mfi reporting standards - business models review

8/8/2019 MFI Reporting Standards - Business Models Review

1/24

Microfnance FinancialReporting Standards Initiative

Business Models Review

A publication o t e Financial Services Working Group (FSWG)Sub-committee on Financial Reporting Standards Initiative

Fall, 2008


2/24

Copyright 2009 The SEEP Network

Sections o this publication may be copied or adapted to meet local needs without permission rom The SEEPNetwork, provided that the parts copied are distributed or ree or at costnot or pro t. Please credit The SEEP

Network Financial Services Working Group Sub-committee on Financial Reporting Standards Micro nanceFinancial Reporting Standards Initiative, Business Models Review; and The SEEP Network or those sections

excerpted.

Micro nance Financial Reporting Standards Initiative, Business Models Review

Printed in the United States o America

For additional in ormation or to order additional copies, contact

The SEEP Network 1875 Connecticut Avenue NW, Suite 414Washington, DC 20009-5721

Tel.: 202-464-3771 Fax: 202-884-8479E-mail: [email protected]

Web: www.seepnetwork.org

To access this publication online, visit www.seepnetwork.org
mailto:seep%40seepnetwork.org?subject=http://www.seepnetwork.org/http://www.seepnetwork.org/http://www.seepnetwork.org/http://www.seepnetwork.org/mailto:seep%40seepnetwork.org?subject=


3/24


4/24

iv Microfnance Financial Reporting Standards, Business Models Review

Table o Contents

Abstract .................................................................................................................................. 3

1. Background and Introduction ............................................................................................ 3

2. Detailed Review o Two Standards Boards ....................................................................... 4

3. IASB and FASB as Models ................................................................................................ 9

4. Structural Options ............................................................................................................ 10

5. Applying Best Practice to a New Standards Body .......................................................... 12

6. Conclusion ...................................................................................................................... 14

Appendix .............................................................................................................................. 16Bibliography ........................................................................................................................ 22


5/24

Microfnance Financial Reporting Standards, Business Models Review 5

FINANCIAL SERVICES WORKING GROUP

1. Background and IntroductionThe micro nance industry continues to mature: attracting clients, growing port olios, and welcoming

business innovations. With these successes, though, comes a critical need or adequate managementoversight, management in ormation systems, and in ormation technology that maintain and produceaccurate, standardized nancial reportingespecially since micro nance institutions (MFIs) as a wholehave been somewhat slow to adopt technology to improve operations. To date, the micro nance industrydoes not have a central body or mechanism to address compliance or update nancial reporting standards.

Apart rom outside reporting actors, MFIs have internal operational and per ormance incentivesto improve their reporting, and the time is right or the micro nance industry to advance this needcollectively. In 2005, The SEEP Network published the rst update on micro nance reporting standardsin 10 yearsthe result o a consensus process that engaged practitioners, donors (including CGAP),investors, and other stakeholders. The Framework, as it is commonly called, is currently consideredthe industry standard, although admittedly it does not address all aspects o nancial per ormancemanagement.

At the 2007 SEEP Annual Con erence and Annual General Meeting, the SEEP Network FinancialServices Working Group (FSWG) members identi ed nancial reporting standards as one o SEEPs toppriorities and created a special FSWG sub-committee to address it. Work in 2008 included publishing awhite paper, 1 conducting an industry survey, and acilitating stakeholder engagement through ace-to- aceand group discussions and ora. This report is a major step orward or the initiative and reviews potentialbusiness models or the Micro nance Reporting Standards Initiative (Reporting Standards Initiative).The initiative is open to input, opinions, and volunteer contributions rom everyone to improve reportingstandards and advance the industry overall. 2

This overview examines a number o institutions with similar mandates or standards in a variety o operational, technical, and accounting elds. It also compares the e orts o these di erent industries to

establish standards and o ers suggestions on how to tailor best practices to the unique characteristics o the micro nance industry. A deeper review o two accounting standards bodies is included, as well.

2. Detailed Review o Two Standards BoardsTwo models that o er signi cant insight or micro nance reporting standards are the International

Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). Theseinstitutions set the standards or the global eld o accounting. 3

For this report, we reviewed the history o the IASB and FASB and their current organizationalstructures, and compared their models and rameworks. Both standards boards began as working groupsand committees within pro essional associations. As the activities grew, these small groups evolved to

their current, extensive structures today. More comparative details are provided in the Appendix.

1 Peter Wall, Blaine Stephens, Steve Wardle, Radi Mitov, Bill Tucker, and Ruth Dueck Mbeba. 2008. Micro nance Reporting StandardsCommittee Concept Note, Micro nance Reporting Standards Sub-committee o the Financial Service Working Group (Washington, DC: TheSEEP Network). www.seepnetwork.org/content/article/detail/6172

2 More in ormation is available online at www.seepnetwork.org/content/article/detail/6172 3 We also reviewed rating companies, including Moodys and Standard and Poor. They are not presented here because they are private companies

which charge ees or their services and their business models are less applicable to this initiative.
http://www.seepnetwork.org/content/article/detail/6172http://www.seepnetwork.org/content/article/detail/6172http://www.seepnetwork.org/content/article/detail/6172http://www.seepnetwork.org/content/article/detail/6172


6/24

6 Microfnance Financial Reporting Standards, Business Models Review

2.1 International Accounting Standards Board (IASB)International Accounting Standards Committee (IASC) was ounded in 1973 through an agreement

among independent accounting bodies in Australia, Canada, France, Germany, Japan, Mexico, theNetherlands, the United Kingdom, Ireland, and the United States, driven by the need to standardizeinternational accounting practices and terms. Initially, it was composed o volunteer representatives

rom 13 countries and three international organizations. Members designated two representatives andone technical advisor to serve on di erent committees. Its board o trustees had additional non-votingobserver members rom the International Organization o Security Commissions (IOSCO), the FinancialAccounting Standards Board (FASB), and the European Commission, among others.

