microfinance focus april issue 2009

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www.microfinancefocus.com Microfinance Focus [ April 2009 ] 1

Role of Technology in Social Policy Creating a Sense of Trust Misconceptions may endanger Challenges for MFIs in Rural Areas

Special Coverage Sa-Dhan`s National Microfinance

Conference 2009

I-Focus Consumer Protection initiative

Best Practices

Building Analytical Skills

Social Performance MANAGEMENT

Transparency & An Exclusive Interview

With Dr. Yunus Nobel laureate 2006

www.microfinancefocus.com

April 2009

The World's top experts on SPM...share their opinions Frances Sinha | Katherine Knotts | Anita Campion Chuck Waterfield |Koenraad Verhagen

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Cover Story : Transparency and Social performance Manage-ment

21...Social Performance: increasing accountability and transparency in microfi-

nance - Frances Sinha

22...We Can’t Afford to be Social…!

Katherine Knotts 23...The Complexity of social performance Management Anita Campion

25...The time for Pricing Transparency in Microfinance Chuck Waterfield 27...A Special Interaction on Social Performance Management with Koenraad Verhagen Koenraad Verhagen

Horizon

13...The financial crisis shows that Better Performance metrics are Critical By, Peter Burgess 16...Challenging Task for MFIs in Rural Areas: Need for Developing Products & Product Marketing Strategy By, Dr. Amrit Patel

Interview 33.. An Exclusive Interview with Dr. Mohammad Yunus, Noble Lau-reate 2006, Founder –Grameen Bank

I Focus

30..Committing the Microfinance Industry to Proactive Consumer Protection

Disclaimer Views expressed in the article/s are au-thor’s own views. It does not necessarily represent those of Microfinance Focus . Microfinance Focus does not take any re-sponsibility of correctness of those data. Reproduction in whole or in part without written permission is prohibited .

Reflection 07...Should Technology Inform Social Policy, or Social Policy Guide Technol-ogy? 09...Creating a Sense of Trust By, Bruce Meraviglia

Perspective 11...Some misconceptions widely Held May endanger The Future of Micro financing institutions By, Dr. Souren Ghosal

April 2009 Contents

41… News 06… Editorial—The US Desk 05... Editorial-India Desk

Best Practices

32... Building Analytical Skills: A New Product from Anita Campion

Special Coverage

37... Sa-Dhan`s National Microfi-nance Conference 2009

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BOARD OF ADVISORS Mrs. Frances Sinha Mr. Sitaram Rao Dr G. Gandhi EDITORIAL BOARD Dr. N Jeyaseelan Dr. Amrit Patel GOVERNING BOARD Mr. Suresh K Krishna , Chairman Mr. Ashish Gupta , Member Mr. M. V. Raman, Member Vikash Kumar , Executive Director

© copyright 2008-09 www.microfinancefocus.com

Our People

Team India Managing Editor Vikash Kumar Head—Knowledge Management Dr. Souren Ghosal Associate Editor Christina Weichselbaumer

Marketing and Outreach Manager Romain Testard

The US Managing Editor—US Jerome Peloquin

Associate Editor Pamela Faulkner Associate –Knowledge Management Raghunand Makonahalli Correspondent : New York Peter Burgess Marketing & Technology Editor Bruce Meraviglia Correspondent : Nairobi [ Africa ] Jastus Suchi Obadiah

Head Office Microfinance Focus—India Avalahalli, Anjanpura Post , Bangalore( India)-62 P: +91.80.28436237 |f: +91.80.28436577 Email: [email protected] Web: www.microfinancefocus.com Branch office Microfinance Focus— The US 717 Lawrence Street, NE | Washington, DC, 20017 Mobile +410.227.0498 Email: [email protected] Web: www.microfinancefocus.com

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Social Performance Commitment..., It is for your benefit!!! Most MFIs might not have consciously evolved SPM as their key objective to measure their performance but none of them could evade their responsibility to do good to the society as their sole objective is to fund the poor who are denied access to fund from other financial institutions and that itself leads to transformation of the society by empowering poor peo-ple to earn their livelihood by pursuing some business. or farming. However it is true most of the MFIs in their vision statements emphatically brought out that they primarily aim to alleviate poverty and empower poor people to become self de-pendent, “sustainability” mantra, by an emphatic group of stakeholders, or such as” in-creasing efficiency” or “providing a good return to private equity investors of-late, with all positive connotations that it is good for MFIs , however it caused a stiff challenge and apprehension to strike the balance between two bottom-lines. And of-late it drives to create strategies for their com-mercial success rather than to achieve much desired social objective of poverty alleviation. It has therefore become imperative to highlight the SPM as a measure of success of MFIs rather than solely depending upon their vision and mission statements, as most of them have emphatically highlighted this objective in their mission and vision statements. It is obvious therefore to highlight the need to give stress on SPM and accordingly to en-hance efficiency, reducing charges including interest rate and helping poor to be engaged in a sustainable business or farming. No doubt it is a stiff challenge but it also provides healthy competitive edge to serve the poor. In this regard I would like to quote Katherine (Institute of Development Studies), in her emails to some of the popular list -serve, she said “The data reveals that in poorer regions, branch operating costs per client are not neces-sarily higher...” Similarly another Asian MFI has gathered informal feedback that those branches that do not consistently implement “social development” training tend to have a higher portfolio at risk than those branches that did.” In view of these it is obvious that more and more MFIs should strategies for social development in their economic activities. In fact it has to be clearly understood that need not pursue social activities separately as their economic ac-tivities itself if appropriately strategies would yield social benefits by ameliorating poverty. In this context, it would be necessary to develop tools to measure SPM and keeping this growing need in view it has been decided that this journal should bring out more vividly the concept of SPM and also the various types of measures developed to assess the progress in this regard. However one should not take it amiss as we acknowledge that many of our MFIs have al-ready pursuing much more than what we would highlight in our magazine or in general a discussion going on. In fact we would be drawing heavily from their experiences. In fact an attempt would be made to make it universal and constantly improving compared to an agreed standard measurement. We also recognize that all other important stakeholders in Microfinance have a major role to create an enabling environment. I am sure our readers would welcome this coverage and also provide their own inputs in this regard to make it more rich and acceptable to all MFIs not only in India but globally. - Vikash

Vikash Kumar Managing Editor—India Write to the Editor [email protected]

From India Desk Editorial

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No Social Mission? No Microfinance!

Let’s stop providing grants, subsidies, and regulatory relief to those MFI’s who have abandoned or fail to live up to their social

mission agenda. The need for “Social Performance Management,” is a clear indicator of substantial mission drift within the Microfinance sector. Presently, Microfinance is engaged in an ongoing debate over the morality and ethics of the micro credit movement. Our magazine believes there is a press-ing need to establish a shared understanding, of the vision, role, and function of global microfi-nance. We also believe the time for studying the problem is long past. It is time for ACTION! Is the Microfinance Institution (MFI) a social mission organization with banking and financial component, or is it a micro credit bank with a social agenda? Or are some, as Jonathan Lewis states in his paper published by The Stanford Social Innovation Review, Summer 2008, merely, “Microloan Sharks.” Microfinance Focus Magazine firmly believes that the role of Microfinance is to function as an instrument of economic and social justice If an MFI can maintain its social mission while achiev-ing sustainability and even profit, then we are total supporters. But, if in order to achieve eco-nomic goals the social mission is abandoned – if, and when the profit motive replaces the social mission, as its institutional purpose, then line has been crossed. Social Performance processes and methods along with open and transparent reporting are the first defense against economic exploitation of the poor. Why is this necessary? It is necessary because the MFI is the lender of last resort for impoverished populations, those whose very survival depends upon their ability to eke out a meager living for themselves and their families. The Economist Jeffrey Sachs of The Earth Institute in his book, The End of Poverty, flatly states that Eight million people die every year because they cannot afford to stay alive. Economic exploitation of at this level is an offense against all humanity. There are those who will say that the MFI lending, no matter the interest rates im-proves the lot of the poor. The burden of proof is upon them. Let them prove it. Exploitation is never justified. The fact is that the reporting methods used by many MFI’s seem intentionally opaque so as to render an objective analysis of lending practices and profit difficult to impossible. There is a general consensus in the sector that existing financial reporting is less than accurate … Lacking an effective and enforceable set of either financial, or social performance reporting standards. It is impossible to tell which MFI’s are treating fairly and which are seeking to maximize their profits at the expense of their poor clients. Fee structures, lending policies and, upon occasion, intentionally misleading statements about how interest is charged are far too common. The sector is understandably sensitive to such charges. The frequency and specifics of questionable practices seem to be growing in the media, the internet, and in a host of books currently under development. What then, is the answer? Studies too numerous to mention here have been performed Should Technology Inform Social Policy, or Social Policy Guide Technology? Koenraad whose interview appears on page 26 and The Argidius Foundation provide funding for a series of reports on the subject. What is necessary is resolve. For any process to be successful it will need to have the full and unqualified backing of the en-tire range of funding and philanthropic organizations who currently support the sector. This is our opinion. Enough studying the problem. We believe the time has come to act.

Jerome Peloquin Managing Editor- US Write to the Editor [email protected]

From The US Desk Editorial

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T he answer to the questions above is “Yes!” Since the beginning of mankind’s invention of new technologies, and new ways of using those technologies, the debate as to whether social policy should guide (or constrain) the de-

velopment of technology, or whether technology should be created independently of social policy, with the outcome then informing those who create social policy as to what is possible, has raged back and forth. With the movement to create a Social Performance Management (SPM) standard gaining momentum, the issue of technology once again comes into play. While the creation of an industry standard set of SPM reports and criteria is both worthwhile and highly desirable, a key question becomes what will be the role of technology in this new set of processes? Any reporting standard, such as SPM, creates new processes that start with data collection, then analysis, reporting, and, finally, feedback for corrective actions or strategies. As the amount of data for any reporting standard such as SPM will only increase over time, shouldn’t proper consideration be given at the beginning as to how this data will be collected, analyzed, and reported? Shouldn’t there be considerations of how the data, and summarized information, is communicated to other organizations, and generally made available to those who have an interest in it? The use of spreadsheet software (most notably Microsoft’s Excel spreadsheet application) is widely used in virtually every banking institution with any computer support for data analysis and reporting. However, spreadsheets are not always the appropriate application for consolidating data from multiple organizations, providing suitable mechanisms for that data to be summarized, or making that data accessible to others. Although the spreadsheet may be appropriate for local use within each MFI (and cost effective for use within the MFI), if we are going to focus not just on the performance of a single MFI, in the absence of any industry benchmarks, but rather the performance of a single MFI taken in context of how the entire in-dustry is performing, either within a specific country, region, or globally, then we need to discuss a different type of applica-

Reflection: Technology

Should Technology

Inform Social Policy, or

Social Policy Guide Technology? - Bruce Meraviglia , Technology & Marketing Editor [ Microfinance Focus ]

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tion for this level of data organization, manipulation, and reporting. In the traditional world of corporate-level computing, ei-ther for businesses or large banks, the standard approach to managing this type and quantity of information is the database application, in general, and the creation of a “data warehouse” construct within the database software. The use of a data warehouse approach allows for the col-lection of large amounts of data, provides for tools and methodologies for analyzing the data, carving out subsets of the data into smaller “data marts” (e.g., the creation of a mini data warehouse specifically for those MFIs in India, while maintaining the ability to consider the same informa-tion from those MFIs in a global analysis of the larger MFI community), the ability to summarize or selectively report aspects of the information, and the ability to allow multiple users to work on the collected data. The problem with discussing a generally accepted approach such as creating a data warehouse for SPM data breaks down into several areas that I have not heard discussed at any of the meetings I have attended here in the Washing-ton, DC, area that have been jointly hosted by CGAP and the Imp-Act Consortium. The questions that need to be addressed, from a technical perspective, are:

(1) Who will pay for the development of the necessary database software to manage the collected SPM data?

(2) Who will take the lead role in providing a “home”

for the collected data (in terms of computer hard-ware, software, and global access), and making it available to those analysts who are interested in it?

(3) Who will pay for the ongoing salaries of the com-

puter programmers needed to maintain and en-hance the data warehouse application?

(4) How will the information be safeguarded against

criminal attempts to access the data (if any) or potentially fraudulent modification of the data (such as occasionally happens on the publicly ac-cessible Wikipedia application on the Internet)?

(5) Who will decide which individuals or organizations

have valid access to the data, or will it be made available in both raw and summarized form to all?

(6) What form will the data be collected at the MFI-

level, such as a spreadsheet, and how will that data be entered into the data warehouse so that

the integrity of the data is maintained? (7) What is the cycle time from when data is entered

into the data warehouse before it is either avail-able for analysis or reports are made available?

(8) How will the information gleaned from the col-

lected data be used to improve the performance of the individual MFI?

(9) Who will “own” the collected data, and, potentially,

profit from the reports and analyses created from it?

(10) What is the role of major technology companies

such as Microsoft or IBM, or a an intermediary’s applications development group, such as the Grameen Foundation USA’s technology center in Seattle, Washington (USA), in this collection and analysis process?

