Microfinance: Progress not Perfection

Steve Wanta is the Executive Program Director for the Whole Planet Foundation.

Often times our future is painted as bleak; global warming, war on terror, wealth inequality in America; just to name a few of the latest headlines.  These stories evoke fear, uncertainty, and doubt.  So how do we make the “right” decision in this new hyper-interconnected world?

In the United States, the most basic elements of our day to day lives, whether the car we drive or the coffee we drink, are connected to far away worlds.  There has been a very clear and growing shift in consumerism that demands greater transparency and ethics in our trade.

Working for Whole Foods Market’s foundation, Whole Planet Foundation, I have been exposed to this movement and have met some of the most passionate social entrepreneurs that aspire to make the world a better place through commerce.  It is the conscious consumer that is demanding more equality and companies are listening.

Organizations like Fair Trade and Rainforest Alliance have been trying to label products to make it easier for consumers to have confidence in the things they buy.  With greater brand awareness for these labels, people began to see products as black and white, good or bad, Fair Trade or not.

This movement has taken the critical step to create standards against which companies can be measured.  As the demand has grown, so has producers’ progress towards these higher standards.  Whole Foods Market has undertaken a major initiative to develop various grading scales to measure meat, seafood, and cleaning products impact on a wide array of issues.  These scales strive for greater transparency, create a path for continual improvement, and allow consumers to make informed buying decisions.

Those in the field dealing with the complexities of poverty know that things are not black and white.  We deal with varying shades of grey, especially as we try to develop norms for an entire industry or product across the globe.

The microfinance sector has recently embarked upon its own initiative to develop the Pro-Poor Seal of Excellence.  Since the inception of the Whole Planet Foundation, our field team has visited our potential microfinance partners to assess the organization’s methodology from the lens of the client experience.  We partner with organizations that minimize the barriers to entry that utilize non-financial ways to mitigate risks as much as possible.

Since its modern-day inception in Bangladesh with Professor Yunus, pro-poor institutions have long been about creating unique mechanisms to mitigate risk.  The traditional collateral based guarantees would have never worked for the poor that did not possess assets.  Pioneers in the industry studied the realities of poverty and rewrote the traditional financial system.

Still microfinance means many different things to many different people.  There has been a need and now an outward call for greater industry standards and transparency.

As the Pro-Poor Seal begins to certify MFIs, the fair-trade movement and Whole Foods Market Eco-Scale offer valuable lessons.  More than any other industry, we in microfinance understand it is the progress that drives us, not perfection.  Microcredit is not a silver bullet; by itself, a singular $200 loan does not make an empowered, prosperous, community leader.

The 16 decisions of Grameen Bank and the Progress Out of Poverty Index are great examples of organizations that understand this truth.  The first priority for anyone living in extreme poverty is to make ends meet.  When developing a Pro-Poor standard, we must be careful when using black and white standards in order to address the nuanced differences in each local market.  Whole Planet Foundation supports microfinance in 55 countries so we have seen clearly that the norms in Asia are radically different from Africa.

One seemingly simple pro-poor standard could be to prohibit the children of clients working in the family business.  One would assume if they are working, they can’t be in school.  This is an example of a rigid standard that in theory makes sense but its practical application is much more complex.

Of course the classic vision of children working in a garment factory is very different.  Children need to be protected from exploitative practices but this is not comparable to the plight of the poor, rural, agrarian household that relies on the labor of their entire family to survive.  This is the unfortunate reality of the most difficult and elusive client that the entire microfinance industry has struggled to serve.

We must be careful that the Pro-Poor Seal doesn’t create new barriers to entry for the people in the greatest need. We must support the progress of our clients, our MFIs, and the industry as a whole to create new, more, and better services to reach the very poor.

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