Here is a series written by me raising some issues prior to the Global Microcredit Summit 2006 scheduled to be held in November in Halifax, Canada; and published in the Weekly Blitz http://www.weeklyblitz.net
Can Microfinance 'Halve' Poverty by 2015: A Review ====================================== Efforts to extend the provision of financial services to poor and low income people have already helped achieve many objectives of major conferences and summits worldwide as well as the Millennium Development Goals, and Microcredit Summit 2006 goals, in particular the goal of cutting in half the number of people living in extreme poverty by 2015. But there is an enormous unmet demand for micro credit worldwide roughly estimated at 400 to 500 million poor and low-income people, the sector still has a long way to go to fulfil its potential. The encouraging news is that tens of millions of clients are currently being served. However, although the sector has grown and been commercialised significantly over the last thirty years, demand still far exceeds supply and capacity. To guide awareness-building activities prior to the Micro credit Summit 2006, and to ensure that the Summit's activities go beyond promotion to producing substantive outcomes, a answer to the question is important as to what actions can the global and local community undertake to increase access to financial services to the poor, and thereby ensuring that micro credit and microfinance can effectively contribute to the achievement of the Millennium Development Goals. Microcredit Summit 2006 provides a unique opportunity for the sector in Bangladesh to discuss some of the issues seldom discussed before. Sirajul Islam working in INAFI Dhaka office, a global network of microfinance practitioners, reviews the issues in a multi-part series in Weekly Blitz. The interpretation presented here, however, is solely of the writer's, and not necessarily the organisation he serves. The poor and poverty alleviation has become the object of unparalleled concentration nowadays both at national and international levels (e.g. attaining the Millennium Development Goals of 'halving poverty' by 2015, or to fulfil the MDGs by the year 2015 as a mission taken by the much talked about Microcredit Summit 2006 in particular), and both the national and international communities has committed to the targets set by the MDGs which focus on poverty alleviation for those living on less than a dollar a day. Microfinance has proven to be an effective and powerful tool for poverty alleviation. So, the Microcredit Summit 2006 set its attention to achieve the goals set forth in the MDGs by 2015 to reach 125 million poor around the globe by 2015, and alleviate their poverty. But regrettably, like many other development tools, however, microfinance has inadequately made a way into the poorer section of society, as a matter of fact. The poorest of the world consisting the vast greater part of those without entrée to some very basic needs like PHC and basic education. Likewise, they are the mainstream of those without entrée to microfinance as well. While there is no argument that the poorest can benefit from PHC and from basic education, it is not as insightful that they can also benefit from microfinance, or that microfinance is an right tool by which to reach the Millennium Development Goals of 'halving poverty' by 2015, or to say, the Microcredit Summit 2006 goals that copied the MDGs. Though microfinance born in the early 80s in Bangladesh , it has been at length under assessment by mainly the western experts over the past 10 to 15 years, and the consequential writing is now very large. There are many focused analysis of the text done to weigh up the impact of microfinance on poverty alleviation and the number of thorough studies of client outreach and impact has grown significantly, particularly in the past few years. There has been development of many monitoring tools like USAID's AIMS Tools, and CGAP's Poverty Assessment Tool etc. to assess the poverty outreach of microfinance. But what the studies show? The studies show that the tools are relatively low-cost and realistic to use, and they give way valuable data for both programmes and donors. They also show that though the average loan size is an easy indicator to collect but proves to be untrustworthy when measuring depth of outreach, and MFIs show substantial multiplicity in their skill to reach poor populations. But the results also show that outstanding financial performance does not always mean excellence in outreach to poor households, and reaching the poor is not at odds with maintaining excellent financial performance and professional business practices. Many studies show that programmes that make poverty cutback an clear aim and make it a part of their organisational culture are far more useful at reaching poor households than those that value finance above all else, and these lessons indicate to normal evolutions in the microfinance sector. Many MFIs have an inclination to focus foremost on their own financial survival, and have usually been unwilling to spend for the most part in evaluations. At present, the majority of MFIs neither determines the composition of their customers upon intake nor evaluates the success of their programme in terms of poverty alleviation. The development and use of the new tools for market analysis and evaluation suggests that failure to monitor and evaluate can cut costs in the short-run at the expense of achieving long-term social and economic goals. The review of many studies also indicates to a number of clear-cut wrapping up about the impact of microfinance on poverty alleviation. Data shows the positive impact of microfinance on poverty alleviation as it relates to the first six out of seven Millennium Development Goals. There is also a vast amount of proof authenticating