In recent articles published on the websites of newspapers The Guardian of the UK and The Wall Street Journal of the US, journalists, academics and practitioners express concerns about various topics in the microfinance sector including social performance measurement, commercialization and changing methodologies. The analysis is driven in part by a recent report published by the UK’s governmental All-Party Parliamentary Group (APPG) on Microfinance, titled “Helping or Hurting: What role for microfinance in the fight against poverty?”
A post on The Guardian’s Poverty Matters Blog analyzes the report from APPG and concludes that there is a pressing need for impact evaluations of different microfinance schemes, along with the measurement of social parameters over time to understand the successes and shortcomings of the schemes. In addition to studying credit products, there is also a need for monitoring savings, microinsurance and remittances in order to compare and contrast the intended benefit with the actual results. The authors of the APPG report describe the sector as “unbalanced,” in referring to an over-reliance on credit as a tool for poverty alleviation. According to The Guardian blog post, regulation and accreditation are focal points of the APPG report, as commercialization becomes more common. A final but major point involves commercialization in the sector in tandem with regulation and accreditation of institutions [1]. Although the recommendations of the authors are quite diverse, the overall objective is to “cut through the hype and take a reasoned approach to how the UK government and other stakeholders should support the sector.” This would involve an understanding “firstly, that credit services can cause harm as well as good because they induce debt; and secondly that the sector is now so diverse that we have to assess individual microfinance interventions on their own merits…” [2]
The Wall Street Journal article looks more closely at the trend of commercialization in the microfinance sector and its impact on women. Proponents of for-profit microfinance cite fiscal discipline and access to capital as the main justifications for commercial transformation, while their opponents believe such changes lead to the dilution of social motives and to profit-seeking at the expense of poor people. Mary Ellen Iskenderian, President and CEO of US-based microfinance network Women’s World Banking (WWB), cites a 2008 study that found that commercial microlenders tend to reduce lending to women in favour of financing men’s business activities. This is largely because for-profit institutions tend to be interested in larger loans that are cheaper to administer, which in turn tend to be sought by male-operated businesses. Ms Iskenderian says that the group-lending model, which has historically focused on women, is also declining in popularity as commercial operators look to make more profitable and often riskier investments in individuals. Ms Iskenderian believes that individual lending can still benefit women, but that microfinance institutions (MFIs) should also focus on “cross-selling ancillary services” like savings, microinsurance and pensions, which can also benefit both female customers and their families [3].
By Rohan Trivedi, Research Associate
Sources and Additional Resources:
[1] The Guardian: Poverty Matters Blog: “Can microfinance be a friend to the poor?”, http://www.guardian.co.uk/global-development/poverty-matters/2011/jun/10/microfinance-friend-or-foe
[2] The All-Party Parliamentary Group on Microfinance: “Helping or Hurting: What role for microfinance in the fight against poverty?”, http://www.appg-microfinance.org/files/APPG%20on%20Microfinance%20inquiry%20report%202011%20-%20low%20res(1).pdf
[3] The Wall Street Journal: “Does Microfinance for Profit Hurt Women?”, http://blogs.wsj.com/indiarealtime/2011/06/17/does-microfinance-for-profit-hurt-women/
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