November 19, 2010
Recent reporting about the activities of for-profit microfinance institutions (MFIs) in India, specifically in the state of Andhra Pradesh, has raised important questions about whether microfinance is delivering on its promise to empower poor people. We take the concerns raised extremely seriously and are following developments on a day-to-day basis through our India-based team.
Though Grameen Foundation is not currently working with any of the MFIs that have been caught up in the allegations in Andhra Pradesh (our efforts in India are currently focused on the least-served states, in the north and east of the country), we have worked with and observed the Indian microfinance sector for more than a decade. We have seen its many challenges, as well as the hard work of MFIs and others to improve accountability and service to borrowers. Grameen Foundation strongly believes that MFIs must measure their social performance as rigorously as they measure financial performance – in other words, they must demonstrate that they are reaching the poor and poorest, and that these borrowers are moving out of poverty over time.
Alex recently debated Vikram Akula, chair and founder of SKS Microfinance, on "Microfinance and the Profit Motive." (photo courtesy of Brian Gately)
Grameen Foundation is not against MFIs responsibly earning profits. Profits are an essential component in sustainability, and in ensuring that an MFI can effectively pursue its social mission. The cost of providing financial services to the poor and poorest, especially in hard-to-reach areas, can be high and costs need to be recovered. Instead, we focus on helping the microfinance sector reduce costs and provide services more efficiently by offering an integrated assortment of financing, IT, performance measurement, human capital, and consulting tools and services. Put simply, our goal is – and has always been – to help MFIs provide quality products to the poor and poorest at an affordable cost.
We believe that microfinance’s potential to help millions of poor people improve their lives comes with the responsibility of demonstrating how well MFIs are achieving their goals. MFIs should leverage easy-to-use social-performance benchmarks and tools – such as those provided by Grameen Foundation’s Progress out of Poverty Index™ (a country-specific model inspired by the 10 indicators of poverty developed by Grameen Bank) – to publicly demonstrate their social mission and their effectiveness at fulfilling it.
And because the microfinance sector is based on people serving people, we also believe that each MFI should focus on ensuring that their people-management strategies follow best practices in human resources. This means focusing on proper selection, orientation and training of new hires, and on communicating the MFI’s social mission, core values and long-term vision, rather than on short-term financial results.
Despite the negative attention on activities in Andhra Pradesh, the need for microfinance in India – where 600 million people live on less than $1.25 per day – remains high. Grameen Foundation continues to strongly believe that making financial services available to the poor and poorest is one of the most effective ways of helping them move themselves out of poverty.
Through the recent establishment of Grameen Foundation India, a wholly-owned subsidiary created to carry out non-financial activities that support the poor and poorest, and through Grameen Capital India, a joint venture established two years ago to lead our financial activities in-country, Grameen Foundation is committing more resources than ever to helping to put appropriate financial services, information services, and business opportunities into the hands of the poor and poorest people in India – to empower them to transform their lives and the lives of their families.
For more information about Grameen Foundation’s approach to working in India, its views surrounding the need for a double-bottom-line approach to microfinance, and the effectiveness of microfinance as a means to alleviate poverty, please check out the following links:
•Grameen Foundation’s year-end wrap-up webinar reviews the organization’s work in 2010, looks ahead to 2011, and focuses especially on our activities in Asia, including India.
•Alex Counts, Grameen Foundation president, CEO, and founder, debated Vikram Akula, founder of SKS Microfinance, about “Microfinance and the Profit Motive” on October 25, 2010, at the Asia Society.
•“Measuring the Impact of Microfinance: Taking Another Look,” a recent study by Kathleen Odell, found that microfinance, when used appropriately, can be effective in helping the poor create income-generating opportunities.
•Alex Counts spells out what he believes to be the most effective approach to microfinance in “Reimagining Microfinance,” which appeared in the Summer 2008 issue of the Stanford Social Innovation Review.