Author Archive for Brent DeRosia


An Intro to Microfinance and NPO Accountability Questions

Microfinance is best described as scaled down financial services for the other 2/3 world, which include loans, business development mentoring, as well as other services like insurance.  “Microfinance services are essentially characterized by their size instead of the formality of a client’s enterprise, collateral requirements, methodology, geographical context, originating institution or the use of services for production or consumption.”1

While there are critics of Microfinance and conjecture about its effectiveness and ability to raise the poor out of poverty, many say its still in its infancy, the full potential not yet realized, the NPO (Non-profit Organization) world has lead the charge with the understanding that the solutions to poverty are extremely complex, are often contextual, and work out differently in regions around the world.  A great amount of effort has gone into this understanding.  Dr. Chu of Harvard Business Schools notes “until now business was defined by the goods and services we provided to two billion people—people in the first world and the elites of the world. But today we are on the verge of understanding how to unlock goods and services for the remaining four billion.”2 Furthermore, the NPO world has figured out what the business world could not, how to sustain, what metrics matter, what and how large the potential market is.

Interestingly, Dr Chu notes that “Poverty is the ‘normal state’ of the world.”  The numbers vary little, but many NPO’s report that somewhere around 50% of the world’s population lives on less than $2 a day.

Microfinance organizations are challenged to serve two constituents, the entrepreneur and the donor/investor.  Because of this mostly common challenge it is not unusual for microfinance NPO’s to struggle with the same set of accountability issues as many other NPO’s with different missions.  How is the NPO accounting professional to contextualize accountability concepts of financial, governance and mission and balance it to compliance and strategy.  Harvard Business School professor Alnoor Ebrahim illuminates the debate on nonprofit accountability issues, he notes that it may not even be feasible or even desirable for the NPO to be accountable to everyone and everything3.  Ebrahim goes on to articulate essentially four notions regarding accountability that should be on the forefront of thought for the NPO community, these are applicable to the microfinance NPO due to the emerging relevance and prominence of the microfinance market to prospective donor/investors:

  • Broader Mission – “Accountability is not simply about compliance with laws or industry standards, but is more deeply connected to organizational purpose and public trust.”3 The challenge for microfinance NPO’s is how to help the poor in the context of the broader organizations mission.  The microfinance NPO should be cautious and not assume that in the developing world, the poor are all emergent entrepreneurs; that credit and investment will generate income production, thus ending poverty.
  • Promise – “Nonprofits will continue to face multiple and competing accountability demands, so they must be deliberate in prioritizing among these demands.” 3 What is being promised to the donor/investor in furtherance of the mission and the message that is being given to the loan beneficiary is paramount to accountability.
  • Community Activity – “Few nonprofits have paid serious attention to how they might be more accountable to the communities they seek to serve.” 3 Expansion may be necessary to create leverage and critical mass for the microfinance NPO, but does the effort to do so strategically align with the mission of the NPO in the communities it works in.
  • Integration of Strategy – “Juggling the many expectations of accountability…for finances, governance, performance, and mission…” 3 Integrated strategy is key, alignment of strategy throughout the organization cannot diverge from the broader NPO mission.  The greatest payoffs rest with strategy-driven forms of accountability that can help nonprofits to achieve their missions.3 Such as, disclosure, greater transparency, industry self-regulation, performance assessments.

When planning, deploying and communicating strategies around accountability in microfinance NPO’s, whose mission it is to serve the poor, recognize that the poor are a structural component of the business/mission.  That is, Microfinance, rightly sees the poor not as aid recipients but as clients, entrepreneurs, or loan beneficiaries.  This changes the paradigm for the poor, where poverty is often characterized as a condition of mind.  Moreover, strategies for accountability can properly communicate the correct paradigm to the donor/investor and enhance the credibility of the microfinance model.  To conclude the thought, remember you cannot be accountable to everyone and everything, however you can prioritize better those notions of accountability by connecting them to the broader mission, the donor promise, activity in the community and the integration of the total strategy.

For more information on Microfinance:

World Vision Microfinance site:

Kiva Microfinance site:

Social Performance Indicators Blog, measuring the promise of Microfinance

Microfinance Institutions (MFIs) by Country, indicators, trends and benchmarks



2: Martha Lagace, Microfinance: A Way Out for the Poor, June 28, 2004, an interview with Michael Chu, HBS Working Knowledge

3: Alnoor Ebrahim, The Many Faces of Nonprofit Accountability, March 11, 2010, HBS working paper HBS Working Paper Number: 10-069



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