Practicing what you preach!? Social performance of 5 social investors

SPOn March 11 and 12, the Social Investor and DFI Meeting on Responsible Finance 2015 is taking place in Luxembourg at the European Investment Bank. I thought this might be a good reason to actually look at some of the social performance reports these “social investors” publish.

For example, The Luxembourg Microfinance and Development Fund (LMDF) recently published its very first social performance report. While reading it I became even more and more convinced that I would like to – if not compare – at least to understand better the content of these reports. Initially I thought it would be best to look at…

  1. What objective they have with regards to social performance. I am not talking about their investment objectives, but clearly about the social performance of their fund and what their final objective would be;

However I thought it would also be exciting to actually look at the

  1. Different tools they have developed to measure the social performance of their investments;

And then I got really ambitious and thought about

  • Ranking or comparing the funds along their indicators (if they might be using the same indicators).

So, I got the social performance reports of the following microfinance investors: BlueOrchard, INCOFIN, LMDF, Oikocredit and responsibility. Evidently this blog provides only a brief glimpse at all of these reports. However, I plan on writing individual blogs about each Social Performance reports of the 5 investors so you get more detail.

Here some brief notes on the 5 social performance reports I looked at (BlueOrchard, INCOFIN, Oikocredit, LMDF, responsibility):

responsabilityThe 12-page responsAbility Social Performance Report published in 2012 is the 8th of its kind. Their social performance report not only covers microfinance, but also their other investment areas including fair trade, press freedom, growth capital for SMEs, and ventures. The report describes well how responsAbiltiy integrated a social performance lens into their investment process, however even though we are looking at the 8th edition, there is no word about progress towards their final objectives. In general, their social performance objectives are not defined. There is a clear objective with regards to their investments, i.e., developing markets and creating choice, not really about how many people rise above the poverty line, however, I could not find any information what their social performance objectives were. In addition, all is very qualitative, without any quantitative way to measure advancement. And just by saying that measuring impact on the household level provides a false sense of security should not be an excuse of not having any indicator at all.

They have developed The responsibility Development Effectiveness Rating (rADER score) to score each investment over time along 5 dimensions, notably outreach, empowerment, poverty, financial inclusion, and efficiency. In addition, their selection process includes a special analysis and monitoring tool using an initial exclusion list and then potential investment have to meet nine eligibility criteria; ResponsAbility works with 5 guiding principles (e.g., to generate double bottom-line returns, to facilitate access to services at the bottom of the pyramid, etc.), and sets itself clear targets (e.g., to service more micro-entrepreneurs and households, to penetrate new markets, etc.) each year and follows up if they have been achieved. Unfortunately there are no indicators which would for me make sense to track along responsibility´s social performance.

incofinThe 37-page Incofin social performance report 2011, is the company´s first comprehensive report on the topic. The fact that the first is already 37-page long is already interesting since they seem to have been occupied with the topic for already quite some time. Compared to the other reports, the INCOFIN one is fairly rich in information and especially honest (“60% of their MFIs score on fair or low social performance”). They seem to have embraced social performance for all their business units: investment management, technical assistance, and also their governance.

For INCOFIN, their objective with regards to their social performance, is to “help build MFIs that develop a healthy balance between social and commercial goals.” However, this is very brought, not linked to any target group and not measured by indicators.

With regards to tools, INCOFIN is a founding signatory to the Principles for Investing in Inclusive Finance (PIIF) constituting an overarching framework that covers a number of aspects of Social Performance Management, such as transparency, client data protection, and the setting of standards. INCOFIN developed the ECHO tool, SPM assessment and monitoring methodology, a scorecard along 5 dimensions (social mission management, outreach and access, quality of customer services and client protection, human resources, environment, corporate social responsibility). In addition, social performance is embedded in the investment process:

  • Selection: Social indicators (e.g., social transparency, human resources, lending profile, rural lending, etc.) integrated in the application form
  • Evaluation: Via the ECHOS social performance score card, social performance on same level as the MFI´s financial performance.
  • Disbursement: All loan agreements comprise two social covenants ( transparency, client protection)

They have developed a self-assessment tool for their boards to oblige members to examine their own decision-making mechanisms, and to foster discussion and analysis amongst board members rather than grade staff members along 4 dimensions (fulfilment of board responsibilities, board composition, organisation of board meetings, observance of ethical principles and management of conflicts of interest).

blue orchardThe 16-page BlueOrchard Social Performance Report published in 2013 is the 4th of its kind. The report lists the company´s 7 social social performance objectives and then provides examples, progress along these objectives, and interviews by BlueOrchard staff which should help to illustrate progress towards these objectives. Unfortunately, there is no clearly defined tool (if you would not recognize the 7 objectives as a tool) or indicators developed to be able to track progress along these objectives.

