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Repositioning microfinance with impact investors: Codes of conduct and 'social first' MFIs

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Investor interest in microfinance continues despite questions raised by recent repayment issues and by more sceptical assessments of social impact, but investor scrutiny has intensified. The industry can take the opportunity to more clearly articulate its social and financial objectives and how it will achieve them. An important part of this clarification will be to acknowledge that not all investors or microfinance institutions (MFIs) share the identical mix of social and financial objectives and on occasion choices among objectives will have to be made. Tools are becoming available that can make these priorities more transparent and predictable so as to more closely match the objectives and expectations of MFIs and investors. Codes of corporate conduct and minimum standards can provide a starting point for double-bottom-line investors. A differentiation between 'financial first' (FF) and 'social first' (SF) companies can give investors greater confidence that coinvestors, directors, and managers are fully aligned in pursuit of the same set of priorities. With this clarity, enhanced FF capital flows can have a major impact in achieving microfinance's social objectives through expanding scale and outreach in total numbers, while enhanced SF microfinance will push the envelope and set the evolving standard on improving microfinance's effectiveness in achieving its social objectives.
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Document Type: Research Article

Publication date: 2011-12-01

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