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Microfinance measures up for bronze, silver and gold standards
‘There is a lot of greed coming into microfinance. A lot of people wish to make a lot of money out of it and that worries me.'
Sir Fazle Abed, BRAC founder, speaking in State of the Microcredit Summit Campaign Report 2011
A ‘seal of excellence’ for microfinance was today launched in the US in the hope of highlighting those organisations that work to lift people out of poverty as opposed to those that simply hand out loans.
The Seal of Excellence for Poverty Outreach and Transformation is being developed by the Microcredit Summit Campaign - a 14-year-old organisation that brings together international representatives to focus on how microfinance can best help the poorest customers.
Microcredit Summit Campaign director Sam Daley-Harris said the seal, whose principles will be open for public discussion before a final version is launched, should become an important tool in the world of social investment.
‘I would want every impact investor for whom poverty reduction is one of their priorities to look at the Seal of Excellence,’ said Daley-Harris.
He was supported by MicroFinance Transparency founder Chuck Waterfield who said: ‘With such incredible growth in microfinance institutions there is a need for some certification, some objective measurement.
‘Efforts such as this seal are needed – and needed now,’ said Waterfield.
The draft concept note and request for feedback on the seal was launched at the same time as the State of the Microcredit Summit Campaign Report 2011 which includes a detailed discussion of the current microfinance controversy.
The controversy includes issues about the high profits created by international share offerings made out of these very small loans to very poor people. There are reportedly cases of poor people being driven to suicide by over-indebtedness, as happens with the loan sharks microfinance institutions are meant to combat.
Among the contributors to the report Sir Fazle Abed, founder of the highly regarded Bangladeshi microfinance organisation BRAC, said: ‘There is a lot of greed coming into microfinance. A lot of people wish to make a lot of money out of it and that worries me.
‘Although I understand the rationale – when return on investment is high, more money will flow into the sector, but people should not take advantage of it and make money out of poverty.’
Daley-Harris said the Seal of Excellence was likely to include bronze, silver and gold levels and that the bronze level would probably include the need to not only measure social impact but also manage it for improved social outcomes.
He said this would help address some of the problems encountered by the rapid growth of microfinance institutions.
Daley-Harris said: ‘One organisation used to do a loan check twice a year, a surprise check to see if the cow or the chickens or whatever it was that the loan was taken out for was there. But, as the organisation got bigger and bigger and staff members had 100 and 200 clients per week to see, they dropped the loan check.
‘Because they dropped the loan check that organisation doesn’t get the social performance it used to.’
As well as the social performance management the bronze level was likely to include a cap on returns or some process for returns to be going to the clients said Daley-Harris.
To get to the silver level organisations will probably have to demonstrate investment in health and/or schools and for the gold level there will be a target for being able to prove a certain percentage of clients have moved out of poverty.
Daley-Harris said that the exact number for the cap on returns, and the target for poverty alleviation, was something to be worked out in the consultation and piloting stage.
He said the Microcredit Summit Campaign hoped to announce the end of its Beta tests – which will involve trying out the standards on four to six microfinance organisations to see what level they come up to – in November this year.
Find out more at www.microcreditsummit.org