Presentation by Laura Foose, Alternative Credit Technologies, LLC

November 9, 2005

Social Performance in Microfinance

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Social Performance Task Force

Launched in March 2005 by CGAP, Argidius Foundation and the Ford Foundation

Membership: 52 organizations20 NGOs

9 Donors

9 Networks/Associations

2 Social Investor networks

4 Microfinance Raters

7 Action Research Programs/Universities

3 Consulting groups

Subcommittee structure used to work on a common agenda developed by the task force

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Objectives of Social Performance Task Force

• Strengthen understanding of social performance and learn about relevant initiatives and tools

• Promote social performance management at MFI level so as to ‘improve’ operations

• Bring various stakeholders together to establish industry-wide standards for social performance reporting, auditing, and social rating

• Exchange on current and planned work in social performance

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What is Social Performance?

Social performance is the effective translation of an institution’s social mission into practice

(actions, corrective measures, outcomes).

la actuación social de un instituto como la traducción efectiva de su misión social (acciones,

medidas correctivas, resultados)

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Social Performance Management Questions

1. What are your social performance goals?

2. How do you monitor who uses & who is excluded from using your services?

3. How do you monitor & assess the effects on current clients?

4. How do you monitor & assess the reasons why some clients leave?

5. How do you use information to improve your services & achieve social goals?

6. How do you review & improve the quality of your systems and processes?

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Benefits of Social Performance

Better management (balance financial/social objectives, base line info., performance tracking, early warning systems)

More client-responsive (appropriate services, more product choices, better customer service)

Improved outreach and services (portfolio segmentation, understand client use, innovations, verify impact of programmatic changes, track impacts on clients)

Improved financial performance (better client retention, growth, lower operational costs)

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Manifesto de Task Force

Promover Resultados Sociales en Micro FinanzasHacia una línea base doble

“Las Micro Finanzas funcionan mejor cuando se mide - y se revela- sus resultados. Información estandarizada y exacta sobre los resultados, tanto sobre los resultados financieros como los sociales, es indispensable.” (De “principios Claves” del CGAP aprobado por Los G-8).

Nosotros los subscritores, como líderes en el campo de micro finanzas:

1) Definimos la actuación social de un instituto como la traducción efectiva de su misión social (acciones, medidas correctivas, resultados)

2) Reconocemos que medir el resultado financiero no es suficiente para medir el impacto que tiene micro finanzas en la vida de la gente pobre. Una línea base doble define el éxito como buenos resultados financieros y sociales, y que a largo plazo estos se esfuerzan mutuamente.

3) Reconocemos además el creciente interés por donantes, redes, practicantes, fundadores y otros “stakeholders” en la evaluación, la aplicación y el mejoramiento de nuevas herramientas para fortalecer el desempeño social, monitoreo y informaciones.

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Manifesto con’t

4) Apoyamos el desarrollo actual en el campo de monitoreo de resultados sociales, para organizaciones que tienen el mismo objetivo de promoción de la actuación social, pero cada uno con enfoques y perspectivas diferentes.

5) Nos comprometemos a convertirnos en pioneros para poner en práctica el monitoreo periódico,

reportando y liderando los aspectos sociales de nuestras organizaciones y las organizaciones que apoyamos

Formular objetivos sociales claramente especificados por nuestro organización;

Diseñar, introducir y usar sistemas para manejar, examinar, monitorear y reportar sobre los resultados sociales dentro y fuera de nuestra organización;

Usar la información sobre los resultados sociales para mejorar el efectos social de nuestras operaciones

Estar abiertos a auditorias externas sobre los resultados sociales

Promover y intercambiar ideas e información sobre los resultados sociales

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Work Plan of Task Force 2006

Promote the spread and practice of Social Performance Management through training of practitioners

Establish industry social performance standards and a common reporting framework

Develop a common reporting site at the MIX to support reporting on social indicators and make double bottom line reporting a regular practice in the MF industry

