Monday, March 31, 2008

What are the key metrics for microfinance

Dear Colleagues

There has been a substantial growth in the use of microfinance as a modality for poverty alleviation. There has been a significant emergence of microfinance intermediaries ... and the emergence of organizations helping to assess the credibility of these institutions.

A dialog has started between different approaches to microfinance ... on the one side the idea that the providers of the funds should not be from the for profit capital markets and another side where the view is that for profit sources of funding are fine.

There are people who think that microfinance is very helpful in reducing the level of abject poverty, and others that hold the view that microfinance has become a distraction from other more important things.

One of Tr-Ac-Net's goals is to have

Thursday, March 27, 2008

The growth of micro-credit

Dear Colleagues

There has been phenomenal growth in microcredit over the past decade. The main metric for this is the number of loans disbursed, the number of clients served, the amount of money disbursed and the amount of money repaid.

All this is good ... and it serves to show how big the microcredit sector has become.

There are also metrics about the organizations that provide microcredit prepared according to fairly normal and rigorous accounting lines ... which shows how well the organizations are performing. There are even organizations like MIX where these data are easy to find for many of the microfinance institutions around the world.

But none of this does much to show how good microcredit is in facilitating socio-economic progress. The socio-economic value of microcredit is mainly on the record as anecdotes about how individuals are benefitting from being a microcredit client ... and while anecdotes are an important way of communicating, they are easy without being reliable. Essentially anecdotes have a journalistic flavor rather than being rigorous as accountants like things to be.

The lack of easy and rigorous metrics about socio-economic progress at the community level means that it is very difficult to study how good microcredit is ... and how microcredit has one result in one place and a different result in another place.

My own experience working in different communities around the world suggests that there are many, many issues in a typical community that need to be addressed in order to have sustainable socio-economic progress, and that microcredit addresses some part of these issues. Other initiatives are needed to have all the issues addressed. The impact of microcredit is dependent on the combination of issues and initiatives in the community ... it is a system problem, with microcredit a useful but not a complete set of components to make the system work well.

This problem is, of course, not unique to microcredit ... and argues for a system of accountability that embraces the community, and serves to inform the public and analysts about issues and performance ... what Tr-Ac-Net is developing as a comprehensive system of Social Benefit Accountancy


Peter Burgess