IASC had a number o voluntary advisory groups to support its activities, namely the ConsultativeGroup, Standard Interpretations Committee, Advisory Council, and Steering Committee. A ter 25years, IASC ormed the temporary Strategy Working Party in 1997 to review process e ectiveness. Thiscommittees major task was to merge national and global accounting standards.

Principal Aims

The Strategy Working Party e orts culminated in 2001, when IASC launched an autonomous oundation.Incorporated as a not- or-pro t in the United States, its mission was and is today to provide the worldsintegrating capital markets with a common language or nancial reporting. It became the parent entity o the International Accounting Standards Board (IASB), a subsidiary established as an independent body toset accounting standards. This structure continues today, serving more than 100 member countries whichabide by its standards.

The IASB has two principal aims: 1) develop and issue International Financial Reporting Standardsand Exposure Dra ts, and 2) approve interpretations developed by International Financial ReportingInterpretations Committee (IFRIC).

Organizational Structure

Currently, IASB has ve primary components (the gure below shows how they interact):

International Accounting Standards Committee (IASC) Foundation (22 trustees, no sta ) overseesIASB and its structure and strategy, and is responsible or undraising. Since 2005, the trusteesrepresent these regions: North America (6), Europe (6), Asia/Oceania (6), and other regions (4).The trustees vote by simple majority and constitutional changes require a three-quarters majority.

International Accounting Standards Board , or IASB (12 ull-time and 2 part-time sta ) has soleresponsibility or establishing International Financial Reporting Standards (IFRS).

International Financial Reporting Interpretations Committee , or IFRIC (14 members), developsthe interpretations or approval by IASB.

Standards Advisory Council, or SAC (20 members), provides a orum where IASB consultsindividuals and representatives o organizations a ected by its work. It is committed to thedevelopment o rigorous International Financial Reporting Standards (IFRS). The council


7/24



supports IASB by promoting the adoption o IFRS world-wide. This includes publishing articlessupportive o IFRS and participating in public meetings.

Working Groups serve as expert task orces or individual projects.

Source: IAS website, www.iasplus.com/restruct/restruct.htm#Top

IASBs current organizational structure o ers numerous advantages:1. The IASC Foundations legal structure enables it to raise unds through donations,

member ees, and government contributions. Fee-paying members are accounting rmsand international corporations.

2. The IASC Foundation ocuses on strategic questions and administrative unctions asseparate responsibilities rom setting reporting standards.

3. The separate strategic and administrative sections enable it to objectively assess itse ectiveness. There is a process to ensure that SAC and IFRIC ul ll their support rolese ectively.

4. IASBs status as an independent body, while cooperating with national accountingentities, gives it leverage with the practitioners who are members o these bodies toen orce compliance with the accounting standards.

5. Trustees are independent experts in accounting and nance. They only providein ormation to the industry and are not involved in administration or governance. They

Trustees Appointments

AdvisoryGroup

SAC IFRIC

IASCFOUNDATION

IASB

IFRShigh quality, enforceable and global

advise

advise interpretation

create

report to Appoint Overview Govern Fund

r e p o

r t t o a p

p o i n t

e d b y

a p p o i n t e d b y
http://www.iasplus.com/restruct/restruct.htm#Tophttp://www.iasplus.com/restruct/restruct.htm#Top


8/24


are appointed by the IASC, chosen rom its members, and operate through subsidiaryentities.

6. Through the SAC, IASB can get eedback rom the end users o its standards. Itbelieves that, in order to promote its standards and keep them in line with currentpractices, the community must provide ongoing input.

Financing Model

The IASB Foundation is unded through the nancial commitments (o up to ve years) o accountingrms, industrial corporations, nancial institutions, central banks, and other international and

governmental organizations. IASC does the undraising, which is a separate unction rom the standardsactivities.

2.2 Financial Accounting Standards Board (FASB)Historically, the accounting standards and procedures in the United States were established by theAccounting Principles Board o the American Institute o Certi ed Public Accountants. In 1973, theFinancial Accounting Foundation (FAF) was launched as an independent, private-sector organization to:

establish and improve nancial accounting and reporting standards;

educate constituents about those standards;

administer the standard-setting boardsFinancial Accounting Standards Board (FASB),Governmental Accounting Standards Board (GASB), and Advisory Councils;

select the members of the standard-setting boards and advisory councils; and

protect the independence and integrity of the standard-setting process.

Principal Aims

FASB is responsible or the development o private sector accounting standards. It is granted all powerand authority by FAF to set standards or all non-governmental, public, private, and not- or-pro tenterprises. Its standards are o cially recognized by the Securities and Exchange Commission4 and theAmerican Institute o Certi ed Public Accountants.

Its mission is to establish and improve standards o nancial accounting and reporting or theguidance and education o the public, including auditors and users o nancial in ormation. FASB works

on accounting concepts and standards, through research, to gain new insights and ideas. Activities areopen to public participation, and views are actively solicited rom membership groups.

4 The SEC has statutory authority to establish nancial accounting and reporting standards or publicly held companies. Throughout its history,the SEC has relied on the private sector or this unction, as long as the private sector can demonstrate it is ul lling this responsibility in thepublic interest.


9/24



In 2002, the Sarbanes-Oxley Act amended the U.S. Securities Act o 1933 by broadening the scopeo FASB, so that it can,

be organized as a private entity;

have a board of trustees;

be funded, per section 109 of the Sarbanes-Oxley Act, by fees from publicly traded companies,based on market capitalization and sales;

ensure prompt decisions by adopting procedures with a majority vote; and

keep standards current for the protection of investors.

These changes e ectively made FASB a quasi-governmental agency with the e ect o law.