While I’m in general agreement with the need for the crea-tion of Social Performance Management-type of assess-ment, analysis, and reporting criteria, based upon the meetings that I’ve attended here in Washington, DC, I won-der if we aren’t moving a bit to fast to agree that this should be done without a careful consideration of how it can be accomplished, who will pay for it, and who will own it. While we already have the MIX reporting some aspects of MFI performance data (but not of the proposed SPM type), and both the Imp-Act Consortium and CGAP cooperating in bringing these proposed standards about, I wonder, still, as to the “who” and “how” details necessary to bring SPM from theory to a tangibly beneficial system that will be worth using, and participating, in. I look forward to your feedback on our blog at www.microfinancefocus.com/blog . *****************

Bruce is an expert and commentator on both tech-nology and marketing. He is former Marketing Di-rector for several high Tec start ups. Bruce currently serves as CTO (Chief Technology Officer) for a well known NGO. Currently He associ-ated with Microfinance Focus as an “Technology & Marketing Editor” . He may be reached at [email protected]

Reflection: Should Technology Inform Social Policy...

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The theme for this month’s issue is Social Performance Management (SPM), as highlighted in sev-eral of our articles. In our first Marketing Reflections column (February 2009), I mentioned that one of the pri-mary roles of the marketing department was the creation of a brand image for its organization; in our context, the MFI it is a part of. A key to the creation of any brand, especially one that you would like to have enduring value, is the sense of being able to trust the company the brand represents. In the creation of that sense of trust, the marketing department should play a central role – the role being to communicate to those who are involved with the MFI (e.g., customers, employees, management, funds lending organizations, and regulators) that the MFI is credible, trustworthy, and transparent in the performance of its mission to lend to those individuals who are at the “Bottom of the Pyramid” (BoP) – the BoP represents the ap-proximately 1 billion+ people who are the poorest of the poor, and usually unable to open accounts or receive loans from conventional banks.

Reflection: Marketing

Bruce Meraviglia , Technology & Marketing Editor [ Microfinance Focus ]

Creating a Sense of Trust

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Due to the lack of consistent reporting requirements to date within the MFI industry, and the lack of any widely accepted audit firms or criteria, each MFI is more often than not able to report only the informa-tion that will make it appear to be successful as a lending institution, if it reports anything at all. Fur-thermore, what it reports to regulators in the country in which it operates may be very different from what it publicizes to its customers or the intermediary insti-tutions that arrange for funding to be made available to it. Given that many MFIs have loose reporting standards, or no reporting at all (especially in the areas of social performance), and that some MFIs have managed to tarnish the industry with their performance, the need to provide a means of measuring the MFI to deter-mine who is performing well, not just in financial terms but also in terms of meeting the social obliga-tions of the original MFI concept, is increasingly im-portant to the intermediary institutions who provide funds (or funds guarantees) to the MFIs – a need that is moving from desirable to critical as the world eco-nomic crisis reduces the amount of funding available for microfinance. In this aspect, the primary responsibility for present-ing the MFIs record of performance in a manner that is understandable should fall to the marketing depart-ment; I do not believe that the marketing department should be responsible for collecting or analyzing the data, only for reporting it in a way that makes it un-derstandable. It is, after all, the marketing depart-ment’s responsibility to craft the type and style of the information to be communicated to others that are outside the MFI. The challenge for the MFI’s management, in general,

and the marketing department, specifically, is to pre-sent the information gained in a way that generates a sense of accuracy, honesty, and trustworthiness. This means that the MFI may have to report information that reflects negatively on its performance – an exam-ple of this may be that the financial performance of the MFI is commendable while the social criteria have not been adequately achieved. The willingness to report that some aspects of the MFI have not achieved the stated goal or mission of the MFI, or to communicate management’s strategy for improving in those areas, such as SPM, going forward, will be a key test in the market as to how well the MFI is able to create that sense of trust with those who use its services, regulate it activities, or fund its operations. I look forward to hearing from our readers as to how the marketing department in your organization, whether you’re an MFI or intermediary, communi-cates such messages about performance and trust-worthiness, as well as to what extent your marketing departments are even aware of the emerging SPM standards. Our blog is always open for your com-ments . ******************

Visit our Blog to Read many more interesting reflections and Editorials … Visit Us : www.microfinancefocus.com/blog

Bruce is an expert and commentator on both tech-nology and marketing. He is former Marketing Di-rector for several high Tec start ups. Bruce currently serves as CTO (Chief Technology Officer) for a well known NGO. Currently He associ-ated with Microfinance Focus as an “Technology & Marketing Editor” . He may be reached at [email protected]

Reflection: Creating a Sense of Trust ...

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I t is unfortunate that even among tallest and pioneers of micro- financing, an unfortunate sense of overconfi-dence could be seen with regard to the immunity of micro financing institutions from the present looming financial crisis. This is really a sad phenomenon especially when highly respected pioneers like Mohammad Yunus could recently in Japan state that these institutions have not been affected by the recent financial crisis as because these institutions are rooted to real economy and operate not on papers but on live products like chicken and cattle. It is true financial papers as such are more vulnerable to risk but it would be fatal to assume that live products do not encounter market risk beside their inherent risk of mortality and sickness. Boost up Confidence It is true that at times such statements might be necessary to boost up morale of these institutions particularly when the economy is sagging and its lifting up by all means have become imperative. But one would not be able to keep people in dark and disillusioned for long particularly when people are fast getting enlightened due to the spread of education and information technology in emerging econo-mies like India and more so the recent opaque transactions

of financial institutions have completely shaken the confi-dence of common people of almost all over the world. Fate of Opaque Transactions In fact the confidentiality which was once sine-a-qua-non for all financial operations and as such avidly followed by all financial institutions till recent years but now looked down by most people almost all over the world. In fact this has become one of the most criticized operational strate-gies of banks and other financial institutions. It is evident from the recent pressure exercised on Swedish banks, which have been practicing opaque banking till date. to disclose the details of their clients despite their openly de-clared policy to hold and operate accounts of their clients spread out all over the world, through numbers and not in names and if in names that would be fictitious and not real. This age old practice is now seriously questioned by the regulators of almost all developed and emerging countries of the world for obvious reasons. In fact this is one of the impacts of present financial turmoil. Transparency has be-come almost a necessity to conclude any financial deal by the financial institutions.

Some misconceptions widely Held May endanger

The Future of Micro financing institutions

Perspective

Dr. Souren Ghosal , Head– Knowledge Management , Microfinance Focus

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The Expected Impact The impact of the present financial crisis on micro financing is visible in two areas- funding and repayment records of these institutions. It is true that foreign funds availability to these institutions almost tripled during the period starting from 2004 to 2006 as has been brought out in a study made by CGAP. But the same study has revealed that very fast declining trend has already started and now the bor-rowing cost also has started rising. Beside this it has also been observed that some global banks have started with-drawing funds from these institutions and even local banks have become lukewarm in funding these institutions. In-deed these are ominous signs notifying the emerging slump slowly brewing up in these institutions. One should not however be dismayed as flow of funds from interna-tional finance corporation-one of the arm of world bank has been growing each year by no less than 55% each year. But as brought out by Elizabeth Littlefield, some global banks are pulling out and the cost of fund has been con-stantly rising due to liquidity crisis and constant exchange rate fluctuations. In fact most of the MFIs are finding diffi-culties in borrowing from their local banks. As one of the recent IFC studies has revealed that there would be poten-tial gap of over $1.8 billion this would obviously reduce the resource raising capacity of MFIs and ultimately affect the growth of these institutions. Impact on growth and health of loans Moreover such constraints would further affect these in-stitutions as these mostly provide short term consumption and business loans and therefore do not generate growth of the economy. It has been rightly observed by Justin Oliver of Centre for Microfinance of Chennai that borrow-ers are utilizing new loans from one MFI to pay off their debts to other. In a recent study made by IFC that top 150 MFIs have shown that their delinquency rate for 30 days have risen from 1.2% to 3%. This rise is obviously bad sign for future growth of MFIs as these institutions have been enjoying the reputation for a long time of very high level of repayment record-almost 99 per cent. Strategy to encounter the impact It would be necessary for these institutions to develop ap-propriate strategy to emerge as a growing institution for poverty alleviation and creating economic and social insti-tutions to generate economic activities and social ameni-ties for the poor so that they could have financially and physically healthy life. In this regard the first priority would be to create additional source of funding like taking depos-its and equities from people and institutions like banks and insurance companies including private equity funds from

venture capital funding institutions. This strategy itself would compel these institutions to change the pattern of financing short term requirements of borrowers to a com-prehensive project financing model. This model would help these institutions to tap large number of funding institu-tions and also to avail re-financing of their loans from cen-tral banks and specialized institutions like NABARD and SIDBI in India. It would obviously bring these institutions under the regulatory institutions of the country and that would help them to develop better management skill and operation policies and processes as these would have the benefit of offsite supervision of regulatory authorities of the country. Conclusion Such transformation and adoption of above strategy need detail preparation and obviously change in the mindset of promoters and executives of these organizations. It has been observed that most people like to jump on immedi-ately accessible opportunity where least efforts and re-sources are needed. It is therefore not very surprising to observe that most of the micro financing institutions have taken the easy course where least competition exist and perhaps where opportunity exist to exploit, of course much less than money lenders, and charge high rate of interest without creating any resistance from the borrowers. But the objective of micro financing institutions is not exploita-tion and just to become less repressive than moneylenders and occupy the place so vacated by moneylenders without any revolt or resistance. Its objective is much more than this narrow path often pursued by these institutions. Its origin is with a very noble objective to generate inclusive growth and alleviate the poverty of neglected sector of the society by generating economic and social activities and facilities for them. This could be possible only when strat-egy of amalgam of public and private institutions is created both for funding, managing and sharing risks. This model is called public private partnership model and worth trying during the present critical period. ***********************

About the Author: Dr. Sourendra Nath Ghosal holds a PhD in Finance and holds Master degrees in both commerce and Economics. He has experience taught for 18 years in colleges and university of Jodhpur Rajasthan; Worked as principal cooperative training college for about 2 years at kalyani w. b. He worked with United Bank of India FOR 22 years and retired AS G.M. credit. He has also authored several books and Papers published in several national and International journals & newspaper. You may reached him at [email protected]

Perspective : Some Misconceptions widely Held May endanger ...

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N ew York is at the center of the global financial crisis, not because the housing stock in New York plummeted in

value, but because Wall Street in New York built a multistory finan-cial house of cards on top of everyone else's house values. The “financial engineering” that this represents is not very sophisti-cated ... the financial institutions have earned fees for arranging the financing, and then put lots and lots of leverage in place so that a small improvement in revenue stream resulted in a way bigger im-provement in the derivative revenue stream. This works when there are improved revenue streams ... but creates disaster very quickly when revenue streams deteriorate. Leverage is just as powerful on the downside as it is on the upside. Layer after layer of leverage and slicing and dicing makes it almost impossible to untangle. The fact that this mess seems to have taken highly paid sophisticated financial experts by surprise is difficult to comprehend. Clearly some-thing very fundamental was wrong ... and it seems that there has been a complete disconnect between the score-keeping and the game ... a terrible misunderstanding of what role financial services play in an efficient market economy ... and a terrible lack of appropri-ate performance metrics. For a long time, Professor Muhammad Yunus has drawn attention to the inadequate system of performance metrics in modern society and called for Social Business Accounting that would take into con-sideration more than merely the financial profit that is derived from a business. He has operated Grameen Bank with a social benefit goal for more than 30 years and has been “successful”, whatever that means in terms of the financial metrics that are the prevailing norm. Grameen Bank, together with an interesting portfolio of non-financial activities, is growing rapidly ... is financially sustainable ... clients of the bank have progressed in socio-economic terms ... and Dr. Yunus and the Grameen Bank shared a Nobel Peace prize!

The financial crisis shows that Better Perform-ance metrics are Critical

“Performance metrics need to move beyond the financial

performance focus; and, the perspective of the organization and its clients ... and start to look at impact on the broader society ... and over a longer time. Dr. Yunus talks about the accomplishments of the children of Grameen's early clients. Ingrid Munro who started the Jamii Bora (JB) microfinance or-ganization in Kenya talks about her early clients who were beg-gars who now are respected managers of the JB organization. Peter Ryan talks about the training that MicroLoan Foundation does in Malawi before a client gets a loan ... and then succeeds not only in repaying a small loan, but in building a growing lit-tle business and giving the family opportunity.”

