Microcredit Summit Campaign – Setting a High Bar for Microfinance

Any organization working in microfinance should ask themselves two questions: (1) who are we? And (2) why are we here? The Student Microfinance Movement posed these questions in their introductory blog postsix months ago, and now that the first ever Month of Microfinance is nearly over, we – the Microcredit Summit Campaign – seek to answer those questions in this blog post.  We will also introduce you to an exciting industry initiative we are collaborating on to ensure that microfinance achieves its poverty reduction mission: the Seal of Excellence for Poverty Outreach and Transformation in Microfinance.

Who are we?

We are a global microfinance network which brings together practitioners, advocates, educational institutions, donors, NGOs, and other microfinance stakeholders. Our work seeks to promote best practices in the field, to stimulate the interchange of knowledge and learning, and to keep the field on track toward reaching our two goals for 2015: reaching 175 million of the world’s poorest with microfinance services, and ensuring that 100 million families rise out of absolute poverty.  As we are making good progress toward the achievement of our first goal, we have been refocusing on our second goal: making sure that absolute poverty is cut in half over the next few years. In this capacity, we are acting as the Secretariat for a new and bold initiative that seeks to set a high bar for excellence in poverty-focused microfinance. The Seal of Excellence for Poverty Outreach and Transformation in Microfinance (the Seal), steered by industry leaders who represent a range of perspectives, aims to recognize and certify those institutions doing the most to help families lift themselves out of poverty.

Why are we here?

The New York Times published an article by Neil MacFarquhar (4/13/2010) titled “Banks Making Big Profits from Tiny Loans.” It questioned whether microfinance institutions were staying true to their poverty-fighting missions or drifting off course. Under scrutiny were the high interest rates paid by very poor clients, and as the title states, the big profits certain MFIs were making. This article made a big splash and served to underscore a debate that had been simmering in the industry for a while about pricing transparency, profiting off of the poor (see the IPO debate in the State of the Campaign Report 2011), and a general feeling that mission drift was becoming prevalent. The Campaign and key allies have always argued that our movement is about more than money; it is about unlocking dreams.

The increasing debate over the effectiveness of microfinance to contribute to poverty reduction demanded a response. Then-Campaign Director Sam Daley-Harris began a dialogue with a small group of U.S.-based leaders to determine how the industry should respond, leading to the proposal of a “Seal of Excellence” for microfinance, to clearly identify institutions that are actually achieving their poverty reduction mission, enabling clients to transform their lives.   

Collaboration and Building Buy-in

The initial group, an interim steering committee, brought in actors representing various stakeholders in microfinance. Together they developed the basic ideas for the Seal and then commissioned a concept paper and invited feedback, both through targeted outreach, through presentations at industry gatherings, and through public circulation and posting. “Beyond ‘Ethical’ Financial Services: Developing a Seal of Excellence for Poverty Outreach and Transformation in Microfinance,” outlined the Seal’s aspirational tone, to “set a vision for the sector in terms that highlight the potential of microfinance to serve the poor and to contribute to a positive transformation in the lives of clients and their families and communities”.

The steering committee established a dialogue with the Smart Campaign and the Social Performance Task Force (SPTF) to align our collective work and to ensure that the Seal builds upon the tools and standards already established by these bodies.  [Learn more]

The Seal takes the additional step to set a high bar, certifying those institutions which not only follow the “do no harm” client protection principles and meet double bottom line commitments, but which also achieve results by demonstrating significant outreach to the poor and success in helping a portion of them transform their lives and move out of poverty.

The way forward

The Seal Technical Committee has drafted a set of indicators to certify organizations, has conducted alpha tests on those indicators, and they will move forward with beta testing this spring and summer. Based on the results of the tests, the technical committee will refine and publish a methodology for conducting the assessment of institutions. Assessing organizations will likely take place in conjunction with ongoing social rating or social audit initiatives in order to limit additional costs and reporting burdens by microfinance institutions. According to the plan, the first Seal assessments and certifications will take place in late 2012/early 2013. By receiving the Seal, an MFI distinguishes itself to the community, its clients, and to socially minded investors and donors who wish to reward those institutions with increased investments.

So, who are we? We’re just one organization among many shepherding The Seal of Excellence for Poverty Outreach and Transformation in Microfinance initiative forward, which in the end, will recognize institutions that are doing the most to reduce poverty and helping clients transform their lives.

Visit our website to the learn more about the Seal and post your comments to this blog post.

 

— Bridget Dougherty, Program Associate, Seal of Excellence

— Sabina Rogers, Communications and Relationships Manager

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