a positive weight on boost in income recorded by various researches and lessening in susceptibility in some studies. Though there are, however, less studies with proof of impact of microfinance on health, nutritional status and primary schooling attendance etc, but the "existing evidence is largely conclusive and positive", told Graham Wright in his book Microfinance Systems: Designing Quality Financial Services for the Poor (The University Press Limited, Dhaka, Bangladesh, 2000) . Although difference on exact definitions of levels of poverty, there is a general agreement amongst the experts that microfinance is not for everybody. Many of them told that entrepreneurial skills and ability are necessary to run a successful micro-enterprise and not all-potential customers are equally able to take on debt. While these points are true across all strata of poverty, it is assumed that they have a greater effect on the very poorest, that is, the sick, mentally ill, destitute etc who form a minority of those living below the poverty line are typically not good people for microfinance. Most researchers agree that this group of people would be better candidates for safety-net programmes or grants recipients (of direct basic assistance). Microfinance is effective for a broad group of clients, including those who are living in the 'bottom half' of those below a country's poverty line whom we call the 'poorest' or 'hard-core poor' or 'extreme poor' etc. They make up the group that generally interweave the various definitions of extreme poverty: landless-ness, limited access to basic social services, average per capita income of less than $1 a day, and bottom third of a relative poverty ranking. Specifically here, various studies show that there is no evidence of an opposite relationship between a client's level of poverty and their entrepreneurial ability (Garson), and borrowing patterns and the tendency to save have been found to be similar across clients at different levels of poverty. But many of the MFIs exclude the extreme poor, and reasons can be easily understood by studying the financial performance of MFIs targeted to the poorest clients to those of MFIs that do not reach the extremely poor clients. There is however little proof found that clients with existing micro-enterprises or employment are the only ones that can benefit from microfinance. Verified in a number of studies, it has been that the very poor can improve their socioeconomic conditions, researchers have pointed to several common issues that make microfinance work for the very poor. Even a well-designed microfinance programme is unlikely to have a positive impact on the poorest unless it purposely seeks to serve them through appropriate product design and targeting. Experience shows that if not there is a targeting tool, the very poor will either be missed or they will be likely to exclude themselves because they do not see the programmes as being for them, do not have the proper dresses to get out of home, etc. There is also a strong liking of the MFI officials to move to the top of the customers group, and to give little consideration to the needs of the very poor, with the end result that their percentage reduces over time. Only MFIs that design programmes around the needs of the extreme poor are likely to retain them as clients. In the microfinance sector, there is also a wide-ranging agreement that easing savings is the key, because there is a high demand for it among the poorest and because savings play a role in shielding them against the seasonality of cash flows and fulfilling an insurance like purpose in the microfinance programme. In addition, building up deposits strengthens financial control for clients and can ultimately capitulate guarantee and serve as a source of funding for MFIs. Savings alone, however, have found as only a minor developmental impact because the defence against shock might allow children to stay in school or income-earners to get medical treatment and reduce time away from work, but it is time-consuming to generate any considerable capital in itself unless credit is also available. The review revealed that MFIs that centre on savings more than credit have a tendency to reach a smaller proportion of the very poor, have a lesser and slower impact on poverty alleviation, and are therefore less contributing to reaching the Millennium Development Goals, or the Microcredit Summit 2006 goals by the target dates. It is clear from the substantiation that there are strong potential synergies between microfinance and the provision of basic social services for microfinance clients. The benefits derived from microfinance, basic education, and primary health care, are interrelated, and programmes have found that the impact of each can increase when they are delivered together. It is also found that the trivial cost of providing education or basic health information can be considerably reduced when the infrastructure for microfinance is already in place, and services provided need to be relevant to the needs of the target group and not just an append that is of poor quality. Very few researches in a straight line evaluate unconventional interventions. Most researchers conclude that it is hard to separate the impact of a specific development tool as each contributes to the others. While the question of which development tool gives the biggest benefit is genuine in principle, in practice it is difficult to compare the benefits achieved by different interventions. With this in mind, it should be noted that microfinance has the possibility to have an instant impact on a wide range of poverty alleviation targets, such as, income, health, nutrition, and education, but the basic health is likely the most crucial intervention, and should be combined with microfinance in order to strengthen the impact on the