Investing for Impact: 15 Responsible Investment Initiatives in Microfinance
Earlier this year, I wrote about the not-so-positive side of microlending. Since I'm not the first person to discover the troubling trend, I decided to follow up and see what's being done about it and by whom.
Rise of the Double Bottom Line
Some of you have heard about the triple bottom line. It's the idea that companies intend to not only make a profit, but also to have a positive environmental and social impact. (Here is a discussion about the topic, and although it's a few years old now, it's still relevant).
Well, the triple bottom line is still a relatively new idea, and there are lots of efforts around the world to promote the idea and make it a business standard. And while the triple bottom line is still far from an everyday reality, the double bottom line is here and here to stay. Last November, Chris McKnett presented The investment logic for sustainability on TED.com. He is part of a growing community of investment professionals looking at how to measure the double bottom line.
What's the double bottom line?
While all businesses have a conventional bottom line to measure their fiscal performance— financial profit or loss— enterprises that seek a second bottom line look to measure their performance in terms of positive social impact.
Microfinance is supposed to be a double-bottom line initiative, but there is no clear evidence that such loans actually help the poor.
Setting standards for Microfinance
The United Nations Environment Program Finance Initiative published Principles for Responsible Investment, which established six guiding principles to help investors put their money where their mouth is... responsibly. The organization summarized fifteen standards that can be used for responsible microfinance. Here they are, in alphabetical order:
- CERISE Social Audit Tool for Microfinance Investment Intermediaries (CERISE Social Audit). It's a self-assessment auditing tool for funds.
- CERISE Social Audit Tool for MFIs (CERISE SPI-4). It's a free self-assessment auditing tool for microfinance institutions.
- Global Appeal for Responsible Microfinance (Global Appeal). It is a campaign aimed at countries, microfinance institutions and indivuals asking them to make a public commitment to ethical microfinancing.
- Global Impact Investing Rating Standard (GIIRS). It's a third-party verification and rating for funds and companies.
- Impact Reporting and Investment Standards (IRIS). It's a set of standardized metrics that can be used as a basis for reporting an organization's social and financial performance.
- LuxFlag. It's a label that certifies that a Microfinance Investment Vehicle (MIV) is on the up and up.
- MFTransparency (MFT). It's a broad range of tools and resources, including assessment tools to understand the true cost of microfinance activities.
- Microfinance Institutional Rating (MIR). It's a comprehensive assessment of the long-term sustainability and creditworthiness, performance, risk and market of microfinance insitutions for investors, banks, and MFIs.
- MicroRate - Luminis Service. It's an online platform for potential investors and researchers that provides data and analysis on microfinance investment funds.
- MIV Rating. It's an evaluation of Microfinance Investment Vehicles that looks at their governance, lending policies, social performance, monitoring/support and financial performance for MIVs, wealthy individuals, investors and industries.
- MIX. It's a third-party certification and tool set for all actors in the microfinance industry.
- Principles for Investors in Inclusive Finance (PIIF). It's a framework for responsible investment in inclusive finance projects meant for institutional investors.
- Smart Campaign - Client Protection Principles. It's a global campaign to incorporate social protection into microfinancing activities and provides toolkits, training materials and video.
- SPTF’s Universal Standards for Social Performance Management (SPM). It's a free set of management standards for microfinance institutions pursing the double bottom line.
- Truelift - Pro-Poor Principles. It's a set of principles, roadmap and rating for practitioners and lenders to effectively support poor people microfinance.
Featured image: Sectoral Financial Balances in U.S. Economy 1990-2012 by Farcaster via Wikimedia Commons