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Growing Pains: Ethics, Regulation & Moving Forward
Category: Microcredit | By CMC-2011, 13-Oct-2011 | Viewed 4633  Comments 0
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By Bree Gardner

The debate over microfinance is as old as the idea itself. Once praised as the golden solution to poverty, it now faces the criticisms and condemnation that often follows success and misuse.

Alex Counts, CEO and President of Grameen Foundation, has found that in regulation and ethics comes success. "Microfinance can go wrong if people pursue it with the wrong objectives and try to extract maximum profit out of the poor," he said. 

"Or maybe they go at it with the right intentions but they don't use what has evolved as sound or best practices, and in either case it can definitely go wrong."

Involved in several published works on the matter, Counts is vocal about his belief that microfinance is both the solution and the problem. Concerned with the lack of ethical and financial regulations within current state of microfinance, Counts is closely watching many of the ongoing initiatives towards better regulating his industry. 

"Some of us just assumed that anyone entering this field would well exceed these minimal ethical standards despite them being not specifically defined, but we've been seeing the need for standards," he said. "Among those meeting the minimum ethical standards, we should develop a framework for evaluating the effectiveness, so not only are you doing no harm, but you know how much good are you doing."

Programs such as The Smart Campaign are beginning to hold Microfinance Institutions (MFIs) responsible to their clients, investors and to a standard of practice still new to this growing industry. This, in conjunction with several projects the Grameen Foundation has been developing, will help to ensure the safety and ethics of clients and businesses alike. 

But the problem does not stop there, Counts said. The controversy as to the effectiveness of microfinance has long waged, fuelling more contention over the work Counts does. 

"To discount the importance of moving someone from extreme poverty to moderate poverty is to show a complete ignorance of what the real life conditions of the poor are," he said. 

"That is an enormous positive change. To simply say that someone in microfinance has not crossed that international poverty line makes it something of a failure is to ignore the significant change it can mean to go from 50 cents a day to a dollar to day. It's a bigger change than you or I may ever have the chance to increase over years as we increase our own earning power."

Not to be discouraged, Counts said it's no surprise that there has been outcry against microfinance. 

"These long-running tensions in microfinance have boiled into the public eye, but in one form or another I always expect it to be with us as we refine and advance microfinance. It's just part and parcel of taking on a serious and widespread problem as entrenched as global poverty."

Among poverty-reduction benefits, Counts attributes positive changes to political affluence and engagement with microfinance. 

"There's some evidence," he said, "that as people get more connected to microfinance networks and get more economically stable that they get more involved in demanding accountability towards their elected representatives at the local and even national level. In that way microfinance at the margins help the government work better by having a more engaged group of citizens."

Civilians in developing countries may incite government changes because of MFIs, but in Canada Michele Fugielgartner of Trico Foundation hopes the government will begin changes as well to allow more work options in developed countries. 

Working locally within Canada, Fugielgartner says that while International MFIs may have more problems than those within Canada, they also have more freedom. 

"I think that some of the challenges in developed countries comes down to their incorporation levels. We're so used to seeing either for-profit or non-profit models that when we get into this blended value space, we don't have an easy incorporation type that can work."

"So because we have great regulation, and we're all quite happy to have that, we actually may see more success or more interesting models or something different coming from developing countries because that regulation isn't there. The absence of [regulation] might make it more urgent, more needs-focused than what we would see here."

Working locally has had its own challenges and successes, and the international focus of most MFIs is not without appeal.  "I still look to developing countries and the social entrepreneurs and their supporters and investors to see if there's lessons we can learn from them," she said. 

"t's interesting. I've definitely had that interest in the past either in donating to or working in international microfinance. But in a local context there's a tonne of possibilities too, especially when you consider community economic development, an employment standpoint, and the social entrepreneurship of building a healthy community and what it takes to do that."

Together, microfinance is slowly developing into a bigger picture, and one that fits under the social entrepreneurship umbrella. As more policy and regulations are achieved, both Counts and Fugielgartner are certain the room for increasing impact is massive. Well on their way to impacting both local and international lives, both are driven towards social change through microfinance institutions, and feel strongly that it will force poverty on a run towards extinction. 
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