Archive for November, 2010

The Importance of Keeping Score in Microfinance

November 8, 2010

by Alex Counts, president and CEO, Grameen Foundation

Part of my job is to speak at various public fora on behalf of Grameen Foundation.  I usually find it quite enjoyable and also a challenge, as every speaking engagement is different in terms of the audience, format, and environment.  Sometimes, I speak alongside other experts in our field, which gives me an opportunity to learn from them as I wait my turn to present the Grameen Foundation story.  I often find the questions I get from audiences to be stimulating and challenging; occasionally, they yield great new insights.

During my recent debate with Vikram Akula, the founder of Indian microfinance institution (MFI) SKS, a questioner framed the issue of the tension between profit-making and poverty reduction in microfinance in a fascinating way, using an analogy from the world of professional sports.  He compared MFIs to baseball franchises, saying that though they measure their profit and loss in financial terms, the true measure of their success by most people — especially fans, players, and even owners most of the time — is how often they win games, and especially championships.  I thought about this analogy — which could be extended to other sports — and I found it more and more apt.

For a baseball team, profit and loss in financial terms is important and often — but not always —  related and correlated to winning percentage.  But it is not the ultimate measure of success to most of the franchise’s stakeholders (and sometimes not to any of them).  In some cases, teams with low profitability win lots of games and even championships, and everyone around that team is usually very happy.  A case in point would be the Minnesota Twins during many years over the last few decades.  (This can even be the case in loss-making franchises.)  On the other hand, highly profitable teams sometimes lose many more games than they win — think of the New York Yankees from the mid-1980s to the mid-1990s.  (I am in no position to opine in an objective way on the Philadelphia Phillies since I am a lifelong, rabid fan!)

How does this relate to microfinance?  For MFIs with a poverty-reduction mandate, financial profitability is important.  If an MFI cannot turn at least a small profit most years, it will be unlikely to continue to serve its clients, much less expand to reach more, unless it has an endowment or long-term philanthropic donors with deep pockets.  But the ultimate measure of an MFI’s success is whether it is helping people to move out of poverty through providing quality products.  To know whether it is being successful, it has to “keep score” by measuring its outcomes vis-à-vis poverty reduction.  This is why social performance management tools like the Progress out of Poverty Index™ are so important.  (Social ratings and impact studies using control groups are also quite useful, and complement approaches like the PPI.)  If an MFI doesn’t use a social-performance tool, it would be like a sports team that didn’t keep score in the games it played, or one that didn’t track wins and losses in comparison to its peer group (i.e., teams in the same league).

Puzzlingly, this is what some people like Vikram Akula seem to be arguing: that if an MFI is profitable and growing, we can assume that it is high-achieving in realizing its social mission (assuming it has one).  Well, maybe yesmaybe no.  Long-term, those two outcomes can be correlated — but not always.  My strong sense, based on more than two decades in this field, is this — some MFIs that are marginally profitable are having a significant impact on poverty, while others that are highly profitable are not making much of a dent in this terrible societal problem.  So let us define crisply what we are trying to do in microfinance and then let’s “keep score” on all the important measures of success, especially on the ultimate measure (at least for groups like Grameen Foundation) — how clients are able to improve their lives.

Thanks again to the attendee at the debate at the Asia Society who framed this age-old debate in a novel way — you really taught me something!

Photo credit: Pierre-Olivier, via Creative Commons.

In the Shoes of a Microfinance Loan Officer

November 2, 2010

Stephanie Denzer is Program Associate for Grameen Foundation’s Human Capital Center (HCC). This is her second blog from a recent trip to Peru where she participated in a Human Capital Management Assessment of an MFI in the process of transforming into a regulated institution.  Her last blog post focused on Cultivating Leaders and Empowering Organizations, and in this post she follows a loan officer to a group meeting of several microfinance borrowers.

When I arrived in Pucallpa, Peru, I had worked in the microfinance sector for over a year without having seen in practice what I support daily from our DC-based offices. I was soon heading out on the back of a motorcycle taxi to a village bank meeting for clients of Microfinanzas Prisma. Bouncing down a dusty dirt road to the home of one of the clients where the monthly repayment meeting was being held, we followed Ramiro, one of Prisma’s loan officers, on his motorcycle as we traveled out of the central part of this city of about 300,000 in the country’s Amazon region.

I was in Peru to assist with the implementation of Grameen Foundation’s Human Capital Management Assessment tool. See my previous blog post for more information on how we are working to help MFIs better meet their missions of serving the poor. We were accompanying Ramiro to the field because we wanted to see what it’s truly like to walk in the shoes of one of Prisma’s more than 100 dedicated loan officers.


Dacia, the president of this village bank group of 18 local women in Peru


We arrived at the home of Dacia, who serves as president of this village bank group of 18 local women. Our visit came just a few days after her group had celebrated its fifth anniversary. Dacia herself has gone through 10 different loans since the group began on July 12, 2005. She has used her credit from Prisma to purchase a small boat in which she transports timber from family land further upstream on the Ucayali River. She sells this timber for a profit and with a bit of bashful pride, told us that because of the profit she’s made, she was able to move from a small wooden house into the larger, sturdier concrete structure where the group was meeting.

Her eyes lit up when I asked about how her life had been most affected by the access to the credit Prisma provides. She took down a framed picture from the wall that hung next to her wedding portrait. It was one of only three photographs in the house and it showed a team of smiling teenage girls. Dacia pointed to one of the girls and told us how her oldest daughter was now in university and was playing volleyball on a team in Lima. In fact, all four of Dacia’s daughters are enrolled in school and seem to be thriving. (more…)

Introducing Grameen Foundation’s PPI Certification Process

November 1, 2010

Steve Wright is the  new director of Grameen Foundation’s Social Performance Management Center.

Today, we are pleased to announce the launch of the Progress out of Poverty Index  (PPI ) certification process. Through this new process, the Grameen Foundation will officially recognize organizations complying with Standards of Use for the PPI. Certified organizations will receive a seal of approval signaling that they are using the PPI correctly and they will be recognized on the Microfinance Information Exchange (MIX) beginning in January 2011.

This official roll-out of the certification program follows the earlier launch of the PPI Standards of Use, which are endorsed by key microfinance networks and investors, including Oikocredit, Catholic Relief Services and Plan International Asia. Check the links below for more information, as well as the PPI Blog.