Ensuring Microcredit’s Primary Goal Is Changing Lives

By Estrella Gutiérrez Reprint | | Print | |En español

Participants at the Fifth International Microfinance Forum in Caracas. Credit: Estrella Gutiérrez/IPS

CARACAS, Jul 22 2013 (IPS) - Microfinance is essentially social, but its expansion and evolution towards diversified financial services for those who are excluded from the conventional system has compelled it to develop new codes and practices to reinforce the message that its goal is people – particularly the poor.

The Fifth International Microfinance Forum, held in the Venezuelan capital, studied the enforcement and monitoring of the new Universal Standards for Social Performance Management (USSPM) developed by the sector to ensure that internal practices and relations with clients are consistent with its mission of “changing lives.”

“Providing credit for people at the base of the social pyramid does not necessarily mean you are fulfilling a social mission. That is not enough, reality demands more,” Mario Medina, head of social assets projects for Mibanco in Peru, and one of the speakers at the forum, told IPS.

That extra mile “demands good practices in every activity, from collections and client support to how employees are treated,” said Medina, whose institution is one of the best known in Latin America for its support of microbusinesses, and which grants 90 percent of its loans without collateral.

“It was necessary to emphasise that social outcomes are also part of our income, a result, and that the returns are not only financial,” said Micaela McCandless, coordinator of USSPM activities for Accion, a global organisation that promotes financial inclusion based in Boston, Massachusetts.

McCandless told IPS that “the creation of clear universal standards to monitor social management puts the focus on people and makes all areas of the institution, including the financial area, think about the client, the services he or she needs, and also about employees who are very important within the concept of responsibility.”

The Forum was organised by Bangente, a Venezuelan microcredit organisation that serves people whose poverty level makes them “invisible to commercial institutions and unable to enter them, but who with financial support and training are able to change their lives,” Bangente president Juan Uslar told IPS.

At the Jul. 16 forum, and at later meetings between the international speakers and Venezuelan microcredit operators and clients over the next two days, the microfinance industry exchanged experiences on the introduction of the six Standards, established in 2012.

The Standards were formulated by a consensus of the Social Performance Task Force (SPTF), made up of leaders of all parts of the microfinance sector: donors and multilateral or private investors, technical aid providers, national and regional operators, certification agencies, experts and beneficiaries.

Laura Foose, the director of SPTF, said thanks to the Standards, “microfinance is rebooting,” because “there’s incredible momentum around ensuring that the client is at the centre of our work.”

SPTF was created in 2005 by several international organisations, especially the World Bank’s Consultative Group to Assist the Poor (CGAP), which says 2.5 billion people lack access to affordable financial services, although they are key to overcoming poverty.

The Standards build on the work of previous initiatives, like the Client Protection Principles promoted by the Smart Campaign to define, measure and certify dual social and financial results. The campaign was launched in 2009 by microfinance leaders in countries of the developing South and the industrialised North.

Adela Sagastume, planning and marketing manager for the Guatemalan microfinance organisation Génesis Empresarial, told IPS “we saw warning signs that made us understand that the sector had entered a very complex phase that demanded instruments for everything to remain connected to our heart: social questions, the people, and the excluded.”

Ninety-two percent of Génesis Empresarial’s credits and services are granted in rural areas, 67 percent of them to women and 62 percent to indigenous people, said Sagastume, who was also a speaker at the Forum.

She pointed out that some microfinance institutions have evolved into formal banks, while the capital markets are now the largest financiers, replacing donors.

“We who were born to eradicate poverty, improve living conditions, and generate positive changes in clients and their businesses, families and communities have always been concerned with the social return on investments. But the Standards give us clear concepts and well-defined goals, and that does a great deal to facilitate management,” she said.

Moreover, “it focuses each member of the institution and its clients on the goals: for whom, and why, everything is done. The board, the human resources department, client services, the finance sector, marketing – they all line up with this focus and that helps create a convergence of efforts and purposes,” said Sagastume.

In the new scenario, Medina said, recalibrating indicators on the social aspects of practices and assessments “is essential…What is not measured, is not improved, and only when you begin to measure practices and results do you open a new and wide spectrum of aspects you can improve for people’s benefit,” he said.

His organisation, Mibanco, has gone even further than the assessment of dual social and financial results by incorporating “triple results” in its practices, goals, measurements, monitoring and assessments.

“We include the environmental component in credits and services, for the institution as well as for the clients, because without it there can be no sustainable development,” he said.

McCandless said the Standards are: “define and monitor social goals; ensure board, management and employee commitment to social goals; treat clients responsibly; design products, services, delivery models and channels that meet client needs and preferences; and balance financial and social performance.”

She stressed the importance of the decision to set the Standards for management practices and not for social results. “Experience shows that if an institution focuses on balancing financial and social performance, good financial and social results are achieved,” she said.

She added that there were “so far no comparable data to monitor and define standards for client impact,” although she ventured a guess that in the future such universal data might exist.