--
                    (A) direct support of programs under this 
                subsection through practitioner institutions 
                that--
                            (i) provide credit and other 
                        financial services to [entrepreneurs] 
                        clients who are very poor, with loans 
                        in 1995 United States dollars of--
                                    (I)  * * *

           *       *       *       *       *       *       *

            (4) Support for central mechanisms.--The President 
        should continue support for central mechanisms and 
        missions, as appropriate, that--
                    (A)  * * *

           *       *       *       *       *       *       *

                    (D) support the development of nonprofit 
                global microfinance networks, including credit 
                union systems, that--
                            (i) are able to deliver [very small 
                        loans] financial services to poor 
                        entrepreneurs through a significant 
                        grassroots infrastructure based on 
                        market principles; and
                            (ii) act as wholesale 
                        intermediaries providing a range of 
                        services to [microfinance] 
                        microenterprise retail institutions, 
                        including financing, technical 
                        assistance, capacity-building, and 
                        safety and soundness accreditation.

           *       *       *       *       *       *       *

    (c) Monitoring System.--In order to maximize the 
sustainable development impact of the assistance authorized 
under subsection (b)(1), the Administrator of the agency 
primarily responsible for administering this part shall 
establish a monitoring system that--
            (1)  * * *

           *       *       *       *       *       *       *

            [(4) provides a basis for recommendations for 
        adjustments to measures for reaching the poorest of the 
        poor, including proposed legislation containing 
        amendments to enhance the sustainable development 
        impact of such assistance, as described in paragraph 
        (3).]
            (4) adopts the widespread use of proven and 
        effective poverty assessment tools to successfully 
        identify the very poor and ensure that they receive 
        needed microenterprise credits, loans, and assistance.
    (d) Development and Certification of Poverty Measurement 
Methods; Application of Methods.--
            (1) Development and certification.--(A) The 
        Administrator of the United States Agency for 
        International Development, in consultation with 
        appropriate microfinance institutions, microenterprise 
        institutions, and other appropriate entities shall 
        develop no fewer than two low-cost methods for 
        measuring the poverty levels of the current or 
        prospective clients of microenterprise organizations 
        for purposes of assistance under this section. In 
        developing such methods, the Administrator shall give 
        consideration to methods already in use by practitioner 
        institutions.
            (B) The Administrator shall field-test the methods 
        developed under this paragraph, and as part of the 
        testing, institutions and programs may use these 
        methods on a voluntary basis to demonstrate their 
        ability to reach the very poor.
            (C) Not later than October 1, 2004, the 
        Administrator shall, from among the low-cost poverty 
        measurement methods developed under this paragraph, 
        certify no fewer than two of such methods as approved 
        methods for measuring the poverty levels of the current 
        or prospective clients of microenterprise organizations 
        for purposes of assistance under this section.
            (2) Application.--Beginning on and after October 1, 
        2004, assistance furnished under this section to a 
        program or to a line of service within an institution 
        shall qualify, in whole or in part, as targeted 
        assistance to the very poor if one or more of the 
        measurement methods approved under paragraph (1), or 
        one or more of the measurement methods approved in 
        accordance with paragraph (1) after October 1, 2004, 
        verifies that at least 50 percent of the incoming or 
        prospective clients of the program or line of service 
        are initially among the very poor.
    [(d)] (e) Level of Assistance.--Of the funds made available 
under this part, the FREEDOM Support Act, and the Support for 
East European Democracy (SEED) Act of 1989, including local 
currencies derived from such funds, there are authorized to be 
available $155,000,000 for each of the fiscal years 2001 and 
2002 and $175,000,000 for fiscal year 2003 and $200,000,000 for 
fiscal year 2004, to carry out this section.
    [(e)] (f) Definitions.--In this section:
            (1)  * * *

           *       *       *       *       *       *       *

            (5) Very poor; poorest people in developing 
        countries.--The terms ``very poor'' and ``poorest 
        people in developing countries'' mean those persons 
        living either in the bottom 50 percent below the 
        poverty line as established by the national government 
        of the country or on less than the equivalent of $1 per 
        day.

           *       *       *       *       *       *       *


                                  
