MORE THAN JUST FINANCIAL PERFORMANCE
Given their nature, microfinance institutions (MFIs) generally have a double or triple bottom-line mission that includes financial, social, and environmental objectives.
In the past, the most common performance metrics in microfinance gauged an institution's financial performance; as a result, very little was known on how these institutions were performing with regards to their social and environmental goals. It was also difficult to discern the steps they were taking to improve their performance in these areas. However, all of these areas are equally important and should be monitored on a regular basis in order to make sure that MFIs are achieving on all dimensions of their mission.
Investors and funding agencies are also trying to allocate their funds more efficiently and in a more socially responsible manner. Not only are they continuing to pay close attention to MFIs’ financial indicators; now they are also looking carefully at how MFIs’ internal processes and performance align with their social and environmental mission. Thus social performance indicators have dramatically gained in significance within the microfinance sector. Indeed, the microfinance industry has grown exponentially in the recent past, and this has greatly increased the demands for financial support made on investors and funding agencies. MFIs are also under growing pressure to remain competitive in the market. The reality is that only those MFIs that keep abreast of industry standards and disclose information regarding their triple bottom-line mission will be able to remain competitive and attractive for investors now and in the long-term.
Episcopal Relief & Development recognizes this reality and we are making sure that our partners have the capacity to continue competing in the market and attracting other sources of funding. To this end, we are keeping a close eye on international standards and on the development of Social Performance Management (SPM) systems. We want to ensure that all the National ECLOF Committees (NECs) have the tools not only to perform in a manner that is financially, socially, and environmentally responsible, but also to document their performance thoroughly, thus maximizing their growth opportunities.
In March 2005, the International Task Force on Social Performance was launched. Leaders from the microfinance industry gathered and came to an agreement on a common social performance framework. They also developed an action plan to implement the social performance agenda forward. Since then, several industry standards, benchmarks, guidelines, and indicators for social performance management have been and continue to be developed.
Today, the Social Performance Task Force (SPTF) consists of over 1,000 members from all over the world and from every microfinance stakeholder group: practitioners, donors and investors, global, national and regional associations, technical assistance providers, rating agencies, academics, researchers, and others.
MIX and the Social Performance Task Force (SPTF) have developed 11 indicators by which to measure the social performance of MFIs. These specific indicators are used to collect social performance data from MFIs around the world and provide a platform for benchmarking and analysis. These 11 SP indicators focus on the following areas:
1. Mission and social goals
3. Range of products and services
4. Social responsibility to clients
5. Transparency of cost of services to clients
6. Human resources and staff incentives
7. Social responsibility to the environment
8. Poverty outreach
9. Client outreach by lending methodology
10. Enterprises financed and employment creation
11. Client retention rate
Tracking these indicators will allow ECLOF to monitor and evaluate the financial, social, and environmental accountability and efficiency of the NECs. We will be able to get a clear sense not only of the NECs’ financial position, but also of their performance relative to their social mission and goals.
Tracking these indicators will help the NECs to set clear social objectives. It will also aid them in assessing progress towards achieving them; moreover, this information can be used to improve overall organizational performance. In particular, the information provided by these indicators will also help the NECs to improve their products and services by making sure that everyday operations contribute to accomplishing longer-term goals in accordance with the Organization’s mission.
We expect that tracking these indicators will also translate to better financial indicators for the NECs. Collecting and using social performance information will help tailor services and products to client need, which will in turn increase client retention rates and can also reduce the likelihood of default. Furthermore, tracking and publishing these social performance indicators will be a powerful marketing tool to attract other socially-conscious investors and donors.
By Karla Paola Avila - Program Officer, International Programs
Episcopal Relief & Development
For notes and references, you can access the article in PDF format here.