Peter Burgess, New York Bureau Chief (Microfinance Focus )

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The story of Compartamos in Mexico is more evidence of the need for a broader framework of performance metrics. The Compartamos organization has had rapid growth while also earning high margins ... a performance pattern that capital market analysts instantly translate into spectacular market valuations. When Compartamos chose to do IPO (Initial Public Offering) investors massively oversubscribed the offering. There is good news and bad news. The good news is that investors can be attracted to microfinance ... the bad news is that they might be only interested in the purely financial metrics. Compartamos has been valued on purely financial metrics and these will most likely conflict Compartamos in the future as it has to face the choice of social good or fi-nancial performance. The problem here is that the prevailing metrics used for the analysis of MFIs (microfinance institutions) are almost totally related to financial performance ... with the same short time horizon that has failed for every other sector. Activities that cost today but produce value tomorrow are of little interest to people looking only at financial returns. ------------------ // ------------------ In the last few weeks there have been Microfinance events almost every day within easy reach of New York. This is very encouraging, because five years ago microfinance was practically unknown and similar events attracted few at-tendees. University Microfinance Clubs have been estab-lished and the level of sophistication and knowledge of the club organizers and members is improving. Students are getting more and more opportunities to “intern” with mi-crofinance organizations. But again ... there is good news and bad news. The good news is that more and more people are learning about mi-crofinance, and the bad news is that a little knowledge can be a dangerous thing. Because the “quant” oriented ac-counting and MBA students are learning financial metrics without much of the social metrics, their orientation may well help push microfinance in the profit maximizing direc-tion ... and at the moment those students who have an appreciation of non-quant values have very inadequate metrics to help them. This needs to change. In addition to the clubs that are driven by student groups at Universities, there are other clubs that are organized by professionals ... mainly young ... and usually with some affinity. Some of the big mainstream banks have microfi-nance clubs and their staffs are getting an opportunity to learn something of microfinance. This is an important de-velopment because people with exposure to various as-

pects of mainstream or capital market banking now also have micro-banking on the radar ... and might well help to improve capital access for microfinance. One of the things that is striking about microfi-nance events is that there is a solid core of people who have been associated with the mi-crofinance sector for a long time and appreciate that it has proven to be a very effective way of improving opportunity” for people who have been marginalized for-ever and helping them to be a little step up the socio-economic ladder. Many want to retain the good aspects of microfinance while at the same time attracting more capi-tal into the sector. This is a balancing act that presently depends on the goodwill ... or professionalism ... of people involved. However, there needs to be something more than goodwill and professionalism that secures the future of microfi-nance so that the populations at the bottom of the pyra-mid (BOP) are served. There needs to be performance met-rics and independent score-keeping. These events are interesting ... but there is a lot missing. Most notably there is little that really communicates the huge social value of microfinance. Dr. Yunus tells that story of using $27 to get microfinance started and helping many women with this very small amount ... he tells stories of very poor people whose children are able to get educated and become doctors. Everyone who has worked at a micro-finance branch in a village ... or who has spent time trying to understand the socio-economics of a village (as I have done) understands that money used in the way it is used in microfinance has the potential to do incredible good. An emergency microfinance loan of $10 ... that gets paid back in two weeks in the amount of $20 is a ridiculously high rate of interest ... but if the money was used to keep a child from dying, then the return on this money is way more than the interest. ------------------ // ------------------ There are some interesting possibilities for paradigm change in accounting and broader performance metrics. Several different approaches may come together. There are new technologies that make it possible to collect and

“The story of Compartamos in Mexico is more evidence of the need for a broader framework of performance metrics.”

Horizon: That Financial Crisis shows that...

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aggregate data in cost effective innovative ways. Using computer technology for loan administration and account-ing has been evolving for a long time, but its potential is only now being achieved because the user interface is now fully distributed. Better yet Internet and mobile technology is now opening a whole range of new possibilities. In some places these technologies can be used to report data ... the technology can be used as a part of the banking and money transfer infrastructure. Performance metrics need to move beyond (1) the finan-cial performance focus; and, (2) the perspective of the or-ganization and its clients ... and start to look at impact on the broader society ... and over a longer time. Dr. Yunus talks about the accomplishments of the children of Grameen's early clients. Ingrid Munro who started the Jamii Bora (JB) microfinance organization in Kenya talks about her early clients who were beggars who now are respected managers of the JB organization. Peter Ryan talks about the training that MicroLoan Foundation does in Malawi before a client gets a loan ... and then succeeds not only in repaying a small loan, but in building a growing little business and giving the family opportunity. ------------------ // ------------------ The microfinance sector now has far more of the structure needed to link from the village to the capital markets than it did some years ago. There are people and intermediary organizations that have knowledge and experience. There are concerns however, that companies with large “names” but no microfinance experience will become involved and then “get it wrong”. Microfinance is not much like modern big banking ... it has a perverse characteristic of being best when it is really client centric ... and the clients are small ... something that is not easily reflected in prevailing financial performance metrics. Work is being done to improve performance metrics ... but it is not yet clear whether this work will deliver the needed paradigm shift. What seems to be happening is that im-provement will be translated as more ... of what is essen-tially the same ... and as this happens there will be more overhead burden ... more cost ... and less performance! ------------------ // ------------------ What went wrong and gave us this terrible financial sector meltdown? It seems there has been the perfect storm with many things all going wrong at the same time, and each element aggravating something else. As it turns out, it ap-pears that “big” has been a part of the problem! Big has proved dangerous and fragile ... so it is good to know that there are hundreds of thousands of small MFIs in the mi-

crofinance sector providing credit and other services. The “quality” of these MFIs is generally unknown ... but in ag-gregate they are likely to be important service providers into poor communities. Maybe this is a critical strength of the sector. Perhaps they as important as the Tier 1 MFIs that are well known around the world. Maybe the microfi-nance sector is strong when there are many different ways of delivering microfinance to the market. Maybe there is not one best way ... but merely many ways that are good. Sadly, investment money will migrate to the investment that has the best numbers ... and that means that Tier 1 MFIs and profitable MFIs may get access to capital mar-kets, and the so called Tier 2,3 and 4 MFIs will not. Which brings us back once again to the need for performance metrics that address not only the financial metrics, but also the social value metrics ... and also metrics that are as effi-cient about Tier 4 MFI performance as they are about Tier 1 performance? There are grounds for optimism. Some of the people in the middle of mainstream banking understand the issues. They helped to pioneer getting investment into the microfinance space when most people would have argued it was impos-sible ... they have created a workable structure ... not per-fect, but it has performed well, even during the turmoil of the past year. Missing, however, is a widely accepted sys-tem of performance metrics that embraces social benefit from microfinance as well as the financial metrics. ****************************

Horizon: That Financial Crisis shows that ...

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I ndia has a century old Cooperative Credit Institutions having 106,400 Primary Agricultural

Credit Societies at the village level with a total membership of over 125 million rural people. On an average one PACS serves six villages. Besides, there have been 47,468 branches of public sector and regional rural banks in rural & semi-urban centers providing banking facilities. How-

ever, while 45.9 million farmer households neither accessed credit from institutional agencies nor from non-institutional agencies, as many as 22.9 million were indebted to non-institutional agencies for loans, which are normally not provided by formal financial institutions. It is, therefore, a chal-lenging task for banks, MFIs & Government to create enabling environment so as to bring 45.9 mil-lion farmer households within banking fold as a part of financial inclusion and facilitate 22.9 million households to redeem debt from the non-institutional agencies for which banks/MFIs should de-velop innovative credit products [including debt swapping] and formulate strategic marketing pol-icy. Existing Rural Credit Scenario According to the National Sample Survey Organization data, 45.9 million [51.4%] farmer households out of a total of 89.3 million households in the country did not access credit, either from institu-tional or non-institutional sources and according to All India Debt and Investment Survey, as on end-June 2002 out of 39.2 million indebted households in rural areas as many as 22.9 million [58.4%] were indebted to non-institutional agencies. Of these, while 10.2 million [44.5%] were indebted to professional moneylenders, 4.9 million [21.4%] had sourced debt from agricultural moneylenders, followed by 0.6 million from landlords. It may be noted that between 1991 and 2002, number of indebted households in rural areas significantly increased from 27.2 million to 39.2 million [144.1%]. However, number of indebted households to non-institutional agencies sharply shot up from 11.4 million to 22.9 million [200.9%] during the decade as compared with from 18.2 million to 19.8 mil-lion [108.8%] indebted to institutional agencies during 1981-91.

Horizon

Challenging Task for MFIs in Rural Areas

Need for Developing Products & Product

Marketing Strategy

Dr Amrit Patel, Member –Editorial Board , Microfinance Focus

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A major reason for increase in the overall household debt and increase in the share of house-holds indebted to non-institutional sources between 1991 and 2002 was a significant increase in the current farm expenditure [comprising the current expenditure in the farm business for purchase of seeds, manure, fodder, payment of wages, rent, land revenue etc. and that for normal repairs and maintenance of buildings, ma-chinery and equipment includ-ing transport equipment, furni-ture and fixtures and household durables meant for the farm business] and household ex-penditure [incurred on account of purchase of residential

plot, construction, addition/alteration of building for resi-dential purposes, purchase of durable household assets, clothes etc. and expenditure for medical treatment, educa-tion, marriage, ceremonies etc.] in rural areas [Table No.1]. The Invest India Incomes & Savings Survey for the recent period [IIMS 2007] also revealed that rural households took a large portion of loan to meet financial & medical emer-gency and social obligations. These three purposes ac-counted for about 60 % of the loans availed of by indebted earners [persons in the age group of 18-59 years and earn-ing some cash incomes] [Table No.2] The pattern of indebtedness of the households across differ-ent Asset Holding Classes [AHCs], representing the income levels, showed that the recourse to non-institutional sources was relatively high by lower income groups. In other words, as the income levels rise, the proportion of households bor-rowing from non-institutional sources tends to decline. [Table No.3 ]. This is supported by Invest India Incomes and Savings Survey [2007] conducted by IIMS, which revealed that the earners at higher income level borrow from institu-tional sources than non-institutional sources. The data indi-cated that 70% earners in the annual income bracket of more than Rs.400,000 borrowed from institutional sources as compared with only 27.5% in the case of earners in the income bracket of less than Rs.50,000.

Government’s Role

Social services such as health, education, water & sanitation

Purpose of Lon Number of House Holds in mil-lion*

Outstanding debt Rs.crore

1. Farm business 15.1 [38.5%] 45,702 [41.0%]

1.1. Current expendi-ture

7.5 15,828

1.2. Capital expenditure 8.1 29,873

2. Non-farm business 4.3 [10.9%] 13,376 [12.0%]

2.1.Current expenditure 1.2 3,121

2.2.Capital expenditure 3.1 10,255

3. Household expendi-ture

22.9 [58.4%] 52,390 [47.0%]

4. Unspecified -- --

5. Total 39.2 1,11,468 [100%]

Table 1

* Indicates multiple borrowing

Purpose of loan Number Million

Purpose of loan Number million

Purchase of house/land/real estate 4.1 Farm/crop loan 4.6

Purchase of vehicle 0.8 Social obligation 5.8

Purchase of consumer durable 2.1 Other consumption needs 2.6

Meeting financial emergency 15.4 Education loan 1.3

Meeting business needs 3.9 Others 1.1

Medical emergency 10.5 Total 52.4

Table No.2 : Purpose of Loans Taken by Earners from non-institutional sources in Rural Areas

Asset holding % in total Asset holding % in total Asset holding % in total

<15,000 80 100,000-150,000 61.9 450,000-800,000 41.9

15000-30,000 73.2 150,000-200,000 59.6 > 800,000 31.3

30,000-60,000 70.2 200,000-300,000 54.7 All 58.5

60,000-100,000 66.8 300,000-450,000 46.0

Table No.3 Distribution of Indebted Households to Non-institutional Agencies in Rural Areas, 2002

