Opinion Article Open Access

PROPOSAL FOR ESTABLISHING AN ENVIRONMENT, SOCIAL, AND GOVERNANCE (ESG) GROUNDWORK: CREATING A CLOSED SYSTEM WITHIN THE MICROFINANCE SECTOR

Abstract

The current microfinance industry is unprepared for Social Responsible Investment1, which it inevitably starts to attract on its course towards the status of mainstream asset class. Derived from unsolved inner philosophical tension, the gap between differently used concepts in the sector is widening, while identical terms indicate different contents. Microfinance is becoming too varied to be presented under few single terms with discrepant meanings. Development of the microfinance industry, predominantly a phenomenon of local markets, thus does not keep up its local pace with its increasing reliance on international capital markets, with their globally coherent corporate expectations. The lack of clear definitions and transparency of the sector can discredit microfinance, once SRI systems open their gates. MIVs2, States, corporate investors and multilateral institutions must therefore in a concerted action impose basis of 1 Sustainable and Responsible Investment concept incorporates Environmental, Social and Governance issues into fund management. 2 MIV: microfinance investment vehicle standards coordinates, otherwise differently perceived concepts might mislead the global public. Therefore, formation of a closed system, ruled by Global Microfinance Authority using own currency unit and complemented with an ombudsman, comparable to United Nations in world of politics yet applied in microfinance market and financed by the contributing players, could impose globally understandable structure in local chaotic environment.

Tomas Hes, Karel Srnec, Martina Drasarová, Alena Neradová

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