Friday, January 28, 2011

Kiva’s commitment to responsible microfinance

by JD Bergeron, Kiva's Senior Director of Social Performance

Kiva represents more than a half million lenders who have made loans to help alleviate poverty.

We've gotten a number of questions from our lenders recently, asking what Kiva is doing to make sure that loans made through our field partners are helping have a positive impact on borrowers’ lives.

Towards that end, we thought we’d share an update on how Kiva is directing its resources to help promote responsible microfinance together with our field partners around the world.

Due Diligence and Partner Selection:

Kiva seeks to partner with microfinance institutions that have a strong social mission. In addition, when selecting our Field Partners, we favor organizations that excel in:
  • Client protection, especially regarding the prevention of over-indebtedness, fair and transparent pricing, good collection practices and the security of client information;
  • Targeting and outreach that ensures vital services reach the unbanked, the under-served and the poor;
  • Innovative loan products, savings and non-financial services specifically tailored to the needs of the target group;
  • Measuring outcomes in the lives of client borrowers and savers.

Many of our partners are chosen because in addition to lending money, they also offer services such as savings, financial literacy training and empowerment programs.

Monitoring and Client Protection Principles:

As of 2010, Kiva is conducting social audits at all of our active Field Partners to ensure that we (and they) understand their strengths and weaknesses in reaching excluded people with their products and services.
Kiva’s Field Partners include both for-profit and not-for-profit institutions. Kiva Fellows have served a vital role in conducting these audits and in monitoring our Field Partners on the ground. Kiva has also chosen to endorse and promote the Smart Campaigns Client Protection Principles, an industry-wide initiative to establish a baseline for responsible microfinance.

Kiva Staff:

One third of Kiva’s staff is responsible for selecting, servicing and monitoring our Field Partners. This investment of resources reflects Kiva’s commitment to working with the right microfinance institutions. Furthermore, Kiva staff themselves are selected from a competitive pool to ensure excellence, accountability and commitment to Kiva’s social mission. In late 2010, Kiva added a full-time Social Performance Director to further develop its strategy for pursuing fair and responsible microfinance.

Industry Collaboration:

Kiva is currently participating in industry-level discussions to improve the effectiveness of microfinance in the lives of its borrowers. While Kiva represents a small portion (approximately $30M) of the microfinance industry’s global loan portfolio of $65.1 billion (Mix Market, 2009), we are proud to be a big voice at the table. We take our role representing our lenders very seriously. Just this week, Kiva participated in the Responsible Finance Forum in the Netherlands. The forum launched the Principles for Responsible Investment, which will form part of the framework of Kiva’s strategy for social performance.

Responsible Microfinance:

Like many of you, we’ve heard reports that microlending in India has come under increased scrutiny lately. While we do not work in India at this time, we are watching the situation closely and are committed to working with MFIs that practice responsible microfinance. We remain vigilant about the importance of making sure our field partners are working to make sure that we’re helping have a positive impact on our borrowers’ lives.

For an expert view of what is happening in Andhra Pradesh, we turn to our colleagues at CGAP. CGAP describes many aspects of the trouble there, including client over-indebtedness and the impact of investment dollars that can put growth goals at odds with best practices of responsible microfinance.

We will continue to monitor the situation in India and other countries. We will also work to make sure that responsible microfinance continues to flourish at our field partners, both in the US and around the world.

If you’re interested in reading how other organizations have responded to the crisis in India, you can refer to them below:

Microfinance in South Asia: Current Challenges and the Way Forward: Grameen Foundation, January 2011

Recalibrating Microfinance: A Six-Point Program: Beth Rhyne of the Center for Financial Inclusion at ACCION International, December 2010
Cradle of microfinance rocked: Grameen Foundation's President comments on microfinance in India and Bangladesh, December 2010