Organizational Structure

The membership o FASB is composed o industry players, including banks, public accountingrms, and certi ed public accountants. The members o its board o trustees are nominated by eight

sponsoring organizations: 1) American Accounting Association, 2) American Institute o Certi edPublic Accountants, 3) Association o Investment Management and Research, 4) Financial ExecutivesInternational, 5) Government Finance O cers Association, 6) Institute o Management Accountants,7) National Association o State Auditors, Comptrollers, and Treasures, and 8) Securities IndustryAssociation.

FAF is a U.S. non-pro t organization. It and all o its subsidiaries are located in Norwalk,Connecticut. The gure below demonstrates the relationships among the entities.

Like IASB, FASB works closely with its end users. It provides a consistent voice rom the privatesector which in orms and advises on standards. As with IASB, FASB was intended to be independent o government control, although its budget is now government mandated. FASBs legal and organizationalstructures are similar to IASBs. Its original organization was an accounting body, which certi edmembers and promoted high quality, uni orm standards.

Financial AccountingFoundation

(FAF)

Financial AccountingStandards

Board(FASB)

Financial AccountingStandards AdvisoryCouncil

Government AccountingStandards

Board(GASB)

Government AccountingStandards AdvisoryCouncil


10/24


Financing Model

Today, FASBs money comes rom accounting support ees, per the Sarbanes-Oxley Act. Expensesinclude salaries and employee bene ts or the board, research sta , and advisory council. FASB salaryexpenses were 70 percent o total costs in 2007; the remainder was administrative expenses.

Be ore Sarbanes-Oxley, unding came rom product and publication sales and membership ees.For example, in 2002, publication sales and memberships totaled US$ 13.3 million and $14.8 million,respectively. Expenditures included cost o goods sold and salaries. In 2001 and 2002, it had operatingsurpluses o $9 million and $6.5 million, respectively, 5 su cient to allow it to operate without public orgovernment money.

3. IASB and FASB as ModelsThis reporting standards initiative examined the common characteristics o IASB and FASB moredeeply in speci c areas, particularly legal structures, organizational structures, capitalization, andbusiness models. From these characteristics, lessons were drawn that best t micro nance and therecommendations that ollow.

3.1 Legal Structure Both IASB and FASB are housed within a larger amily o entities. The parent or umbrella organizationsare oundations, registered as U.S. non-pro ts, which clearly indicate their social missions. This type o structure also provides fexible options or raising unds through donations, government support, and/ormember ees. Both institutions have numerous sub-entities, each with a separate legal charter to delineateits speci c role in determining nancial and accounting standards and rules.

It is crucial to understand the historical evolution o these organizations legal structures. Both IASBand FASB began as working-group activities o member associations. They developed as a result o long-term planning, strategic positioning, and industry involvement over a long period o time.

Recommendation: This initiative should mirror the legal structures o IASB and FASB, anduse the lessons rom their histories. It, too, can develop within an existing service institution ormember association. What is most valuable is to create an entity to host a secretariat, with diverserepresentation rom throughout the industry, to raise unds legally. It is not necessary to create a newinstitution at the outset.

3.2 Organizational Structure IASB and FASB use a two-tiered ramework, where a central bodythe registered oundationhandlesadministrative unctions and strategic planning, appoints board members, and raises unds. The technicaladvisory councils, also called boards, are appointed by this administrative unit, but operate independently.

5 FASB annual report


11/24



The councils are made up o pro essionals rom a range o interested groups o end users, such asaccounting bodies, in the private sector.

The technical standard-setting sections o IASB and FASB have discrete demarcation o duties,as well as a rewall, that separate activities and people establishing rules and standards rom those,

or example, in und-raising and advocacy. This increases transparency and trust, assures users o theobjective and technical merits o decisions, and spurs adoption o the standards.

Recommendation: The Industry body that dra ts the nancial reporting standards should haveseparate sections. This will minimize the risk o the ox guarding the henhouse. Standard-settingduties should be clearly delineated rom administration, und-raising, and marketing.

3.3 CapitalizationBoth IASB and FASB had modest beginnings as public goods in terms o their mission. They wereclear cost centers initially as the o shoots o accounting industry associations in the 1970s.

Early e orts to dra t standards appear to be similar across industries. Initial e orts are undedas programs within associations and, once there is an operating initiative, user ees are based on anorganizations size and sales. Both o these mature standards institutions are nancially sel -su cient, butthey began as subsidized programs within a speci c pro essional membership.

Recommendation: The Reporting Standards Initiative would bene t rom subsidized supportearly on while it establishes itsel and earns an industry mandate. It needs the participation andcapital contribution o MFIs and accountants - because they are the chie implementers o nancialstandards. With initial philanthropic seed capital, it could develop activities and products to generateincome.

3.4 Business ModelsStandards bodies have a range o income models. IASB and FASB today are both nancially sel -su cient. FASB has been backed by U.S. law with the passage in 2002 o the Sarbanes-Oxley Act andhas U.S. government unding. The IASB and FASB business models include:

initial subsidy as part of a membership association; membership fees collected from all members; user fees based on size and sales; products, mostly educational, such as publications, trainings, and conferences; and

an endowment that provides ongoing nancial support.

Recommendation: Follow the IASB/FASB example and house the initial standard-settingbody within an existing organization. Work to become sel -su cient through activities that generateincome, such as subscriptions, user ees, and membership ees. Hold o development o educationalproducts until the industry commits to and adopts standards. These products could even beoutsourced to a standards body or licensed to a specialized entity.


12/24


Follow the IASB/FASB example and house the initial standard-setting body within an existingorganization. Work to become sel -su cient through activities that generate income, such assubscriptions, user ees, and membership ees. Hold o development o educational products until the

industry commits to and adopts standards. These products could even be outsourced to a standards bodyor licensed to a specialized entity.