number1 Millennium Development Goal of reducing those living on less than $1/day. Expanding primary education for children has a wide-ranging impact on the poverty reduction targets (income, health, nutrition, and fertility) but if any paybacks were late, it would lessen its efficacy for accomplishment the targets by 2015. Microfinance measures up to happily to other interventions particularly with regard to cost effectiveness and prospects for sustainability. An advantage of microfinance is that donor investment is recycled and reused. Direct comparisons done by Shahidur Rahman Khandker in his book Fighting Poverty with Microcredit: Experience in Bangladesh (Oxford University Press, Inc. New York, 1998) show that microfinance can be a more cost-effective developmental tool than alternatives including formal rural financial intermediation, targeted food interventions, and rural infrastructure development projects. Moreover, not like many other interventions, costs for microfinance tend to diminish with the scale of outreach. Regarding the issue of sustainability, it can be said that few, if any, other development tools have the potential to become sustainable as such in the cases of microfinance, where after initial start-up grants, new inputs are not required for every future client. There need not be a trade-off between reaching the hard-core poor and attaining financial sustainability however. Although there are no accurate econometric models to confirm it, there is ample evidence that MFIs targeting the very poor can fare as well financially as those that don't. There is also plenty of undependable evidence that MFIs (esp., the small microfinancing NGOs) that target poorer clients can achieve largely higher repayment rates than those that target richer clients. It should be noted that laying emphasis on financial sustainability above all else could have the practical effect of excluding the extreme poor because of the prevalent misperception that the poorest are a greater credit risk and the reality that the unit costs of small loans tend to exceed the unit costs of larger loans. To support the positive impact of microfinance on poverty alleviation there is plentiful of data as it relates to fully six out of seven of the Millennium Development Goals. In particular, there is ample confirmation that substantiating a positive effect on income smoothing and increases to income but there is less evidence to support a positive impact on health, nutritional status and increases to primary schooling attendance. Yet, the evidence that does exist is largely positive. Microfinance is an instrument that, under the right conditions, fits the needs of a broad range of the population, including the very poor, those in the 'bottom half' of people living below the poverty line. While there will be people in this group who will not be suited for microfinance because of physical or mental illness, etc, the keeping out of this small proportion of the population will likely not be a restraining working issue for MFIs. Indications are that the poorest can benefit from microfinance from both a material well-being and social well-being point of view, and that this can be done without endangering the financial sustainability of the MFIs. While there are many preconceptions presented in the studied texts against extending microfinance to the hard-core poor, there is little experimental evidence to support this position. However, if microfinance is to be used as an achieving tool for 'halving' poverty by 2015, specific targeting of the very poor will be necessary. Devoid of this, microfinance institutions are implausible to achieve the MDGs, or the Microcredit Summit 2006 Goals or simply they could not reach 175 million clients by 2015. Posted on 08 Sep 2006 by Root Post Editorial:Why Microfinance Been Chosen to 'halve' Global Poverty by 2015? Why microfinance been chosen to 'halve' global poverty by 2015 as a major strategy apart from other development interventions? It is simply to me that microfinance provides loans in small-scale self-employment activities chosen by the poor themselves, and these loans seem to increase income and savings for the poor. But also the taking, investing in IGAs and repaying of loans seems to empower the poor through a feeling of "we can do something to increase our family income, and reduce our poverty", as some of them asserts. Actually, for a good programme manager, one could make microfinance pay for itself with the interest earned from loans to the poor as well as making his/her clients benefited from the scheme. This self-financing characteristic permits for colossal increase of microfinance outreach in Bangladesh where density of population is also very high to reach tens of millions of underserved people. To many, this strategy of poverty alleviation seems to have the greatest efficacy and the smallest amount of cost per client. If one had to opt just one development intervention, one would achieve the most by helping people gain access to financial services. This is why microfinance has been chosen as the number one option to get people rid out of poverty. But this is just story of one side of the coin, and one should also know that taking on the chance of bliss raises the prospect of a near nightmare, in which we get to millions only to find out that we reached the wrong ones or did little good for those we did get in touch with, maybe we did even some harm. Unless we're cautious, the road to that anguish will be smooth with our good intentions. Microfinance is a running train, say for instance, without saying that who is in it or where they are going. We believe they are poor that's whose in the train, and they are on their way out of poverty without not knowing much who are the poor and what does out of poverty mean. This has caused debate and disagreement in the