February 24, 2009
New Guidelines to Help Investors Measure Success of Microfinance Institutions
by Robert Kropp
Grameen Foundation employs data from its Progress out of Poverty Index to develop checklist of
questions for investors to ask about the social benefits of microfinance.
Socially responsible investors, both individual and institutional, choose to invest in microfinance
in order to help alleviate poverty. By means of often very small loans, financial services, and
technology, microfinance helps the poor, often women, to start self-sustaining businesses in order
to escape poverty.
Microfinance has become an increasingly popular investment
choice. As of December 2007, there were 91 microfinance investment funds with $5.4 billion in
assets under management, representing a year-over-year growth of 79%.
institutions (MFIs) measure the success of their investments by the financial improvement in the
lives of their clients. The Grameen
Foundation, a global nonprofit organization whose efforts to empower the world's poorest people
to escape poverty reach an estimated 45 million people in 28 countries, also found a growing demand
among investors for greater transparency in the double bottom line of both social and financial
In order to help MFIs measure and manage the social progress of their clients,
the Grameen Foundation commissioned the development of the Progress out of Poverty Index (PPI) in 2005. PPIs
have been created for nine countries thus far, including Bangladesh, Bolivia, Haiti, India, Mexico,
Morocco, Pakistan, Peru and the Philippines. In cooperation with the Consultative Group to Assist the Poor (CGAP) and the Ford
Foundation, the Grameen Foundation is developing additional PPIs and expects a total of 36 to be in
use by June 2009.
Through country-level household surveys of microfinance clients, PPIs
use ten predictive indicators that allow for comparison of likely poverty levels of clients within
a country as well as globally. PPIs allow MFIs to create organizational profiles on poverty
outreach and highlight their track records on poverty alleviation.
The first social
investor to support the use of the PPI was Oikocredit, a Netherlands-based cooperative financial
institution that offers loans or investment capital for microfinance institutions, cooperatives,
and small and medium sized enterprises in developing countries. Oikocredit is one of the largest
financiers of the microfinance sector worldwide. Its investees are now implementing the PPI in the
Philippines and Peru and will begin implementations in Ecuador and Cambodia in 2009.
cooperative efforts of the Grameen Foundation and Oikocredit led to the establishment of the first
ever guidelines designed to help institutional and individual investors rigorously evaluate the
social returns on their microfinance investments. The guidelines are intended to help investors
determine if MFIs are reaching poor clients and if they are helping clients move out of poverty.
The checklist developed by the Grameen Foundation includes questions tailored to the
concerns of both institutional and individual investors.
The checklist directs
institutional investors to ask what percentage of the MFIs in a portfolio is using the PPI or a
comparable poverty measurement tool, how effective the MFIs are at alleviating poverty, if social
outreach and outcome information is available by country, if investment dollars are reaching the
poor and very poor, how many clients are moving out of poverty, and how long it takes for MFIs to
attain sustained movement above the poverty line for their clients.
are directed to ask what measures are taken to ensure that investments support the poor and poorest
populations, how often the poverty profiles of MFIs are updated, how investment managers define
poor, very poor, and extremely poor, and if investment managers base their definitions on national
or international standards of poverty.
"As more investors looking for social impact turn
to microfinance, they need to ask the right questions about how well the microfinance institutions
are meeting their social mission, which has traditionally been more difficult to measure and
benchmark than their financial performance," said Alex Counts, president and CEO of Grameen
Foundation. "Using this new microfinance investing checklist, investors can better ensure that
their investments are reaching the poorest people and helping them to escape poverty."
Ging Ledesma, Manager, Monitoring and Administration Unit of Oikocredit’s Department of Credit
Operations, said, "Investors choose Oikocredit expecting an investment with a strong social effect
and a modest financial return. They want to know if we are fulfilling our social goals of reaching
the poor and helping to bring about positive change in their lives and we need to be able to
At a briefing hosted by the Grameen Foundation on February 23, Counts
said, "The benefit of our approach is that it has real operational benefits for MFIs, who have used
the PPI to help them improve their performance. We believe the PPI can contribute to social audits
of MFIs as well."
Counts added, "Social investors prompt MFIs to develop real-time data on
demographics and to look at not just transactional analysis but transformational analysis as well."
Ledesma said, "Microfinance allows Oikocredit to reach the poor, who would not have access
to credit otherwise. The Progress out of Poverty Index helps us identify more relevant and
responsive financial products and services that would help facilitate the empowerment of the poor."
Nigel Biggar, Director of the Grameen Foundation's Social Performance Management Center,
said, "Having to focus on short-term goals can cause MFIs to suffer mission drift. Social investors
provide patient capital that focuses more on long-term importance. They want to differentiate among
different levels of poverty in order to make more responsible investment decisions."
want to help microfinance institutions be more effective at poverty alleviation," Biggar continued.