Microfinance is vital to human and social development, audit suggests

By staff writers
October 15, 2009

Oikocredit, a leading socially-committed private investor in microfinance, has just released the results of its social audit, looking at how to enhance human welfare through economic performance.

Drawing individuals and groups into providing vital loans for hard-pressed but enterprising communities in some of the poorest parts of the world is Oikocredit's specialist role.

The idea is to keep money working for change, rather than concentrating on one-off donations, to encourage participation and to enable grassroots economic development. 'Fair finance', in short.

Measuring both the financial performance and social progress of the world's economies is a major question, acknowledged by the organisation which has strong roots in the churches and in civil society.

The lively existing debate on the macro-economic indicators following the global crash, has been enhanced by the latest report of the Commission headed by Nobel Prize winner, Joseph Stiglitz.

On a micro level too, tools and indicators are now in the process of being developed and tested. Oikocredit's social audit aims to be at the cutting edge of these developments, and is "the first of its kind", it says - trying to find out whether its work in providing small-acale finance really does fulfil its social mission and maintain its values.

"For Oikocredit and its investors, it is essential to know that investments of some €370 million lead to positive changes in the lives of the working poor," a spokesperson explained.

In the past few years, Oikocredit has taken substantial steps to assess the social performance of its 500 partners. Since 2005, it has notably increased the number of tools used to monitor and assess social performance.

In addition to impact studies, Oikocredit carefully reviews its partners’ aims, their products and services, their interest rates and their gender and environment policies, the NGO says.

"The latest innovation in social performance measurement is to look not only at the performance of the microfinance institutions, but also to undertake a social audit of private financiers."

Oikocredit, by turning the examination on itself, is the first financier to collaborate with Cerise in the on-going development of the social audit tool.

Cerise is at the forefront of social performance monitoring, and serves as an exchange platform on practices in microfinance.

Cerise’s Social Performance Indicator tool, a social audit instrument for microfinance institutions, is recognised by professional networks and donors worldwide. It is currently being developed to analyse financiers’ internal systems and processes.

Oikocredit emphasises that collaboration in this development process reflects its commitment to a serious assessment of its policies, procedures, products and services in the light of human need and development.

In terms of major findings, the social audit report reveals that Oikocredit has succeeded in developing a strong social mission and vision, committed human resources, trained staff and innovation.

It also has a clear focus on rural development and it finances a wide range of institutions, from small village banks to medium and large established institutions.

The report suggests that it is succeeding in meeting the needs of partners that require financing in local currencies (some 45 per cent of the total capital outstanding).

But the audit also indicates a range of challenges for the organisation - including understanding its microfinance partners and helping them to know their 16.8 million clients better and to improve their products.

"The main challenge is now to operate the shift from collection and assessment of data to management. This implies a pro-active strategy to improve and promote social performance," says Oikocredit.

Using the outcome from this audit, Oikocredit is now able to update its social performance procedures and further develop its outreach strategy, products and services.

"Fulfilling our mission means both investors and clients can benefit from the social and financial empowerment of an Oikocredit loan," the NGO comments.

Oikocredit has been expanding its supporter base in the UK recently, with the involvement of churches and community groups. For more information about how to get involved and "make small sums of money go a long way in sustaining global development", go to: http://www.oikocredit.org/site/en/doc.phtml?p=investors-in-britain-ireland


A Social Audit Summary is available in *.PDF (Adobe Acrobat) form here:

See also Cerise: www.cerise-microfinance.org

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