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

Challenge 2: Living up to the promise

of microfinancecreating positive changes in the lives of clients

Challenge 1: Representing Ourselves Accurately Which type of MFI are you? Which type of investor are you?
Goal: Provide Access to Financial Services for the Poor Goal: Provide Access to Responsible Finance for the Poor Goal: Improve the Lives of the Poor
Type 1:
Type 2: Type 3:

Know who you are and do not claim to be more.

Challenge 2: Living up to the Promise of Microfinance

First step: Responsible financethe practice of

the six principles of client protection: 1. Avoidance of over-indebtedness 2. Transparent pricing 3. Appropriate collections practices 4. Ethical staff behavior 5. Mechanisms for redress of grievances 6. Privacy of client data

Challenge 2: Living up to the Promise of Microfinance

First step: Responsible financethe practice of

the six principles of client protection: 1. Avoidance of over-indebtedness 2. Transparent pricing 3. Appropriate collections practices 4. Ethical staff behavior 5. Mechanisms for redress of grievances 6. Privacy of client data

First step: Responsible Finance

Responsible finance is essential to social

performance, but not synonymous.

Intent & Design Internal Systems/ Activities Outputs Outcomes
Impact

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.

Second Step: Social Performance

Social performance is the effective translation of an

institutions mission into practice.

Intent & Design Internal Systems/ Activities Outputs Outcomes
Impact

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

Meeting the Challenges

The Social Performance industry has developed a variety

of tools for meeting these challenges: 1. Define where you are on the spectrum with the SPTF/Mix Social Performance Indicators 2. Assess your compliance with the principles of client protection with The Smart Campaigns Getting Started Client Protection Questionnaire 3. Measure your outreach to the poorPoverty measurement tools. PPI and PAT 4. State your interest rate accurately using Microfinance Transparencys Interest Rate Calculator.

Meeting the Challenges (Continued)

Clarify your social goals and recommend solutions for improvementsocial audit tools. QAT and SPI 6. Validate and communicate your social strengths and weaknessessocial rating tools. Co-funding available from www.ratinginitiative.org 7. Measure client-level indicatorsfood security surveys; client satisfaction surveys; exit interviews; market research for product development. www.sptf.info 8. Attend a social performance workshop
5.

Thank you For more information: Contact Leah Nedderman at the Social Performance Task Force: Lnedderm@gmail.com

Go to: www.sptf.info