Focus on Financial Transparency: Building the Infrastructure of a Microfinance Industry

The paper states that the two main goals of financial transparency in the microfinance industry are improved MFI performance and commercialization of microfinance. Using databases, the paper discusses the activities of CGAP and other industry players in financial transparency. It describes in detail the following elements of financial transparency:

• Information systems;
• Internal control;
• External audit;
• Assessment and performance measurement;
• Peer group benchmarking;
• Performance standards;
• Rating;
• Regulation and supervision.

The paper examines the sequence of the elements and states that the sequence represents discrete activities that build on each other. It argues that practitioners, funders, and service providers will have to recognize and embrace transparency, a key element in the transformation of the microfinance industry.