137.5 million families have been reached by microfinance services and institutions in 2010, according to “The State of the Microcredit Summit Campaign Report” recently released by the Microcredit Summit Campaign in conjunction with this years summit in Spain.
While highlighting the growth of the microfinance sector, it is a more sobering report than previous years. The Report considers the example of the Indian state of Andhra Pradesh, where the microfinance sector was hit by a deep crisis that led to clients’ over-indebtedness, inability to repay their loans and, in extreme cases, to suicides. Large microfinance institutions were lending money to a high number of clients, who were taking loans from several different sources and were not adequately monitored or supported.
There are fundamental lessons that need to be learnt from these events: microfinance institutions need to be made responsible for their work and the treatment of their clients in order to make sure that they do not harm but empower them instead. Possible solutions proposed by the Report consist in knowing clients better, in promoting financial literacy among them as well as Social Performance Management within microfinance institutions.
In sum, the Report calls for a real transformation within the sector, in order to provide clients with fair and transparent services that can help improve their lives.
This is also what emerged from the plenaries on day two of the Global Microcredit Summit, which took place in Valladolid, Spain. Challenges and solutions for the problems that occurred in the state of Andhra Pranesh were at the centre of the discussion, which included a debate around a paper written by Anton Simanowitz from the Institute of Development Studies. In particular, Mr. Simanowitz highlighted the need for
…creating value for clients by starting with clients and their needs, and building sustainable institutions that deliver value; protecting clients from harm by recognizing client risk and vulnerability in regulation, governance and systems to protect clients; and ensuring a quality of microfinance services by developing effective management systems to deliver on these objectives.
Moreover, Roshaneh Zafar, Managing Director of Kashf Foundation, a microfinance institution in Pakistan, argued for a need to enhance the suite of products offered to borrowers, “especially savings, which is perhaps one of the most important imperatives for us.”
These arguments and observations are in alignment with the All-Party Parliamentary Group on Microfinance’s inquiry into the UK’s role in supporting the microfinance sector worldwide. In fact, they confirm the need to put into practice many of the recommendations that the Inquiry put forward, especially when it comes to creating adequate regulation, ensuring product diversification and monitoring microfinance institutions’ social performance.
RESULTS UK’s hope is that Social Performance Management and a focus on the client will remain at the centre of the international debate on microfinance, and that microfinance institutions will work harder to put these standards into practice. This is key in ensuring that people are succeeding in moving out of poverty and the full promise of microfinance is realised.