There are lots of discussions are how we can build a social finance`"ecosystem", and I've often remarked that we should look to the microfinance industry for ideas, lessons, and inspiration.

Microfinance has evolved into an industry that isn't niche anymore - millions of people access small loans and repay them back on time, while also taking advantage of microinsurance and a number of emerging products tailored to their unique needs - since more often than ever before, previously "unbankable" clients now have access to financial products from a range of providers. Competition has encouraged MFIs to move upstream and commercial banks to move downstream. More capital has come in from larger funds and institutional investors. We're now seeing the impact of technology - from Kiva to M-Pesa and Wizzit.

The recently-released Monitor report on Investing for Social and Environmental Impact contains an excellent section that makes this case as well. As a subset of social investing, the report notes that the following lessons are important to consider from the evolution of the microfinance industry:

• The first microfinance institutions were founded in the 1970s, and it took over a decade for these institutions to begin to demonstrate the viability of the sector. Larger players did not engage fully, nor did the industry really take off, until larger market infrastructure issues were addressed.
• In the 1990s, more sophisticated measurements of performance and impact emerged, with a greater emphasis on standardization. Standardization of language and metrics provided the incentives for large capital inflows, and assisted capital providers to assess risk-return and invest according to their preferences.
• Networks become increasingly important to facilitate information sharing, collaboration and standardization. The Consultative Group to Assist the Poor (CGAP) has played an important role here. MicroRate, the MicroBanking Bulletin and the MIX Market helped formulate industry standards and norms necessary for the formation of performance benchmarks.

I would add that the development of the intermediaries to support this "ecosystem" has been critical to success. This includes ratings agencies, legal entities, technology providers, and others. A key question always remains - who will pay for the development of these intermediaries, especially at the early stages of industry evolution? Building a solid business case (demand-driven) is the right answer... eventually. Early on, however, subsidies and grants have been useful in establishing and nurturing some of these networks and organizations to the level they are now at.

Over the next few posts on socialfinance.ca, we'll attempt to dissect and analyze the findings of the report in order to draw out lessons and more concrete examples related to some of the same questions we are asking in the Canadian context. As always, you can share you comments and insights with the rest of the social finance community below.

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