PAPER WRAP-UP: Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions, by Syed Hashemi

Focus Note no. 41, May 2007, by CGAP. 12 pages, available at http://www.cgap.org/portal/site/CGAP/menuitem.da0167f15fefd30167808010591010a0/

Syed Hashemi at CGAP, the Consultative Group to Assist the Poor, has put together this overview of social performance measurements of microfinance institutions (MFIs), outlining the requirements, current methods and need for a common set of indicators. He describes the eight most common current systems and also introduces the Common Reporting Initiative that has been designed by the Social Performance Task Force (founded in May 2005 by the Argidius Foundation, CGAP, and the Ford Foundation) to provide a common set of indicators with which all the systems can work.

Mr. Hashemi highlights the major problem with social performance measurement: there is no standardized format or agreement on how it should be done, unlike the formulae for measuring financial performance. Therefore it is hard to prove whether MFIs are really doing what they have advertised to their investors and stakeholders, and whether what they are doing is to a standard that is adequate.The task force has defined Social Performance as the effective translation of an institution’s social goals into practice in line with accepted social values; these include sustainably serving increasing numbers of poor and excluded people, improving the quality and appropriateness of financial services, improving the economic and social conditions of clients, and ensuring social responsibility to clients, employees and the community they serve.

Mr. Hashemi provides case studies that prove that social performance measures matter, dismissing the argument that on-going need is alone enough to prove that an MFI is required by its customers and doing its job. Social performance can be a driver of financial performance. For example, Prizma, a MFI in Bosnia, has shown that by implementing a social performance management system it can improve client retention by 10-25%, which covers the cost of the system as well as providing a profit.

One of the hurdles in social performance measurement is that different organizations measure different aspects of an MFI’s activities, so there has been a lack of consensus on what factors indicate social performance. The task force believes that the MFI needs to be measured on: Intent and Design; Internal Systems and Activities; Output; Outcome; and finally Impact, which relates any change in client circumstance back to the MFI in question.

The current 8 systems in practice all look at different steps in this combination of indicators, but not all of them together.

CERISE Social Performance Indicators Initiative
This tool assesses the MFI’s intentions and actions, determining whether it has the means in place to attain its social objectives. It examines outreach to the poor and excluded, adaptation of products and services for target clients, improvement in social and political capital, and corporate social responsibility.

SPA Tool
This tool looks at six dimensions of outreach: breadth, depth, length, scope, cost, and worth of outreach to clients and the community, data which is found in the MFI’s financial and client information.

ACCION SOCIAL Tool
SOCIAL is an acronym for the six elements of social performance that the ACCION tool seeks to capture: social mission, outreach, client service, information transparency, association with the community, and labor climate.

CGAP-Grameen-Ford Progress out of Poverty Index (PPI)
The index is designed to represent a set of globally comparable client-level
indicators, using “poverty scorecards”. The scorecards are based on statistical analysis of national household expenditure surveys. They use a small set of simple, easily observable indicators to estimate the share of clients who are below an established USD1-2 per day poverty line.

FINCA’s Client Assessment Tool (FCAT)
FCAT is a tool that includes demographic information, loan information, household expenditures, asset accumulation, social metrics (health, housing, and education), business metrics, and client satisfaction and exit interview questions.

Three ratings agencies are introducing social rating as a complementary product to credit rating:

M-CRIL’s Social Rating
M-CRIL is piloting a social performance rating tool tat covers both organizational systems and results, including client-level indicators. It analyzes mission statements, policies, and internal systems of the organization.

Microfinanza Social Rating
Microfinanza has two ratings, the first being very similar to M-CRIL and the second being a more simplified version of the first.

Planet Rating
Planet is conducting pilot ratings that are entirely based on information that comes directly from the MFI.

The task force is establishing a set of indicators that can be used by all these systems called the Common Reporting Initiative. The task force now has over 150 members working within the microfinance industry and has tried to develop indicators that are conceptually clear, simple, practical, cost-effective, statistically rigorous, and comparable across countries, with an attempt to bridge the gap in microfinance reporting between institutional and client-level information. A draft outline of the Core Social Performance indicators features as an appendix of the focus note, and the MixMarket, as a member of the taskforce, has agreed to highlight this format and make social performance data available through its website.

Amy Rennison, MicroCapital writer

Microfinance Gateway:
http://microfinancegateway.org/resource_centers/socialperformance/article/28257/

Microlinks
http://www.microlinks.org/ev_en.php?ID=10679_201&ID2=DO_TOPIC

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