European Microfinance Week gives the opportunity to showcase the actions of European organisations – from banks and companies operating through their CSR (Corporate Social Responsibility) branch, to NGOs, research institutes, universities and public bodies.
It coincides with the recent European Commission communication on CSR – outlining a renewed strategy to strengthen and regulate CSR activities, including in relation to “Business models that target the poor as consumers, producers, and distributors help to maximise development impact” (i.e. directly relevant to microfinance activities).
Quite separate to public policy guidelines, the microfinance industry has in the last couple of years demonstrated important leadership in terms of pursuing a Social and Responsible approach. This has in part been triggered by a crisis in the Indian region of Andhra Pradesh where a somewhat over-serviced micro-lending market left borrowers struggling to keep up with multiple loans. Local authorities responded with a regulatory backlash that crippled the sector’s ability to service new loans and ultimately lead to market contraction.
However, what Microfinance Institutes (MFIs) learnt from this experience was that a more responsible approach to lending was required. This needs to be supported by effective regulation from the public sector, but MFIs themselves can play a key role through the integration of social goals in their services– i.e. microfinance should not just be about expansion through increasing numbers of loans; it should inform and educate clients on their opportunities, apply fair and transparent interest rates, assess people’s repayment capacity and offer a range of pro-poor services, including saving schemes (in addition to micro-loans).
Initiatives such as the UN backed Principles for Investors in Inclusive Finance and The SMART Campaign have been important in spear heading this new approach to microfinance and the industry is now waking up to the potential and importance of a social and responsible approach.
In strengthening recommendations for CSR practice in Europe, the EU would do well to learn from these examples of private sector driven change through learning from past experiences, combining social outcomes with a sustainable approach to growth and sharing knowledge across the sector.
