Days of Reckoning for Microcredit at the 2011 Microcredit Summit in Spain

On the opening day of the 2011 Global Microcredit Summit in Valladolid Spain, this November the mood among 2000 delegates from over a hundred countries was sombre.

“Pretty gloomy, wouldn’t you say,” said a Nandini Azad, an Indian woman with broad international experience who has devoted her life to the empowerment of the marginalized in India and now works primarily with indigenous people in very poor Indian states.  To read more about Nandini Azad, see Nandini Azad – A Model for Social Performance. See also Muslim Women Shine at 2011 Microcredit Summit.

Across the world, microcredit is being dismissed in the world press as just another way to rip off the poor. Commercialization, and the push for profits, they have charged, have drowned out the social mission.

The rash of bad press came in the fall of 2010 in the wake of more than 50 female suicides in Andhra Pradesh, the epicentre of microcredit in India, a country where there are now more than 71 million borrowers. Some of them are taking loans through both self-help groups linked to banks as well as from microfinance institutions, according to the 2010, Microfinance India – State of the Sector Report.

The bad mix of multiple loans, harassment by loan officers, lack of transparency, and no rapport with community leaders was blamed for the mess which started in 2006 when the Andhra Pradesh government closed down branches of four major microfinance institutions, also because of suicides.

The result was an ordinance imposed by the Andhra Pradesh government in October 2010 that has created major problems for collection of loans by microfinance institutions and underlined the crisis in microcredit governance and mission.

Having spent 21 months in India with women taking microcredit loans and observing encouraging spin-offs, primarily in Andhra Pradesh, but also in Gujarat, where the Self-Employed Women’s Association began, I believe that microcredit cannot be so easily dismissed.

But there ARE issues around profits, transparency, sustainability, non-financial services, and reaching the hard-core poor, as outlined in my book Saris on Scooters – How Microcredit is Changing Village India.

However, some of these issues are now being addressed within the Indian microcredit movement through the Indian Microfinance Institutions Network, which has developed a code of conduct.

Microfinance scandals have, of course, not been limited to India. High interest rates, topping 100% at Mexico’s Compartamos Bank after a IPO in 2007, caused a furor a few years ago, for example. And ten years ago, over-indebtedness caused a major crisis in the microcredit movement in Bolivia.

Nevertheless, numbers of poor taking loans are mushrooming. According to Summit Campaign figures, with only 3,652 microfinance institutions reporting, microcredit reaches 137 million poorest in the world of which 113 million are women, but there are many more borrowers than that.

However, because of mission drift, recovering the soul of microcredit was the burning issue at the conference which heard about several initiatives that are addressing current challenges.

A Social Performance Taskforce, composed of 850 stakeholders has been meeting annually since 2005 to define social performance, and since 2008, a Microfinance Transparency NGO has been helping MFIS in several countries establish transparency around governance and interest rates.

In addition, The Smart Campaign, with over 1,000 representatives from MFIs, investors, donors, and networks has been working on principles of client protection and guidelines for good practice.

To cap it off, early in 2012, a Seal of Excellence for Poverty Outreach and Transformation award will be created to identify institutions that are living up to original mission of microfinance.

In the light of the Occupy Wall Street Movement around the world, a final hopeful note at the conference was a presentation by Franck Riboud, CEO of Danone, and Grameen Bank founder, Muhammad Yunus who is championing the concept of social business with a focus upon communal good.

The model is no profit, no loss, where investors get their investment back, but with no dividends, or where dividends go to worker/producers of the business so that profits move to the poor.

Out of this has come Grameen Danone, a yoghurt company featuring extra micronutrients for impoverished children. Other joint ventures include a mosquito net factory with a German manufacturer of chemicals and affordable shoes with Adidas.

Funds are springing up to support this and there are now university programs on social business in several countries, among them France, Germany, the U.S., and Italy.

Since 1997 there have been five global microcredit summits as well as several regional summits.