4. Structural OptionsBelow are our options or structuring this initiative in micro nance. They are listed in order o simplestto most complex, and are based upon IASB/FASB stages o development and the recommendationsabove.

1. Create a volunteer committee o experts to set standards.

PRO: IASB and FASBs initial international boards consisted o volunteer

representatives and experts rom the ounding member organizations. IASB had othercommittees supporting the initiative, including a steering committee and an advisorycommittee or sector eedback.

CON: Such committees can only unction viably i the participating organizations allowsta members to dedicate time to the initiative, i the industry accepts the authority o the committee and recognizes it as a legitimate representative o the stakeholders. Thereare also limitations to standards dissemination, authority, and e ciency (again, due tothe volunteer status o those involved and volunteer basis o compliance). Additionally,this structure may become less e ective over time.

2. House the initiative within an existing MFI or support organization.

PRO: An existing organization could provide a secretariat to support an advisoryor technical group o experts and stakeholders. This is a sound way to launch theinitiative with initial grant support. In the recent industry survey on adopting reportingstandards, respondents suggested The SEEP Network, the Micro nance In ormationExchange (the MIX), and the Consultative Group to Assist the Poor (CGAP) to housethis initiative. 6 The choice o the host organization is particularly important in terms o participants com ort, access, andmost o allthe image projected to external groups,such as IASB. A ter extensive dialogue with the three suggested organizations, theycollectively recommended The SEEP Network.

CON: Housing the standards body should be a ormal, written arrangement oragreement to ensure separation o roles and responsibilities. The worst case scenariowould be excessive oversight by the host organization, which could compromise

6 See MFI Financial Reporting Standards Survey Brie , www.seepnetwork.org/ les/6171_ le_MFRS_survey_results_1.8.09.pd
http://www.seepnetwork.org/files/6171_file_MFRS_survey_results_1.8.09.pdfhttp://www.seepnetwork.org/files/6171_file_MFRS_survey_results_1.8.09.pdf


13/24



standards set. Even the perception o compromise would be enough to undermineobjectivity and acceptance. Additionally, there is a brand risk i the parentorganization does something counterproductive to the reporting standards e ort.

3. Create a stand-alone, two-tiered structure.

PRO: IASB and FASB both have discrete administration (including und-raising)and actual standard-setting unctions. Distinct entities under one umbrella can showclear separation o missions, duties, and personnel. This would ensure the committeesstanding and independence, and its mission and purpose could be clearly identi ed.

CON: A stand-alone structure is more capital-intensive than a volunteer committeeor one housed within an existing institution. It also would begin with no name brandrecognition.

4. House the initiative within an existing accounting standards board.

PRO: This option would lend considerable clout to the new initiative. As part o alarger, established entity (such as IASB), the host might agree to nance or subsidizeactivities. IASB currently has working groups addressing standards in other sectors, sothere is a precedent or this. This was a top choice in the recent industry survey: nearlyone-quarter o respondents selected it. 7

CON: IASB has not been involved in e orts to set micro nance standards to date.Given the low pro le o micro nance as a commercial initiative, more work needs tobe done to realize this possibility. IASBs working groups all developed gradually, withconsiderable involvement o accounting pro essionals. An additional concern is thepotential loss o infuence over the process by micro nance practitioners.

Recommendation: Exploring these options to determine the best t or micro nance includedextensive discussion with micro nance stakeholders. It included recommendations rom accountingpro essionals and responses to the industry survey. Based upon this broad input process, wedeveloped a hybrid recommendation:

Work toward option #3 (a two-tiered structure), initially housed within an umbrella organization asa secretariat (option #2). Administration o the initiative can come rom an existing organization.The goal is to grow the initiative into a unctional, representative body. With the proper oundation,a strong, independent entity can emerge, able to stand on its own, with its own unding, and/or beplaced within an existing accounting standards body (option #4).

7 Ibid


14/24


5. Applying Best Practice to a New Standards BodyThe micro nance industry has been working diligently on the what and how o developing a

standards body, and investigated a number o standards bodies in di erent industries. A ter analyzingand comparing di erent standards organizations (see table in appendix), we identi ed key elements tosuccess ully create a thriving entity or standard setting in the micro nance industry.

5.1 Key Elements or Success1. Build stakeholder con dence. All success ul standards bodies must have a critical

mass o acceptance by practitioners. The wireless communication industry ensuredacceptance o its standards by appealing to the sel -interest o the largest corporateplayers. For IASB and FASB, it was the accounting pro essionals participationand companies compliance. Not all o the institutions investigated had universal

participation or acceptance, however. Standard setting is an evolutionary process thatrequires a fourishing presence in an industry or widespread adoption.

2. Support the independence o the initiative. This initiative needs to be seen ascoming rom a place o authority and must gain the acceptance (or legitimacy) o theestablishment, while maintaining its independence, transparency, and industry-widecoverage. To support its objectivity, the body should not be run by a government entityor be too dependent on a ew companies or organizations. I housed in an existingorganization, e orts to ensure independence and public perception o independence arecritical.

3. Ensure regular, su cient capital fow. I the entity has to struggle or capital, itcan jeopardize its reputation as being objective and could be perceived as sacri cingequitable standards in order to raise unds. Some standards bodies have endowmentsto ensure regular cash fow. The micro nance standards body, there ore, needs to have1) su cient and diverse grant or donor support, 2) a critical mass or subscriptions,and/or 3) valuable products desired by the marketplace. Currently, the micro nance

eld is small and ragmented, subsidized support is already present, andmoststrikingreporting standards activity is not driven by accountants. Given the industrydynamics, in the short term, it is most realistic or the micro nance initiative to bephilanthropically or donor supported.

