Gail Buyske, Advisory Committee, Microfinance Information Infrastructure Project
> Posted by Center Staff
Several weeks ago we learned that MFT has suspended its operations. Moody’s has discontinued its Social Performance Assessment Program. The MIX is trying to increase revenue through its MixGold program. Should we care about these developments? What are they telling us about the state of microfinance’s information infrastructure?
The Center for Financial Inclusion undertook an analysis of these issues to follow up on Elisabeth Rhyne’s provocative blog of March 11, 2014, in which she argued that the microfinance industry needs an “infrastructure fix.” Today’s blog summaries the key issues, which will be discussed at a stakeholder discussion in DC on April 14, followed by one at a later date in Europe.
Let’s start by thinking about why we should care about microfinance’s information infrastructure. Information and its natural outcome, transparency, have been guiding principles of the microfinance industry practically since its inception. These are not just feel-good concepts: they played a fundamental role in the development of microfinance. Information and transparency were critical in microfinance’s early days in enabling donors and investors to identify promising MFIs that they could support. Readily available information enabled MFIs to benchmark their performance and set goals to improve their performance. And we can never forget that a commitment to transparency is a pact between MFIs and their clients.
In these days when microfinance sometimes seems to be an old story, it’s easy to overlook the organizations that made this commitment to information and transparency a reality: the MIX, the microfinance ratings agencies, and MFT. It’s also easy to construct an argument that these organizations grew at least partly with donor funding, their original missions have been achieved, and it is up to “the market” to decide their future.
This takes us to the second question: what is the market telling us? Let’s look at some facts. Out of a universe of 2600 MFIs, 15 percent have both a 4+ diamond rating and have reported recent data to the MIX. Approximately 50 MFIs conduct ratings every year, 200 conduct ratings every 18-36 months and another 600 conduct them once in five years. MFT collected pricing data from 535 MFIs and recent data from 195 of them. One clear message is that the infrastructure is underutilized.
Does underutilization mean that the infrastructure has outlived its usefulness? Answering this question requires understanding a key dynamic: the information infrastructure is being “privatized.” Information and transparency are as important as ever, but they are moving out of the public information infrastructure. Large investors have developed in-house capacity to collect and analyze data, so they get their information directly from their investees. As a result, MFIs are under less pressure to report quickly to the MIX. Investors have also developed their ability to do their own due diligence and therefore do not rely on ratings.
How we interpret and respond to this dynamic will have an important impact on the future development of microfinance. These are some key questions to consider:
- What are the public good components of the microfinance information infrastructure and what would happen if “the market” did not support the infrastructure? This question is particularly relevant for standard-setting work such as the Progress out of Poverty Index and the Smart Campaign.
- Does being a member of the microfinance community imply a moral commitment to support its public goods? If so, how can we ensure that they are provided effectively and efficiently?
- To what degree does underutilization reflect privatization of the information infrastructure compared to other reasons why these tools are not being used to the maximum extent?
- What would it actually cost to ensure the viability of the information infrastructure?
We hope that you will join the stakeholder discussion on April 14 to share your views. Please contact Anne Hastings at firstname.lastname@example.org for more information.
Image credit: Va. Dept. of Conservation
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