Horizon: Challenging Task for MFIs in Rural Areas

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and physical infrastructure such as roads, electricity, public transport, communication & marketing facilities have signifi-cantly a positive impact to substantially enhance credit ab-sorptive capacity of rural households. The Government has an important role in creating appropriate policy environ-ment and building adequate infrastructure & supply chains. This would facilitate efficient use of micro-credit to increase production and marketing of output by the people residing in rural and remote areas. Since low-income households borrow for medical, education and other emergencies from non-institutional sources health care, education and other services need to be provided to rural households at reason-able cost and on time, including appropriate medical/health insurance services at a reasonable premium and hassle free claim settlement procedure. Product development:. Product development is an essential activity for market-responsive banks/MFIs. As clients and their needs change, so the market-driven, demand-led banks/MFIs must refine their existing products or develop new ones. Product development is a complex, resource-consuming activity that should be taken seriously. More client-responsive products will reduce dropouts, attract in-creasing numbers of new clients and contribute substantially to the long -term sustainability of the MFIs. Cost effective-ness and profitability should be the guiding factor. Key issue involved is increasing profitability by cutting costs and/or increasing income. The MFIs should, therefore, conduct a thorough institutional analysis reviewing strategy, financial viability, organizational structure and philosophy, human resources, marketing and systems. Public sector banks, since their nationalization in 1969 and 1980, have been providing credit for several purposes re-lated to farm & non-farm business. These credit products, however, need to be refined and innovative to meet chang-ing needs of farmers, especially small and marginal farmers. Very rarely Banks/MFIs provide credit products to meet household expenditure in rural areas, though they have plenty of for urban clients. Thus, there is more urgent need now than before to develop tailor-made credit products in the light of findings of several studies, surveys and reports. The NSSO data have sharply brought out the crucial need for banks/MFIs to design new credit products, that can meet specific requirements of rural households, such as [i] cur-rent expenditure in non-farm business [expenditure for raw materials, fuel and lubricants, payment of rent, salaries and wages, hire charge of machinery and equipment etc. and normal repairs and maintenance of buildings, machinery and equipment including transport equipment, furniture and fixtures and household durables meant for non-farm business], [ii]capital expenditure in non-farm business [purchase, construction, additions, alterations, major repairs and improvements of buildings, and machinery and equip-ment including transport equipment, furniture and fixture

etc.] and [iii] household expenditure [expenditure incurred for medical treatment, education, marriages, religious cere-monies etc, purchase of plot and durable household assets, clothes etc, construction, addition/alteration of residential buildings etc. Similarly, Invest India Market Solutions, 2007 has, also, identified clearly the need for specific products by earners in rural areas, such as purchase of house, land, real estate, vehicle, consumer durables; meeting financial & medical emergencies, business requirements & social obliga-tions, other consumption needs, education loan etc. This, therefore, sharply focuses the most urgent need for banks/MFIs to develop new/additional credit products through scientifically conducted research, pilot testing and further refining process. To be competitive, the MFI must offer new products in a timely manner relative to the development of market de-mand. Quick reaction and pro-active product development will ensure competitive advantages. Marketing activity in expanding and maturing markets is becoming increasingly complex and broader in scope as more MFIs operate in do-mestic markets. New customers with diverse demand struc-tures must be attended to accordingly. It is, thus, necessary that banks/MFIs should on a continuing basis understand cash patterns of borrowers and the profitability of their businesses that helps match the loan product to their busi-ness cycles. The loan term and repayment frequency are possibly the most significant variables in micro-credit and should be suited to the borrowers’ needs. The effect of an increased interest rate on the borrower is relatively less significant than increases in other costs. The method of cal-culating the interest rate and fees significantly influences the price of the loan. While designing new credit products, detailed studies need to be carried out with regard to cash patterns, loan term, loan utilization, loan purpose, interest rate, fees & service charges etc. Apart from savings and loan products, poor people also need insurance products. Health related expenditure at times far exceeds the income levels of many households, which leads them to a situation of debt trap. The insurance companies, also need to design low cost health insurance products for the rural poor. The need is also for weather insurance products to provide relief to farmers in cases of losses due to excess/deficient rainfall. The key to enhanced financial inclusion is reduction in trans-action costs. The experience of some institutions in the country as well as in other countries, however, suggests that an appropriate use of technology could significantly reduce the operating cost of financial inclusion and make it a viable and sustainable activity. The availability of new information technology, expansion of credit information services, inno-vations in micro-finance and the non-conventional modes of delivery of financial products offer further opportunities for reducing transaction costs in dealing with small savers and


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borrowers. Apart from savings and loan products, poor people also need insurance products. Health related expenditure at times far exceeds the income levels of many households, which leads them to a situation of debt trap. The insurance companies, also need to design low cost health insurance products for the rural poor. The need is also for weather insurance products to provide relief to farmers in cases of losses due to excess/deficient rainfall. The key to enhanced financial inclusion is reduction in trans-action costs. The experience of some institutions in the country as well as in other countries, however, suggests that an appropriate use of technology could significantly reduce the operating cost of financial inclusion and make it a viable and sustainable activity. The availability of new information technology, expansion of credit information services, inno-vations in micro-finance and the non-conventional modes of delivery of financial products offer further opportunities for reducing transaction costs in dealing with small savers and borrowers. Product Marketing Strategy: Product marketing should be perfected during the pilot test. Success factors include the effectiveness of internal marketing; the level of pre-existing marketing competencies, adequate marketing plans and budgets; and the degree of focus on customers services. During the test period, the effectiveness of marketing should be closely monitored. Marketing concepts focuses MFI’s approach to offer prod-ucts to its current and potential clientele. Marketing is not only a means of selling more products more effectively or of developing new and more customer-oriented financial prod-ucts, but also it seeks the involvement of the entire manage-ment and staff of the MFI. Marketing collects information from internal and external sources to answer questions, such as [i] which products and services are needed and will be bought?[ii] what price is acceptable to clients?[iii] how can products and services be sold in the most effective and efficient manner?[iv] which information channel is best able to reach clients to make the product known, valued and demanded? Clients and markets often change over time. Therefore, cli-ent-oriented MFIs need to continuously adjust, improve and innovate in order to offer customer services that are de-manded, valued and useful. Marketing management is the key to the long-term sustainability of the MFI. It is a continu-ous process that includes [i] planning i.e setting of clear goals and the design of strategies to achieve those goals [ii] implementation i.e forming and staffing the marketing team and directing the actual operation of the team according to plan and [iii] evaluating performance i.e analyzing perform-

ance in relation to the organizational goals in order to effect necessary changes and adjustments… The product marketing strategy emphasizes the develop-ment and differentiation of products. It is a process of con-tinually and systematically assessing needs of the market and its different segments to support product development and innovation that caters for those needs in the most feasi-ble and profitable manner. Among others, following are critical areas of marketing strategy. Trust: financial service provision involves an intimate rela-tionship between the producer and the consumer. Thus, financial relationships are often built over a long period of time and are very sensitive to changes in mutual trust. Growth balanced with risk: Selling financial products, par-ticularly loan products, involve risk. Accordingly, organiza-tional growth must be well balanced with the risk capacity of the MFI to manage risk. Market segmentation: It is the process of dividing the mar-ket into distinct target groups that share specific characteris-tics. Determining target market segments helps the MFI identify opportunities to improve and expand its current products and services. Each segment targeted should be large enough to be easily accessible and profitable Marketing mix: The marketing mix combines determining which products to offer; and how they will be priced, distrib-uted and promoted? *****************************************

About the Author Dr Amrit Patel is PhD in Banking & Finance, has 25 years experience in Bank of Baroda & since 1995 has been senior consultant Rural/MF with projects funded by World Bank, ADB, IFAD in Azerbaijan, Tajikistan, Kazakhstan, Bangladesh, Uganda. He has contributed over 600 articles/papers in leading fi-nancial dailies, journals, Microfinance Gateway.


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Cover Story

Frances Sinha | Managing Director –EDA Rural System Social Performance: increasing accountability and transparency in microfinance

Katherine Knotts Director Communications, Imp-Act Consortium We Can’t Afford to be Social…!

Anita Campion , President , AZMJ The Complexity of social performance Management

Chuck Waterfield, Founder –MicroFinance transparency The time for Pricing Transparency in Microfinance

Features Stories ...The World's top experts on SPM. share their opinions

Koenraad Verhagen,Argidius Foundation A Special Interaction on Social Performance Management with Koenraad Verhagen

Transparency & Social Performance Management

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There has been tremendous progress in the microfinance industry over the past decade, especially in India, in working towards financial sustainability, reducing costs of delivery and attracting investment funds. This is an important meas-ure of success – in terms of growth. The numbers are impres-sive, and reported against industry standards of profitability, efficiency, portfolio quality and capital adequacy. However, relatively transparent reporting on growth and financials has not been matched by clear reporting on effectiveness. The numbers tell us something about growth of outreach, including women and relatively small (‘micro’) loan sizes. But increasingly – and since 2006 when Mohd Yunus and the Grameen Bank received the Nobel Peace Prize in the name of poverty reduction – there have been questions around:

Who is microfinance serving (are clients poor? who is meant by ‘poor’? are target clients getting left out? Microfinance institutions – and programmes – may actually serve a range of market segments);

The utility of standard loan products (easy for the MFI to implement, but do they cater effectively to different market segments? Do they really serve the needs of poorer people? of women in particular?);

Exit – or dropout (how many clients drop out? Is this an indicator of dissatisfaction? Who are the clients that leave and why do they leave?); and

Client protection: what is a reasonable level of transaction costs for clients (given costs of funds, type of operations, small product size)? is there clear communication to clients on costs and proce-dures? what is the approach to default (‘zero toler-ance of delinquency’ is no longer acceptable)? Are there mechanisms for client feedback or complaint – and their redressal? Are there safeguards against pushing clients into excessive debt, as competition between MFIs increases with overlapping opera-tions?

These questions reflect a growing interest in ‘social per-formance’ and a concern to build standards in the industry

for addressing such issues as part of microfinance manage-ment, and reporting on them systematically. Whatever the ‘mission’ or model of an MFI, there are certain common themes that are common across the sector. A num-ber of initiatives globally – and in India - highlight the steps for enhancing accountability and transparency, including:

Have a balanced Board: make sure they are up to date on and committed to social performance as well as financial issues

Clarify and define intent more clearly – in terms of target outreach (including different types of area, and market segments), specific services and in-tended results

Track client profile on entry – in relation to in-tended outreach, and as a basis for product devel-opment, and tracking change over time (the Pro-gress out of Poverty Index developed for India and other countries is a practical tool to benchmark poverty levels that can be integrated with member-ship or loan application details)

Adjust the MIS to track clients – not just loans – so as to integrate social profile/market data, and be able to track client retention and exit

Develop routine systems for market feedback (including client satisfaction, exit surveys) and apply results for product development and adaptation

Integrate social goals and values into HR systems (training, performance appraisal and incentives)

Have a clear policy on client protection which is reflected in operational guidelines and monitored as part of internal audit.

These are practical – and rigorous – steps. ‘Social’ – is not just soft and qualitative, or a sort of side project; nor need it be seen as just too complex. These are steps that mirror the process of financial management, and involve as systematic

Social Performance:

increasing accountability and transparency

in microfinance Frances Sinha, EDA Rural Systems

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an approach as financial reporting and management – in terms of defining objectives, aligning systems, developing an appropriate MIS with attention to detail and accuracy, for regular monitoring and concise reporting. These steps are reflected in the social rating tool now recog-nised as a tool to complement financial rating; and in the social reporting indicators introduced by the MiX this year. Indian MFIs have gradually emerged as global leaders in terms of growth and financial efficiency. Will they also be the future leaders for social performance? —————————————————————————-

About the Author: Frances Sinha is co-founder director of

EDA Rural Systems, and director of EDA’s associate company M-

CRIL. With 25 years of experience in development based in India,

Frances is closely involved with current initiatives around social

performance in microfinance, including: social performance man-

agement – training and research (as a member of the Imp-Act

consortium); pioneering the development of a social rating meth-

odology to complement financial rating, with the M-CRIL team;

coordinating global pilots for social reporting (Ford Foundation,

Social Performance Task Force) and contributing to development

of social reporting indicators (on the MiX Market; and leading the

EDA team in working with social investors and their MFI partners

in India and Afghanistan to develop practical systems of SPM and

social reporting, and introducing the Progress out of Poverty In-

dex (PPI) with the Grameen Foundation (US).

***********************************************

We Can’t Afford to be Social…!

Katherine Knotts Director Communications, Imp-Act Consortium

I received a call from the BBC the other day, asking me about the effects of the global economic crisis on microfinance. One also sees that the lecture circuit is starting to bloom with panel discussions on how to save microfinance from a “sub-sub-sub-prime crisis”. Elsewhere, I am hearing the refrain of “well, we’d love to focus on social performance management, but our MFI is just trying to stay afloat right now!” While I’m not dismissing the very real and pressing financial issues of the day, I wonder whether we can, in this context, re-visit the issue of how a social performance focus affects the financial bottom line. Seems like the knee-jerk reaction is to assume that it’s a win-lose situation: “being social” is unsustainable. But does the evidence bear up? A brief glance at some examples:

In a competitive Asian market, one MFI is sensitive to cost management. However, their strong poverty focus takes them deep into remote rural areas. Does this introduce inefficiency? The data reveals that in poorer regions, branch operating costs per client are not necessarily higher (often due to larger loan sizes), and branches tend to grow faster given lower competition.

Another Asian MFI has gathered informal feedback that those branches that do not consistently implement “social development” training tend to have a higher portfolio at risk that those branches that did.

A South African MFI has two microfinance programmes, one poverty-focused, another non-targeted. While the poverty-focused pro-gramme implies higher costs (for impact monitoring), it benefits from higher retention rates and a lower PAR than the non-targeted programme.

Given these examples, it seems the trade-off issue is a bit more nuanced that we thought. In that case, the key questions for me are:

How can we increase efficiency without sacrificing on quality of services?

Where does cross-subsidisation fit in to MFI outreach strategies?

Does data about actual social performance results distinguish MFIs in the race for ever-more-scarce funds?

How can MFIs turn trade-offs into synergies? What are the quick wins, and what takes more time? **************** Editor’s Note: reprinted with permission of the author

Cover Story : Social Performance: increasing accountability and transparency

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A s I have worked on researching and document-ing a broad range of issues, guidelines and

policies related to Social Performance Management (SPM), I have come to understand how complex the issues are, which makes it hard to achieve consensus across the stakeholders in the microfinance sector. For example, the Phnom Penh Post recently cited examples of how microfi-nance institutions (MFIs) had contributed to the impover-ishment of rural farmers in Cambodia. Supposedly, many farmers were unable to repay their loans because of fal-ling crop prices and were at risk of losing the land they had pledged as an asset upon which the loans had been made. The article mostly chastises the MFIs for failing to show up for a meeting with the National Assembly to discuss what should be done to mitigate the farmers’ plight. While it is obvious to me that the MFIs have a social obli-gation to at least discuss the situation, it isn’t as clear to what extent MFIs should be held responsible when invest-ments don’t pay off. In fact, when it comes to agricultural lending, a whole bunch of SPM-related questions arise, including: To what extent should we empower clients to decide

what level of risk and indebtedness they are willing to take on? And to what extent do MFIs or the government need to protect individuals from borrowing too much?

