New CSO Recommendations for IFC Financial Intermediary Safeguards Include a Dedicated Chapter on Microfinance

The ongoing review of the IFC Performance Standards presents a rare opportunity to strengthen safeguards for financial intermediary investments. A new joint submission by civil society organizations outlines recommendations for a dedicated Financial Intermediary Safeguard that would better address the environmental, social, and human rights risks associated with indirect finance.

I had the opportunity to contribute the chapter on microfinance. While microfinance can support financial inclusion, evidence from recent years has also highlighted risks such as over-indebtedness, unaffordable lending, aggressive collection practices, and insufficient borrower protection. These risks deserve explicit consideration within IFC’s environmental and social due diligence framework.

The chapter recommends integrating borrower-related risks into risk categorization, due diligence, supervision, and accountability processes. It also calls for stronger requirements regarding market saturation, affordability assessments, restructuring practices, and the monitoring of borrower outcomes, not merely compliance with procedural standards. These recommendations build on the broader principle that financial inclusion should be consistent with the „Do No Harm“ approach.

I hope these recommendations contribute to a more meaningful discussion on how development finance institutions can ensure that investments in microfinance genuinely benefit low-income borrowers while preventing avoidable harm.

The full CSO submission is available here.