MARCH 2010 LEAH NEDDERMAN Challenges to Microfinance: Anticipated and Unforseen

Challenges for the Industry Challenge 1: Representing ourselves accurately (honestly), recognizing that institutions have different aims Challenge 2: Living up to the promise of microfinance—creating positive changes in the lives of clients

Challenge 1: Representing Ourselves Accurately Type 1 : Goal: Provide Access to Financial Services for the Poor Type 2: Goal: Provide Access to Responsible Finance for the Poor Type 3: Goal: Improve the Lives of the Poor Know who you are and do not claim to be more. Which type of MFI are you? Which type of investor are you?

Challenge 2: Living up to the Promise of Microfinance First step: Responsible finance—the practice of the six principles of client protection: 1. Avoidance of over-indebtedness 2. Transparent pricing 3. Appropriate collections practices 4. Ethical staff behavior 5. Mechanisms for redress of grievances 6. Privacy of client data

Challenge 2: Living up to the Promise of Microfinance First step: Responsible finance—the practice of the six principles of client protection: 1. Avoidance of over-indebtedness 2. Transparent pricing 3. Appropriate collections practices 4. Ethical staff behavior 5. Mechanisms for redress of grievances 6. Privacy of client data

First step: Responsible Finance Responsible finance is essential to social performance, but not synonymous. Intent & Design Internal Systems/ Activities OutputsOutcomes Impact Mission is to provide the poor with access to financial services MFI targets the poor with products & services that do not harm them. Products and services delivered to the poor adhere to the client protection principles. Does not address outcomes.

Second Step: Social Performance Social performance is the effective translation of an institution’s mission into practice. Intent & Design Internal Systems/ Activities OutputsOutcomes Impact Clients make progress out of poverty Increased food security Products and services meet diverse life-cycle needs Clients are satisfied and have input Non-financial services (health & education) speak to development needs Staff & environment benefit ✔✔✔

Meeting the Challenges The Social Performance industry has developed a variety of tools for meeting these challenges: 1. Define where you are on the spectrum with the SPTF/Mix Social Performance Indicators SPTF/Mix Social Performance Indicators 2. Assess your compliance with the principles of client protection with The Smart Campaign’s ‘Getting Started’ Client Protection Questionnaire‘Getting Started’ Client Protection Questionnaire 3. Measure your outreach to the poor—Poverty measurement tools. PPI and PATPPI PAT 4. State your interest rate accurately using Microfinance Transparency’s Interest Rate Calculator.Interest Rate Calculator

Meeting the Challenges (Continued) 5. Clarify your social goals and recommend solutions for improvement—social audit tools. QAT and SPIQAT SPI 6. Validate and communicate your social strengths and weaknesses—social rating tools. Co-funding available from 7. Measure client-level indicators—food security surveys; client satisfaction surveys; exit interviews; market research for product development Attend a social performance workshop

Thank you For more information: Contact Leah Nedderman at the Social Performance Task Force: Go to: