1 / 15

Social Responsibility in Microfinance

Social Responsibility in Microfinance. April 2009 BELSIF Prof. Marek Hudon Centre for European Research in Microfinance (CERMi) Solvay Brussels School of Economics and Management (ULB). A few words of presentation. Teaching: Microfinance; Ethics; Development

nova
Download Presentation

Social Responsibility in Microfinance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Social Responsibilityin Microfinance April 2009 BELSIF Prof. Marek Hudon Centre for European Research in Microfinance (CERMi) Solvay Brussels School of Economics and Management (ULB)

  2. A few words of presentation.. • Teaching: Microfinance; Ethics; Development • Research topics: Ethics (interest rate, economic rights, surplus repartition, Compartamos) & public policy • Regional experience: India (+ Morocco) • European Microfinance Programme (Master Complémentaire Conjoint en Microfinance) • CERMi

  3. Microfinance Definition from CGAP MIV Reporting Guidelines • Provision of diverse financial services (credit, savings, payments, etc.) to low income individuals • Microcredit loan portfolios are characterised by: • Recipients: low income borrowers who are typically self-employed or employers of micro informal businesses • Small average loan size (< Eur 10,000 in ECA; < Eur 5,000 elsewhere) • Alternative lending techniques which do not rely on conventional collateral • Question of consumer lending and housing finance ? Source: CGAP (2007); Goodman (2007b)

  4. Why Invest in Microfinance? • Social return • Financial exclusion • Women empowerment • Financial return • ROE: Average MF in Mexico > banks; example of ProFund • Risk diversification (% MSCI) • Environmental return (?) • Green MF (solar) • Environmental practices

  5. Ethics & Microfinance – Current issues (last months) • Is the provision of financial services to the poor necessarilysocially responsible? • All investment funds in MF are CSR • Should microfinance invesments be tax deductible? • “If borrowers accept to pay 100% IR, it is because they need the loan, IR is therefore fair” (The Economist)

  6. Ethical questions in MF • MF is full of ethical questions • Who should pay the cost of more expensive rural? Cross-subsidize (Meyer and Nagarajan)? • Even if all save, savings and credit clients can differ: better-off savers financed by very poor borrowers? • Role of donors (prepare competitive markets, economic impact, social impact?), how to manage the trade-offs?

  7. Social Responsibility in Microfinance: Difficulties • Variety of actors: Cooperatives, Grameen, Compartamos • Yunus: “Compartamos is in the moneylending business” • One framework of “SR in MF” or many? • Equally “demanding” for MF banks & NGOs? • Historically no common social indicator • Price to get some good data while easier for FSS, ROE • Fear of commercialisation drawbacks

  8. Ethical or SR Appraisal of Microfinance • Fair practices ? • MFIs (% stakeholders?) • Borrowers (use of funds?) Current trends: • Client protection (Accion); Declaration/ code of ethics (India or Pocantico) • Self-regulation • Sufficient? • Mission-related (Labie, 2007) – Managerial definition? • What if the mission does not benefit to the clients? • Imagine an institution charging very high IR, methodology decreasing the social capital

  9. Theoretical foundation for a classification of SR • Ethical values suggest two main ideas (Pogge, 2002): • Good character - admirable aims and ambitions • Ethical achievements • ethical quality of the person’s deeds • historical impact on the world

  10. Social Responsibility in Microfinance: 3 approaches • Microfinance sector is intrinsically SR 1st of Pogge: • Population (poor entrepreneur) • Impact on the poor or their children • MIVs: Exclude some MFIs (reputation risk) • Microfinance is intrinsically not-SR: • Overindebtedness; recovery practices (Fernando, 2007) • Price: high interest rates

  11. Interest rates in MC • High interest rates in microfinance (20 to 60%), very high to fund growth • Vary within regions (Asia, LA), cultural IR? • Many conceptions of fair price (deontological, demand-driven, procedural etc.) • New challenge because of outsiders: • Political use of MC: e.g. Indian Andra Pradesh (fifty branches of two major MFIs), Benin or Nicaragua • Civil Society (Jubilee 2000, canceling Third World debt) • « Recognize that we hold diverse views about the appropriate levels and usage of profit » (Pocantico, 2008)

  12. Social Responsibility in Microfinance: 3 approaches (2) • “Best of the class”  2nd in Pogge (2002) • Social performance management (CERISE) • Related to the measures of poverty (Zeller; van Batselaer) • Trade-off between social and financial performance (Mosley and Hulme, 1996; Lensink et al., 2008)? But depends on the social indicators used & their weight!

  13. Compartamos social mission • Most controversial (IR, IPO) case • Schreiner’s (2002) indicator of outreach: •  Clients • Depth • How long (sustainable) • Scope (type of products) • Costs of the products • Benefits + % Women (98%)

  14. Conclusion • Vast majority of the poor still unserved • At a crossroad (role of NGOs, donors, commercialisation) • Risk of reputation  SR criteria • Make microfinance “understandable” for SR investors • Belgian players are involved!

  15. Thank You!

More Related