Responsible Finance: Concepts and Challenges

MicroSave's Briefing Note 128 highlights the relationship between responsible finance, social performance management, and client protection. It discusses the opportunities and challenges for MFIs trying to deliver services to the poor in a responsible manner. The Note defines responsible finance (RF) as offering financial services in an accountable, transparent, and ethical manner. RF must focus on the practices of financial service providers, and must help clients to improve their capacities to access and use high quality financial services. The Note stresses on the importance of RF in the long-term success of any financial service business serving the poor. However, financial service providers are often too resource-constrained, or lack the incentive, to invest in RF. Improving RF practices in the microfinance industry requires the concerted effort all stakeholders. Recommendations include:

• Creating more awareness about the importance of RF practices as business common-sense;
• Facilitating sharing of best practices among service providers;
• Investors, funding agencies, and lenders should also follow the principles of RF in their lending activities;
• Support by advocacy organizations/support organizations for client education;
• Industry associations should work with each other towards aligning their self regulation principles.