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Social performance pathway

Design and inputs

Mis

sio

n

Obj

ect

ives

Goa

ls

Reaching Target Clients

ChangeService Design & DeliverySystemsMeeting Client Needs

Outputs Outcomes ImpactIntent

“Effective translation of mission into practice”

Governance/policies

management/strategy Outreach/ Changesservices

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Current Initiatives and Existing Tools

Existing Tools New Initiatives

Intention and design

CGAP Poverty Audit

CERISE

Social Rating

(M-CRIL

Planet Rating

Microfinanza etc)

Outputs

CGAP Poverty Assessment

MicroSave

USAID/IRIS AMAP

Accion

Council of MF Equity Funds

CGAP/ Ford

FINCA

Imp-Act SPM

MFC

Outcomes AIMS

Imp-Act

Grameen FND

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At the level of MFIs

Reporting system for stakeholders (MFI Board, management, external financiers, member- clients)

Information for MFI strategic decision making and improved SP management

At industry level

Greater transparency on social development achievements

At national and international level

To provide a base for comparison with other MFIs on the basis of widely accepted SP standards

CERISE-Argidius CERISE-Argidius SP Initiative: ObjectivesSP Initiative: Objectives

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IntentionDesign

Principles

ProcessActionOutput

Outcome Impact

Economic & Social

Performance

Conceptual Framework

The SPI approach: a self- assessment of principles, actions and corrective measures for internal use and external reporting.

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Outreach to the poor and excluded

Adaptation of services and products to needs of target clients

Improvement of social and political capital of clients

Social responsibility of the institution

Score of 25 points each

4 Dimensions of Social Performance

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mission of the MFI

geographic and socio-economic focus

tools for targeting

size of transaction

collateral

Dimension 1: Outreach to Poor and Excluded

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Dimension 2: Adaptation of Services

range of services

quality of services

non-financial services accessible to the clients

participation of the clients in the design

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Dimension 3: Social and Political Capital

transparency of the financial transactions

clients representatives for consultation, decision-making or control of the MFI

empowerment : social cohesion, voice of the clients with the national or local government

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Dimension 4: Social responsibility of institution

human resource policy

social responsibility towards the clients

social responsibility towards the local community

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Social Performance Management (SPM)

the systematic assessment of performance relative to social objectives and the use of information to improve practice

1) demonstrate program impact

2) improve program services

Assessment with Action

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Main components of Social Performance Management

• Developing a social performance strategy

• Monitoring and assessing social performance

• Institutionalizing and using social performance information

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Component 1: Developing SP Strategy

• Clarify mission and social goals

• Define clear and realistic performance objectives

• Set measurable performance targets

• Design program (operational plan)

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Component 2: Monitoring and Assessing SP

SP systems – two approaches routine monitoring

follow-on research

SP systems – design (key questions) What information is needed? Who needs it?

How will information be collected?

From whom will data be collected?

How frequently will the information be collected?

Who will collect, collate, analyze and report information?

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Component 3: Institutionalizing and

Using SP Information

• Ensure effective use of information feedback loop

• Institutionalize SPM through management/board commitment and staff buy-in

• Improve SPM system through periodic reviews

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CGAP-Ford Social Indicators Project

• Develop indicators to track MFI social performance through monitoring outreach to the very poor and changes in client well-being

• Create common reporting format for MFIs across countries standardization

• Report on social performance of MFIs on MIX Market

35 participating MFIs

16 Asia

6 Sub-Saharan Africa

1 Northern Africa

9 Latin America

3 Eastern Europe

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Methodology

Develop 2 sets of indicators

• industry indicators: 5 to 6 globally applicable indicators on different dimensions that can provide cross-country comparisons

• proxy indicators: simple context-specific indicators developed by each MFI

Proxy indicators will be benchmarked to industry indicators so that MFI context-specific reports can be compared globally

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Methodology (cont’d)

Criteria for selecting the indicators

Have reasonable reliability/validity

Relevance across a variety of national contexts

Cost-effective data collection

How is the information collected?

