Summary Report Of The Work Of The Solidarity Finance Workshop

Summary Report of the Work of the Solidarity Finance Workshop

(April 2005)

CONTENT SUMMARY

In the face of the success of microcredit, presented by multilateral institutions such as the United Nations, the G8, the World Bank and the MFI as being a strategically important tool for development in the South, more and more voices are being raised decrying the perverse effects of such practices (Amouroux, 2003; Guérin, Servet, 2005). The primary accusation is that they serve to embed financial practices that mimic and reinforce the processes of neo-liberal globalization. In seeking to make a profit from providing disadvantaged population groups with access to basic financial services (savings and credit), does microfinance not risk appearing to be just a segment of the international financial market that happens to target the least well-off?

In such a context, several actors and institutions have reacted by reaffirming the importance of microfinance's political and social objectives in terms of development and the sustainability of microfinance institutions (MFIs) themselves, as well as the need to recognize and value these objectives. Partisans of solidarity finance, they seek to prove that the construction of social ties and capital between local institutions and actors is not merely a factor in medium-term viability but is also a factor in the sustainable development of the populations concerned.

What remains to achieve is to demonstrate this fact using appropriate management and evaluation tools and mechanisms. For this reason the Alliance's Solidarity Finance Workshop working with other organisations such as CERISE and CGAP has set up an action research project that seeks to test social performance indicators and criteria in several countries with the aim of highlighting the specific characteristics of solidarity finance practices as opposed to conventional microfinance. In a more general sense, the purpose is to highlight the societal impact of these practices.

Introduction

Historically, microfinance has met with real success as a tool for the inclusion of those excluded from the traditional banking system. At present it is thought that throughout the world 60 million families have access to microfinance services.

In order to respond to this desire for inclusiveness, the operational bases of microfinance institutions (MFIs) have been founded on social links and proximity to beneficiaries:

1) Solidarity and involvement: these mechanisms can be found in the workings of joint surety groups; in cooperative systems, each individual is a member and is involved in the management of the institution; in village banks the whole village is a stakeholder and is responsible for the correct operation of the fund for the good of the village, etc.

2) Services for the excluded: services have been designed for and adapted to the needs of an economically or socially marginalized population (small sums, regular repayments, targeting of activities carried out by poor households, direct contact with local credit agents, etc).

3) Services are based on proximity to the beneficiaries: geographical proximity through the development of rural agencies or "mobile banker" services where the banker travels to meet clients; social proximity seeking to reduce the barriers between clients and institution (local agents, services that are suited to the cultural and religious context, etc); temporal proximity reflected in frequent contact between the institution and its clients via regular repayments or frequent training and discussion sessions. Proximity increases confidence, reduces information imbalances and minimises social barriers between clients and institution.

In the 1990s attempts to make MFIs sustainable focussed attention on issues of financial and institutional viability. Financial analysis tools were thus adapted but MFIs' social performance was taken as read. The march towards financial autonomy, pushed to extremes by certain donors, contributed to turning numerous MFIs away from their social vocations.

Findings of the FINSOL working group

Solidarity finance actors meeting in the FINSOL working group note the following: there is an urgent need for a distinction between different types of microfinance according to the practices pursued by the MFI.

Two broad categories of institution can be identified:

1) Microfinance that sees its role as that of a financial services provider or a loan operator. These institutions in general start out in a niche neglected by banks and lending establishments, that of "non-bankable clients".

Seduced by professional and reassuring talk, many funding providers have ultimately subscribed to this technocratic view of the sector. Donors don't like risk either! It is this form of microfinance that advocates institutionalisation into commercial banks in order to gain access to the money market, for greater profitability to attract private investors. It could be called "pre-banking microfinance".

2) Microfinance that sees finance as an effective tool, but one that can be used to help humanity and society to develop. For these microfinanciers the way services are provided makes all the difference. Because it puts people and their social links at the centre of its work, this type of finance will always work in harmony with its context and environment, and will seek to understand these in order better to serve them and improve them. Finance of this sort aims to impact on clients' social capital and their autonomy, which in their turn will impact on the sustainability of the institution. It could be called "Solidarity Finance".

Just as banking is a profession, so solidarity finance is another profession, a new profession that needs to be promoted and to gain recognition.

On the basis of this and of the report on initiatives and innovations in the field of solidarity finance, FINSOL actors in 2002 drew up a list of proposals that have now led to a number of advances, thanks to joint work with the Social Performance Indicators Initiative (SPI) initiated in 2002 by the Argidius Foundation and financed jointly by the FPH and Swiss Development Cooperation (SDC).

I – Concepts, definition and process

At the time of writing, a wide range of findings have been examined as part of the process of discussing social performance indicators at the macro-economic and organisational levels; microfinance

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