Friday, 27 May 2011

Promoting responsible lending

© CARE/Helen Barnes
I listened to a very interesting and well balanced programme on BBC Radio 4 last week called ‘The Bankers and the Bottom Billion’ about microfinance in India ( It illustrated the potential of microfinance in helping poor people to develop their businesses and improve the lives of their families. However, it also highlighted the problems associated with poor people taking out multiple loans and not investing the money in productive ventures. It went on to describe situations where some borrowers, who were unable to generate a return and repay their loans on time, were being chased by ‘microfinance companies’ whose main concern was making a return for their shareholders.Could this also happen to the entrepreneurs supported through lendwithcare?

Of course, there will always be some borrowers who, for a variety of reasons, will face difficulties in repaying their loans.  However, I think the approach we adopt makes this scenario far less likely; on the contrary a more likely development is that lendwithcare will contribute to positive changes taking place in the lives of poor people.

There are two reasons for this. Firstly, we take particular care only to work with microfinance institutions (MFIs) that, in addition to a sound financial performance, have a strong social development mission and responsible lending practices. We have lengthy due diligence procedures that involve several field visits to examine the institution’s organisational structure and decision-making processes. We also discuss lending policies and procedures with both staff and borrowers, and reviews documentation and audited reports. And we continue to monitor a range or social and financial indicators to ensure that MFIs are meeting ‘the double bottom line’ of financial sustainability and positive social impact.

Furthermore, we have developed a code of conduct in microfinance ( that underpins all our work in poor communities. It protects the rights of borrowers and ensures that they are treated with dignity and respect, while at the same time providing them with the highest quality products and services. All our partners must adhere to this. Among the many principles that the code articulates is a commitment to 'educate clients on financial management and ensure that clients and their families benefit from the services they receive and do not become over-indebted'. It is in fact very similar to other standards being promoted by other initiatives such as, for example, the client protection principles developed by the SMART Campaign

Secondly, we only work with MFIs that, in addition to loans, offer other financial services to low-income people such as, for example, savings accounts. In this way, clients are likely to access loans only when they do not have enough savings of their own.  Furthermore, our partners generally offer a range of loan products including short-term emergency loans if a family member falls ill, assistance with funeral costs and even insurance cover.

It is important to increase the provision of microfinance, but given the potential vulnerability of many of the poor people we work with, it is also important that this is done in a responsible and transparent manner while adhering to the highest ethical standards.

By Ajaz Ahmed Khan, microfinance advisor at 

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