A recent
CFI blog by Gail Buyske, What’s Going On with Microfinance’s Information
Infrastructure? Should We Care?, and
stakeholder meetings in Washington and Europe are focusing attention on the
under-utilization of data platforms and ratings and the threat this poses to
maintaining transparency and continuing progress in standard setting and
benchmarking, particularly in the area of social performance. This increased attention is especially
pertinent as a couple initiatives wind down, most notably MFTransparency. The
team at Grassroots Capital, as a very active supplier of data to multiple
initiatives, a user of their outputs, and a heavy user of “in-house” data, sees
the challenges from multiple perspectives.
The
industry clearly needs reliable, timely data and in particular, improved data
and accepted frameworks and conventions in the area of social performance. Significant strides have been made in recent
years thanks to MFT, SPTF and many other efforts. But at the same time it is essential to
consolidate initiatives and promote the widest possible buy in by the broadest
possible group of investors, regulators, standard setters and other industry participants. We believe that one of the major issues is that social reporting and ratings
are under-enforced by investors, leading to a lack of incentives for MFIs to
devote the time and resources to report social data and become rated. Simultaneously,
multiple microfinance-specific initiatives are not viable given that impact investors’
interest is shifting and broadening into other sectors such as affordable
housing and SME lending. In addition, MFIs’ own business models are becoming
more complex. Investors,
practitioners, and industry experts all need to work together at this crucial juncture
to consolidate and rationalize frameworks with broader impact investment
initiatives to reduce reporting burden, engage the wider impact investor community,
and allow more time for what matters – improving service and benefits to poor
and low income clients.
While
providing benchmarks and setting goals can help MFIs improve their own
performance, reporting was and still is largely investor-driven. Investors, fund
managers and competitive pressure play a large and very important role in promoting
social performance monitoring and reporting requirements. Transparency is encouraged
if it leads to funding. The underutilization / under-compensation of data
platforms and ratings reflects in part the sub-viable scale of an overly
fragmented infrastructure.
The
proliferation of initiatives over the years have undoubtedly advanced our ability
to meaningfully report, but have also given stakeholders a pretext to hold back
and "wait and see" which initiatives the industry will coalesce
around as the standard. In the impact investing space, microfinance has enjoyed
particular focus and support over the past twenty years and in many respects
has a much more developed infrastructure than newer impact sectors. But this privileged position has its
downside: our initiatives are sector specific, while many impact investors are
sector agnostic and do not have the time or patience to delve into a single
sector framework.
As Gail noted in her blog, microfinance has only
been able to achieve success as the most mature and established business model
in the impact space due to the support of this infrastructure. Grassroots believes that efforts to encourage
broad agreement on a core set of microfinance social indicators is a step in the
right direction. At the same time,
Grassroots has also actively supported B Corp and GIIRS since their inception,
because they aim to engage a broad range of impact investors. Everyone, both in
the microfinance community and the broader impact community, cannot afford to
take the essential infrastructure for granted. Rather we will need to make some choices and compromises to rationalize
the infrastructure to reflect the evolving composition and focus of the
investor community and engage the broadest possible financial support and mandate reporting requirements.