Should MFIs even use land as collateral for agribusi-ness loans, when it means potentially stripping some-one of their livelihood in the case of non-payment?

Should MFIs only lend to business owners to the ex-tent that they can be ensured of repayment, perhaps by covering risk through crop insurance or weather-related index-based insurance?

When whole sectors are negatively impacted, what is the appropriate response of the MFIs and of the gov-ernment? What will these responses mean for future lending to that sector?

Given these complex issues and how politically charged they are, it is not surprising that many MFIs stay away from agricultural lending all together. Is that what we really want for the future of microfinance – to only lend where there are no political risks involved? But this is just one example. Let me give you another. An MFI decides to target the poorest of the poor in rural

The Complexity of Social Performance

Management

Anita Campion is the President of AZMJ

Cover Story : The Complexity of social performance Management

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areas, rather than beginning with the low hanging fruit (i.e. urban clients) that most MFIs target first. Since there is little competition there and a large number of needy clients, the MFI charges high interest rates (over 100% annualized), most of which is used to fuel growth and ex-pansion to new areas. So, this case might be starting to sound a bit familiar, but here are the tricky questions:

What interest rate is okay to charge before being con-sidered usurious?

If clients are accepting the interest rates and terms, does that make it okay?

To what degree should existing clients be expected to pay for an MFI’s growth or expansion into new mar-kets?

When an MFI transforms from an NGO into a formal financial institution, who is entitled to the accumu-lated reserves? Is the fact that management owner-ship is considered good for microfinance governance enough to justify transfers of large amounts of equity to them upon transformation?

What amount is considered acceptable and what amount is too much?

Is it worse for an MFI to report excessive return on equity or excessive administrative costs?

It might be apparent when the principles of social per-formance management have been grossly violated, but it is often difficult to determine the specific threshold or exactly what should be the overarching norms MFIs should live by as a whole. Perhaps the most important guideline is for all of us to continue to work toward improving the lives of microfi-nance clients and when our actions cause the opposite effect, regardless of our intention, we should do whatever

we can (within our means and without creating unrealistic future expectations or market distortions) to correct any negative consequences. As many of these situations are complex, we all need to think deeply and avoid jumping on the bandwagon of bashing specific MFIs. Instead, I hope that we will all start to be a bit more thoughtful about our actions and convic-tions to make sure that we are making decisions and judg-ments based on sound information and a true under-

standing of the local environments, the clients and the complexity of each situation. As we study SPM cases, we need to look more behind why things did happen the way they did and what needs to be fixed or changed in the system to avoid repeating negative events, such as over-indebted clients or unscrupulous investors entering mi-crofinance. Only through thoughtful analysis and mean-ingful dialogue can we begin to reach consensus on some of these tough SPM issues. ***************************************

“Perhaps the most important guideline is for all of us to continue to work

toward improving the lives of microfinance clients and when our actions cause the opposite effect, regardless of our intention, we should do whatever we can (within our means and without creating unrealistic future expecta-tions or market distortions) to correct any negative consequences.”

Anita Campion is the President of AZMJ, an international development consulting firm with a mission to provide high quality con-sulting and investment services in support of financial service and enterprise develop-ment. She is also the co-author of “Putting the Social into Performance Management: A Practice-Based Guide for Microfinance.”

Cover Story : The Complexity of social performance Management

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Microfinance has long been a highly trans-parent industry, and rightly

proud of it. We share a wide variety of financial indicators about our MFIs. Unfortunately however, the true price of microfinance loan products has never been accurately measured nor reported. In fact, few people in microfinance even know the actual prices many MFIs are charging. For an industry born to “displace the moneylenders” by providing low-cost credit to the working poor, this is hard to imagine and even harder to explain. Non-transparent pricing is certainly not unique to microfinance. Many countries require commercial lenders to state true product pricing using standards such as the Effective Interest Rate (EIR) formula mandated in European countries and the Annual Percent-age Rate (APR) formula used in the US (and which has been consid-ered the standard measure for the microfinance industry). Such laws were enacted over the past forty years because many finan-cial institutions were using inconsistent and misleading ways to price financial product, ways that make the product look less ex-pensive than it really is. The same problem can be found regularly in the microfinance industry. For example, a quoted interest rate of 36% per year can result in an EIR as high as 90% and beyond. An important question for us to consider is: Should we not apply the same principles of transparent pricing within the microfinance in-dustry that are used broadly in the commercial finance industry? Non-transparent pricing has evolved and perpetuated for two rea-sons. Firstly, there is no single market interest rate for micro-loans. We recognize that microcredit interest rates must be higher than commercial loans, but it is seldom recognized that there is no

Chuck Waterfield , MicroFinance Transparency

About the Author : Mr. Waterfield has 25 years experience in microfinance, starting MFIs in both Haiti and Bolivia in the 1980’s. During a portion of that time, he served as microenterprise director for MEDA and for CARE International. Chuck Water-field is the principal author and developer of Microfin, the most popular financial planning software in the microfi-nance industry. He is a global authority on Microfinance business operations and analysis. His courses and analysis tools are used by 3,000 microfinance professionals. In ad-dition to Microfin, he has a broad range of products and publications including the SEEP FRAME Tool, the CARE Credit and Savings Sourcebook, and CGAP Handbook on Management Information Systems. Currently on faculty of Columbia University School of International and Public Affairs, he was formerly on the faculty of the Boulder Micro-finance Training Program for ten years and Southern New Hampshire University’s Microenterprise Development In-stitute for eight years. His most recent creation is MicroFi-nance Transparency, a global agency to publish the true prices (APR) of microfinance loans offered by all microfi-nance institutions around the world. To Know more about his initiative :- Visit http://www.mftransparency.org/

The time for Pricing

Transparency in

Microfinance

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single “market rate” for micro-loans. Given rather “flat” cost structures, the smaller the micro-loan, the higher the interest rate necessary for that MFI to cover the costs of that loan and achieve sustainability. In other words, costs are primarily fixed (not correlated to loan size), and income is entirely variable on loan size. That creates challenges, and that requires prices that vary by loan size for those MFIs choosing to reach financial sustainability. Due to the irony that we very often charge the highest interest rates to the poorest clients, the easiest alternative has been to hide this reality by using non-transparent pricing. Secondly, once some MFIs in a market began non-transparent pricing, it became very difficult for other MFIs in that same market to continue using transparent pricing. To do so, would cause the MFI to advertise what appeared to be the highest price in the market, even though their true price could actually be the lowest. As a result, the vast majority of MFIs practice non-transparent pricing even though many would prefer to do otherwise. When MFIs are operating in a very opaque pricing environ-ment – where nobody knows how the price of one product compares to the price of another product – there is no “market price”. With no market price, nobody really knows the true prices of the products for sale, and com-parison of products on the market is extremely difficult. Thus, there exists the opportunity for some MFIs to charge a price that results in very high profit levels, and in recent years, an increasing number of MFIs are doing so. High profits generated off of the poor by charging non-transparent prices creates a bad public image for the mi-crofinance industry and can results in a strong public and political backlash. In fact, the need for responsible, ethical management when selling financial products should be obvious to all – the current global economic crisis affecting all of us is primarily caused by a small number of compa-nies choosing to finance homes in the US through manipu-lative financial products with deceptive pricing. Short-term profit seeking by a few creates serious problems for all when things go wrong. Microfinance was created to be ethical finance, and we should lead the way in practicing ethical behavior. Two years of intense discussions in the industry have led us to the conclusion that an industry-wide effort towards transparent pricing is essential to the long-term survival of the microfinance industry. We need to practice what for-mal finance practices in many countries – we need to pub-lish honest prices. This will correct the current market im-perfection that impedes efficiency, sound management decisions, and healthy consumer choice, and allows some

companies to make extremely high profits. Sound decision-making – by all stakeholders in microfinance – requires accurate information. As the true price of the product has not been available to us, we find a serious limitation in making sound decisions. We in the industry are deter-mined that that will now change. Thus, one outgrowth of this dialogue has been the estab-lishment of MicroFinance Transparency, a non-profit agency that is addressing pricing transparency through two joint activities. First, MFTransparency will collect product prices on all micro-loan products around the world and report those prices by a common, objective measurement system. Second, MFTransparency will undertake the equally important role of developing and disseminating straightforward educational material to enable microfi-nance stakeholders at a broad range of levels – from ana-lysts, to donors and investors, to MFI managers, to micro entrepreneurs themselves – to better understand the con-cept and function of interest rates and product pricing. Since its launch at the Bali Microcredit Summit last year, over 150 people have endorsed the transparency principles of MFTransparency. The full list can be found at our web-site (www.mftransparency.org). We encourage you to study our principles and, if you are in agreement with our mission, to add your name to our list. MFTransparency has secured initial start-up funding, from Oikocredit, Hope In-ternational, DOEN Foundation, Hivos, ICCO, and Oxfam Novib. In addition, data collection has been started in Peru and Bosnia through a pilot testing of the MFTransparency methodology funded by CGAP. The industry needs to act, and we need to act soon. The mainstream public media is already reporting the interest rates typically charged in microfinance, but there is little explanation or understanding of why microfinance interest rates are higher than previously believed, nor why there is significant variation in interest rates among different loan products. What non-transparent pricing has kept hidden for years is no longer hidden – and it should never have been hidden! We should recognize that we actually are at a point where we have the opportunity to correct a serious flaw in the way that we have been practicing microfinance for years. Pricing transparency is essential to building a healthy and vibrant market for microcredit products. It provides a valu-able component necessary in free markets and currently absent in microfinance – transparent, open communication about the true cost of products. *****************************************

Cover Story : The Time for Transparency in Microfinance

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Dr. Verhaagan is a global expert and pioneer in the filed of Social Performance. Born in 1940 in the Netherlands, Koenraad Verhagen is a promoter of microfinance and small enterprise development. He is the Africa specialist of the Investment Committee of Argidius, a foundation which belongs to the COFRA group, a holding located in Zug, Switzerland. (www.argidius.com). He holds office in the Netherlands. In 2006/2007 he has acted as a consultant to the Dutch Microfinance Platform, especially for the organisation of a series of Workshops on Social Performance Management, Rating and Reporting. Occasionally, he also acts as an advisor to the Swiss Ministry for Development Cooperation on Microfinance and Enterprise Development, and the Paris-based organisation SIDI ( Société Internationale pour le Développement et l’Investissement). He is known as one of the founders of the international Social Performance Task Force, and animator of the CGAP Social Performance Working Group. He is the former Secretary General of CIDSE, the international alliance of Catholic Development Organizations(1990-1997), and for 5 years ‘Consultor’ of the Pontifical Council Cor Unum. As an action-researcher he has written extensively on issues of people’s participation and co-operative development in Asia and African countries. He holds a PhD in Social Sciences (non-Western Sociology) from the University of Leiden (the Netherlands), and a doctorate in Economy from the University of Amsterdam... Next page

A Special Interaction

on Social Performance

Management With

Koenraad Verhagen, Argidius

By, Jerome Peloquin, Managing Editor, US

“SPM is necessary, to increase

the likelihood of positive impact of financial services we have learned, that you have know well which categories of the poor, or moderately poor, you are targeting, and to design and test your products carefully. Only then you can expect use of services to improve quality of life or offer new opportunities. You will also have to team up with other social entrepreneurs that can offer non-financial services.” -Dr. Verhaagan

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Editor’s Note: I submitted this series of questions to Mr. Verhaagen who, although engaged in a heavy travel schedule, took the time to provide this thoughtfull and provocative interview. We thank him for his insight, candor, and years of service to the poor. – Jerome Peloquin, Managing Editor, US ———————————- 1 When did you first engage with the SPM idea ? Especially during a field trip in Uganda in 2001, when visiting a ‘Village Banking’ program, I became aware that Social Performance is a process that has to be carefully measured, managed and demonstrated, and that the expression of social commitment in mission statement and brochures of the supporting international network is insufficient to guarantee effective implementation. The ‘Village Banking’ program I visited was almost absent in villages and urban-focused, it was not ‘banking’ in the sense of acting as an intermediary between depositors and borrowers but focused on credit delivery; it said it was serving the ‘poorest of the poor; which it did not; it said to promote micro-enterprise development and employment creation which could not be demonstrated, etc. ; in short, there was a tremendous gap between official social goals and reality. The ‘image’ of a program, marketed to social investors and donors for purposes of fund raising, can be misleading. To come to such a conclusion you do not need expensive ‘impact’ studies, even if some of them have been helpful in demystifying the view that access to ‘microcredit’ is a sufficient remedy for the poor ‘to work themselves out of poverty’. This myth has been spread effectively by the industry , in particular the ‘Microcredit Campaign’. Political leaders, like Fujimori, the former president of Peru, have tried to take political advantage out of it. Acting as the ‘co-chair’ of the first Microcredit Summit Meeting held in New York City in June 1998, he embraced the idea of Microcredit as a driving force, allowing men and women in developing countries to create survival strategies and fostering self employment. But also allowing his government to pay less on basic social services which the poor need and cannot pay for. Coming back to my Uganda trip, just talking to loan officers and some group leaders, and a honest director, is sufficient to become aware how important well adapted financial services are for the quality of life of the poor, and but at the same time how much more has to be done to attack the structural causes of persistent poverty. This visit, and visits to MFIs in other countries, made me engage with the idea of SPM in Microfinance. What you want to achieve in social terms has to be clearly stated in the local context, measured and managed.

