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.
8 comments:
Good post my friend. We need to bring these conversations of "Conscious Capitalism" into the main stream. The progress so far is good. It is a dynamic shift in how money was made available to the farmer, we are finally rectifying hundreds of years of abuse and manipulation, which created the disparity and poverty in the first place. Standardization and other forms of systemization take their time, they will go through their normal development cycles. But thank you for bringing light to the subject. I like your call for simplicity. It is critical, to keep these efforts simple to use so the recipients, the farmers themselves can take one solid step at a time in the right direction.
Great article and agree on several points. Did want to point this out as one example of an organization (full disclosure: I work for Unitus) trying to use indicators including the PPI to get a holistic picture of poverty-alleviation-as-client-satisfaction, thus putting the improved welfare of clients first and making MFI performance a more valid measurement of microfinance effectiveness.
http://unitus.com/news-and-information/latest-updates/unitus-and-michael-susan-dell-foundation-collaborate
A really good post. Microfinance is in danger of becoming more of a 'fashionable' terminology with everyone wanting to jump onto the bandwagon without understanding or practising the essence of what it is meant to be. Simple welfare indicators/measurements are very necessary to judge the efficacy of the same so that the target customers receive their due and are benefitted, in turn benefitting society
Interesting post. Let there be lot many self help groups round the world.
Actually is there a middleman? In fact, no.
Keep posting .
Excellent post Raghu.
Forgive me for my cynical view, i feel that micro finance/insurance is going to earn big bucks to most of the corporate biggies. For EG IRDA has come up with some regulation whereby its mandatory for Life insurance companies to get into micro insurance business, some no's mentioned below
% of policies underwritten
1st Year - 7%
2nd Year - 9%
3rd Year - 12%
4th Year - 14%
5th Year - 16%
Now in this scenario, Insurance companies are also forced to get into this sector. i can see all the companies who build softwares for insurance industry jumping into the bandwagon and me being part of the community am excited..:).
Thanks Steve for your comments; also for the link to the Unitus website. I'm glad that there are organizations that are seriously focused on meeting social objectives. Am interested in knowing what metrics you use to correlate them to meeting your economic metrics. Thanks.
Thanks Paul for the very insightful comment.
Thanks Nina and Bharath.
Don't they say...the road to hell is paved with good intentions. While the origins were probably philanthropic and well-intended, somewhere along the way pecuniary considerations took over.
Bharath, Life insurance per se is not a bad thing. In fact, I do believe that insurance is a very critical element (along with healthcare, education and hygiene) that can go a long way in stabilizing the social foundation, upon which microfinance can then build and grow.
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