Social Performance Management
From its social roots, microfinance has grown into a global industry largely dedicated to commercial principles of operation. Over the years, the industry has made significant progress in developing methods to measure and report financial performance. In contrast, due to the difficulties and high costs, little progress has been made toward developing methods to measure and report on social performance.
Social performance management (SPM) is important to microfinance for several reasons:
- Relying solely on financial performance measures without understanding how they relate to social indicators gives a distorted view of overall performance, creating pressures and incentives for microfinance institutions (MFIs) to drift away from their social mission.
- Without information on social performance, MFIs have no basis on which to plan toward a double bottom-line or make strategic decisions that affect social outcomes.
- Information about social performance is necessary to increase industry transparency and credibility; and to create industry-wide standards and benchmarks for social performance.
- Social performance standards and benchmarks can guide management decision-making and facilitate funding decisions by private and socially responsible investors. The supply of private social investment to microfinance, and its allocative efficiency, is expected to increase further as a result.
Reaching massive numbers of very poor people with financial services requires a capability both to measure depth of outreach and to effectively target very poor markets with appropriate products and services. It also requires a set of operational functions and tools, and a supporting institutional culture. USAID’s Microenterprise Development office (MD) is working to develop tools, methodologies and indicators to better assess and manage social performance.
MD’s primary objectives are two-fold:
- Develop a conceptual framework and a corresponding set of tools by which MFIs can measure and manage progress toward a financial and social bottom-line.
- Develop a conceptual framework and a corresponding set of tools by which donors and private investors can assess the blended (financial and social) return of MFIs.
KNOWLEDGE AND PRACTICE
MD has played a key role in promoting and advancing social performance management in microfinance. A social rating tool developed by MD has now been adapted by commercial rating agencies, such as MicroRate and Planet Rating. MD conducted one of the first surveys of social investors, about perspectives and demands for social ratings, which included discussions on rating usability, price points and formats. The research team is looking for opportunities to demonstrate applicability of social rating to diverse types of MFIs, particularly commercial/ transforming MFIs. Further, MD is working with the AfriCap Microfinance Investment Fund to develop an internal social performance system, which will be one of the first social performance assessment (SPA) systems developed for an investment fund.
MD has recently started to focus more on social auditing. In contrast to the social rating, the social audit primarily targets internal audiences, particularly the MFI’s management and board. It goes into greater depth on social issues, involving a wider array of stakeholders. It is more prescriptive in terms of offering specific recommendations for reform and it addresses governance and corporate social responsibility issues in greater depth.