2. Why do you think SPM is necessary ? Many MFIs have been able to grow by selling debt to low-income people while taking positive social impact for granted. SPM is necessary, firstly, to avoid negative impacts which explains the current international campaign for consumer protection and which has prompted MF leaders in April 2008 to formulate and, subscribe to, the Pocantico declaration, and express concern about the low standards of transparency in the sector. Secondly, to increase the likelihood of positive impact of financial services we have learned, that you have know well which categories of the poor, or moderately poor, you are targeting, and to design and test your products carefully. Only then you can expect use of services to improve quality of life or offer new opportunities. You will also have to team up with other social entrepreneurs that can offer non-financial services. 3. Do you favour self reporting and why ? Yes I do. I do favour double bottom line, or even better triple bottom line self-reporting. At the same time, I am strong partisan for social rating as a complement to financial rating. Self reporting stimulates internal discussion and reflection; external rating is necessary to validate the outcome of internal processes. 4. Are loan officers part of you SPM model ? Yes, I think we should no longer call them ‘loan’ officers. Most larger MFIs now offer savings, loan and insurance products, or have the intention to develop in that direction. They are ‘field officers’ who go to the MFI clients, meet them, talk to them, and collect basic data on their economic situation and conditions of life. They are the backbone of the management system and incentives should be given for them to fulfill these tasks effectively. Incentives just based on the amounts of loans taken by borrowers and repayment ratios corrupt the social service system by its one-sided focus on credit delivery. 5. Do you see a relationship between SPM and CSR The two concepts have not yet been systematically integrated with one another. Corporate Social Responsibility can be seen as the overarching concept that applies to each and every type of business undertaking. CSR behavior implies adherence to, and respect of, certain ethical standards and international norms in such areas as quality of employment, absence of child labor, avoidance of negative impacts on the environment and consumers. The respect of the earlier mentioned need for consumer protection, as expressed in the Pocantico declaration fits into the CRS concept, and can be seen as a minimum requirement for MFIs to avoid negative impact.

Cover Story : A Special Interaction on Social Performance Management With Koenraad Verhagen

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www.microfinancegateway.org/files/49313_file_The_Pocantico_Declaration_Final0515b.pdf Social Performance has been used in Microfinance much more as the deliberate promotion of positive impact by the delivery of high quality financial services to poor, or relatively poor people. It fits the overall concept of CRS, but is more specific, pro-active, goal- oriented in its contribution to the combat against poverty. 6. What role does transparency play in your model ? When the Argidius Foundation was still a member of CGAP we have supported CGAP staff member Syed Hashemi in his lobbying to get ‘social transparency’ be included as one of the key principles of sustainable microfinance. That was in 2004. As to transparency it is convenient to distinguish different categories or stakeholders. Transparency to MFI clients about lending conditions is a minimum requirement. In MFIs , owned by its clients like co-operatives, transparency is statutory regulated. Being transparent towards clients is a moral obligation, creates loyalty, and make them choose the products that fit their situation best. Transparency of lending and savings conditions for clients is included in the framework for the assessment of Social Performance adopted by the international Task Force. SP Management implies the purposeful promotion of transparency to ensure MFI clients be well informed, and have them make responsible choices. To be truly transparent takes time and energy, and skills and tools for communication, in particular, when most of your clients are illiterate and poorly educated. At a national level social transparency about whom are you serving and at what conditions, will make you less vulnerable for intervention by politicians and regulators . At international level, it makes you more attractive for private and public social investors or donors. They also have, and wish, to act in socially responsible way. They have the right to know how well a MFI , or a network of MFIs, is performing socially. If private, most of them want to know that to be sure that financial return is supplemented by social return. If public, investors are accountable for the way they have used tax payers’ money. 7. How would you ensure truthful reporting ? By promoting (external) social auditing and rating as an accepted practice in the MF industry of each country. Further, by promoting reporting of basic social indicators at international level to the MIX ( 10 -20 indicators) . This will make that those MFIs who will not report truthfully on key issues and indicators in the next 3-5 years, will marginalise themselves and could put their image and creditworthiness if they need external support, at risk.

8. What mechanisms would you recommend to gain compliance ? To ensure and promote compliance we ( Ford Foundation, Argidius and CGAP) have in 2005 set up the international Social Performance Task Force which has 350 members now: leading MFIs, networks, investors and donors. Since then Regional and national networks have taken up the promotion of SP concept, SP measurement and management. Tools and guidelines have been developed by international networks like CERISE (Paris-based), the Imp-Act Consortium ( UK based), and US based networks like the Grameen Foundation. You cannot force compliance; you can promote acceptance. 9. Which of the may criteria sets would you use to measure SPM ? Argidius was the first foundation to invest by a small donation in the development of a tool to assess social performance. That was in 2003. It is now known as the SPI Audit Tool from CERISE designed an widely tested by over 100 MFIs to asses and promote Social Performance in Microfinance (SPI = Social Performance Indicators) (see www.cerise-microfinance.org/homeuk.htm for the English version). Main criteria sets relate to outreach to the poor and excluded; adaptation of services and products to target clients; economic and socio-political benefits for clients and their family, and the institution's social responsibility towards staff, the community and environment The other one, is the framework developed by the international Social Performance Task Force and has been adopted by different categories of industry stakeholders which constitute the TF m em b er sh ip . w w w . m ic r o f in an c eg a t ewa y .o r g /resource_centers/socialperformance/article/28257/ The basic idea is that you have a model and a set of well defined core indicators that are widely accepted by the industry, but at the same time leaves space for indicators which are more country or MFI specific. It incorporates the lessons learned from applying social performance management, and provides the basis for social rating by the recognized rating agencies. 10. What percentage of current MFIs, in your opinion, engage in sufficient SPM practice ? I am not in a position to give you precise information on this and the word ‘sufficient’ leaves room for wide interpretation. My guess is over 300 now, assuming that most of the MFIs which have participated in the testing of the models referred to earlier, and have undergone intensified training on SPM and use of tools, are indeed applying it. ***************************************

Cover Story : A Special Interaction on Social Performance Management With Koenraad Verhagen

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A ll of us in the microfinance arena believe strongly that financial services have the power to help peo-ple improve their lives, sometimes dramatically so. However, if offered carelessly or used improperly,

financial services — especially credit — can also cause great harm. The importance of good practice has been demon-strated only too clearly given the role that over-lending to vulnerable families has played in triggering the U.S. and global financial crisis. Yet microfinance institutions (MFIs) must balance fulfilling their mission, surviving competition and achieving profitability and growth. These competing forces may play a role in pushing financial institutions into practices that do not coincide with pro-consumer ideals, such as over-lending or lack of transparency. The endorsing institutions of the Campaign for Client Protection in Microfi-nance (www.campaignforclientprotection.org) believe that microfinance distinguish itself as strongly pro-consumer if it is to retain its positive reputation – and fulfill its mission. The issue of client protection in microfinance is not a new one. Over the years, a number of industry leaders have dis-cussed the need for an industry-wide code of conduct and a proactive assertion of the brand of microfinance as a double bottom line industry. Over the past several years, consensus has emerged that providers of financial services to low-income clients should adhere to six core principles. These principles, which guide the Campaign, are distilled from the path-breaking work by providers, international networks, and national microfinance associations to develop pro-consumer codes of conduct and practices. 1. Avoidance of Over-Indebtedness. Providers will take

reasonable steps to ensure that credit will be extended only if borrowers have demonstrated an adequate abil-ity to repay and loans will not put the borrowers at sig-nificant risk of over-indebtedness. Similarly, providers will take adequate care that non-credit financial prod-ucts, such as insurance, extended to low-income clients are appropriate.

2. Transparent Pricing. The pricing, terms and conditions of financial products (including interest charges, insur-ance premiums, all fees, etc.) will be transparent and will be adequately disclosed in a form understandable to clients.

3. Appropriate Collections Practices. Debt collection prac-tices of providers will not be abusive or coercive.

4. Ethical Staff Behavior. Staff of financial service provid-ers will comply with high ethical standards in their inter-action with microfinance clients and such providers will ensure that adequate safeguards are in place to detect and correct corruption or mistreatment of clients.

5. Mechanisms for Redress of Grievances. Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients.

6. Privacy of Client Data. The privacy of individual client data will be respected, and such data cannot be used for other purposes without the express permission of the client while recognizing that providers of financial ser-vices can play an important role in helping clients achieve the benefits of establishing credit histories.

The Six Principles are the foundation upon which The Center for Financial Inclusion at ACCION International, CGAP and many other industry players established the Campaign for Client Protection in Microfinance, now in its pre-launch phase. The Campaign is above all committed to protecting microfinance clients and ensuring that the financial services offered by MFIs do no harm. Through a variety of on-line activities, tools and outreach, the Campaign looks to:

Raise awareness and encourage dialogue throughout the microfinance industry about client protection.

Develop tools to facilitate the implementation of the client protection principles by financial institutions.

Committing the Microfinance Industry to

Proactive Consumer Protection

i-Focus

Ms. Robin Ratcliffe, Director, Campaign for Client Protection in Microfinance

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Generate industry-wide norms among microfinance practitioners concerning client protection.

Collaborate with microfinance providers, networks and associations worldwide to develop and implement stan-dards for the appropriate treatment by financial institu-tions of low-income clients based on six principles of client protection.

Develop positive incentives for good client protection by MFIs, such as certification standards that set apart those institutions which have fully implemented pro-consumer practices.

Work with microfinance investors and donors to incor-porate adherence to the client protection principles by MFIs into their due diligence, funding agreements and monitoring processes.

The Campaign is guided by an International Steering Commit-tee, made up of twenty-three recognized leaders in the mi-crofinance industry from every region of the world. They ensure that the Campaign will be broad-based and capable of helping to shape the practice and principles of thousands of microfinance organizations currently serving tens of mil-lions of the working and entrepreneurial poor. During this initial stage of the Campaign, the Steering Committee has set its sights on providing microfinance institutions worldwide with the tools they need to facilitate the implementation of the Six Principles. ************************

Clara Serra de Akerman President, WWB Colombia Colombia

David Baguma Executive Director, Association of Micro Finance Institutions of Uganda (AMFIU) Uganda

Gabriel Davel CEO, National Credit Regulator South Africa

Diana Dezso Program Director, Network Devel-opment, SEEP Network United States

Henri Dommel Director, Inclusive Finance Prac-tice Area, UNCDF United States

Anne Hastings Executive Director, Fonkoze Haiti

Francisco De Hoyos Executive Director, Prodesarrollo Mexico

Shireen Farrag Executive Director, Sanabel Egypt

Grzegorz Galusek Executive Director, Microfinance Centre (MFC) Poland

Samit Ghosh Managing Director, Ujjivan India

Mathias Katamba CEO, Uganda Finance Trust Uganda

Anne-Françoise Lefèvre Head of WSBI Institutional Relations, World Savings Banks Institute(WSBI) Belgium

Paul Luchtenburg Managing Director, Angkor Micro-finance Kampuchea Cambodia

Asad Mahmood Managing Director, Global Social Investment Funds, Deutsche Bank United States

Kate McKee Senior Advisor, CGAP United States

Nejira Nalic Board Chair, Mi Bospo Bosnia

Beth Porter Special Advisor, Freedom from Hunger United States

Pilar Ramirez General Manager, LOC Fund Bolivia

Hans Ramm Financial Sector Development, Swiss Development Corporation Switzerland

Beth Rhyne Managing Director, Center for Financial Inclusion United States

Daouda Sawadogo General Manager, Fédération des Caisses Populaires du Burkina (FCPB) Burkina Faso

Vipin Sharma Managing Director, Access Devel-opment & Access Alliance India

To date, more than 60 leading MFIs and other financial institu-tions, 50 of the largest microfinance investors, and 200+ indi-viduals have endorsed the Campaign for Client Protection in Microfinance. To learn more about the Campaign or to offi-cially endorse, please visit: www.campaignforclientprotection.org

Campaign Steering Committee

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Best Practices

Last year, Anita Campion and Chris Linder of AZMJ, an international development consulting firm based out of the Washington D.C. area, researched and pub-lished in collaboration with Imp-Act Consortium, a social performance management guide titled, Putting the ‘Social’ into Performance Management: A Prac-tice Based Guide for Microfinance. During the course of their research, Microfinance Managers frequently brought up the need for better analytical skills in their staff, not just related to social performance, but all aspects of performance. A common refrain was, “we collect so much information, but we don’t know what to do with it.” And then the Global Financial Crisis hit. Microfinance Managers everywhere, who had long considered themselves immune to such global shocks, got nerv-ous as liquidity dried up and accessing capital on the global capital markets became tough. With this sce-nario in mind, AZMJ designed a training of trainers on building analytical skills for microfinance decision making which will prepare our industry to face the challenges associated with the global financial crisis. More than ever, mangers will need to rapidly absorb and respond to changes within their markets, and this requires solid and flexible analytical skills for good decision making. Without seeking any donor funding, AZMJ launched the first batch of the training of trainers in January. Microfinance practitioners, network partners, and independent consultants came from Tunisia, Jordan, Jamaica and Washington, DC. The two-day training of trainers (TOT) dealt with analysis relating to all as-pects of a microfinance institution’s operations and focused on applying deductive reasoning and

thoughtful analysis to tackle common institutional problems. The TOT structured in four modules related to financial analysis, operational analysis, client needs assessment and market research analysis, and social performance management analysis. Emphasis was put on determining the validity and relevance of in-formation prior to analysis, as well on how to use the information to make effective decisions post analysis. Through the participatory approach, participants learnt how to build analytical skills in others. During the TOT, participants repeatedly raised ques-tions about the process behind analysis and it was agreed that conceptually it was very tough to grapple with because it involved bringing a person’s intuitive thinking in line with ‘analysis.’ Participants realized that this was best learned through continuous prac-tice and came up with innovative models of structur-ing and delivering the training, such as by spreading the training over multiple weeks and doing a half-day long session each week. At the end of the training, participants discussed ad-aptations they would make while delivering the train-ing to different levels of staff, and things to keep in mind while training others. -By Rashmi Ekka, Finance & Research Specialist, AZMJ Please contact Rashmi Ekka at [email protected] if you need more information about this training and would like to have it conducted for your staff.