development community of the term 'poor'. So, exactly for whom and for what purpose do we offer microfinance to the poor, we feel sometimes confused. But time has come we should have the answers to these questions. But sadly, there is a growing fascination among us with the drivers of microfinance trains. There is less and less concern about the passengers and their destination. Unless we turn our attention back to the passengers and the destination of the train, we will lose our way, and then the prospect of arriving in the wrong destination becomes very real. The procedure of microfinance is indeed interesting. There are three levels of operation – the borrowers who take loans and invest them in their own micro-businesses, the loan delivery and recovery system, and the institution that manages that delivery and recovery system. Nowadays, there is a confusing diversity of types and combinations of micro-credit borrowers, delivery and recovery systems, and institutional structures of MFIs. While taking a broad view, in all simplicity rather than correctness, we see two general categories. One is favoured by people focusing on the need for economic efficiency to achieve broad, long-term economic and social development. The objective have a tendency to be small or micro-business formation and growth by the not-so-poor, which is assumed to create jobs, not self-employment as such, for the very poor. The hub of the interest is to commercial microfinance. The other category is favoured by those focusing on social equity, rather than economic efficiency, to more immediately alleviate the daily burden of poverty, as a first step to helping people escape poverty in the long term. The objective here inclined to be self-employment of the poorest or the economically active poor, especially women, whose control of modest income and savings is assumed to empower them to improve the conditions of life for themselves and their children. The core of the concentration in this category is a poor family unit. There is elementary divergence between the two types of microfinance in their objectives, structure, and clients; and they require distinctly different programme designs. While the two standpoints are equally valid and both approaches are needed, very much, in permutation wherever possible. There is a consideration in microfinance practice that we know as good practice without knowing much good for whom. But what it seems, as we observe, that a good practice usually refers to economic efficiency with less concern for social impartiality, and it means good for MFIs, for financial performance. The weight is on building all-encompassing financial service systems with remarkably less consideration for how or to whom services are delivered. The investor community has been invited by its interest with the driving of the microfinance trains. So, it's time to look at microfinance in a different lens and reflect on the original motivation for microfinance for the organisers of the Microcredit Summit 2006. Microfinance was born driven by values, strongly held priorities linked to a higher purpose. So, the aim should be to continuation of human progress, well-being of the children, their health and education. We need to intervene at the levels of economy, culture, community and family in order to ensure that children have a future, and microfinance has the potentials to be the strongest tool among all development interventions or actions to attain the aim. The genius represented by Professor Muhammad Yunus lies in banking on poor people's character, as determined by their peers in a group-based mechanism for delivering cash, and getting it back, and with interest. And this mechanism has shown itself to be helpful, in Bangladesh as well as in a handful of Asian countries anyway, to huge extension to serve large numbers of very poor people. This is moving, and microfinance gives the impression that it has the capacity to helping the poor. So, microfinance been rightly chosen to 'halve' global Poverty by 2015. But there are some critical questions remained still unanswered that the Microcredit Summit 2006 should look into. Who rides in the microfinance train, and where it goes are one of them. Let us a look back to it, i.e., whose are in the microfinance trains and where the trains take them depends critically on the trains' type or character. People like Dr. Muhammad Yunus pioneered a formula stepped forward, but there has been astonishingly modest attention in innovation ever since. Practitioners (maybe obsessed by donors) have focused to move quickly for profit, and there is little concern in the programme (or product) designs in terms of impact on people. There is a lot more innovation out there in the rural Bangladesh than we are actually aware of. Many small or medium-sized microfinancing NGOs are doing well (or surviving) with many product diversification we didn't know because there are little or no study done on them. I personally aware of two Rajshahi based NGOs that practiced product diversification, and they have got some results, maybe good, maybe bitter. The first one is a PKSF supported NGO (Sachetan) that collects only Tk2 per week as savings, and offering loans on 11 percent (flat) interest not only because they face a tough competition but also because they are committed to their members of delivering a service that they can afford. The second one is a highly subsidised Novib-SDC supported NGO (Ashrai) that practiced a flexible repayment schedule for the farming adivasis (indigenous people) of the Barind because that suits their lifestyle as well as economic activities. I assume the global, and even the local scenario where my knowledge didn't reach is something similar or alike, but we do not know exactly what is happening where. Why we don't know about the innovations and clients' demand-compatible