What everybody should know about social performance in microfinance!?!

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 look a little into the topic of social performance for microfinance investors or microfinance investment vehicules (MIVs).

Before venturing more deeply into the topic, I thought it would be good to define a few concepts around this topic and get all of us to the same level of understanding (especially me who is not very knowledgeable with regard to social performance).

This blog draws mainly of the publications of the European Microfinance Platform The Role of Investors in Promoting Social Performance in Microfinance (2008)  and Making Microfinance Investment Responsible – State of the Practice in Europe (2010). The documents were published in 2008 and 2010 respectively (I know!), but I feel that they are still fairly current and present a great agglomeration of knowledge around the topic which I have not found elsewhere up to now.

I will not repeat the content of the whole publications, but rather pull out a few titbits which I thought might be interesting for our social performance understanding. In addition, I will not write about the individual investors´ social performance initiatives or evaluations which are presented in the report. They are all self reported and I thought it would be better to follow up with an additional blog where I describe the content of a few social performance reports.

Definition of Social performance: There are quite a few….

“Social performance measures how well an institution has translated its social goals into practice” CGAP Workshop Paris October 8, 2004)

“Social performance is measured through the principles, the actions and the corrective measures implemented” (SPI final report Phase 1, Oct. 2003; CERISE coordinated)

“The effective translation of an institution´s social mission into practice in line with accepted social values that relate to serving larger number of poor and excluded people; improving the quality and appropriateness of financial services, creating benefits for clients, and improving social responsibility of an MFI.” (Source: Social Performance Task Force)

  • Social Performance is not restricted to the measurement of results, but also relates to the processes in place within organisations that leads to social impact.
  • Financial performance is not an end in itself but the means to achieve social results.

Which indicators are really “key”, cost-effective, meaningful but practical? In 2008, there was already confusion about the different tools and which ones would be most meaningful. Shall investors promote a double bottom or triple bottom line (which in addition to social and financial, also includes environmental concerns). Evidently, the different investor classes and categories (e.g., foundations, churches, retail investors, etc.) create an array of different motivations which complicates the selection of standard indicators. You will see in my future blogs, that this situation has not really changed until today.

What are the current social performance tools? The Social Performance Task Force was created in 2005. Since then, the most relevant tools were the following:

The SPI tool (Social Performance Indicators) developed by Cerise. The SPI tool evaluates four dimensions of social performance:

(1) outreach to the poor and excluded populations,

(2) adaptation of products and services for target clients,

(3) economic and social benefits for the clients, and

(4) corporate social responsibility towards the clients, the staff, the community and the environment.

The questionnaire is a checklist of about 60 basic indicators quantifiable to assess the whole process of social performance management.

The Progress out of Poverty Index (PPI) links some basic, observable poverty indicators at client level to deeper national poverty studies. A simple, inexpensive, poverty score card estimates the likelihood that a client is poor, allows to track changes in poverty over time, and assess its level of poverty compared to defined national or international poverty lines.

Elements out of the AIMS-impact measurement package, such as the interviews to assess drop out reasons or to assess client satisfaction.

Social Raters such as M-CRIL, MicroFinanza Rating, Planet Rating and MicroRate, working together in a sub-committee of the Social Performance Task Group, are currently developing and piloting social rating products.

A workgroup within the social performance task force is defining social core indicators that will be integrated in the reporting schedules of the MIX-market and as such create a database with reference material on social performance of MFIs.

Like the earlier mentioned Cerise group, the Imp-Act consortium has been very active in concept development, production of guidelines on how to design a SPM system and select the most appropriate tools, as well as capacity building through a range of training activities.

Social performance management for social investors? The core questions when thinking about social performance for social investors are the following:

(1) Which selection procedures guarantee the most optimal social orientation of the funds in a cost realistic way?

(2) How can social investors make sure that their products and set conditions best fit the needs of socially managed MFIs?

(3) What incentives can social investors build into their own systems that stimulate MFIs to further improve on their social management or to care more about environmental issues during credit allocation?

(4) How can social investors be transparent on the social profile of their total portfolio?

45 social investors have developed a list of social performance indicators. In 2007, the Social Investors Subcommittee of the Social Performance Task Force surveyed a list of social investors regarding their proposed social performance indicators. Most used indicators are on MFI services and the average credit size. Less is done on outreach to savers or insurance takers. Around 80% of social investors collect information on the effective interest rate. More than 75% of social investors collect information on the number of women reached and more than 50% on rural outreach. Again, more than 75% measure portfolio at risk and write of ratios and even over 50% ask for information on client turnover.

Social investors agree on requirements for social performance indicators. In the eyes of social investors, the tools and indicators used for social performance management should have following characteristics: easy to use, data easily collectible, dimensions and indicators used in the assessment model must take into account a sufficiently large number of social performance indicators. and the indicators must, as much as possible, not be influenced by normative views or value judgements.

Missing standardised common processes could become a burden for MFIs. At this stage, no standardised common process seem to have emerged with regards to social performance management. Although this shows that investors are pursuing an innovative and proactive strategy, this could over time become painful for MFIS who would be subject to as many different reporting procedures as they have partner investors. There is a clear need for standardisation and harmonisation of reporting indicators in the long run.

How to assess social performance of investors? Based on the framework that the social performance initiative tool uses to judge the social performance at the MFI level, one can start to assess the social performance of investors and attempt to analyze what makes a microfinance investment socially responsible:

Dimension 1: What are the target MFIs? Leading MFIs or supporting smaller, more rural, or developing MFIs?

Dimension 2: Do the services provided respond to the needs of partner MFIs? Do investors offer a range of services (short term and long term loans, equity investments, guarantee funds, local currency)?

Dimension 3: What are the benefits for the MFIs? Do investors ensure that their services allow MFIs to build their capacity : better access to local resources (savings mobilisation, training, technical assistance, etc.)

Dimension 4: What is the investor´s social responsibility? What attention do investors pay to the social orientation and/or social performance of their partners? Do investors monitor and encourage the social performance of their partners?

Here a brief list of links which might be helpful for further study on social performance.

Social performance Task Force

Social Performance on the Microfinance Gateway

What is social performance” by Cerise

The MIX Social performance indicators

Consumer Guide to Social Performance Assessments Tools in Microfinance

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