4. Keep the e ort tied to the micro nance industry, or now. It makes sense or

this initiative to stay within the micro nance industry at rst. It needs to build upcompetency with vehicles like International Financial Reporting Standards (IFRS),increase the numbers o MFIs that ollow best practice in nancial reporting, promoteexchanges with accounting pro essionals, move toward an international plat orm(e.g., IFRSs standards or small businesses or nancial institutions), and develop


15/24



relationships with organizations such as IASB. This will oster an environment thatencourages less mature MFIs to work toward compliance, which will uel standardswork.

An optimal long-term goal is or the e ort to be connected to a larger nancial reportingstandards body, such as IASB. The micro nance industry initiative does not yet have thescale, industry coherence, track record or using standards, or attention by accountingpro essionals to gain traction with IASB. As MFIs attract more and more commercialcapital and become subject to central banking supervision as regulated entities, nancialreporting standards will become crucial and will need to be compatible with accountingand reporting standards that govern international commercial entities.

5. Involve standards bodies outside o micro nance. Micro nance can be insular andsel - ocused, so it is vital that a wide range o micro nance industry stakeholders areinvolved. Accountants who abide by mainstream nancial reporting standards have theexpertise necessary to pursue and support this initiative. FASB and IASB have built aregimented process or standard setting and a method o working through pro essionalaccounting channels. The micro nance industry can build a similar structure to serve itsstakeholders.

6. Build capacity to work with governments and/or national pro essional bodies.In addition to not understanding the micro nance industry, national regulatoryrequirements (accounting standards and central banking regulations in di erentcountries) o ten compete with micro nance industry e orts. To maximize industryuniversality, the Reporting Standards Initiative must learn to communicate withgovernments and accountants worldwide. Because a regulated MFI must ollow nationalrequirements, reporting standards developed or micro nance should be broad enoughto encompass national initiatives and regulations, as well as international standards,particularly given the global movement in support o IFRS.

5.2 Promoting Standards AdoptionA critical component o developing success ul reporting standards is having practitioners adopt them andembrace compliance. The micro nance industry needs to design incentives or MFIs so that this initiativehas value to them. Below are ve incentives raised by other standards bodies and rom discussions withmicro nance industry representatives.

1. Involve a range o stakeholders. The Reporting Standards Initiative needs to involvethe micro nance actors who value and will bene t rom improved standards. Theseinclude MFIs, donors, MIS consultants, networks, raters, and investors, as well asservice vendors such as MIS so tware companies. All o these stakeholders must beincluded in the early stages or the e ort to be success ul.


16/24


2. Create eedback mechanisms. The users o nancial in ormation and reportingstandards need a orum where they can give eedback, as well as get updates thatrequire changes in their reporting. In ormation must fow reely between standardsboards and the industry at large. Whatever body is created will need gathering places,interactions, communication channels, and regular publications to manage the process.Allowing stakeholders to have a voice in the process and providing a ormal mechanism

or o ering eedback will increase their acceptance o the Reporting StandardsInitiative.

3. O er certi cation. A certi cation process can encourage adoption o micro nancereporting standards, such as the certi cation created by the Wi-Fi Alliance. This is aglobal, non-pro t industry association o 300 member companies interested in growtho wireless local area networks. Since it launched its certi cation program in 2000,4,000 products have been designated Wi-Fi CERTIFIED. The Alliance controls theWi-Fi CERTIFIED logo as a registered trademark and permits it only on quali yingequipment. The logo is proo to others that the bearer is in compliance and hascompleted a rigorous process or quality assurance.

MFIs are more likely to adopt reporting standards when they see the bene ts o certi cation, such as better access to investment capital. Many MFIs interviewed citedthe Micro nance Transparency Awards as a model. The time savings, particularly i the in ormation compiled or certi cation was also made available or donors andinvestors reports, was cited as a major incentive to adopt reporting standards in therecent micro nance standards survey. I investors accept the certi cation, this wouldmake adoption all the more attractive.

4. Foster exclusivity. The Global Reporting Initiative o ers a seal o approval toparticipating companies to recognize and reward their dedication to triple bottomline activities. Baldridge Excellence Awards promote membership in an elite clubo institutions committed to high levels o operational standards. The application isrigorous and o ten requires a signi cant investment o time and money, so membershipis prized by the institutions that complete it.

5. Make legal requirements. Having the power o law de nitely drives the need orstandards. However, stakeholder acceptance is still important. The Sarbanes-Oxley Actis a prime example in the United States and, despite some grumbling, it appears to havewide-spread support. The International Organization or Standardization (ISO), whichsets minimum sa ety levels or manu acturing, is perhaps a better example. 8

8 ISO is a non-governmental organization made up o public and private organizations. Many o its members are government agencies or aregovernment-mandated. Other members are industry associations in the private sector (ISO web site, www.iso.org/iso/about.htm ).
http://www.iso.org/iso/about.htmhttp://www.iso.org/iso/about.htm


17/24



6. ConclusionThe micro nance industry has a long way to go in its e orts to develop an institution to set and promote

standards or nancial reporting. As the sector attracts commercial capital and central bank supervision,nancial reporting standards that promote consistency, transparency, comparability, and ull disclosurewill be critical. Micro nance has much to learn rom other standards bodies, particularly regardingstructures, membership organization, products, and income generation. Stakeholder engagement isimperative or the Reporting Standards Initiative. Success will come, not rom one institution or oneperson, but rom the concerted e orts o a broad array o players in micro nance to achieve a commongoal.


