This 21-page paper provides microfinance institutions (MFIs) guidelines to measure their social performance and thus stay true to their mission and goals. Part of ACCION International’s InSight Series, the paper was written by Senior Director Rekha Reddy, who is responsible for measuring the poverty and social performance of ACCIOn affiliates. ACCION International is an international, non-profit microlending organization. One can find the full paper here.
The paper quotes an industry-wide task force definition of social performance as “the effective translation of an institution’s social mission into practice in line with accepted social values.” Gauging this aspect is important for MFIs in order to differentiate their brand, mitigate risks such as greater regulatory control, and supply data on participant’s perception of the MFI. In addition, it helps investors evaluate investment opportunities, monitor their investees’ success, report to shareholders, and improve governance.
ACCION’s tool for evaluating social performance is called SOCIAL and includes six dimensions: Social Mission, Outreach, Client Service, Information Transparency and Consumer Protection, Association with the Community, and Labor. Furthermore, this framework was used to analyze 6 MFIs, with each illustrating a key dimension of social performance. Finally, the framework confines itself to processes and outreach indicators rather than measure client impact, as impact studies require external, unbiased parties.
The first dimension of social mission ensures complete understanding and commitment to the MFI’s mission by all staff and incorporating that objective in all aspects of the work. For instance, Indian NGO and microfinance service provider ASA-Grama Vidiyal trains incoming employees on its mission and values, assesses its staff’s commitment to those values, and discusses both social and financial issues at its Board of Directors meeting.
Another highly valued dimension is outreach- i.e. whether the MFI broadens access to financial services, especially to poor and underserved populations. Determining outreach uses mostly quantitative measures and should include geographic coverage and growth, client demographics and poverty data, and efforts to reach underserved clients. The paper presents Peruvian microfinance bank Mibanco as an example of an MFI with strong outreach. In 2007, it had 29 percent client growth; 55 percent of clients were women; 60 percent of clients were poor; 11 percent of loans did not require collateral; and 27 percent of new formal financial system borrowers in Peru were Mibanco clients.
Offering clients quality services is also at the heart of social performance assessment. This includes efforts to promote client satisfaction and feedback mechanisms. For example, Fundacion Paraguaya has one of the highest client retention rates in the ACCION MFI Network, maintaining 96 percent of clients versus the average 79 percent for the 30 MFIs for which ACCION collects data.
Incorporating information transparency and consumer protection is another dimension that will help prevent overindebtedness. In the ACCION network, Uganda Microfinance Limited is a deposit-taking MFI which clearly discloses interest rates and fees, prints client receipts for each transaction, requires clients to undergo a seminar on credit terms and procedures, safeguards client privacy, and has clear policies on client treatment.
The Association with the Community dimension encompasses corporate social responsibility, striving to improve the communities in which an MFI operates, and ensuring sustainable growth. BanGente is the first commercial bank in Venezuela to serve small and microenterprises. It also embodies the ideals of this dimension through its community-active foundation with a USD 200,000 budget, donating services to support vocational programs, and funding legal assistance programs for microentrepreneurs.
The final dimension is labor and involves development of human resources, promoting staff satisfaction, and feedback mechanisms to improve staff communication. CREDIFE, a subsidiary of Ecuadorian microfinance service provider Banco Pichincha, epitomizes the successful implementation of this dimension. CREDIFE has clearly defined human resource policies, uses a clear salary scale and incentive plan, and puts its employees through roughly 6 hours of continuing education per year. Furthermore, CREDIFE retained approximately 80 percent of its employees in 2005.
The summary of these 6 dimensions is reported in a Social Scorecard, which is designed to be 1-page and is thus biased towards quantitative measures that can be updated regularly and cheaply. However, ACCION also notes that MFIs should take a flexible approach to reporting social performance, given the differences in readily available information for each MFI. Also scorecards should be adapted to cover an MFI’s unique mission statement. Finally, benchmarks and targets are necessary to provide context, although there is debate on whether the performance should be gauged against an MFI’s own mission or generally accepted social development goals.
Finally, the paper addresses challenges to mainstreaming social performance evaluations. The first is the lack of consensus on how to measure social goals and the proliferation of social performance tools. This includes the need for a clearinghouse where all MFIs can report on their social performance data. Another challenge is to create frameworks which are both credible and practical- i.e. they must yield accurate information but be simple and quick to implement. There is also the question of whether the approach should be specifically developed for the microfinance industry or a “mainstream” approach to address all sectors. This also leads to whether the standardized frameworks should be tailored to each MFIs’ unique mission or broader development goals.
by Jennifer Lee
Additional Resources:
ACCION InSight: “Guidelines to Evaluate Social Performance”, by Rekha Reddy, No. 24, November 2007.
Example MFIs: ASA – Grama Vidiyal (India), Mibanco (Peru), Fundacion Paraguaya (Paraguay), Uganda Microfinance Limited (Uganda), BanGente (Venezuela), CREDIFE (Ecuador)
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