Building Analytical Skills

A New Product from Anita Campion

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Interview

An Exclusive Interview with

Dr. Muhammad Yunus, Nobel Laureate 2006

“At least

10 % of all bailout packages every where should be ear-marked for victims in the third world”

“All these crises have their roots in the same thing. These are not separate

crisis. You have to adjust the root causes than you are adjusting all of them. The root causes are the wrong structure, the capitalism structure we have. We have to redesign the structure we are operating in.”

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Dr. Yunus gave an exclusive interview to the “MICRO FINANCE FOCUS – a global magazine on

micro finance and sustainable development” at the Reception Dinner on 30th March 2009 on the eve of the Sa-Dhan’s National Micro finance Confer-

ence 2009 being organized at New Delhi.

Here are the excerpts from the interview: MF FOCUS: Microfinance is an established and

recognized instrument for fighting poverty to-day. Many people are confident and it gives hope, poverty can be eliminated. Isn't it too

simple just to rely on microfinance?

Dr. Yunus: You don't have to. Nobody is forcing you to do that. If somebody wants to do Microcredit – fine. I wouldn't say this is something everybody should have.

Nobody says it is the only solution. Human beings are very multidimensional. Microfinance is one of the many, many things.

MF FOCUS: Social business is an additional

way. Do you identify enough potential for so-cial business to make a real difference, glob-ally?

Dr. Yunus: Yes of course. Definitely it is a global and not a local issue. There are two kind of businesses:

One is business to make money, the other business is to change the world. The one with the intention of

changing the world and not to have any personal gain from that. It is all dedicated to make a difference. It is addressing a social issue. Resolve it, you can do that.

MF FOCUS: What are all the factors making social businesses successful?

Dr. Yunus: A good business plan, good ideas and use

the creativity in the most creative way. MF FOCUS: Microfinance as well as Social

businesses have to be highly efficient. How is it possible to maintain or re-introduce the social mission back into microfinance?

Dr. Yunus: Whenever something gets popular, actually

catches attention, there are people who take advan-tage of that and misuse it. It happens in everything.

When Big brands are popular, it gets imitated by fake ones. Same thing happens with microcredit: People name it microcredit but in fact it is not microcredit. It

is something completely different. People have to be made aware of what is microcredit and why it is im-

portant to stick to the real microcredit and not one which has a different motivation. But while you are looking at the microcredit itself, even good people may

have wrong ideas, which makes them shift away from the whole idea, the mission. You have to be very care-fully remind ourselves, what is our mission. That is

why we have meetings like this, to rediscover your mission and then re-adjust your work to the mission.

MF FOCUS: To build an enabling environment for social entrepreneurs, what governments

should do and what regulations do you count as important?

Dr. Yunus: It is very important. Very Impor-tant!! Regulation is very important but at the same

time regulation can be stifling, destroy the whole busi-ness by over regulating and make it impossible to function. It is like a mother and a child. You know how

you have to change your child to do the right things. At the same time you should not control your children so that it loses all its initiative. It is like becoming a

prisoner in the hands of the mother. Regulation should be promotional, a Cheerleader. At the same

time making sure you do the right thing that you don't drift away from the real principles. It is a tough job in the sense you have to balance both: How to encourage,

and at the same time how to restrain. MF FOCUS: Due to the financial and economic

crisis development funds were cut by the north. Where do you see the responsibility of

rich countries in fighting poverty? Where should they act?

Dr. Yunus: See...The southern countries didn't create the crisis, they are the victims of the crisis. It is only one country which created the crisis and it spread all

over. Those who were involved in creating this crisis

Interview: A n Exclusive Interview with Dr. Muhammad Yunus

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also have a moral responsibility to make sure that the victims are supported . There are lot of people suffer-

ing, that has to be taken care of. Now they are busy of making bailout packages and all the support. And i am saying ...At least 10 % of all bail-

out packages every where should be earmarked for victims in the third world. Those things have to be

built in the system. MF FOCUS: Apart from poverty there are

many topics, which can be solved or bargained only on an international level: Climate Change for example. Nicholas Stern is convinced, we

have to solve both topics together: Poverty and Climate Change.

Dr. Yunus: Well, financial crisis is the latest crisis. 2008 had the food crisis, which is still here. Simply

front pages have been taken over by financial crisis and has pushed away all discussion about the food crisis. 2008 was also the year of energy crisis – the oil

prices shot up to the sky. It didn't disappear, it is lying low for a while. And also this is a perpetuating envi-

ronmental crisis. All these crises have their roots in the same thing. These are not separate crisis. You have to adjust the root causes than you are ad-

justing all of them. The root causes are the wrong structure, the capitalism structure we have. We have to redesign the structure we are operating in.

Wrong, unsustainable lifestyle. We have to take the hard decision ! We and each one of us must take a de-

cision on this planet. And also we should inculcate among our children a simple way of living. We should not live in a way, that it harms another person. Once

you take this decision, everything will be solved. We have no right to live a life which is harming anybody else. It is like traffic laws: You can't have a car and

knock everybody off the road. There's a rule you have to drive safely, so that you don't harm anybody. Same

thing is for living on this planet. We are sharing with each other.

MF FOCUS: Grameen Bank has moved to Grameen II methodology, still Grameen repli-cators in India follows the Grameen I model.

Do you think they should explore such flexible

“Those who were involved in creating this crisis also have a moral responsibility to make sure that the victims are supported”

“It is like traffic laws: You can't have a car and knock everybody off the road. There's a rule you have to drive safely, so that you don't harm any-body. Same thing is for living on this planet. We are sharing with each other.”

“People have to be made aware of what is mi-crocredit and why it is important to stick to the real microcredit and not one which has a differ-ent motivation.

“Regulation is very important but at the same time regulation can be stifling, destroy the whole business by over regulating and make it impossible to function. It is like a mother and a child. You know how you have to change your child to do the right things. At the same time you should not control your children so that it loses all its initiative.

“Microfinance Focus is a good initiative. Com-municate...... I mean..... Let the people know what is happening, what is right, what is wrong, so they can participate in debate, discuss, make more efficient, more cost effective and more friendly to take home.


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methodology?

Dr. Yunus: It is upto them, what they like..... I can not advise. We thought we can solve some of the prob-

lems. we see the opportunity that we have by relax-ing our procedures and rules to make it more friendly.

MF FOCUS: What is the next level for Micro finance and how to take it forward?

Dr. Yunus: Next level is to enter into Insurance, pen-

sion funds, second generation issues young children coming up.... growing up................. to make them into better citizen to deal with life.

MF FOCUS: Savings product is much needed by the poor. Regulation is cautious not to al-

low collection of savings by certain category

of MFIs. What is your opinion?

Dr. Yunus: Savings product is very important. Change the law!!! Keep on insisting that the system is right.

MF FOCUS: With Micro finance focus, the monthly magazine, we are working on infor-

mation exchange and promoting Best prac-tices. How important are projects like Micro finance focus for the sector.

Dr. Yunus: Yeah ! This is a good initiative. Communi-

cate...... I mean..... Let the people know what is hap-pening, what is right, what is wrong, so they can par-ticipate in debate, discuss, make more efficient, more

cost effective and more friendly to take home. ——- Thank you so much for your time .

Microfinance Focus Team with Dr. Yunus , (Left to Right : Ms Ayesha, Mr. Vikash , Prof. Yunus, Mrs. Christina, Dr. N Jeyaseelan


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SA-DHAN, THE Association of Community Development Fi-nance Institutions, (the national association of 220 commu-nity development finance institutions and other sector stake-holders), hosted National Microfinance Conference 2009, at New Delhi under the theme "Microfinance Ecosystem- Equi-librium between Growth and Effectiveness”. Nobel laureate and founder of Grameen Bank, Prof Muham-mad Yunus delivered the inaugural address at Sa-Dhan Na-tional Microfinance Conference 2009, here in New Delhi. Prof Yunus called upon Indian MFIs to keep up the national and international lead in social business. At the conference Prof Yunus said, “The bottom is to operate without incurring losses while saving the people and the planet - and in par-ticular those among us who are most disadvantaged - in the best possible manner.” Prof Yunus appreciated the example Indian Microfinance gives to the world, with some of the most innovative MFIs and the National Bank for Agriculture and Rural Develop-ment (NABARD) led SHG-bank-linkage programme, which is world’s largest microfinance programme with over four crore households reached since its inception. The conference, through its technical sessions, deliberated upon various aspects of microfinance and economic growth at the base of pyramid, growth in microfinance and gaps in practice, structural challenges of scale and the balancing act and unveiling the new microfinance ecosystem. Magsaysay laureate and chair emeritus, Sa-Dhan, Padma Bhusan Ela R Bhatt in her Key note address reminded to the august gathering of financial experts that “Effective microfi-nance is not to be measured in terms of the speed of growth, but in the creation of long term relationship between the MFI and the client and the community," she added "Basically, banking is relationship, not finance. Relationship, continued relationship, relationship of trust. It is through this relationship that the poor woman – like any other client, by the way – gains a sense of security and confidence to plan to take risk in her life and livelihood. And eventually develops a stable livelihood.” Bhatt is also the founder of Gujarat-based SEWA bank and

chair emeritus of Sa-Dhan. Bhatt, awardee of Ramon Mag-saysay for public service, appreciated the "Raghuram-Rajan-Commission's" recommendations for broadening financial access, namely to create small regional banks and to expand scope of banking correspondents. Microfinance Institutions (MFIs) are playing a crucial role in the mission of financial inclusion in India. They provide small loans to over 141 lakh clients (2007-08), 80 per cent of them poor women and around 30 per cent from SC/ST back-ground, to take up small enterprises that would get them a fair income and provide employment in both rural and urban areas. Moreover, MFIs also cover the risk of poor by provid-ing financial services like life insurance, remittances and within the careful scope permissible by RBI micro-savings. As per the Bharat Microfinance Report 2008, published by Sa-Dhan, the MFI channel served about 141lakh clients with a portfolio outstanding of about Rs 5954 crores by 2007-08. The growth over the preceding financial year has been 53 per cent and 72 per cent for client outreach and loan portfolio respectively. The microfinance sector in India is growing de-spite a legal vacuum. The conference advocated for the im-plementation of the recommendations of high level commis-sion on financial sector reform and a microfinance act that would integrate into an ecosystem to sustain effective growth for financial inclusion of India’s poor. Mathew Titus, executive director Sa-Dhan during his address at the conference said “Sa-Dhan continues to build a culture of transparency and fairness among various MFIs and their different models. Sa-dhan voluntary code of conduct and Bharat Microfinance reports contribute continuously to a steady development of the microfinance sector and ulti-mately of the well-being of the microfinance clients. H Bedi, chairperson Sa-Dhan delivered the welcome speech RM Malla, chairman-cum-managing director, SIDBI delivered a special address and the keynote address was delivered by Ela R Bhatt, founder SEWA bank. Further eminent panelist includes Mahajan, group chairman BASIX, A Fernandez, chairperson, Saghamitra Rural Financial Services, B P Vijayendra, CGM, RPCD, RBI, U C Sarangi, chair-man, NABARD and Prof Subhasis Gangopadhaya, managing trustee, IDF. ***************************

Sa-Dhan`s National Microfinance Conference 2009

Special Coverage

Mr. Achal Paul

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Ela Bhat (Founder, SEWA Bank)

The effectiveness of microfinance is not in growth, but in the

long term relationship of microfinance with clients and the

community. Banking, after all, is a relationship of trust and not

mere finance. Banking with the poor is a resource mobilization

opportunity for bankers. Bankers need to invest more in the

microfinance sector.

