Tracking Financial Performance Standards of ... - Sa-Dhan

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Tracking Financial Performance Standards of Microfinance Institutions1.3.3 MFI-led effortsStandards initiatives that are led by MFIs usually aim to establish prescriptive norms and a common vision.These standards are arrived at through a lengthy and reiterative consultation process at the international levelamong MFIs adhering to a common network (such as Women’s World Banking) or at the national level. Thefollowing examples show how two different organisations have approached the standard setting process.The Philippine Microfinance Coalition for Standards (PMCS), a group of NGOs came together in 1996 tobegin the process of developing nation-wide microfinance standards. The impetus for this initiative came froma core group of MFI directors from two different Philippine networks, who saw that Philippine MFIs were notachieving significant impact in terms of outreach or poverty alleviation.The standards development process used by the PMCS consisted of four key steps: (1) formation of theCoalition itself, which ultimately brought together 69 MFIs, the Central Bank, several commercial banks,research organisations and donors; (2) conducting a national inventory of microfinance institutions along withan in-depth survey of a smaller number of selected MFIs in order to build a database for benchmarking andstandards definition; (3) having working groups develop proposals for standards based on international bestpractices and the results of the PMCS’s investigations; and (4) meetings to discuss the propositions and arriveat an overall consensus. In August 1998, this two-year process culminated in the adoption of a basic standardframework.The framework adopted by the PMCS has two levels. The first is comprised of “Minimum Standards” towhich all members must adhere in order to join the Coalition. These are not meant to rate or compare differentMFIs but are meant to be the minimum prerequisites for being considered a “serious microfinance NGO.”The second level consists of a series of eight performance indicators for which a scoring system is applied toassign numerical scores and attribute weights to arrive at a single overall institutional rating.During the past few years, the Small Enterprise Education and Promotion Network (SEEP), a network of USbasedNGOs working in enterprise development and microfinance, has been working with three MFI networksto develop, test, and produce a toolkit for MFI data collection and benchmarking. The purpose of the toolkitis to facilitate MFI networks in their efforts to establish performance standards and benchmarking tools fortheir members.Development of the toolkit will contribute to building the supervisory capacity of MFI networks by providingthem with a management tool for evaluating strengths and weaknesses, and a roadmap for improving MFIperformance.Three networks are involved in this initiative: Ghana Microfinance Institutions Network (GHAMFIN) inGhana, Credit and Development Forum (CDF) in Bangladesh, and the Center for Microfinance for NIS/CEE 1 in Poland. With the technical assistance of the Micro-Banking Bulletin and the USAID MicroenterpriseBest Practices project, the following tools are being developed:• A standardized format for financial statements;• A questionnaire for collecting data on performance; and• A database that contains forms for data input, enables automatic adjustments of financialstatements, and produces a variety of reports.2Newly Independent States/Central and Eastern Europe.14
Introduction to Microfinance Standards1.4 SA-DHAN’S APPROACH TOWARDS BUILDING STANDARDSIn India, Sa-Dhan, The Association of Community Development Finance Institutions, has been involved inestablishing standards for the Microfinance sector in India. To take this task forward, Sa-Dhan has adopted aseminal approach towards standards setting.1.4.1 Process Governing the Development of StandardsGiven the diversity of operating models, legal forms, regional features and cultural aspects, Sa-Dhan has, aspart of the standard setting process, strategically focused on providing platforms for collective action that arerequired in a nascent but growing sector. Sa-Dhan has adopted the participatory diagnostic process to safeguardthe interests of all stakeholders and develop camaraderie within the Microfinance sector. It also brings clarity,transparency and ownership in the very process of formalising standards.To steer the task of development of standards, a core-group of key Sa-Dhan members was then formed and thisgroup periodically met to take stock of progress made by the Sa-Dhan Secretariat and also to provide futuredirection. The primary task of the Sa-Dhan Secretariat is to build consensus among the diverse set of stakeholderson common minimum standards and facilitate the adoption of practices that promote good governance, effectivemanagement, transparent reporting and enhanced accountability within the Microfinance sector in India.To begin with, Sa-Dhan held a series of consultative workshops, involving wider stakeholders to develop abroad framework of standards for Micro-finance sector. Thereafter, a series of workshops were organisedacross regions to define and arrive at broader agreement on the specifics. Simultaneously, Educative and AwarenessGeneration workshops on Standards were also held by Sa-Dhan covering different regions (zones).1.4.2 Strategy for Development of StandardsF Identifying basic thematic areas of standards that are neutral, relevant/appropriate and objectively verifiableF Undertaking confidence building measures to establish an open and constructive environment to facilitateexamination of controversial issuesF Adopting a twin track approach whereby, at this stage, a minimum set of standards (irrespective of MFIage, model and scale of operations) will be used for the entire sector; further a comprehensive set ofstandards could be developed as the sector maturesF While MFIs should be given a reasonable time frame to adopt standards as an inherent part of theirorganisational systems and procedures, they should show consistent and substantial improvement inperformance during the gestation periodF To continue the consultation process with other stakeholders as well to enhance the credibility of the sectorF Standards building process to be supplemented by the enforcement processF Helping MFIs to adopt standards through transfer of knowledge, skills and various capacity buildinginitiatives15
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REFERENCESBarrel, Margaret, Michael
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Tracking Financial Performance Standards of ... - Sa-Dhan

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