Global microscope on the microfinance business environment 2012

The Microscope was created to focus attention on how individual
countries approach key conditions for microfi nance, and in fact
many Microscope indicators correspond closely to key elements of
responsible fi nance. Specifi cally, indicator 7 examines interest rate
transparency in depth including whether interest is charged over the
initial loan amount or the declining balance, any additional fees or
commissions charged, whether disclosure is readily understandable,
and whether disclosure is required or voluntary. Similarly, indicator
8 covers dispute resolution, another key element of responsible
fi nance, focusing on the cost and timeliness of the process. Likewise,
indicator 9 covers the extent to which credit bureaus correspond to
the standards of responsible fi nance and thereby help to prevent
over-indebtedness.
Many of the Microscope’s other indicators also relate to responsible
fi nance in indirect, yet important ways. For example, indicator 10
rates the extent to which fi nancial transactions through agents (for
example, mobile phones, points-of-service, etc.) are enabled by a
country’s policy and regulatory framework. This framework can help
3. See the Universal Standards
for Social Performance
Management at http://sptf.
info/universal-standards/
universal-standards.
4. See the Principles for
Responsible Investment at
http://www.unpri.org/
principles/.
5. See “State of Practice in
Social Performance Reporting
and Management: A Survey of
405 MFIs Reporting to MIX in
2009-2010,” MIX MicroBanking
Bulletin, July 2011.
21
created by the Social Performance Task Force
(SPTF). 3 This task force has created a set of
management standards to apply to all MFIs
pursuing a double bottom line, based on broad
industry consultation according to the SPTF. The
basic objective is to increase fi nancial inclusion by
focusing on client feedback and thereby creating
more client benefi ts while reducing client
vulnerability. The indicators are designed not only
to guide MFIs but also to serve stakeholders,
including donors, investors, raters and auditors,
and networks. While most standards appear quite
useful for board, management and employee
behaviour in the treatment of clients (and
treatment of the employees themselves), some
specifi c requirements for products and their
delivery, as well as for fi nancing structure, might
be seen to be excessively restrictive. Also
controversial are certain standards for social
targets and indicators that would require costly
collection of information to measure impacts on
clients.
The Principles for Investors in Inclusive Finance
(PIIF), whose implementation began in 2011,
targets investors, rather than MFIs or
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
Addressing Responsible Finance in the Microscope
promote greater fi nancial inclusion and likewise help fulfi l the Smart
Campaign’s “appropriate product design and delivery” principle.
Although indicator 6, which covers accounting transparency, does not
lead directly to responsible fi nance, it does provide an essential basis
for adequate governance, a key element of responsible fi nance.
The Microscope’s other indicators (the fi rst fi ve) pertain to the
regulatory environment for microfi nance. Notwithstanding the
concern displayed in responsible fi nance for responsible pricing,
the Microscope’s indicator 1 gives strong support for competitive
pricing (interest rate controls and subsidised government lending are
counted negatively). The remaining indicators, 2-5, deal mainly with
the appropriateness of regulation and supervision given the special
characteristics of MFIs, with particular attention to deposit-taking.
Moreover, deposits are not simply an additional product for fi nancial
inclusion since they require prudential regulation and supervision to
handle the risks facing depositors and the fi nancial system in general,
and they are also potentially the main source of funds for lending.
policymakers. 4 PIIF falls under the Principles for
Responsible Investors (PRI), which began far
earlier in 2005, thus pre-dating most other
organised responsible fi nance activities. Both PIIF
and PRI have an investor focus, with PIIF focused
more narrowly on inclusive fi nance and investors
working to expand access by targeting the
underserved in particular. Both also assume that
good corporate government is a given than
focusing on its establishment and implementation.
What is the impact of these initiatives to date?
The statistics suggest that while MFIs are making
progress, there is still room for deepening the
implementation of responsible fi nance practices,
by further adapting global standards, such as the
design of transparent products, processes, and
staff training. The Microfi nance Information
eXchange (MIX), the main source of self-reported
data on entities involved in microfi nance for more
than two decades, conducted a recent survey of
405 entities. According to the survey, 5 nearly 80%
incorporate social performance in strategic and
business plans, but only 20% have standing
committees responsible for social performance.
Attention to the indicators from the SMART