18/24


Appendi

Table 1 Institutions wit Standards Boards E amined

AAA American Accounting Association

AICPA American Institute o Certi ed Public Accountants

AIMR Association o Investment Management and Research (US)

FAF Financial Accounting Foundation (administers FASB)

FASB Financial Accounting Standards Board (US)

FEI Financial Executives International

GASB Governmental Accounting Standards Boards (US)

GFOA Government Finance O cers Association (US)

GRI Global Reporting Initiative

IAS International Accounting Standards

IASB International Accounting Standards Board

IASC Foundation International Accounting Standards Committee Foundation

ICCO International Communications Consultancy Organization

IEEE Institute o Electrical and Electronics Engineers

IFRIC International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standards

IOSCO International Organization o Security Commissions

ISO International Organization or Standardization

NIST National Institute o Standards and Technology


19/24

Microfnance Reporting Standards, Business Models Review 19

T a b l e 2

B u s i n e s s

M o

d e

l s E x a m

i n e

d b y

t h e

M i c r o

f n a n c e

F i n a n c

i a l R e p o r t

i n g

S t a n

d a r d s

I n i t i a t i v e

F A S B

I A S B

G l o b a

l R e p o r t

i n g

I n i t i a t i v e

S

E E P S o c

i a l

P e r o r m a n c e

W o r k

i n g

G r o u p

L e g a

l e n

t i t y

- F o u n d a t i o n



- V o l u n t e e r p e e r n e t w o r k

o p r a c t i t i o n e r s u n d e r

a e g i s o T h e S E E P

N e t w o r k

I n d u s t r y

- A c c o u n t i n g ( U . S . )

- A c c o u n t i n g ( i n t e r n a t i o n a l )

- S o c i a l i m p a c t r e p o r t i n g o r

b u s i n e s s e s

- M i c r o f n a n c e

L e a

d e r s

h i p

- B o a r d o T r u s t e e s i s

n o m i n a t e d b y 8 m e m b e r

b a n k s , p u b l i c a c c o u n t i n g

f r m s , C P A s , a n d o t h e r s .

- H a s 2 2 t r u s t e e s ( i n d e p e n d e n t

e x p e r t s i n a c c o u n t i n g a n d

f n a n c e ) .

V o t e i s b y s i m p l e m a j o r i t y ;

c o n s t i t u t i o n a l c h a n g e s r e q u i r e

a t h r e e - q u a r t e r s m a j o r i t y .

- B o a r d i s m a d e u p o 1 6

e x p e r t s i n d e v e l o p m e n t ,

a c c o u n t i n g , b u s i n e s s ,

g o v e r n m e n t , a n d

i n t e r g o v e r n m e n t a l

o r g a n i z a t i o n s .

- O r g a n i c a l l y c r e a t e d :

t h o s e w h o o e r t o t a k e

t h e l e a d d o s o .

- P a i d a c i l i t a t o r s p u r s

t h e p r o g r e s s o t h e

l e a r n i n g a g e n d a a n d

w o r k p l a n

B u

d g e

t s i z e

- U S D 4 1 . 4 m i l l i o n o r

2 0 0 8

- T a r g e t 1 6 m i l l i o n ( 1 2 . 5

r a i s e d )

- E s t i m a t e d a t U S D 4 - 5 m i l l i o n

p e r y e a r .

- F u n d s s p e c i f c p r o j e c t s

a n d l e a r n i n g p r o d u c t

d e v e l o p m e n t .

- O p e r a t i n g b u d g e t i s n o t

p u b l i c l y a v a i l a b l e .

O r g a n

i z a

t i o n a l

s t r u c

t u r e

2 - t i e r e d o r g a n i z a t i o n :

- F o u n d a t i o n i s

r e s p o n s i b l e o r s t r a t e g i c

p l a n n i n g , a p p o i n t i n g

b o a r d , a n d u n d i n g .

- B o a r d s e t s s t a n d a r d s .

2 - t i e r e d o r g a n i z a t i o n :

- F o u n d a t i o n i s r e s p o n s i b l e o r

s t r a t e g i c p l a n n i n g , a p p o i n t i n g

b o a r d , a n d u n d i n g .


- B o a r d o d i r e c t o r s

- S t a k e h o l d e r C o u n c i l

- T e c h n i c a l C o m m i t t e e

- I n t e r n a t i o n a l S e c r e t a r i a t

- V o l u n t e e r g r o u p u n d e r

n e t w o r k s t r u c t u r e w i t h a

p a i d a c i l i t a t o r .

I n c o m e

- F u n d i n g t h r o u g h U . S .

g o v e r n m e n t - m a n d a t e d

a c c o u n t i n g s u p p o r t e e s ,

p e r U . S . S a r b a n e s - O x l e y

A c t o 2 0 0 2

- F i n a n c i a l c o m m i t m e n t s ( 5

y e a r s ) a r e r o m a c c o u n t i n g

f r m s , c o r p o r a t i o n s , f n a n c i a l

i n s t i t u t i o n s , c e n t r a l b a n k s ,

g o v e r n m e n t o r g a n i z a t i o n s .

- F u n d i n g i s p r o p o r t i o n a l b y

s i z e .

- H a s f n a n c i a l , i n - k i n d

s u p p o r t b y m e m b e r s ,

i n c l u d i n g d e v e l o p m e n t

o r g a n i z a t i o n s , W o r l d B a n k

p r o j e c t s , i n t e r n a t i o n a l

c o m p a n i e s , d e v e l o p m e n t b a n k s ,

g o v e r n m e n t s , a n d o u n d a t i o n s .

- A c t i v i t i e s a r e c u r r e n t l y

u n d e d b y t h e S E E P

N e t w o r k .


20/24

20 Microfnance Reporting Standards, Business Models Review

F A S B

I A S B

G l o b a

l R e p o r t

i n g

I n i t i a t i v e

S

E E P S o c

i a l

P e r o r m a n c e

W o r k

i n g

G r o u p

P r o

d u c

t s a n

d

s e r v

i c e s

- S e t s s t a n d a r d s o

f n a n c i a l a c c o u n t i n g a n d

r e p o r t i n g o r a l l .