R. M. Malla (CMD, SIDBI)

MFIs should have improved governance by inducting inde-

pendent directors onto their boards. The rate of interest

(pricing) will be in the green light so long as it remains within

10% over commercial interest rates. SIDBI has started offering

long term finds to MFIs apart from thee hitherto facilities of

short term funds.

Professor Yunus (Nobel Laureate & Founder, Grameen Bank)

The recent financial crisis affects only the MFIs which depend

on foreign money. Micro credit cannot go anywhere unless the

money problem is solved. The solution is creating a separate

microfinance bank. Microfinance banks should be owned by

the borrowers themselves. Even the regulators can permit

microfinance banks on an experimental basis; on achieving

certain performance standards, they may be approved. Micro

credit is not to gain personal money but to bring people out of

poverty. Keep the mission alive. Many NGOs do not disclose

the effective interest rate structure in full. 12.5% flat is close

to 25% on a reducing balance over one year. When the repay-

ment is reduced to 40 weeks, the rate rises above 25%. MFIs

need to disclose interest rates on an annualized standard rate.

Change in Banking Law: The present banking law is not appro-

priate for microfinance. It is like a super tanker, which can sail

only in the ocean, in deep waters. Microfinance is like a small

boat which can sail in shallow waters for short distances.

Hence, we should have separate banking laws for microfi-

Highlights of Inaugural Speeches

Rakesh Rewari (Deputy Managing Director, SIDBI)

Reaching the Unreached is important. SIDBI’s microfinance

services offer assistance packages to the under-reached

areas (like the North East).

Ela Bhatt (Founder, SEWA Bank)

Self employed women’s associations typically utilize

loans in3 phases:

1)Loans used to repay existing debts

2) Further credit used to purchase tools and material

3) Third phase of loans for working capital

Professor Mohammed Yunus (Nobel Laureate; Founder,

Grameen Bank)

In Bangladesh, microfinance has reached 80% of the poor. In

the coming years, it will be possible to reach the remainder.

However, in India just 20% of the poor has been reached

through microfinance. There will be several detractors and

critics; as long as you know that you are in the right and that

this is good work, keep going and don’t hesitate. Social busi-

ness has a different list of objectives without personal gain.

It is focused on no loss and no dividend. However, costs are

covered. Social business can make a profit, although it does

not go to the company or owners. Grameen Bank has been

promoting social business to address water problems, mal-

nourishment of children and energy. Grameen Bank gives

loans to children for the purpose of higher education.

Amitabh Verma (Joint Secretary - Banking, Ministry of Fi-nance)

Learn to work with government institutions. While fed-

erating, it is important to learn lessons from the coop-

eratives so as not to run into the same obstacles.

Unveiling the New Microfinance Ecosystem (Highlights)

Special Coverage : Sa-Dhan's National conference 2009

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Short Interviews and Opinions from the Conference Venue

Helping people raising capital to spread the system is our mission. Funding is the main

constrain for almost every MFI. The economic crisis definitely affects us and it is a huge

challenge to raise money, especially for start-ups and young organizations. Anyway, the

MF-sector is doing much better than other sectors because the poor are more isolated

from the system. At the conference I am here for meeting people. In fact Yunus’ session

was the first I attended at these conferences. But it is an interesting opposition to meet,

here are lots of useful people and of course friends

The initial discussion at the Sa-Dhan National Microfinance Conference 09 focused on the

problems and issues requiring attention and remedy. In a short interview, Suresh Gurumani

(Chief Executive Officer, SKS Microfinance) revealed that the competence of the microfi-

nance sector should be showcased in such forums. “Here is a chance for us to show regula-

tors, investors and others that we are a responsible, credible sector and ready for new laws.

We have made investments in technology and governance. If we are to take microfinance

to the next level, the successes of the sector must be discussed,” he explained.

Showcase the Sector’s Competence -- Suresh Gurumani: CEO & MD , SKS Microfinance

Crisis affects Start-Ups -Eric Savage | Managing Director, Unitus Capital

Quality human resources is an area of concern among MFIs today. This morning, minutes

ahead of the conference, Sankar Datta (Dean, The Livelihood School) took time to share

his views exclusively with Microfinance Focus. “It’s not rocket science. With quality train-

ing, personnel will not only be able to identify livelihood opportunities for clients but will

also develop far more compassion in dealing with these clients.” Microfinance can im-

pact lives when the benefits from the sector extend beyond credit.

Quality HR: It’s not Rocket Science -- Sankar Datta (Dean, The Livelihood School)

Make Sound Lending Decisions -- Alok Prasad (Country Director—Citi Microfinance )

...reaffirmed the necessity of assessing a borrowers repayment capacity. “There are two

things at work here - the ability of the borrower to repay the loan and the willingness of

the borrower to repay the loan,” he explained. While also touching upon the changing

needs of different client segments, he also expressed the need for MFIs to customize

credit products.


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Short Interviews and Opinions from the Conference Venue

Veena Mankar (Managing Director, Swadhaar Finacess) endorses the social development aspect of

microfinance, but offers a word of caution. “Investors expect higher returns while MFIs want to

spend on financial literacy or livelihood enhancement. Carefully pick investors,” she advises.

The conference is going very well and the presence of distinguished practitioners of microfinance

only adds to the quality of the discussions. Core issues have been focused on to give us food for

thought.

Now Chew on This - B. B. Mohanty (CGM, NABARD)

Choose Investors Wisely- Veena Mankar (Managing Director, Swadhaar Finances)

Our organisation started with Microfinance only four years back and we have different loan prod-

ucts. The main challenges we face in the rural areas is the time it takes to recover from disasters like

floods. In the urban sector it is our size: We have a lot of competitors and our operational costs are

higher than those of the big ones. Yes, and then it is difficult to get along with the human resources.

At the conference I attend the sessions, exchange views with colleagues about capabilities.

Saving is the challenge, Haseena Vahanvaty , Director, Swadhaar Finacess)

The main challenge we face with our work is get the women in the slums to save. We have modules

for financial education, working on urban Microfinance. We want to get the women start to save, to

get a saving account, use it and make the women regularly safe. We try to get them at our meetings

once a week and make it fun for them. At the conference I am here for the sessions. And of course,

having a look what other MFIs are working on.

Small MFI, big operational costs , Bachospati Chowdhury, Kalighat Society for Development Facili-

Find More at

www.microfinancefocus.com/events


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MIX Announces Release of Social Performance Indica-tors Source: Microfinance Information Exchange (MIX) The Microfinance Information Exchange (MIX) has sent a questionnaire designed to evaluate social perform-ance to over 1,300 MFIs. The questionnaire, available in English, Spanish, and French, consists of 22 core indica-tors covering topics such as client poverty level, pro-gress out of poverty, product design, and institutional policies and procedures. The indicators result from collaboration between MIX and the Social Performance Task Force (SPTF). Last spring, MIX piloted an initial set of SPTF-designed social performance indicators to a test group of more than 100 MFIs. Based on their feedback, the SPTF revised the material into the 22 core indicators now receiving general distribution via MIX. To read full article and view survey, please download http://www.microfinancegateway.org/files/56418_file_MIX_SPI.zip What the Poor Can Teach the Rich at G-20

Source: The Christian Science Monitor

This week's G-20 summit is essentially an echo chamber for the worlds wealthy to talk macro-finance. The world economy might rebound more quickly if they listen to what the poor have to say about microfinance.

Indeed, just as the global financial system is imploding, the microfinance sector is expanding. It is ironic that the poor, who have been chronically ignored, or at least underserved, seem more adept at keeping finan-cial institutions healthy at a time when global giants are struggling to hold their ground even with billions in bailouts. Maybe the behemoths in the market (and those now wishing to save them) could learn a thing or two from the "little people." To read full article http://www.csmonitor.com/2009/0401/p09s02-coop.html

Blue Orchard reports continued growth for 2008 Source: Blue Orchard

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BlueOrchard, a global leader in commercial microfi-nance investment management, grew its assets by nearly one third in 2008, according to initial financial results for the year. As at 31 December 2008, BlueOr-chard had USD 870 million total assets under man-agement of which USD 670 million were invested with 130 microfinance institutions (MFIs) in 40 countries, up from investment portfolios of USD 580 million at the end of 2007 and USD 307 million at the end of 2006.* BlueOrchard estimates that in 2008 its partner MFIs reached roughly 9 million micro-entrepreneurs worldwide, more than half of them women. Read More : http://www.blueorchard.com/jahia/Jahia/newsArchive#3544

Microfinance Sector in Asia Gets Boost with Opening of New Office Source: Official Website of FDC

The microfinance sector in Asia will receive a boost with the opening of The Foundation for Development Cooperation (Singapore) Ltd. FDC Singapore is an in-ternational development organisation focused on helping the poor in neighboring countries to improve standards of living through a range of development initiatives. FDC Singapore is excited about the pros-pects for its operational work in the years ahead and the contribution the Asia Regional Office can make to poverty reduction in developing countries in the re-gion. Read More: http://www.fdc.org.au/files/news/2009/March/Press-Release-Singapore-Opening.pdf

SKS Microfinance concludes Rs 1 bn securitization deal with Yes Bank Source: myiris.com SKS Microfinance, India`s largest and world`s fastest growing microfinance institution, has recently com-pleted a unique securitization deal worth Rs 1 billion with Yes Bank. The transaction the first securitization deal in India to get CRISIL`s highest safety rating - allows the bank to purchase 1, 48,950 micro loans extended to un-banked SC, ST and minorities families identified by the RBI as weaker sections and hence a priority. Announcing this landmark transaction, S. Dilli Raj,

CFO of SKS Microfinance said, ``with this transaction, a new asset class is born. For the first time in the In-dian MFI history, a securitized pool is rated P1+ (SO) which is the best possible rating and showcases SKS`s structuring and financial innovation skills.`` Read more: http://myiris.com/newsCentre/newsPopup.php?fileR=20090402191917203&dir=2009/04/02

Mi-Pay Launches Mobile Remittance Service in Si-erra Leone Source: finextra.com Leading international mobile money services provider Mi-Pay has announced that it will offer online and mobile international remittance solution in Sierra Leone. This will be Mi-Pay’s first entry in West Africa. The service will allow customers in the Sierra Leone corridor to use their mobile phone or the web to send/receive money payments to and from friends and relatives abroad. The announcement follows the launch of Mi-Pay’s domestic mobile money transfer solution in Sudan, which is undergoing roll out by agent-based Saraf Mobile across North Africa. It pre-cedes the anticipated announcement of an East.

.Read full article : http://www.finextra.com/fullpr.asp?id=26810

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News

Download Past Issue of Microfinance Focus www.microfinancefocus.com

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Stop Managing Personalities and Start Managing “The Process.” Due to a growing number of requests… Microfinance Fo-cus Magazine plans to pro-vide access to the team of MFI management experts on our staff. Microfinance Fo-cus Magazine is launching a new initiative designed to provide MFI management with key organizational skills. Principal among them is Busi-ness Process Management. (BPM) effective management of business processes enables a host of other essential com-ponents of organization man-agement. All processes are cross-departmental. This is where many costly problems start. When a process (budgeting, Sales, Portfolio

Management) crosses be-tween departments, the po-tential for delay, duplication, loss, and other mistakes are multiplied. Without well-prepared graphic processes, management has difficulty troubleshooting human prob-lems … and introducing tech-nology without effective process just makes it worse. The MF Focus Business Proc-ess Management is an inte-grated, interactive and per-formance based training process that produces a com-petent and certified internal process management team. Each MFI that is participates may be certified as a CMFPO demonstrating that all proc-esses and procedures are documented and auditable on demand. Our program is designed by a team of key

managers and staff, all of whom have in-depth MFI experience including: Dr. Souren Ghosal, Knowledge Advisor, Mr. Jerome Pelo-quin, Managing Editor, US and Bruce Meraviglia, IT Engi-neer and Instructional Expert The Process Management Team - Through engagement of all Departmental Managers as The Process Management Team, both cooperation and communication are greatly enhanced. Managers’ need to work together to solve process bottlenecks. Every department manager knows that the problem being solved for another depart-ment today could be his problem tomorrow. Process Management promotes co-operation and reduces con-flict and lost time. With ef-

fective business processes in place senior managers can readily track performance, analyze problems easier, un-derstand the business better, and direct the application of technology so as to really improve operations and profit. Everyone who participates in the program will be able to create effective functional process models. We guaran-tee it, or you get your money back! Our performance based learning uses the Con-sult, Train, Mentor method. We work with each and every manager on the team so that they are fully confident and capable of creating, monitor-ing, and modifying their proc-esses as change and perform-ance improvement WE GUARANTTE IT!

Process Management: The Number One Issue for MFI Leadership

Microfinance Focus Published From Bangalore

microfinance focus april issue 2009

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