November 13th Meeting Recap: “Fair Trade Microfinance”

Meeting recap written by Donald Chu, SVMN Volunteer

The microfinance movement has seen its image battered by recent events in Andhra Pradesh as well as other locations around the globe. In order to rehabilitate the industry’s image a concerted effort from the Microfinance  community is required. On Tuesday, November 13th SVMN hosted the event “Fair Trade Microfinance: Working to Reclaim the Industry’s Good Name”. Featured speaker JD Bergeron presented the industry’s strategy for moving again in a positive direction. Bergeron, Director of the Seal of Excellence in Poverty Outreach and Transformation, took the audience through a roadmap for creating effective and responsible finance initiatives targeted to Microfinance providers. Bergeron’s previous position as the Senior Director of Social Performance at San Francisco-based Kiva gives him a unique insider’s perspective on creating rating and certification programs to reinstall confidence in the microfinance movement.

Over the last few years Microfinance services have been oversold and has overheated in many parts of the world as providers’ emphasis began to shift from social gains towards financial gains. Increased defaults combined with sensational news stories and new government regulations have made fundraising increasingly difficult for microfinance organizations. Bergeron argued that specific steps have to be taken in order to get funding flowing again; Commit, Measure, Learn, and Change.

Efforts to enact these steps are already underway. The SMART Campaign for Client Protection was launched over four years ago in an effort to protect clients not only from themselves but unscrupulous lenders. Other initiatives such as the Global Appeal (recently rebranded from the Paris Appeal) have far reaching goals of financial inclusion by the year 2015. This dovetails nicely with UN Millennium Development Goals.

Measurement and learning are vital for effective ratings and certifications to develop. To start, it is necessary to revisit how poverty alleviation is defined. Different countries have different benchmarks for poverty. For example, universally applying a $1.25 poverty level is not the most helpful way of comparing living standards in Bulgaria and Uganda. Coalitions of various stakeholders in the microfinance industry have tried to remedy this issue by creating the Social Performance Task Force. Its main goal is to create Universal Standards for Social Performance Management; reemphasizing the importance of measuring the real social impact of microfinance services in a way that can be adopted by a variety of organizations in different countries across the globe.

Demonstrating such a commitment is a matter of creating standards and certifications that are credible, achievable and aspirational. Bergeron stressed that standards have to be strong enough to have real impact without becoming a barrier to entry for fledgling MFIs. At the moment there are several organizations that perform social ratings, with common as well as distinct aspects. Moody’s is beginning to develop its own ratings system for MFIs. The fact that one of the Big Three credit rating agencies is devoting resources to microfinance is a very positive sign for the industry and can only be beneficial for opening up large scale fundraising efforts in the future.

Bergeron’s goal as director of the Seal of Excellence in Poverty Outreach and Transformation is to recognize and certify those institutions doing the most to help families lift themselves out of poverty. He intends to roll out the Seal in Pakistan by next year. Pakistan has been much more receptive to microfinance during the current crisis than countries that had historically been more active in the past. Bergeron acknowledges that the initiative will have to start in nations receptive to microfinance but he is hopeful that his initiative will be everywhere within the next five years.

Bergeron concluded his presentation on a positive note. Among all the challenges; Bergeron sees a blessing from the crisis facing microfinance; it has created an impetus for increased collaboration among practitioners. The various initiatives and organizations will have to consolidate their efforts in the future to create a rating system that investors and clients will have faith in. Creating legitimate certifications will encourage large financial institutions, NGO’s, private donors, and governments to fund microfinance institutions.   This will serve to grow the field in a sound, responsible manner.


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