Measuring the Social Performance of Microfinance Institutions (MFIs)

As part of its InSight Series, ACCION International has published a report entitled, “Guidelines to Evaluate Social Performance,” which aims to develop a structured framework for assessing and reporting the social performance of MFIs. According to the report:

Social goals drive the strategies of many microfinance institutions, yet many of these institutions are judged primarily on their financial performance. Measuring and reporting on social performance is a key way for double bottom line institutions to define the social value they create, while holding themselves accountable for the goals articulated in their mission.

The paper reports that currently, there is are no universally adopted standards for “social reporting”, and the tools that do exist to measure “social performance” vary from organization to organization. In fact, it was not until recently, when “an industry-wide task force” took up the responsibility, that “social performance” was defined as “the effective translation of an institution’s social mission into practice in line with accepted social values.”

More after the jump.

In an attempt to address these issues, ACCION has developed a tool for measuring social performance called SOCIAL, which includes the following six dimensions: 1) social mission, 2) outreach, 3) client service, 4) information transparency and consumer protection, 5) association with the community, and 6) labour. The principles for each are outlined in detail below:

1) Social Mission: Evidence of understanding and commitment to institutional mission should be present at all levels of staff and in all aspects of the MFI’s work. Fulfillment of social mission should be evaluated regularly.

2) Outreach: Microfinance institutions should broaden access to financial services, particularly to poor and underserved populations.

3) Client Service: Microfinance institutions should offer quality services that fulfill the financial needs of clients.

4) Information Transparency and Consumer Protection: The ideals of transparency and consumer protection should govern the actions of MFIs.

5) Association with the Community: Microfinance institutions should maintain positive relations and strive to improve the communities in which they operate.

6) Labour: Microfinance institutions should strive to develop their human resources and maintain active communication with staff.

Furthermore, the paper goes on to say that a summary of these 6 dimensions should be reported in a “Social Scorecard,” which is a “consolidated format to provide key information to stakeholders on a regular basis.” The scorecard can have a flexible format depending on the mandate of the organization, but it should provide a snapshot of the MFI’s social performance indicators, specifically as per the key components outlined through SOCIAL.

The paper concludes by addressing challenges to this model/social tool, particularly with respect to the current debate regarding “whether [social] performance should be gauged against an MFI’s own mission or generally accepted social development goals.” More specifically, what measures are necessary in order to mainstream and universalize social performance tools? How can information be collected and reported in an accurate, simple, and quick way?

Despite these ambiguities, I would be interested in applying this social measurement framework to Compartamos’ current for-profit MFI model. In my past post on this issue, I suggested that commercialization should be pursued with the interest of the poor in mind. ACCION’s SOCIAL framework potentially provides a concrete means through which to assess and report the social performance of MFIs, both prior and post commercialization. Possibly what is required (beyond SOCIAL) is a gateway organization that regulates adherence to universalized social performance standards by MFIs. Clearly, given the Compartamos profit model (which I think is overly indulgent), some form of social regulatory body is necessary for all MFIs.

For the full text of the report, go here. For further analysis, including a summary of the MFIs highlighted in the report, click here.