In the last few days I have noticed quite a few blogs and tweets in defense of Microfinance. What started off essentially as a philanthropic activity has now gained momentum as a commercial venture and a lot of attention in reaching out to what has become famous as "the base of the pyramid". However, with scale and increasing activity, there is a great clamor for transparency in social performance of these microfinance institutions. CGAP has been working with Regulatory bodies in several countries, to make social audit an essential part of self-regulation for microfinance organizations. Some of these efforts have resulted in social performance frameworks and social performance indicators being developed. Grameen Bank's Progress Out of Poverty Index (PPI), Impact Reporting and Investment Standards from the Rockefeller Foundation are some of the social performance frameworks that have been developed to track and measure social performance.
I had the opportunity to meet Mr. Kalyanasundaram, Chief Executive, International Network of Alternative Financial Institutions (INAFI), a man who seemed very passionate to take a view that Microfinance ought to primarily focus on the social aspect, in alignment with the Millenium Development Goals. However, For-Profit organizations are bound to be driven by the pressures of quarter-on-quarter financial performance, thus making them more focused on increasing outreach without providing adequate and appropriate social infrastructure to ensure the success of their initiatives. So while in the short term, it may appear that a rosy picture is emerging, microfinance may only be beneficial to microfinance companies, and not for the people they intended to serve. For people who have lived a good part of their life in poverty, changes are unlikely to happen overnight. Overall social metrics will show meaningful changes only over a 10 or 12 year period. And unless, microfinance companies are in it for the long haul, I think the debate on whether Microfinance is just vicarious money-lending will continue.
Regulation is one method of making social performance audits mandatory. In India, the bill for regulating microfinance companies is likely to be passed in the winter session; one hopes to see NABARD being given the authority to ensure that social impact is not lost sight of, in the hunger to expand and create huge networks of Self-Help Groups. However, mere regulation alone is not going to solve this problem; the measures ought to be simple enough to implement. PPI is a step in the right direction, with some metrics that can be recorded by merely observing the living conditions of the microfinance customer. If we can make this easy-to-record and fairly unambiguous, then it is quite possible, that we will at least have some reliable benchmarks to start recording our measurements.
For making a really meaningful and long-lasting impact, microfinance will have to be strongly aided by creation of appropriate social infrastructure – education, health, insurance and housing. If these come together, we can be hopeful that the next generation of farmer will lead a life very different from his father. Microfinance would have definitely made an impact on his life.
I would be happy to receive inputs on social audits and / or social measurements that are already being practiced by microfinance companies today.
