Grameen Foundation whose founder Mohammed Yunus has been one of the most vocal critics of SKS Microfinance has issued a press release with comments from it’s CEO Alex Counts which highlights their concerns about the microfinance crisis in AP. The press release follows below.
Recent reporting about the activities of for-profit microfinance institutions (MFIs) in India, specifically in the state of Andhra Pradesh, has raised important questions about whether microfinance is delivering on its promise to empower poor people. We take the concerns raised extremely seriously and are following developments on a day-to-day basis through our India-based team.
Though Grameen Foundation is not currently working with any of the MFIs that have been caught up in the allegations in Andhra Pradesh (our efforts in India are currently focused on the least-served states, in the north and east of the country), we have worked with and observed the Indian microfinance sector for more than a decade. We have seen its many challenges, as well as the hard work of MFIs and others to improve accountability and service to borrowers. Grameen Foundation strongly believes that MFIs must measure their social performance as rigorously as they measure financial performance – in other words, they must demonstrate that they are reaching the poor and poorest, and that these borrowers are moving out of poverty over time.
Grameen Foundation is not against MFIs responsibly earning profits. Profits are an essential component in sustainability, and in ensuring that an MFI can effectively pursue its social mission. The cost of providing financial services to the poor and poorest, especially in hard-to-reach areas, can be high and costs need to be recovered. Instead, we focus on helping the microfinance sector reduce costs and provide services more efficiently by offering an integrated assortment of financing, IT, performance measurement, human capital, and consulting tools and services. Put simply, our goal is – and has always been – to help MFIs provide quality products to the poor and poorest at an affordable cost.
We believe that microfinance’s potential to help millions of poor people improve their lives comes with the responsibility of demonstrating how well MFIs are achieving their goals. MFIs should leverage easy-to-use social-performance benchmarks and tools – such as those provided by Grameen Foundation’s Progress out of Poverty Index™ (a country-specific model inspired by the 10 indicators of poverty developed by Grameen Bank) – to publicly demonstrate their social mission and their effectiveness at fulfilling it.
And because the microfinance sector is based on people serving people, we also believe that each MFI should focus on ensuring that their people-management strategies follow best practices in human resources. This means focusing on proper selection, orientation and training of new hires, and on communicating the MFI’s social mission, core values and long-term vision, rather than on short-term financial results.
Despite the negative attention on activities in Andhra Pradesh, the need for microfinance in India – where 600 million people live on less than $1.25 per day – remains high. Grameen Foundation continues to strongly believe that making financial services available to the poor and poorest is one of the most effective ways of helping them move themselves out of poverty.
Through the recent establishment of Grameen Foundation India, a wholly-owned subsidiary created to carry out non-financial activities that support the poor and poorest, and through Grameen Capital India, a joint venture established two years ago to lead our financial activities in-country, Grameen Foundation is committing more resources than ever to helping to put appropriate financial services, information services, and business opportunities into the hands of the poor and poorest people in India – to empower them to transform their lives and the lives of their families.