BlueOrchard´s 7 social performance objectives:

  • Enhance the company´s social performance assessment tools and staff training on social performance management;
  • Continue to innovate and develop products and services that rae even more appropriate for MFIs and their clients;
  • Continue active participation in industry-wide initiatives that contribute to responsible microfinance including funding of research projects on client protection, overindebtedness studies, etc.
  • Support investee MFIs in their efforts to improve their social performance and impact and to share experiences and best practices amongst peers;
  • Define and implement a company-wide environmental policy;
  • Maintain high standards of timely and relevant reporting on social performance issues to investors.
  • Explore initiatives to measure social impact together with FMIS, practitioners, and academic researchers.

Again, I am missing the indicators which will be measuring progress towards these goals.

Overall, the report definitely does talk about social performance issues, e.g., financing of environmental products, avoiding overindebtedness, Principles of Responsible Investment (PRI), etc. however, it feels fairly anecdotal in the report and does not provide measurement over time.

oikocreditThe Oikocredit Social Performance Report published in 2013 is the 4th of its kind. In 2013, Oikocredit has been rated “excellent” on their social investment strategy by PlanetRating, a specialized microfinance rating agency. For 2013, 609 (94%) of their partners submitted social performance data. The report provides aggregated social performance outcomes of Oikocredit´s portfolio. On 12 pages, it identifies patterns over time in client outreach and SPM practices by examining data collected annually.

In 2010, Oikocredit introduced an environmental, social and governance scorecard (already 2 upgrades) for financial intermediaries in order to make the due diligence process more rigorous. In 2013, Oikocredit MFI partners applied a poverty tool and 125 reported on poverty outreach. The tool applied was the Progress out of Poverty Index (PPI).

The report also provides a lot of information on Oikocredit´s outreach performance along indicators such as borrowers reached by MFI partners, % of MFI female clients, number of green partners, etc. which gives good information on the what, but not as much on the how. However, again, most of this information is with regards to their investments and not with regards to the social performance of their investments.

Oikocredit´s loan agreements stipulate that partners who have yet to endorse the Client Protection Principles (CPPs) , must formally do so within one year.

NB: For transparency reasons: I am an investor in LMDF and am very happy and convinced about the effectiveness and impact of the fund.

lmdfThe report 2010-2015 of the Luxembourg Microfinance and Development Fund (LMDF) is the very first of its kind. On 52 (!!) pages, the report runs through the fund´s social impact objectives, how the fund and its partners operate, and what has really been achieved. The report starts with an “LMDF definition of micro” and clearly reiterates the funds social impact objectives, which primarily focus on target groups including the poor, rural populations and women. The fund has even developed a portfolio review with clear indicators which “balance simplicity and comparability while respecting individual business models of MFIs” along two dimensions: a) the funds´ focus on poverty and orientation of investments towards final beneficiaries who are most excluded, and b) that whatever financial service is provided, it needs to be provided in a responsible manner and in respect of clients and employees. For each dimension, 4 indicators were identified:

On poverty and exclusion focus: Human Development Index, national loan size ratio, share of agriculture in each MFI portfolio, share of women among clients,

Quality of services and responsibility to clients and staff: Client protection principles, whether MFI offers savings or not, social efficiency index, average staff turnover.

For this report, LMDF has conducted a portfolio review of its investments from 2010 to 2015. It will be interesting to see its future development in all these areas.

In addition, to the analysis of its own portfolio, the LMDF provides interesting case studies on its clients, a discussion on high microfinance interest rates, social performance standards in microfinance, and how social performance is reflected in LMDF´s governance.


Ok, well this was a brief description of the social performance reports of 5 microfinance investors. Here my initial conclusions:

The reports are all very different in depth and understanding of social performance. Some develop their own scoring system (e.g., responsibility), others just ask their investees to comply with the Social Performance Standards (e.g., NMI), and some are even providing social performance indicators for the technical assistance facility and the MFIs´ boards (INCOFIN).

Social performance objectives have to be reviewed many times. It took me a long time to get my head around the difference between investment and social performance objectives. However, for many funds, the objectives are still very much targeted on the investments. Going forward it will be important to move from the what to the how.

Many funds have their asset managers develop the social performance reports. This is something I cannot prove just from reading the report, but from its content, it feels that many have not yet really invested into social performance expertise.

The development of indicators still has to be done. To be able to track social performance over time, it will be important to develop indicators. The most explicit ones have been set up by LMDF for now, but it would be good if each fund would have a few indicators to be able to track progress.

Social performance has to be done for each fund individually. Some investors, like responsibility manage a multitude of funds with each different objectives and performance indicators. A social performance standard for this basket of funds is impossible and should be avoided.

Evidently the story is young, so many funds are still experimenting with their social performance framework. It will be interesting to observe the developments over time.

I will stop here, but I promise to deliver in depth analysis of some of the investors´ social performance reports.


In case you are interested in reading more about social performance of microfinance investors, you can find more in last week´s blog and please find here a few links:

Lenders’ Guidelines for Setting Covenants in Support of Responsible Microfinance

How Socially Responsible is your MIV? – Survey Report

Microfinance Investment Managers’ Guidelines on Over-indebtedness

The Art of the Responsible Exit in Microfinance Equity Sales

Moving Toward Responsible Pricing MFTransparency

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