Cover Story : The Complexity of social performance Management ` areas, rather than beginning with the low hanging fruit (i.e. urban clients) that most MFIs target first. Since there is little competition there and a large number of needy clients, the MFI charges high interest rates (over 100% annualized), most of which is used to fuel growth and expansion to new areas. So, this case might be starting to sound a bit familiar, but here are the tricky questions:
What interest rate is okay to charge before being considered usurious?
we can (within our means and without creating unrealistic future expectations or market distortions) to correct any negative consequences. As many of these situations are complex, we all need to think deeply and avoid jumping on the bandwagon of bashing specific MFIs. Instead, I hope that we will all start to be a bit more thoughtful about our actions and convictions to make sure that we are making decisions and judgments based on sound information and a true under-
Perhaps the most important guideline is for all of us to continue to work
toward improving the lives of microfinance clients and when our actions cause the opposite effect, regardless of our intention, we should do whatever we can (within our means and without creating unrealistic future expectations or market distortions) to correct any negative consequences.” If clients are accepting the interest rates and terms, does that make it okay? To what degree should existing clients be expected to pay for an MFI’s growth or expansion into new markets?
When an MFI transforms from an NGO into a formal financial institution, who is entitled to the accumulated reserves? Is the fact that management ownership is considered good for microfinance governance enough to justify transfers of large amounts of equity to them upon transformation? What amount is considered acceptable and what amount is too much? Is it worse for an MFI to report excessive return on equity or excessive administrative costs? It might be apparent when the principles of social performance management have been grossly violated, but it is often difficult to determine the specific threshold or exactly what should be the overarching norms MFIs should live by as a whole. Perhaps the most important guideline is for all of us to continue to work toward improving the lives of microfinance clients and when our actions cause the opposite effect, regardless of our intention, we should do whatever
standing of the local environments, the clients and the complexity of each situation. As we study SPM cases, we need to look more behind why things did happen the way they did and what needs to be fixed or changed in the system to avoid repeating negative events, such as overindebted clients or unscrupulous investors entering microfinance. Only through thoughtful analysis and meaningful dialogue can we begin to reach consensus on some of these tough SPM issues. ***************************************
Anita Campion is the President of AZMJ, an international development consulting firm with a mission to provide high quality consulting and investment services in support of financial service and enterprise development. She is also the co-author of “Putting the Social into Performance Management: A Practice-Based Guide for Microfinance.”
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