Microfinance networks - umbrella organizations supporting a range of microfinance institutions (MFIs)-have played an increasingly pivotal role in supporting individual MFIs with financial and technical resources. Most of these networks are non-profit organizations created with the clear mission of helping to alleviate poverty by partnering with MFIs that work directly with the poor.

As the microfinance sector matured and increased funding was needed to reach more poor clients, organizations such as Grameen Foundation and Oikocredit created funds designed to attract social investors who understood that their investments could yield either a social return only, or both a financial and social return. The types of funds available through MFI networks include guarantee funds, and investment funds consisting of debt, private equity or a combination of both.

In general, these networks manage their own funds or rely on separate for-profit subsidiaries to do so. Until recently, most networks made decisions about what MFIs to support based on indicators such as countries with high incidences of poverty, size of the poor population being served, and rigorous due diligence on the financial and operational health of the organization. With regard to the social performance of the MFIs and their clients, proxies such as average loan size, location and the gender of clients were used as indicators of poverty outreach. However, these proxies do not correlate tightly with poverty and cannot be used to track changes in client poverty levels, which is critical to assessing social results.^* To fill this information gap, the Progress out of Poverty Index™ was created. This poverty assessment tool allows networks to encourage and support their MFI partners in collecting and analyzing better social performance metrics to accompany the financial metrics used in investment decision-making.

MFI networks and their boards are taking the business of poverty alleviation seriously; they recognize that having the metrics to demonstrate social outreach and outcomes can potentially create more client-centered MFIs and enable them to achieve their poverty alleviation goals more effectively. This in turn influences how networks market themselves to investors.

Questions to Ask

An institutional investor can ask:

• What percentage of the network's MFI partners are using the PPI or a comparable poverty measurement tool?
• How effective are the network partners at alleviating poverty?
• Is social outreach and outcome information available by country?
• How much time is required to see sustained improvements in the lives of the poor?

For institutional investors motivated by social as well as financial goals, PPI data on social performance can provide needed information about the social benefit of an investment. Using PPI data, social investors can understand how well an MFI serves different groups of poor clients - those that are poor, very poor, or moderately poor. This information may be used in the investment process to set expectations about the social return.

Read more about Oikocredit's experience in training its partner MFIs to implement the PPI.

Oikocredit and Grameen Foundation: Partnering to Grow Poverty-Focused Microfinance

*What's wrong with loan size as a measure of client poverty level? Developing better measures for poverty levels of clients that are more meaningful than just the current average loan size, Chris Dunford, President, Freedom from Hunger, May 2002.

Disclosure:
References to the sponsors of specific investment funds are presented for illustrative purposes only and should not be considered an endorsement or recommendation by Grameen Foundation. Grameen Foundation does not provide investment advice and investors are encouraged to perform their own due diligence and, if necessary, consult with a financial advisor before investing in a particular fund or other investment product.