No Social Mission? No Microfinance!

Jerome Peloquin | Managing Editor-US | Microfinance Focus

Let’s stop providing grants, subsidies, and regulatory relief to those MFI’s who have abandoned or fails to live up to their social mission agenda.

The need for “Social Performance Management,” is a clear indicator of substantial mission drift within the Microfinance sector. Presently, Microfinance is engaged in an ongoing debate over the morality and ethics of the micro credit movement. Our magazine believes there is a pressing need to establish a shared understanding, of the vision, role, and function of global microfinance. We also believe the time for studying the problem is long past. It is time for ACTION!

Is the Microfinance Institution (MFI) a social mission organization with banking and finan­cial component, or is it a micro credit bank with a social agenda? Or are some, as Jonathan Lewis states in his paper published by The Stanford Social Innovation Review, Summer 2008, merely, “Microloan Sharks.”

Microfinance Focus Magazine firmly believes that the role of Microfinance is to function as an instrument of economic and social justice If an MFI can maintain its social mission while achieving sustainability and even profit, then we are total supporters. But, if in order to achieve economic goals the social mission is abandoned – if, and when the profit motive replaces the social mission, as its institutional purpose, then line has been crossed.  Social Performance processes and methods along with open and transparent reporting are the first defense against economic exploitation of the poor.

Why is this necessary? It is necessary because the MFI is the lender of last resort for impov­erished populations, those whose very survival depends upon their ability to eke out a meager living for themselves and their families. The Economist Jeffrey Sachs of The Earth Institute in his book, The End of Poverty, flatly states that Eight million people die every year because they cannot afford to stay alive. Economic exploitation of at this level is an offense against all hu­manity. There are those who will say that the MFI lending, no matter the interest rates improves the lot of the poor. The burden of proof is upon them. Let them prove it. Exploitation is never justified.

The fact is that the reporting methods used by many MFI’s seem intentionally opaque so as to render an objective analysis of lending practices and profit difficult to impossible. There is a general consensus in the sector that existing financial reporting is less than accurate … Lack­ing an effective and enforceable set of either financial, or social performance reporting stan­dards. It is impossible to tell which MFI’s are treating fairly and which are seeking to maximize their profits at the expense of their poor clients. Fee structures, lending policies and, upon oc­casion, intentionally misleading statements about how interest is charged are far too common.

The sector is understandably sensitive to such charges. The frequency and specifics of ques­tionable practices seem to be growing in the media, the internet, and in a host of books cur­rently under development. What then, is the answer? Studies too numerous to mention here have been performed

Should Technology Inform Social Policy,

or Social Policy

Guide Technology?

Koenraad whose interview appears on page 26 and The Argidius Foundation provide funding for a series of reports on the subject. What is necessary is resolve.

For any process to be successful it will need to have the full and unqualified backing of the entire range of funding and philanthropic organizations who currently support the sector. This is our opinion. Enough studying the problem. We believe the time has come to act.