programmes? It is because we are not coming across for these. In Bangladesh, there is the microfinance industry fence in around ASA (low-cost microfinance-only model), BRAC (holistic model) and Grameen (the model in itself) and around mass production of microfinance services. That doesn't mean other models don't exist. Internationally, we have full financial operations like BancoSol of Bolivia, BRI of Indonesia, and the contrasting self-help group model promoted by the Indians as well. But interestingly enough, there are many models than one can count and take stocks of. For example, we all know in the industry that a World Bank survey of microfinance institutions did not account for several thousand microfinance institutions! So, how can we really assert that we know all the right things and concerned about the real questions in microfinance? Actually, the knowledge leadership of the microfinance community is damping innovation in the name of upholding good practices. In this scenario, one can easily raise this question as to whether the good practices are linked to impact on our children's education, or women's health. Good practice is oriented to operations and numbers of clients supposed to be poor, not impact. A good practice more and more means implement the performance standards of the commercial banking industry, and the NGOs or MFIs what one calls these institutions are starting to follow the standards of the very industry that has failed historically to meet the colossal demand of the poor for financial services for which we are now seeing mushrooming of MFIs worldwide. While many of the NGOs or MFIs complain that it's too hard to meet these banking standards, but at the same time they implies that microfinance must be business-like, and it is sooner the better they adopt banking standards of performance, to the extent they don't suffocate the ability of the poor to really benefit. But where the risk-averse standards of the banking industry lean the balance away from the value-driven mission of the NGOs for the poor? In fact, many NGOs, and most of the bigger ones, are doomed to ditch the very poor in favour of serving the more profitable not-so-poor, and maybe not even the "missing middle", as BRAC coined this group in their literatures. Sorry, Prof. Muhammad Yunus, I am really very sorry to say that this is the past of banking worldwide, market disappointment for the poorest. So this is the reason we are not demanding and getting impact assessment of microfinance, but just becoming pleased to get the performance data. But, if we really interested to 'halve' global poverty by 2015, why on earth are we not looking at new ways and means for delivering services in ways that help the truly poor? I think there is a lot of tasks to be done before the leaders of the Microcredit Summit 2006 if they are really serious about 'halving' global poverty by 2015. There are so many important issues that the contemporary knowledge leadership of the microfinance sector or industry whatever one calls it should not just dismissed as they do this very efficiently nowadays. NGO/MFI leaders and the sector as well should not allow this influential rejection. To the best of my knowledge, and I admit that my knowledge must be limited, I am aware of only two microcredit programmes where studies have conclusively shown positive impact on children, and they are our own Grameen Bank and BRAC. I don't know whether it is just a twist of fate that both the duo has integrated a broader educational agenda into their programmes while still achieving very high levels of operational and financial self-sufficiency. So far I know Ashrai also has integrated the same educational and human development agenda (they call it lahanti) into their programmes but they are lagging behind in achieving a good OSS or FSS. There must have many instances, locally or globally, but I don't really know. More work to be done in this sector, and replication of the few success stories has proved intangible elsewhere. We require solicitous answers that mirror understanding of the conditions in Bangladesh , and other success-story countries. We need to know many things right, but the NGOs have a responsibility to recoup the knowledge leadership of the microfinance movement and keep it in line with its founding values. Taking on the ways of bankers is no stand-in for thinking and learning for the organisations that identify them as for-the-poor. The mastermind of the microfinance movement is its scrutiny of the poor as bankable. They are paying, even from their trivial income. So, to serve them, we need to be both value-driven and business-minded. That means starting our thinking with the very poor, rather than with the product we have in our bag to sell. We have to identify the truly poor whose children are struggling to survive, whose children are much less flourished, with or without targeted food or employment assistance whatever possible and work on the ground. We have to model or re-model a microfinance train that will provide seats for the real poor, and the dream-train will take them out of poverty. This sort of work maybe in its formative years and there is much to be done. We expect support to this kind of work from the " Summit " leaders that are going to sit in November this year in Halifax , Canada to decide future strategies and priorities of microfinance globally. Posted on 13 Sep 2006 by Root What is expected in the microfinance is broad middle ground Microfinance nowadays has come to be functional by two broad approaches regarding the best way to help the poor through access to financial services, the sustainability or building strong institution and the benefit approach to the poor. The worldviews of each approach are not contrary, and in fact, there are MFIs that appear in practice to embrace them both. The first