- O e r s p u b l i c a t i o n s .

- H o l d s o p e n c o m m i t t e e

m e e t i n g s .

- S e t s s t a n d a r d s .

- T r a n s l a t e s s t a n d a r d s i n t o 1 0

l a n g u a g e s .

- O e r s e d u c a t i o n a l m a t e r i a l ,

t r a i n i n g s , c o n e r e n c e s .

- H a s o n - l i n e s u p p o r t s e r v i c e s .

- S e t s s u s t a i n a b i l i t y r e p o r t i n g

g u i d e l i n e s .

- C r e a t e s l e a r n i n g m a t e r i a l s .

- A c c r e d i t s t r a i n e r s .

- P r o v i d e s s p e c i a l g u i d a n c e o r

S M E s .

- F u n d s r e s e a r c h .

- W r i t e s s u s t a i n a b i l i t y r e p o r t s .

- L e a d s a n i n i t i a t i v e

t o e s t a b l i s h r e p o r t i n g

s t a n d a r d s o r s o c i a l

p e r o r m a n c e i n d i c a t o r s

- D e v e l o p s l e a r n i n g

p r o d u c t s : S o c i a l

P e r o r m a n c e M a p , S o c i a l

P e r o r m a n c e G l o s s a r y ,

a n d 4 S o c i a l P e r o r m a n c e

P r o g r e s s B r i e s

P r o c e s s

o p e r a

t i n g

m e c

h a n

i s m s

- F o u n d a t i o n d o e s

s t r a t e g i c d e c i s i o n m a k i n g .


- A d v i s o r y C o m m i t t e e s

p r o v i d e e e d b a c k .

- F o u n d a t i o n d o e s s t r a t e g i c

d e c i s i o n m a k i n g .


- A d v i s o r y C o m m i t t e e s p r o v i d e

e e d b a c k .

- B o a r d : f d u c i a r y , f n a n c i a l ,

a n d l e g a l r e s p o n s i b i l i t i e s ;

m a k e s g u i d e l i n e r e v i s i o n s , a n d

d e t e r m i n e s s t r a t e g y

- T e c h A d v i s o r C o m m i t t e e

- S t a k e h o l d e r C o u n c i l : m a k e s

b o a r d n o m i n a t i o n s

- S e c r e t a r i a t : s t a f n g

- S E E P s t a : f d u c i a r y ,

f n a n c i a l , a n d l e g a l

r e s p o n s i b i l i t i e s

- F a c i l i t a t o r a n d W G

m e m b e r s w o r k t o g e t h e r t o

a c h i e v e d e l i v e r a b l e s i n t h e

a n n u a l w o r k p l a n t h e y v e

d e v e l o p e d

D i s s e m

i n a

t i o n

& I n c e n

t i v e s

- E n o r c e d b y U . S . l a w .

- D i s s e m i n a t e d t h r o u g h

a c c o u n t i n g b o d i e s , w

h i c h

c e r t i f e s m e m b e r s .

- D i s s e m i n a t i o n i s t h r o u g h

n e t w o r k m e m b e r s .

- T h e r e i s s p e c i a l r e c o g n i t i o n

o r m e m b e r s w h o c o m p l y ,

a s w e l l a s d i s c o u n t s o n G R I

p r o d u c t s .

- H a s p e e r m e e t i n g s .

- H a s p r o d u c t l a u n c h

e v e n t s

- H a s o l l o w - o n s t r a t e g i c

a n d a c t i o n - p l a n n i n g

s e s s i o n s .

I S O S t a n

d a r d s

B a

l d r i

d g e

E x c e

l l e n c e

A w a r d s

B l u e

t o o

t h S t a n

d a r d s

W i - F i A l l i a n c e

L e g a

l e n

t i t y

- N G O


- P r i v a t e l y h e l d , n o t - o r - p r o f t

t r a d e a s s o c i a t i o n

- N G O


21/24

Microfnance Reporting Standards, Business Models Review 21

I S O S t a n

d a r d s

B a

l d r i

d g e

E x c e

l l e n c e

A w a r d s

B l u e

t o o

t h S t a n

d a r d s

W i - F i A l l i a n c e

F o c u s

- G l o b a l m a n a g e m e n t

- Q u a l i t y i n A m e r i c a n

b u s i n e s s e s

- S h o r t - r a n g e w i r e l e s s

c o n n e c t i v i t y a p p l i c a - t i o n s

- W i r e l e s s a p p l i c a t i o n s

a n d i n t e r n e t

L e a

d e r s

h i p

- C o u n c i l o o f c e r s h a s

1 8 e l e c t e d m e m b e r s .

C o u n c i l a p p o i n t s t h e

t r e a s u r e r , 1

2 m e m b e r s o

T e c h n i c a l M a n a g e m e n t

B o a r d , a n d C h a i r o P o l i c y

D e v e l o p m e n t C o m m i t t e e .

- D e p a r t m e n t o C o m m e r c e ,

a d v i s e d b y B o a r d o O v e r s e e r s

- N a t i o n a l I n s t i t u t e o S t a n d a r d s

- E x a m

i n e r s B o a r d

- B o a r d i s e l e c t e d r o m m e m b e r

i n s t i t u t i o n s .

- C o m p a n y h a s a p r e s i d e n t .

- B o a r d o d i r e c t o r s

t y p i c a l l y s e n i o r m a n a g e r s

o m e m b e r o r g a n i z a t i o n s

- P a i d s t a

B u

d g e

t s i z e

- P e r 2 0 0 7 a n n u a l r e p o r t ,

r e v e n u e i s C H F 3 6 , 0 4 5 .

- R e c e i v e s U S D 8 m i l l i o n

a n n u a l l y r o m U . S . g o v e r n m e n t

p l u s e a r n i n g s r o m U S D 2 0

m i l l i o n e n d o w m e n t .

