While there is no doubt that microfinance has significant impact on many dimensions of poverty, there is also evidence that shows in many cases microfinance has no impact (and in comes cases it produces a negative impact).

This fuels a continuing debate about the value of microfinance, whether donors should be prioritizing microfinance and call for MFIs to continually prove their impact.

For me this debate reflects a hit-or-miss approach to microfinance whereby services are delivered with an assumption that benefits will result - it is not the quantity of the services alone that will reduce poverty, but the quality of these services. Quality should be defined in terms of the market responsiveness of the services and whether the broader development objectives are achieved.

To achieve social impact therefore, microfinance needs to be designed with intent, and MFIs need to manage their performance towards their social goals - for this they need reliable, timely and low-cost social performance information.

By monitoring and understanding who they reach and how their services can benefit clients, MFIs can be accountable through their internal performance management systems, primarily to themselves, but also to donors and to their clients.

Of course, of course. They get subsidies and sometimes privileges in regulated activity. If only to be eligible for grants, loans, and other direct or indirect subsidies they have to report to other interested parties...like funders, for example! They should be held accountable--just like all institutions that deal with 'other people's money' there must some minimal transparency. I am discussing all those MFIs which get some sort of socially funded (public or nonprofit) subsidization. It seems that these subsidized MFIs are only some of the total of all "MFIs." The term MFI has expanded its usage in the past decade--it now seems to include all financial institutions-- and even programs like 'individual development accounts' that somehow involve 'the poor', and sometimes, also, the non-poor but less affluent population. For-profit MFIs are another matter and too complex to treat adequately here but in principle; they should not generally expect subsidies from either the government or any NGO. One last thing: the social impact in the question should mean all costs and benefits are assessed; however, we should remember that economic life is a process, so more than just the traditional economist's measures of static gains and losses should be included. Bottom line: all fundersneed honest and critical information in order to effectively allocate their limited subsidies; the poor (savers, borrowers, other community members) and their advocates need relevant and thoughtful reports from MFIs that operate in their communities. And, of course, we all should want to minimize the likelihood of fraud and corruption--anyone who watches the financial sector working among poor people, or reads financial history, knows that finance attracts some of the greediest and cleverest scoundrels in the economy.

Since inception, what we know as microfinance today has represented a radical departure in philosophy, operation and overall vision to the traditional views of poverty and the poor. Simply put, traditional views tended to see the poor as helpless victims needing expensive holistic strategies while pioneers such as Accion and Grameen operated more in the view of what could be called the " client paradigm" and presented clients as worthy of services and willing to pay a fair price. Over and over we saw it was access to service more than subsidy of interest rates that were preeminent in the concern of these clients. This is particularly true for two reasons: 1) for subsidized credit the hidden transaction costs in a majority of cases (time/transport/bribes etc) make the true cost much higher PLUS often these programmes are not reliable for multi year periods as they depend on annual requests for government replenishment, and 2) the reality in a vast majority of cases throughout all cultures informal sector credit and savings mechanisms which the poor depend on are, using conventional banking norms for calculating effective rates of interest, astronomical in their cost.

Within this view there is a basic reality whereby microfinance is considered self-evaluating whereby clients by their repayment rates and institutions by their ability (mostly after initial often substantial subsidy) are able to be viable signifies a win-win proposition. Of course there can be abuses and the "debt trap" occurs at all stratas of income from the poorest to the richest and from all forms of formal and informal credit services. That is why institutional sustainability includes the ability to identify the right client and commitment to human dignity which requires the write off of non performing loans using practices consonant to basic client rights (unlike informal systems where the consequences are dire and even life threatening).

Having said this I will note that I have always advocated that it is an obligation of donors to understand the impact of these services on the poor and the poorest. HOWEVER this should be funded and managed as a separate activity to an MFI's work for two basic reasons: cost and the need for independent perspective. Good MFIs do many forms of classic market research which does enter into the sphere of social and economic impact at the household level for the purpose of designing products tailored to the needs of their clients. This work, while invaluable as an input to more sophisticated social impact analysis, is not sufficient to answer a much more scientific proposition (which can only be done properly with random sampling of non-participating households).

In general a poor household operates as an inter-related economic entity involving a nuclear family but more often than not also including other relations. It is in effect a conglomerate of multiple marginal activities that vary from selling labor part time to periodic trading activities to cultivation of crops to raising of livestock etc. Each of which requires a cash flow analysis and deep understanding of the complex market relationships (hidden costs and obligations) incurred by the various members of the family in these various activities.

This theme has been debated continually. With millions of clients (not to mention countless billions of transactions of institutions which are today financially viable), it is sad that the donor community has not properly funded a joint activity on a country basis that delves into the impact of microfinance on the poor at the level that would satisfy all. Maybe this can be an achievement of the Year of Microcredit.