Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation XBRL Supports Microfinance
Written by Bob Schneider Posted on February 1, 2008
Most of the news coverage of XBRL now focuses on when the SEC will require its use for financial statements of US companies. Given the huge impact of such a mandate, the media’s emphasis is certainly not misplaced. But there have been other interactive data developments that have garnered far less attention which, while not more significant, point to richer and more robust uses of XBRL than financial reporting alone.
A case in point is microfinance. Several years ago the economist Hernando de Soto published his landmark book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Essentially, de Soto attempted to answer (from a contemporary point of view) the same question that Jared Diamond tackled from a historical perspective in his Guns, Germs & Steel: Why do people in the West have so much cargo (as the New Guinean politician Diamond spoke to put it) and people in some other places so little?
De Soto’s great insight was that the problem for people in poor countries was not that they lack assets, or business prowess, or economic drive. It was that they didn’t have a system of property that identified legal ownership, making it impossible for them to borrow. Despite inadequate legal systems, the small entrepreneurs of poor countries are in fact excellent credit risks.
At the same time that de Soto’s ideas have been gaining currency, there has been growing disenchantment with large-scale development programs for poor nations. Recipient nations have often used the funds for ideologically driven projects that make little economic sense, or to line the pockets of the country’s current crop of kleptocrats.
These conditions have set the stage for the emergence of microfinance. Unlike traditional big-budget aid projects, microfinance offers very small amounts of financial support usually loans, but also other services, such as insurance to a country’s breadwinners. These are very often women, who are ordinarily excluded from financial services. Financial support can come from financial institutions, like credit unions and banks, as well as donor agencies and private investors. The interest in microfinance increased significantly after Muhammad Yunus shared the Nobel Peace Prize in 2006 with the Grameen Bank for their efforts to relieve poverty through microcredit.
Microfinance is not without its critics and controversies. Some question how well it works, as this recent Business Week article (subscription may be required) indicates. But as international institutions focus on ways to ensure that developing countries get more cargo, microfinance is bound to be part of the solution.
How can XBRL help? The Microfinance Information Exchange (MIX) is the leading business information provider dedicated to strengthening the microfinance sector MIX provides detailed financial and social performance information from leading microfinance institutions and market facilitators as well as from leading donor organizations and investors in microfinance. The MIX MARKET, the organization’s web-based information platform, provides both financial and nonfinancial data for over 1,100 microfinance institutions.
Robert Kugel of Ventana Research, who recently wrote a piece for this blog on XBRL and Accounting Standards, has looked at how MIX adopted XBRL for its reporting needs. I found two of his points particularly interesting:
(1) Microfinance institutions often have inconsistent and slow Web connectivity. Spreadsheets with XBRL tags turned out to be the best approach for them to communicate with MIX. Spreadsheets, for all their shortcomings, are universally used and an easy extension of the systems and methods these institutions are already using. XBRL makes it possible to maintain the accuracy of data pulled from spreadsheets into MIX’s systems.
(2) MIX required a “double bottom line approach” i.e., organization objectives are measured both by traditional financial measures as well as social reporting metrics. Because XBRL is extensible, it can be tailored to the requirements of a specific entity (as in the social reporting requirements for MIX) yet still conform to broader standards (such as the modified IFRS standards MIX uses for accounting data). The MIX example demonstrates the power of XBRL to facilitate the collection of both financial and nonfinancial data used to track and assess organizational performance.
It’s exciting to see XBRL used in innovative ways to reach socially significant goals. It extends the reputation of interactive data beyond the single dimension of financial statements and demonstrates the versatility XBRL offers business information users.