approach focuses on creating financial institutions to serve clients who either are not served or are underserved by the formal financial system. Emphasis lies on achieving financial self-sufficiency; breadth of outreach, meaning numbers of clients, that takes precedence over depth of outreach that means the levels of poverty reached, and positive client impacts. On the other hand, the second approach, the benefit approach to the poor, laid emphasis on depth of outreach. These types are quite clear in their centre of attention on immediately improving the well being of the clients they serve. They are less interested in banking than in using financial services as a means to alleviate poverty among clients and communities, even if some of these services require subsidies. Their objective tends to be self-employment of the poorer of the economically active poor, especially women, whose control of modest increases of income and savings is assumed to empower them to improve the conditions of life for themselves and their children. Like the first types of institutions that concentrate more on institutional sustainability, the pro-poorest second ones have assumed more impact than they actually have been able to document. The most prominent examples of such institutions are found in Bangladesh in particular, and in Asia in general. This is a divide in institutional type. Another divide is seen as to whether MFIs need impact assessments or not. No doubt, there are fundamental differences between the types. These differences, moreover, are much more than merely philosophical debates. How they are resolved has a crucial implication for the future of microfinance, its guiding principles, its objectives, its clients, and its impact on the poor and on poverty in general. Whatever the difference, it is no arguable point nowadays that MFIs realise social performance monitoring is as important as tracking financial performance as it follows from the double bottom line concept. But key to the understanding of performance indicators, is to set it apart from impact assessment or impact surveys. They are different tools, and can not easily be integrated into management information systems. But performance indicators are building into the MFI's systems and managed, as it were, by the MFI's own staff, just as they manage financial performance indicators. So, here comes the problem. As all MFIs have slightly different objectives, it is important that they formulate different performance indicators that are directly relevant to these objectives. That means that not all MFIs would be interested in working with the impact assessment concept. Even if some of them are interested, they may not be interested to work with the same indicators in the social realm. But we know that there is a great unity as regards to financial indicators worldwide. So, if we agree that the MFIs have a social mission, they should not be hesitant but come up bold, and initiative would do wise for them focusing on the formulation of social indicators per individual MFI, if not a common ones as most of the studies so far suggests. It is important now to ask for each and every microfinancing NGO or MFI in the world that what information would they consider crucial to keep track of its social mission in practice? In practice it may well turn out that many NGOs or MFIs have a shared interest in some indicators but at the same time would formulate some unique ones. If this would happen, it could be considered to have all participating NGOs/MFIs adopting two or three indicators collectively, whilst adding one or two individually. This is the task ahead for the microfinance leaders to decide during the Global Microcredit Summit 2006 to be held in November this year in Halifax , Canada . Now, let us see what prospects are there for the vision, and the obstacles. In fact, prospects are really not bad but obstacles are like the situation that two Bengals ( Bangladesh , and the West Bengal of India ) divided by a common language. Although the opposing parties share a common obligation to microfinance services and a common language of concern for the poor, we see this conformity for a synchronisation of purpose. The stated ultimate goal of both the opposing NGOs/MFIs or think tank is poverty reduction, yet the practical objectives each has set for itself diverge. They define poverty differently, and each has articulated different visions of how the poor can be helped by increased access to microfinance services. The practical implications of these differences are at least threefold. 1. Differences in the population segments served (the not-so-poor entrepreneurs vs. those who struggle on the margins of survival). 2. Differences in the service delivery to these populations (lending to individuals vs. groups. 3. Differences in the institutional structures and financing to support these services (social service NGOs vs. commercial MFIs and finance companies). The shown unity of purpose in the microfinance industry is a mask, and the argument that a common set of standards is needed to advance the microfinance agenda is confusing. Let me share some examples, such as, the only-finance MFIs believe that achieving poverty reduction targets (national or MDG targets, whatever it is) requires massive scale, given both the worldwide prevalence of poverty and the estimated demand for microfinance services. This massive scale in turn requires massive financial resources, and it is from this requirement springs their concern for financial self-sufficiency, or tapping private sources of capital. But widespread access to private capital in turn requires that MFIs be well run, operate efficiently, and, most important, be profitable. Finally, to satisfy the world demand for microfinance services, it is necessary to create an entirely new financial system consisting of a