Working Together to Improve the Microfinance Sector

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

One of the most familiar critiques of the social (or not-for-profit) sector by those outside of it – those in business or academia, for example – is that we are a very fragmented community of organizations that don’t talk to each other, much less collaborate as often as we should.  This results in duplication of effort and capacity, as well as unnecessary and unhealthy competition.  While often exaggerated, this criticism has some merit, and the socially-motivated international microfinance networks (as well as the microfinance sector generally) are hardly immune.  (We have our own criticisms of business and academia, but we’ll leave those for another day.) For microfinance, 2010 was a year of upheaval and taking stock.  When it began, crises of various origins were still being felt in Morocco, Pakistan and Nicaragua.  Twelve days into the year, a massive earthquake hit Haiti, negatively affecting many microfinance institutions (MFIs) there.  Fortunately, Haitian MFIs, including Grameen Foundation’s long-time partner Fonkoze, have bounced back faster than anyone expected, as I have written in a separate blog. A few months later, a controversial initial public offering by SKS Microfinance, a leading MFI in India, led to a backlash among the media, political leaders and civil society in general – especially in the Indian state of Andhra Pradesh.  (In the early days of that crisis I debated the founder of SKS, which was quite interesting to say the least!) As the year ended, the Bangladeshi government began to harshly criticize and harass Grameen Bank, the country’s flagship MFI, which led to violence against the bank’s employees and, ultimately, to the forced and premature retirement of its founder, microfinance pioneer Professor Muhammad Yunus.  (For more on the Bangladesh crisis, click here.)

Debate moderator Niki Armacost, co-founder of Arc Finance, with Alex Counts, at his October 2010 debate with Vikram Akula, chair and founder of SKS, at the Asia Society.

This was a far cry from the celebrations of microfinance in 2005, the U.N.’s “International Year of Microcredit,” and 2006, when Grameen Bank and its founder, Prof. Yunus, unexpectedly – and in my mind deservedly – shared the Nobel Peace Prize.  The fact that microfinance in most countries (and even in most states in India, the world’s largest market for microfinance) remained largely unaffected, and in fact continued to grow and contribute to poverty reduction, was rarely noted in the media or even at industry conferences.  There was a lot of soul-searching and hand-wringing, and perhaps a bit of panic.

As a new year dawned, leaders of international microfinance networks, including Grameen Foundation, began meeting to assess these developments.  Initially, our conversations were helpfully convened by Asad Mahmood of Deutsche Bank.  We shared how the developments of 2010 were affecting our organizations and networks and how we were responding, substantively and through our external communications.  We saw a lot of potential for greater coordination.  We discussed how we could more systematically support efforts had the potential to raise standards in the sector and make us less vulnerable to criticism (knowing full well that there will always be some). In particular, during a retreat held in March, we invited the leadership of the Smart Campaign (housed at Accion’s Center for Financial Inclusion), the Social Performance Task Force, MicroFinance Transparency and the Seal of Excellence initiative (housed at the Microcredit Summit Campaign) to present their progress and plans, and outline how we, as network CEOs, could better support their efforts to raise industry standards and performance. Along with our involvement in the initiatives noted above, Grameen Foundation was one of the earliest voices in the microfinance sector to create a kind of “gravity” for social performance – and, by extension, an understanding of how clients are affected – to complement the focus on financial performance and transparency.  In other words, we have long advocated that MFIs with poverty-fighting missions need to be at least as rigorous in how they measure their social outcomes as they are with their financial results.  (Otherwise, those organizations could rightfully be accused of being no different than profit-hungry banks, except that they could be accused of carrying on hypocritically about being committed to poverty reduction.)  The CEO Council is beginning to realize the potential of an industry-wide momentum for integrating social performance into the fabric of our movement. As these discussions continued, I gained a new respect for and understanding of my CEO peers, and gained insights into how we could better coordinate our efforts.  I realized how some promising and important industry-wide initiatives have been languishing due to lack of high-level support.  So I committed Grameen Foundation to be an active member of what we have come to call the “Microfinance CEO Working Group” and to use this platform to accelerate existing efforts to make microfinance more effective in fighting poverty while having deeper roots of support in civil society. We are meeting again in September and, among other agenda items, we intend to begin a dialogue with the World Bank about what we think they are doing well in terms of supporting microfinance, and what we feel they could do better.  This type of coordination is exciting – and long overdue.  We have chosen Mary Ellen Iskenderian of Women’s World Banking and Rupert Scofield of FINCA to be our co-chairs and have accepted the generous offer of the Center for Financial Inclusion to serve as the interim secretariat.  Michael Schlein of Accion has been one of the most active and effective members, though of course it has been a team effort that has also included representatives from Freedom from Hunger, Opportunity International, Pro Mujer International, World Vision and, of course, Grameen Foundation.