On the Pathway to Responsible Microfinance: An Update on the Microfinance CEO Working Group’s Progress

> Posted by Anne Hastings and Tyler Owens, Microfinance CEO Working Group

The following post was originally published on the Microcredit Summit Campaign’s blog, 100millionideas.org.

Since its inception in the spring of 2011, the Microfinance CEO Working Group has worked diligently and collaboratively to define the concept of Responsible Microfinance around the globe and lead by example to try to fulfill this vision. It has focused on three key pillars on which Responsible Microfinance is built: client protection, pricing transparency, and social performance management. A responsible microfinance institution (MFI) is one that, at a minimum:

  • Does all in its power to protect its clients from harm;
  • Is transparent about fees and interest rates; and
  • Implements best practices in social performance management including monitoring effectiveness in achieving desired client level outcomes.

An MFI can achieve this by complying with the industry-developed standards of the Smart Campaign, MicroFinance Transparency, and the Social Performance Task Force, known as the Universal Standards for Social Performance Management.

The Working Group is a collaborative effort of the CEOs of Accion International, FINCA International, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund, and Women’s World Banking. At the Microcredit Summit in Manila in October 2013, the Working Group publicly encouraged its collective 224 affiliated MFIs around the globe to embrace Responsible Microfinance by sharing a list of commitments. Since making those commitments, the group has made significant headway toward strengthening each one of the pillars of Responsible Microfinance.

The Working Group endorses Smart Campaign Certification as the foundation of client protection. To receive certification, an MFI must undergo an extensive certification mission conducted by independent rating agencies. To date, 22 MFIs have achieved certification of which 15 (68 percent) are members of one of the Working Group networks. The CEOs and their staffs have worked diligently to share with their affiliates the wisdom and the value of Responsible Microfinance. In doing so, the Working Group has secured commitments from dozens of MFIs to conduct a Smart Certification mission by the end of 2015.

VisionFund President and CEO Scott Brown presented a unique perspective on the value of Smart Certification: “We at VisionFund are starting to see the Smart Campaign as a risk mitigant that helps us to make the best investments and avoid the dangers of over-indebtedness.” David Simms, President, Opportunity U.S. and Global Chief Development Officer, witnessed nothing less than a cultural transformation when the organization’s affiliate in Serbia invited a mission and achieved Smart Certification. And FINCA President and CEO, Rupert Scofield, noted, “For its part, FINCA is officially committed to having all of its 22 subsidiaries complete Smart Campaign Certifications.”

The Women’s World Banking network – a voluntary, non-ownership network – has a total of four Smart Certified members. “Client protection and other imperatives like social and gender performance are embedded into our membership standards and continually emphasized throughout all levels of our work with these institutions. While we don’t own our member institutions, they know that upholding these standards is a requirement of our network, and we’re thrilled to see the high number of Smart Certifications among our network members,” said Women’s World Banking President and CEO Mary Ellen Iskenderian.

What about the balance of the social performance management standards? As the Universal Standards manual makes clear, “Experience shows that if an institution devotes attention to balancing financial and social management practices by bringing client needs, outcomes, and preferences to the forefront, then better social outcomes will likely follow. . . . Currently, the Standards require institutions to have clear goals for client outcomes, to respond to clients’ needs and to measure and track progress toward client-outcome goals.”

The Working Group has completed a major effort to collect, review, and share the outcomes being measured across their eight networks. Among Working Group members, there is collective agreement that this unparalleled level of sharing and transparency is valuable both for the immediate lessons learned and the potential for further collaboration. Now the social performance managers of the eight networks are working hard to identify common indicators and metrics that could be shared across MFIs in its networks.

The Working Group goes beyond only encouraging its own affiliates to embrace Responsible Microfinance. It has sought to strengthen the concept and vision of it throughout the industry by collaborating with other relevant stakeholders. In January 2012, the group published the Road Map for the Microfinance Industry: Focusing on Responsible and Client-Centered Microfinance as a statement of principle to be diffused throughout the industry. The group also helped develop and endorsed the Global Appeal for Responsible Microfinance—a worldwide effort to build momentum and commitment to financial inclusion and responsible finance—and continues to promote it throughout the sector.

In addition, member organizations have engaged with policymakers and other stakeholders in India, Mexico, Zambia, and Guatemala on ways to avoid client over-indebtedness as an important pathway to Responsible Microfinance. The group went on to share two joint publications Over-Indebtedness: A Risk Management Approach and Over-Indebtedness in Mexico: Its Effect on Borrowers to provide a critical analysis of some of the risks surrounding over-indebtedness in the microfinance industry.

The Microfinance CEO Working Group has engaged the Financial Inclusion Equity Council to promote Responsible Microfinance among the community of socially responsible investors. Ultimately, investors may be best positioned to encourage change in MFI practices. The Working Group is also developing strategic relationships with the European Microfinance Platform, the World Bank and the Inter-American Development Bank’s Multilateral Investment Fund.

The Microfinance CEO Working Group has articulated a clear vision of Responsible Microfinance and is leading by example to achieve that vision. As a result, a critical mass of MFIs is now committed to it. While much work remains ahead, we will be seeing increasing numbers of MFIs demonstrating their adherence to industry standards by being rated not only on their financial performance but also on their social performance and/or by obtaining Smart certification.

Have you read?

New Microfinance CEO Working Group Papers Examine Causes and Potential Remedies for Over-Indebtedness

The Financial Inclusion 2020 Global Forum: A Letter to Microfinance Institutions

Microfinance CEOs Make Six Major Commitments at the 2013 Partnerships Against Poverty Summit