Realizing Mission Objectives: A Promising Approach to Measuring the Social Performance of Microfinance Institutions
by Katarzyna Pawlak and Michal Matul

This paper proposes a new approach for measuring the social performance of microfinance institutions. The key to developing sustainable social performance measurement (SPM) systems and practices is to consider their design from the perspective of the organizational mission. The fact that the SPM system is built on the organizational mission ensures its cost-effectiveness and facilitates its institutionalization. It not only stimulates an MFI to verify the fulfilment of its social mission and to innovate in the search for optimal solutions to address development needs in a given intervention context, but it also can improve its financial condition through client segmentation and risk management leading to increased efficiency, better product development, and strategic decision-making on the competitive microfinance markets.

Impact of Microfinance Programs on Children’s Education: Do the Gender of the Borrower and the Delivery Model Matter?
by Nathalie Holvoet

This article highlights the effects particular features of microfinance programs have on childhood education. Using data from a South India household survey, the article examines how microfinance impacts schooling and literacy, how credit enters the household, and who brings it in. Regression results show that, in the case of direct bank-borrower credit delivery, it does not matter whether credit enters the household through the mother or the father. However, large differences occur when mothers obtain credit through women's groups. Analysis indicates that combined financial and social-group intermediation leads to higher educational inputs and outputs, mainly for girls. Individual interviewis with borrowers and interviews with women's groups suggest that changes in underlying allocative rules that are provoked by group membership could be explanatory for the results obtained.

Foreign Exchange Risk Management Practices of Microfinance Institutions
by Peter R. Crabb

Foreign exchange risk remains a significant problem for microfinance institutions (MFIs). Many sources of potential funding for MFIs remain untapped due to the high risks of currency devaluation faced by these funding sources. Specifically, debt capital is available for MFIs but foreign exchange risk is a potential deterrent. This paper reviews current practices in the management of foreign exchange risk for and by MFIs. The advantages and disadvantages of these practices are discussed and alternative practices proposed.

Scoring Arrears at a Microlender in Bolivia
by Mark Schreiner

Can scoring models help microlenders in poor countries as much as they have helped credit-card lenders in rich countries? This paper presents a scorecard that predicts the probability that loans from a microlender in Bolivia will have arrears of 15 days or more. Although arrears in microfinance depend on many factors difficult to include in scorecards, the paper shows that inexpensive, simple-to-collect data does have some predictive power. In microfinance, scoring will not replace loan officers, but it can flag high-risk cases and act as a cross-check on loan officers’ judgment.

The Transformation of the Microfinance Sector in India: Experiences, Options, and Future
by M. S. Sriram and Rajesh S. Upadhyayula

This paper discusses the growth and transformation of microfinance organizations (MFO) in India. Issues that have triggered transformation include size, diversity, sustainability, focus, and taxation. Transformation experiences in India are few. To move to the mainstream, non-governmental organizations (NGOs) choose from three popular forms of organizations: non-banking finance companies (NBFCs), banks, and cooperatives. It appears that there is no ideal path for spin-off. Regulatory changes are needed to allow MFOs to graduate to other legal forms as they grow organically. NGOs must be permitted to invest in the equity of MFOs, as is the case in Bolivia and Africa. Norms for setting up MFOs under current legal forms should not be eased. Regulations should ensure that they help genuine MFOs and not others masquerading as MFOs.

The Experience of Financial Institutions in the Delivery of Microcredit in the Philippines
by Maria Abigail Carpio

This paper identifies the characteristic features of the different financial market players involved in the delivery of microcredit in the Philippines and looks into their experiences in addressing the credit demand of the smallborrower market segment, particularly the microenterprise sector. This paper argues that each group of lenders, specifically commercial banks, rural banks, credit-granting NGOs, and an apex financial institution, allocates its funds by establishing its own criteria for assessing the creditworthiness of borrowers and its own mechanisms to avoid borrower default. The delivery of microcredit takes place within an environment where the different financial market players face their own set of constraints in supplying credit to small-scale borrowers. This is made evident in the experiences of the different institutions in adopting the approaches of downgrading, upgrading, and financial linkage building.

Microleasing: The Grameen Bank Experience
by Asif Ud Dowla

Grameen Bank was the first microfinance institution (MFI) to introduce microleasing on a large scale. This paper provides a preliminary evaluation of Grameen's leasing program. Instead of providing a full-fledged impact assessment study, we examine the terms and conditions of the leasing program and evaluate its success in terms of outreach, repayment rate, and asset ownership. Analysis of program level data shows that the program is successful in terms of outreach and repayment performance. Through the program, poor men and women have become owners of power tillers, power looms, shallow machines, cellular phones, and even computers. The success of leasing suggests some important lessons for MFIs. It shows that poor people have diverse credit needs and that to help the poor borrowers to graduate out of poverty, MFIs have to provide different and flexible products.