Promoting Inclusive Markets and Financial Systems
Microfinance Reporting Standards Initiative: Business Models Review
As microfinance grows globally, developing commonly agreed-upon reporting standards is becoming more and more important to the credibility, standardization, and long-term prospects of the industry. This paper draws on examples from the mainstream accounting standards world, as well as from other industries with accepted standards, to illustrate the importance of, and best practice in, standards bodies to develop, maintain, and promote reporting standards within an industry.
IASB and FASB provide key examples of bodies that evolved, over time, out of existing organizations, and can inform the development of a Microfinance Reporting Standards Initiative (Reporting Standards Initiative). After examining different standards bodies and other organizations, several critical actions have been identified to create a successful reporting standards body in the microfinance industry:
- Promote stakeholder engagement in a participatory process and build stakeholder confidence in the new body and its authority to set standards and rules.
- House the body within an existing, respected microfinance organization, until it is stable and recognized enough to “spin out” into an independent entity.
- Support the perceived and real independence of the initiative and the eventual new body, in order to maintain trust among stakeholders.
- Ensure sufficient and diverse capital to finance the new body without compromising its independence.
- Keep the effort tied to the microfinance industry, for now, while keeping open the option to join a larger body such as IASB.
- Seek advice of standards bodies outside of microfinance. MFIs cannot and should not do it themselves.
- Create incentives for microfinance institutions to adopt and comply with standards, and to provide feedback to the standards body.
- Build capacity to work with governments and national and regional professional bodies.