November 2011
Global Microcredit Summit: Some highlights – Day 2
Covering the Summit, AboutMicrofinance reported that a good portion of the topics on the second day were devoted to clients — particularly, client over-indebtedness, collection practices that are unethical, high interest rates charged on microcredit loans, and overall mission drift by microfinance institutions, along with inadequate governance structures that lead to institutional MFIs. Some take-aways:
1) Microfinance is facing certain issues today, partly as a result of recent crises in the sector which gained world media attention, and perhaps need to re-examine assumptions about the effectiveness of microfinance. Anton Simanowitz, of Imp-Act Consortium, suggested that the microfinance community needs to achieve a more “.. transparent balance between the social and commercial goals in all aspects of strategy and management.”
2) Client over-indebtedness is a critical issue for microfinance institutions in various regions. Roshaneh Zafar, Managing Director of Kashf Foundation (Pakistan) noted that the causes are varied: debt servicing does not emphasize cash flow and the impact it has on the client, asymmetry of information about client borrowings, and poor microfinance infrastructure at the sectoral level. To alleviate these situations, credit bureaus need to be established, corporate governance needs to be improved, staff trained, and overall greater consumer protection.
3) Tilman Ehrbeck, CEO of the Consultative Group to Assist the Poor (CGAP) noted that poor people need a broad range of financial services, from for profit and non-profit providers. Financial services for the poor may be viewed as wealth management for people living under $2 a day (of which there are 2.6 billion worldwide). Mr. Ehrbevck noted that the microfinance community — donors, investors, practitioners–should have governance responsibility in ensuring that goals, services and products are delivered to such targeted clients.
4) Ms. Fabiola Cespedes, Social Performance Coordinator for Foro Latinoamericano y del Caribe de Finanzas Rurales (FOROLACFR) noted that a balanced approach consisting of financial and social performance, requiring internal systems and policies, as well as succession planning are critical to maintaining the missions of microfinance institutions.
5) Social Business and Microfinance focused on building partnerships with corporations highlighted the significant role that business can play in addressing the needs of the poor. Franck Riboud, Chairman & CEO of Groupe Danone, which is the leader in the social business arena, successfully partnered with Grameen in 2006 providing yogurt and nourishment to children in Bangladesh. Mr. Riboud noted that financial success in business is dependent on the “social component to your work,” adding that “the question in social business is not whether you have profit or not” and the job of corporations is convincing shareholders of the benefits of engaging in social business. Support of and encouragement for social businesses was firmly voiced by Prof. Muhammad Yunus, founder of Grameen Bank. More highlights and comments will follow.