- U S D 1 2 . 4 m i l l i o n i n c o m e 2 0 0 7 - N o t p u b l i c l y a v a i l a b l e .

- M e m b e r e e s

O r g a n

i z a

t i o n a

l

s t r u c

t u r e

- N e t w o r k o 1 5 7

c o u n t r i e s n a t i o n a l

s t a n d a r d s i n s t i t u t e s : o n e

m e m b e r p e r

- H a s a G e n e r a l A s s e m b l y ,

C o u n c i l , a n d S e c r e t a r i a t

( i n G e n e v a ) . c o u n t r y .

- C o m m i t t e e s r e p o r t t o t h e

C o u n c i l .

2 - t i e r e d s t r u c t u r e :

- R a i s e s u n d s .

- I n v e s t s e n d o w m e n t .

- R e v i e w s p r o g r a m s .

- N a t i o n a l I n s t i t u t e o S t a n d a r d s

a n d T e c h n o l o g y ( N I S T )

o v e r s e e s p r o c e s s .

- B o a r d o d i r e c t o r s r o m c o r e

m e m b e r s

- Q u a l i f c a t i o n s R e v i e w B o a r d

- T e c h n i c a l A d v i s o r y R e v i e w

B o a r d

- A r c h i t e c t u r e R e v i e w B o a r d s

- S t a o r 1 0 , 0 0 0 m e m b e r s

S i n g l e - t i e r s t r u c t u r e :

- M e m b e r s s i t o n

g o v e r n a n c e b o d i e s .

- S t a m a n a g e s p r o d u c t s

a n d b r a n d i n g .

I n c o m e

- C o m e s r o m

m e m b e r s h i p s u b s c r i p t i o n s

( ~ 5 0 % ) , r o y a l t i e s , a n d

c o p y r i g h t ( ~ 2 3 % ) ,

s a l e s o p u b l i c a t i o n s

a n d m a g a z i n e s , a n d

c o n t r i b u t i o n s .

- H a s a g o v e r n m e n t / i n d u s t r y

p a r t n e r s h i p . 9 0 % + s u p p o r t s

p r i v a t e s e c t o r .

- G o v e r n m e n t c o n t r i b u t i o n

i s $ 8 m

i l l i o n , a l s o h a s e e s ,

a n d e a r n i n g s o n $ 2 0 m i l l i o n

e n d o w m e n t .

- E v e n t s

- L i c e n s i n g

- M e m b e r s h i p d u e s

- R e g i s t r a t i o n o B l u e t o o t h

d e v i c e s

- M e m b e r s h i p e e s

- C e r t i f c a t i o n p r o g r a m

- S p o n s o r s h i p r o m

s p o n s o r m e m b e r


22/24


23/24


24/24

AcknowledgmentsSpecial thanks to the numerous people and organizations who contributed to this document: EileenMiamidian o AYANI (currently with CHF International) and Jessica Shortall o Social EnterpriseAssociates; and rom The SEEP Network, Bill Tucker and Sabina Rogers. Also thanks to members o The SEEP Network Sub-Committee on Micro nance Financial Reporting Standards:

Principal Aut orsDrew Tulchin, Social Enterprise Associates, Friend o SEEPRuth Dueck Mbeba, Mennonite Economic Development Associates (MEDA)

EditorsKristin Hunter, Jessica Elisberg

ContactFor additional in ormation, contact The SEEP Network 1875 Connecticut Ave NW Suite 414Washington, DC 20009 USATel: 202.884.8355Fax: 202.884.8479Email: [email protected]

About SEEP

The Micro nance Reporting Standards Initiative is supported by The SEEP Network. It is the ocus o asubcommittee o the Financial Services Working Group. Project in ormation can be ound online at www.seepnetwork.org . This report was written by Drew Tulchin, Social Enterprise Associates, with content romAYANI Consulting. Project acilitator is Drew Tulchin, Social Enterprise Associates ( [email protected]). We welcome all input, comments, opinions, and support to advance this initiative or the advancement o the entire micro nance industry.

The SEEP Network is a membership association o organizations that support micro- and small enterprisedevelopment programs around the world. SEEPs mission is to connect microenterprise practitioners in a globallearning community.

Tala Abbasi, ChF InternatIonalRanya Abdel-Baki, S anabelJulie Abrams, MIcrofInance a nalytIcS (Friend o SEEP)Elizabeth Abrera, c atholIc r elIef ServIceSMarco Aldana, c atholIc r elIef ServIceS Lynn Exton, o pportunIty InternatIonalChristina Juhasz, WoMen S World b ankIngRewa Misra, t he c oady InStItuteRadoil Mitov, ChF InternatIonal Elena Nelson, acdI/voca

Lynn Pikholz, Shore c ap e xchange

Chevenee Reavis, u nItuS Allan Robert Sicat, McpI Urmi Sengupta, Shore c ap e xchangeSheri Sexton, o pportunIty InternatIonalJohn Siodlarz, ncba Blaine Stephens, t he MIx Lisa Thomas, Shore c ap e xchange Thierry van Bastelaer, S ave t he c hIldren Peter Wall, t he MIx Steve Wardle, g raMeen f oundatIon USA
mailto:seep%40seepnetwork.org?subject=http://www.seepnetwork.org/http://www.seepnetwork.org/http://www.seepnetwork.org/mailto:drew%40socialenterprise.net?subject=mailto:drew%40socialenterprise.net?subject=mailto:drew%40socialenterprise.net?subject=mailto:drew%40socialenterprise.net?subject=http://www.seepnetwork.org/http://www.seepnetwork.org/http://www.seepnetwork.org/mailto:seep%40seepnetwork.org?subject=

mfi reporting standards - business models review

Documents