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Principled Practices in Microfinance

Too often when one works in-depth in technical fields like microfinance, it is easy, from time to time, to lose sight of why we do what we do. This guide reminds us of the bigger “why”, and defines the guiding principles of Catholic Relief Services’ (CRS) microfinance work, and stresses the need for these to be constantly reiterated. Even though these are principles that guide CRS’s work alone, the article is of great value as the principles are relevant to all microfinance practitioners, both new and seasoned. This is, essentially, an attempt to get those who are consumed with the “here and now” to glance up and remember why we are in the business of microfinance after all.

CRS’s six principles in microfinance draw from their Catholic Social Teaching (CST), their own core values, and their experiences. The principles are to:

Serve the poorest clients. To forward the CRS goal of advancing social and economic justice, they shape their services to serve the poorest communities. Women make up the majority of their clients, as they generally have the least means to support themselves and the least access to credit.
Link loans to savings. Credit and savings are both important means to finance the growth of economic activities. CRS connect the amount lent to the amount saved to help clients build wealth as they borrow.
Use solidarity guarantees. Group guarantees replace collateral as a means to secure loan repayment. Solidarity guarantees link new loans to the repayment of old loans. A group of clients guarantees the loans of fellow group members with the understanding that no one in the group will receive a new loan until all loans are repaid. This strategy keeps repayment high.
Practice participatory management. Democratic processes are key to empowering the poorest in a community. Clients are directly involved in the design, management and administration of the services they receive, from creating by-laws to voting on loan applications to choosing repayment schedules. In this way, CRS includes those most affected by decisions in the decision making process.
Invest in scale and self-sufficiency. The investment that a program makes in research, design, staffing and training is crucial to its success. Achieving scale (reaching at least 5,000 clients per partner) advances the CRS mission to serve the poor. CRS aims to achieve self-sufficiency through efficient operations and by charging market rates of interest.
Plan for permanence. Prior to launching a new program, CRS plans how the program will evolve into a sustainable resource for the poor. Permanence may include creating a formal financial institution, helping their partners transform programs into specialized microfinance organizations, or consolidating pilot activities and integrating them into larger local entities.

While these core principles should govern all microfinance activities, they are constantly evolving and improving through experience and learning, though they should continue to remain based on the values of human dignity, stewardship, solidarity and the common good.