Measuring Social Performance: First-Ever Common Standards Adopted

Aug 2007
Washington D.C. United States, August, 15 2007 - Microfinance has seen a steep rise in foreign capital investment over the past two years. Yet, as dreams of commercialization seem to be coming true, many are calling for methods to balance the profit-maximizing imperative commercial investors bring to the table and keep microfinance focused on a "double bottom line."

Proponents of microfinance firmly believe that access to financial services improves the lives of poor people, but can they prove it? While the measures of financial perfomrance are tried and true, assessing the so-called social performance of microfinance institutions (MFIs) is tricky business. A new CGAP Focus Note, Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions, points out that, for this very reason, many funders and financial institutions are seeking rigorous and transparent ways to determine whether microfinance is truly achieving social performance goals (such as improved nutrition, health, housing, and education). Yet, critics wonder if these will create more costly and inefficient hoops for MFIs to jump through and, indeed, whether establishing standardized measures of social performance is even possible.

The Social Performance Task Force, founded in 2005 by the Argidius Foundation, CGAP and the Ford Foundation, is a group of leading experts that has taken on these challenges. In June, the Task Force agreed on a Common Reporting Framework that could help make social performance reporting the norm.

The Common Reporting Framework

Improving transparency

The common reporting framework developed by the Task Force are the first of their kind. They are intended to improve the quality and availability of public information about microfinance so MFIs can better gauge their success in reaching their stated social objectives.

"When financial disclosure guidelines were put in place for microfinance, the industry was able to improve financial performance dramatically," says CGAP Senior Advisor Kate McKee. "MFIs were quick to hold themselves to new and higher standards and were finally able to see what their peers were really up to. We're optimistic that these new standards will achieve the same rapid and far-reaching results for social performance – and that the information collected will help enhance MFIs' social performance to the ultimate benefit of microfinance clients."

Keeping it simple

Consisting of about 10 core indicators, the reporting requirements are kept to a minimum to reduce the burden on MFIs. Additional criteria for identifying indicators included ease – of reporting, of verification by third parties, and of making global comparisons. In the end, the goal is to generate useful data for users like investors, donors, and MFIs themselves.Reporting on intent, process, and results

The indicators encompass several different dimensions linked to how a financial institutions manages its social performance, including intent (whether institutions have a clearly defined social mission and social goals), process (whether institutions track achievements on their social objectives and whether they are being socially responsible), and results (whether institutions are reaching a) poorer, b) more marginalized and c) more vulnerable populations, and whether clients are experiencing positive social and economic changes). The indicators are designed to reflect the format for financial reporting to the global microfinance information exchange, the MIX.

What's next?

The Social Performance Task Force has set a brisk pace for implementation – aiming to have at least 100 institutions report on process and intent and at least 20 MFIs report on the full set of indicators by summer 2008.

"Until now, tackling social performance easily and systematically has not been possible due to a lack of agreement about what should be measured and the absence of tools to collect the data in a cost-effective way," says CGAP Executive Committee Chair Frank DeGiovanni. "The development of these common reporting standards is a critical step in helping to ensure that microfinance institutions, investors and donors remain genuinely responsive to the needs of the poor."

Source : CGAP portfolio

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