large number of privately financed, large-scale financial intermediaries that provide financial services to the poor. This position is supported by the all-strong World Bank, CGAP, and USAID etc. Readers can understand how tough it is for a MFI to seek impact assessment of their operation, just forget about the social impact assessment when Richard Rosenberg of CGAP says "if your investee institutions are pricing their services in a way which covers ALL of the costs of providing them...and if their clients continue to use these services, then you have strong evidence from the persons most likely to know that the clients are deriving benefits whose value exceeds the cost of providing them. Do you really need to know a lot more than that?" So, the unity is at stake because the NGOs or MFIs that believes the same (microfinance for poverty alleviation) also believes that the end of microfinance is improved social welfare, and the ultimate measure of a successful MFI is whether it improves social welfare. The problem with improved social welfare, however, is that it is difficult and costly to measure. One may also substitute outreach as a proxy for social welfare, and in this particular case, Bangladesh is the Champ though some of them are not so interested on 'social welfare' of their clients. But that may not be the case either because though Indian MFIs are believably doing social welfare, their outreach is still poor. Another thing is the typology of outreach. Breadth of outreach is easy to measure by simply counting heads but other dimensions of outreach, particularly depth of outreach, which is more difficult to measure but more assertive that whether a programme is socially focused or not. As a Bangladeshi microfinance practitioner, when we take the typical proxy for an MFI's depth of outreach is average loan size, the institution builders take yet one more shortcut to estimate social welfare. Their proxy is financial self-sufficiency. So, the unity is disturbed! Actually, to measure the impact of microfinance on social welfare, one must calculate both social costs and benefits. Measuring the social costs of lending is easy enough. This is equal to the opportunity cost of capital. The difficulty comes in measuring the social benefits of microfinance, and for that we need social impact analyses of different microfinance programmes and institutions. The leaders in microfinance worldwide can try this idea at the Global Microcredit Summit in Halifax this year: microfinance programmes across the world could incorporate a set of guiding operational principles. The first is a commitment to a participatory process in which practitioner institutions could work in an initiative as co-participants. The second is the desire for comparability across institutions, a feature that has proved indispensable in the collection and interpretation of financial performance indicators. The third is a commitment to limit the resources (time, staff, and money) used to collect the indicators. The fourth is selection of empirically valid social return indicators. The fifth is an explicit distinction between the aims of this kind of initiative and parallel efforts to establish the causal impacts of microfinance on socio-economic outcomes. There are, however, some impact assessment projects worldwide on which the Summit leaders should give due importance. Those operating parallel to this proposal is a number of initiatives aimed at developing conceptual frameworks or tools to describe and analyse the social performance of microfinance institutions. These include the Imp-Act Project, USAID Poverty Assessment Initiative, Chemonics Measuring Outreach Project, and CERISE etc. Mentioning these programme means make the readers handy what is going on where, and why? Imp-Act is a global action-research programme funded by the Ford Foundation. It builds on the priorities and agendas of MFIs and their clients to promote the development of impact assessment systems that both inform internal decision-making and satisfy the requirements of external stakeholders. The purpose of the USAID Poverty Assessment Initiative, which is being managed by IRIS, is to validate a set of poverty assessment tools to be used by MFIs to qualify for funding from USAID. The objectives of the Chemonics project, funded by USAID under the Accelerated Microenterprise Advancement Project (AMAP), are to develop a conceptual framework, a set of indicators, and a social audit tool to measure the net social benefit of microfinance. The Chemonics project is based on Mark Schreiner's "Six Aspects of Outreach," which uses institutional, rather than social, indicators to proxy different dimensions of the social costs and benefits of microfinance. The CERISE project is trying to identify social performance proxies that are already embedded or could easily be embedded into the MFI's management information system. CERISE is looking both at outcome indicators and indicators of corporate social responsibility related to the MFI's internal policies and it's interactions with staff, clients, and the broader community. We know, traditional business and traditional social service approaches are familiar polar opposites, but these are the two ends of the microfinance variety. What is expected in the microfinance movement is the broad middle ground should be occupied by the emergent social enterprises specialising in microfinance and related services. This is where the good practices for combined impact and sustainability would most productively be focused. Posted on 23 Sep 2006 by Root --~--~---------~--~----~------------~-------~--~----~ greenyouth mailinglist is the activist support mailinglist for kerala run by Global Alternate Information Applications (GAIA) To post to this group, send email to [email protected] -~----------~----~----~----~------~----~------~--~---
