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

Tracking Financial Performance Standards of Microfinance Institutions1.4.3 Process Agreed for the Introduction of Standards for Indian MFIs1. Draft Minimum Standards at Sub-Group meeting2. Ask for response from stakeholders3. Field-testing of draft standards4. Based on the result of field-testing and responses from the stakeholders, finalize the standards5. Introduce standards on a trial basis6. Request six-monthly report on progress towards achieving the standards7. After one year, review the standards and make changes (if required) based on the experience of the past yearAfter the first round of field-testing the minimum standards for financial performance measures are beingfinalised now by the Sub-Group on Standards.1.5 CONCLUSIONOne of the interesting aspects of evolution of Microfinance in India or elsewhere is that it has not evolved frommainstream financial sector, neither the majority of institutions providing such services are structured as financialinstitutions. The sector originated from development sector and still it is dominated by Non-GovernmentalOrganisations (NGOs). These set of institutions are largely run by managers with no or little background offinance.However, the emergence of Microfinance standards as a major topic of discussion reflects the evolution ofmicrofinance into a more sophisticated and formalised industry, composed of institutions committed to operatealong principles consistent with those governing formal financial institutions, without losing the focus thatthey have to serve the financial need of poor. The fact that a variety of actors are involved in this standardisationprocess - MFIs, networks, donors, private sector - seems to underscore the extent to which "buy-in" about theimportance of having comparable measures of performance has been spread.A major challenge for standards initiatives seems to lie at the practical level of data collection. As the PhilippineCoalition found out through their efforts, it was easier to get philosophical agreement on the value of standardsthan to generate the information necessary to rate the MFIs. For the majority of institutions, some substantial"housecleaning" will need to be done before reliable data could be gathered and made available to the public.In addition, the existence of standards is also expected to facilitate MFIs to access to capital markets. Anincreasing number of MFIs are beginning to access non-donor private financing and are paying the marketrate. However, very few MFIs are ready to access international capital markets. Having access to performanceinformation may reduce some of the transaction uncertainty.Nevertheless, the first big step has been made and there is now widespread recognition that the industry isheading towards more standardisation, transparency, and openness. The foundation has been laid and it is nowup to the individual MFIs to build on the existing structure.16