Thibault Lescuyer


Towards a socially responsible microfinance quality label?

Announced in March 2011 at the time of the publication of the Microcredit Microcredit Summit campaign annual report, the “Seal of Excellence” project will be the first quality label for responsible microfinance. After the abuse observed in Indian microfinance following the ousting of Professor Yunus of the Grameen bank, this label consolidates the path opened up by various rating and certification initiatives and acknowledges the importance of microfinance’s commitment to the poorest of clients.

A seal of excellence in microfinance

Set up in April 2010 by the NGO and microfinance institution networks regrouped in the Microcredit Summit Campaign, the seal of microfinance, simply known as “the seal of excellence for poverty outreach and transformation in microfinance” is still at the project stage. This private label, to be implemented by an association, aims to distinguish “responsible microfinance institutions (MFIs) which are genuinely inclusive with regard to the poor and which contribute to positive change.” (1)

A label to “go further”

For Sam Daley-Harris, one of the initiators of the label, it should function as an extension of two existing initiatives: the principles of client protection in the Smart Campaign and the Social Performance Task Force” (SPTF). A way of demonstrating the efforts undertaken by “responsible” microfinance, which had equipped itself with social impact analysis tools well before the Indian crisis, or the takeover of the Grameen Bank by the Bangladeshi government. Initiated by the Deutsche Bank, the Accion NGO and the CGAP in 2008, the Smart Campaign is a code of conduct which makes “client protection a core issue”, in opposition to practices of harassment and over-indebtedness.

Client Protection (the Smart Campaign)

  1. Avoidance of over-indebtedness
  2. Transparent and responsible interest rates
  3. Appropriate collections practices
  4. Ethical staff behaviour
  5. Mechanisms for redress of grievances
  6. Privacy of client data

The “Social Performance Task Force”, which is the other mainstay of the seal, is a research group created in 2005 which works according to the definition of universal performance criteria, such as employing personnel for the social mission and targeting the poorest populations which should clearly be, according to Sam Daley-Harris, one of the distinctive elements of the future label, as well as the principle of limited profitability and a limitation on directors’ salaries.

A seal which is a talking point

Not all microfinance players share this vision. Carlos Danel, co-founder of the Mexican MFI Compartamos, is demanding the right for profitable microfinance organizations to be listed on the stock exchange. Taking this argument a bit further, for Danel and others it is not important if microfinance makes its shareholders into millionaires as long as the clients are (still) respected and their lives are improved a little… But these very differences of opinion could give the seal of excellence the advantage of establishing a clear and distinctive definition of responsible microfinance.

A label to watch

The next phases: the final choice of the criteria of the seal and the certification process, which according to Sam Daley-Harris, could partly depend on the rating agencies. Next will be the testing phase of several microcredit institutions. The seal would not be fully operational before the end of 2012.
(1) Draft document “Beyond ‘Ethical” Financial Services: Developing a Seal of Excellence for Poverty Outreach and Transformation in Microfinance”, Seal of Excellence March 2011

How do quality labels work?

Label Rouge, Max Havelaar, Cosmébio, Finansol. Quality labels are now part of our everyday lives. Although they are all supposed to guarantee to respect the quality restrictions and regulations defined in the specifications, two types of quality labels can be distinguished: “public” such as the AB label for farm produce which are defined by law and “private” which are defined by a professional organisation, for example a group of enterprises (Cosmébio) or an association like MSC for sustainable fishing and Finansol for solidarity orientated savings.

The credibility of the certifier.

Whether labels are private or public, their credibility is subject to the specifications being respected. For public labels, this verification is carried out by an independent certifying organisation supervised by a legal body (which is itself certified) like Ecocert. In the case of private labels, checking and certification also exist, but are sometimes less strictly controlled and under suspicion of using certifiers who are both “judge and jury”, rather than being independent.

Learn more: See the Microworld dossier on evaluation of the social impact of microfinance
This article is part of the special report: