NEWS WIRE: United States: CGAP on Social Performance Reporting in Microfinance

Source: CGAP (Consultative Group to Assist the Poor).

WASHINGTON, November 5 – Microfinance advocates have long proclaimed–and have been called upon to prove–the social benefits of providing financial services to poor people. Socially responsible investors in microfinance are paying closer and closer attention to this debate and are tracking the performance of their investees. An increasing number of microfinance institutions (MFIs) have begun to disclose their codes of conduct toward clients, staff, and the environment.

An idea that’s here to stay
“More and more, MFIs want to be both financially and socially accountable,” says CGAP microfinance analyst Meritxell Martinez. “They’re really stepping up their efforts to keep true to their mission and to their clients.” CGAP, together with its partners the Michael & Susan Dell Foundation, the Ford Foundation, and the Social Performance Task Force (SPTF), is honoring those institutions by presenting the first ever Social Performance Reporting Awards. Powered by MIX, these awards recognize transparency in social performance reporting as the critical first step in achieving social performance goals.

And the winners are…
In June, the first recipients received certificates for their efforts: AMK Cambodia, Pakistan’s Asasah, Finca Peru, and Prisma Peru. Other award ceremonies followed in Arequipa and Washington, D.C. To date, over 200 MFIs have applied for the recognition awards. Of these applicants, about half report having measured their clients’ poverty levels. Five networks have also received awards for having at least 50% of affiliates eligible for a gold or silver certificate. “All of these MFIs are working hard to be as transparent as possible by reporting on social performance indicators to MIX,” says Martinez.

In Pakistan, some of the ways Asasah strengthens its social performance is to train its board, management, and staff on these issues and to develop staff appraisals and incentives related to social performance. In Peru, among other social performance initiatives, Finca integrates social performance goals into its strategic and business plans and has explicit policies to avoid client overindebtedness and clearly communicates prices, terms and conditions to clients. Peru’s Prisma includes social responsibility policies, such as anti-discrimination and anti-harassment policies, as one of its social performance efforts. All winning MFIs are also working to measure the poverty level of their clients and how it changes over time.

AMK Cambodia: Profile of a socially conscious MFI
In operation since 1999, AMK is a nonbank financial institution with the mission of helping large numbers of poor people in Cambodia improve their livelihood options through the sustainable delivery of appropriate and viable microfinance services. “Help’ is a key word here,” says AMK CEO Paul Luchtenburg. “It demonstrates that our goals are greater than just providing financial services. We want to, at a minimum, ensure that we are doing no harm and, as much as possible, ensure that our clients are helped by our services.”

The other key concept according to Luchtenburg is reaching as many poor people as possible. “We do this by putting most of our effort into areas where the poorest people are located,” says Luchtenburg, “which in Cambodia are the rural areas.”

Putting its money where its mouth is
AMK is putting its social performance objectives into practice by expanding into remote rural areas. AMK currently covers all provinces of Cambodia and 36% of all villages–and is still growing. What’s more, AMK has the smallest average loan size of any MFI in Cambodia (US$110) – an indicator of the income level of its client base.

“Some of AMK’s other initiatives include integrating social performance into systems like monitoring client protection through the inspections department and instituting training and incentives as part of AMK’s human resources systems,” says Luchtenburg. As for its customers, AMK’s client protection code of practice includes ensuring complete transparency in transactions. On the investor side, AMK seeks like-minded partners, excluding those who do not have strong social objectives.

Improving AMK’s social performance transparency
AMK strives to further its social performance transparency through its Social Performance Committee, “which mirrors the audit committee on the financial side,” says Luchtenburg. AMK has developed award-winning tools and a framework to make reporting clear for the board. AMK also reports on social indicators on its Web site and annual report, and MIX reporting and conducts social and market research to understand its clients’ needs. AMK was the first Cambodian organization to sign on to the Microfinance Transparency movement.

Why is social performance transparency important to AMK?
“With a history of financial transparency, it is natural for AMK to commit to social performance transparency,” says Luchtenburg. “And transparency is a key feature in social performance management. While AMK has made progress in the area of social performance, we still have much to learn. In being transparent about our social indicators, we create an environment where we can help others in things we have done well and learn from others in areas we need to improve.”

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