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Challenges to Microfinance: Anticipated and Unforseen

Challenges to Microfinance: Anticipated and Unforseen. MARCH 2010 LEAH NEDDERMAN. Challenges for the Industry. Challenge 1 : Representing ourselves accurately (honestly), recognizing that institutions have different aims

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Challenges to Microfinance: Anticipated and Unforseen

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  1. Challenges to Microfinance: Anticipated and Unforseen MARCH 2010 LEAH NEDDERMAN

  2. Challenges for the Industry • Challenge 1: Representing ourselves accurately (honestly), recognizing that institutions have different aims • Challenge 2: Living up to the promise of microfinance—creating positive changes in the lives of clients

  3. Challenge 1: Representing Ourselves Accurately • Which type of MFI are you? • Which type of investor are you? • Know who you are and do not claim to be more.

  4. Challenge 2: Living up to the Promise of Microfinance • First step: Responsible finance—the practice of the six principles of client protection: • Avoidance of over-indebtedness • Transparent pricing • Appropriate collections practices • Ethical staff behavior • Mechanisms for redress of grievances • Privacy of client data

  5. Challenge 2: Living up to the Promise of Microfinance • First step: Responsible finance—the practice of the six principles of client protection: • Avoidance of over-indebtedness • Transparent pricing • Appropriate collections practices • Ethical staff behavior • Mechanisms for redress of grievances • Privacy of client data

  6. First step: Responsible Finance • Responsible finance is essential to social performance, but not synonymous. Mission is to provide the poor with access to financial services MFI targets the poor with products & services that do not harm them. Products and services delivered to the poor adhere to the client protection principles. Does not address outcomes.

  7. Second Step: Social Performance • Social performance is the effective translation of an institution’s mission into practice. ✔ ✔ ✔ • Clients make progress out of poverty • Increased food security • Products and services meet diverse life-cycle needs • Clients are satisfied and have input • Non-financial services (health & education) speak to development needs • Staff & environment benefit

  8. Meeting the Challenges • The Social Performance industry has developed a variety of tools for meeting these challenges: • Define where you are on the spectrum with the SPTF/Mix Social Performance Indicators • Assess your compliance with the principles of client protection with The Smart Campaign’s ‘Getting Started’ Client Protection Questionnaire • Measure your outreach to the poor—Poverty measurement tools. PPI and PAT • State your interest rate accurately using Microfinance Transparency’s Interest Rate Calculator.

  9. Meeting the Challenges (Continued) 5. Clarify your social goals and recommend solutions for improvement—social audit tools. QAT and SPI 6. Validate and communicate your social strengths and weaknesses—social rating tools. Co-funding available from www.ratinginitiative.org • Measure client-level indicators—food security surveys; client satisfaction surveys; exit interviews; market research for product development. www.sptf.info • Attend a social performance workshop

  10. Thank you • For more information: • Contact Leah Nedderman at the Social Performance Task Force: Lnedderm@gmail.com • Go to: www.sptf.info

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