• Existing client information from application form

• Simple low-cost small sample surveys

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Initiatives in Social Rating

Sub-committee: M-CRIL, Planet Rating, Microfinanza, AccionWith contribution from: Imp-Act

OverviewFrameworksIssuesIndicators and methodsCost

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Rating and social performance

Social Rating must reflect and make explicit the:

social goals and objectives in microfinance systems within an MFI which are relevant to achieving those objectives environmental factors which affect MFI activity, and indicators of whether those objectives are [on the way to] being achieved.

SP definition: effective translation of social goals into practice

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Social Ratings so far: ‘pilots’

Excludes questionnaire tests which did not result in reports

Stand-alone reports: - complement to the financial assessment of credit rating- a direct comparison of the ‘double bottom line’- still some experimentation

Agency Region Complete In processTotal 7 11

M-CRIL S Asia 3 5Planet Rating E Eur 2 3Microfinanza E Eur 3NAR Africa 2Accion Lat Am 1

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Objectives

To contribute to: Investment decisions  Transparency on social performance  Benchmarking social performance across MFIs, and to  Encourage MFIs to improve their social performance (specific recommendations possible)

Task:   To simplify and measure quite complex ideas     Adapt to different contexts and organisational models     Provide validity – reasonable levels of rigour/precision    Do so practically – at reasonable levels of time and cost

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Different frameworks

Cerise: social indicators project - dimensions of corporate social responsibility (CSR - clients, employees, community) + mF specific dimensions (depth of outreach and adaptation of services) [starting point for some rating agencies]

Rating agencies/M-CRIL: the Imp-Act pathway and credit rating approach (focus on MFI and clients)

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Working hypotheses in rating

the risk profile and creditworthiness of an MFI depends critically on its financial performance,

the social profile of an MFI depends critically on its outputs (depth of outreach and appropriate products),

but both are also affected by its managerial capabilities and governance

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Social performance pathway

Design and inputs

Mis

sio

n

Obj

ect

ives

Goa

ls

Reaching Target Clients

ChangeService Design & DeliverySystemsMeeting Client Needs

Outputs ImpactIntent

“Effective translation of mission into practice”

Governance/policies management/strategy Outreach/services

SOCIAL RATING

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Social benchmarking?

Generic social values (clear and agreed) – or specific to each MFI’s situation, model and stated objectives?

E.g. not all MFIs target women, target the poor, apply group based model (social collateral), can legally offer savings products

Considerable debate: try to balance both

Generic is important to compare across the industry (countries, models); and has to make sense for specific MFI

Reflected in selected dimensions and what is scored

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The dimensions of a social rating

1 Social mission, systems, strategy2 Outreach – depth and breadth3 Appropriateness of financial services4 Social responsibility to clients5 “ to staff6 “ to community

Similarity in scope and content:

Differences in grouping, and in scoring1-3 are fundamental, can be scored (equal weights)4 may be scored as part of 1 and 35-6 difficult to score; can be described

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Parameters: social mission & systems

Mission: clarity, communication, commitment (board/mang’t)

Systems aligned with stated mission: approach to targeting; staff incentives; reporting/monitoring and use of information/findings (e.g. market segmentation, client data/feedback, dropout data/feedback)

Relationship with clients: transparency, ensuring awareness

Provision of or linkage with non-financial services – described

Main

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Indicators: Outreach

Operations in poorer areas (more remote, poorer within more developed areas, e.g. urban slums)

Clients who are poor - % and numberHired employment in micro-credit supported enterprises

% clients not served by formal financial services% clients not served by other MFIs

% clients from marginal groups/communities

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Indicators: Financial services

Range of financial services (within regulatory guidelines) Process of product development

Client awareness/understanding Client satisfaction: products, EIR, timeliness, comparison with alternative sources

(if applicable) Effective group systems (regular attendance, updated passbooks, transparency of transactions)

Client exit – dropout rate Poverty assessment of dropouts, reasons for exit