Financial transparency refers to the production, testing, dissemination and use of information related to a microfinance institution’s (MFI) financial performance.
An MFI's transparency sequence begins with an MFI gathering and reporting accurate information. It then extends to having that information verified by external third parties which can further analyse, compare, and judge the performance described by that information.
Why be transparent?
Transparency is a desirable goal as it results in improved communication among actors, increased client protection, information sharing and subsequently highlights innovations which contribute to the defining and adopting of best practices by MFIs.
Accurate, standardized information helps donors and investors understand the performance of an MFI and make informed funding decisions. They can then track financial and social indicators to determine whether expected results are forthcoming.
A Definition of Transparency
Transparency can be defined as the free flow of information which is:
• publically available,
• accurate and coherent,
• and which allows for comparisons of entities.
‘Focus on Financial Transparency' available www.cgap.org