Microfinance Information Exchange Promoting financial inclusion through data and insight

Social Performance Analysis

Social Performance Analysis

MIX conducts research and analysis concerning the impact of social performance reporting in the microfinance industry.

*New! Social Performance Data Quality at MFIs in India

*New! State of Social Performance in India: Select Findings

Beyond Good Intentions: Measuring Impact Investment and Social Performance in Microfinance

State of Social Performance in Nepal

State of Social Performance in Mexico 

Measuring the Social Mission of Microfinance 

Measuring Governance in Microfinance: Initial Findings from a Pilot Project
Field staff compensation at Indian MFIs: a new perspective on the crisis in Andhra Pradesh
State of Practice in Social Performance Reporting and Management
Does Social Performance Data Support the Industry’s Social Mission Claims?
MIX Presentation: Responsible Financial Performance: Efficiency and Final Takeaways
Defining responsible financial performance: how to think about social performance
Defining responsible financial performance: understanding efficiency
Defining responsible financial performance: role of profits
MIX Presentation: Research on “Responsible” Growth and Returns
Defining responsible financial performance: how to think about growth
Sub-Saharan Africa Microfinance Analysis and Benchmarking Report 2010
Eastern Europe and Central Asia Microfinance Analysis and Benchmarking Report 2010
2010 Arab Microfinance Analysis and Benchmarking Report
Data Brief # 7: Microfinance Synergies and Trade-Offs: Social vs. Financial Performance Outcomes in 2008
Microfinance Market Report for Latin America and the Caribbean 2010

 

 Measuring Governance in Microfinance: Initial Findings from a Pilot Project

In any industry, good governance is a necessary component to securing long-term sustainability and to aligning policies and strategies with an institution’s mission or goals. Thus, in order to determine the best practices for MFI governance, we need to understand the relationship between corporate governance and performance. While some efforts have been made to collect and analyze data on governance[4], there are no large-scale data sets that allow a detailed analysis of what works best in microfinance governance.

To gain a better understanding of the current state of governance in the industry, the World Microfinance Forum Geneva created an Institutional Governance Working Group to identify a set of easy-to-measure governance indicators. The Working Group selected 10 such indicators and asked MIX to include them in a pilot survey administered in late 2011. The purpose of the survey was to gather information on MFI Board structures and to learn basic facts on how MFIs manage risk, change policies, and implement actions through the work of committees.

This paper presents the rationale behind the test questions selected and summarizes the findings of the survey. Read full report here. 

Field staff compensation at Indian MFIs: a new perspective on the crisis in Andhra Pradesh

Businesses often assume that low-level employees are easily replaceable and, as a result, sometimes eschew competitive wages and benefit schemes for this segment of staff. In the realm of microfinance, field staff – those responsible for determining the creditworthiness of potential borrowers, extending loans and collecting payments – are generally at the lowest level of the institutional hierarchy. The behavior of this echelon of microfinance worker has come under increasing scrutiny in the last few years, especially in the wake of the Andhra Pradesh crisis.

During that event and since, Indian politicians have laid the blame for a number of suicides at the feet of Indian microfinance staff and the institutions to which they belong, accusing field staff in particular of unethical collections practices. In December of 2010, for example, Sunita Laxma Reddy V, a minister in the Andhra Pradeshi government, stated that “not only are the MFIs charging usurious rates of interest on loans extended to women but also adopting strong arm tactics for recovery.” Practitioners have also commented on the problem: Vijay Mahajan, chairman of BASIX and president of the Microfinance Institutions Network (MFIN), mentioned “coercive recovery practices” among his list of problems with the Indian microfinance sector in a 2010 interview with the BBC.

The aim of this article is to investigate whether Indian field staff compensation levels and practices shed light on the allegations of unethical lending and collection at certain Indian MFIs.

State of Practice in Social Performance Reporting and Management

Social performance monitoring and management encompass the entire set of processes implemented by a microfinance institution (MFI) to generate positive outcomes for its clients and for the communities it serves. They include analysis of the development goals of institutions, the systems and procedures MFIs have in place, and the effectiveness of these at monitoring progress towards organizational objectives. The development of these procedures has only just begun in microfinance, yet almost all industry stakeholders agree on the importance and necessity of social performance information and management.                                   

The most prominent manifestation of the growing industry consensus has been the Social Performance Task Force (SPTF), an international group comprised of investors, donors, MFIs, microfinance networks, research agencies, and other stakeholders united in the goal of defining, measuring, and improving the social performance of MFIs. The SPTF has created both a framework of analysis and a set of standardized indicators to assess MFIs‘ social performance.

In 2009, the Microfinance Information Exchange (MIX) started collecting data from MFIs on these social performance indicators and, in less than two years, has received 405 social performance reports from institutions of all sizes, types and maturity levels. This report assesses the various aspects of social performance management (SPM) as reported by MFIs to MIX. It offers a framework with which to analyze the state of social performance practice in the industry, lists some observed best practices, highlights challenges in data tracking, and offers a series of recommendations on how to improve data collection and reporting. The report also draws on two additional sources of information: an SPM learning program conducted by Imp-Act Consortium and a qualitative survey of rating agencies, supporting agencies and MFI networks, also facilitated by Imp-Act Consortium. Read the full report here

 Does Social Performance Data Support the Industry’s Social Mission Claims?

Microfinance industry stakeholders increasingly recognize that the social benefits of microfinance cannot be taken for granted. As the boundary between microfinance and traditional finance continues to erode, remaining true to microfinance’s mission can be more challenging than ever. High levels of competition for clients and funding, the pressure of commercialization, and the related pressure to grow as quickly as possible all distract microfinance institutions (MFIs) from what should be their top concern - making life better for their clients.

MFIs need to take deliberate actions in designing and delivering appropriate services and in protecting their clients from harm. To achieve their development goals and remain accountable towards their clients and community, MFIs need to effectively manage both financial and social performance (SP).

Recently, Microfinance Information Exchange (MIX) has assessed the various aspects of social performance management as reported by 405 microfinance institutions from 73 countries in 2009 and 2010. The report, written in collaboration with the Imp-Act Consortium, provides a framework for analyzing the current state of social performance practice across regions, and highlights current challenges in data collection and reporting. Read More

 Responsible Financial Performance: Efficiency and Final Takeaways

This webinar addresses part three: Understanding Efficiency and four: how to think about social performance of a four-part series covering our current state of knowledge about the relationship between key financial and social performance indicators, produced as a prelude to the annual meeting of the Social Performance Task Force, June 19-24 in Den Bosch, Netherlands. Access the full presentation

Defining responsible financial performance: how to think about social performance

In the previous installments in this series on growth, profits and efficiency we highlighted that the performance of an MFI must be analyzed in context, as the environment in which an MFI operates is key to understanding the individual institution’s operations. Nevertheless, there are principles of fairness, transparency, and accountability that apply to all contexts and should guide the analysis of the effectiveness of individual MFIs.

Data on social performance management lets us connect an MFI’s financial performance to these principles: does growth expand outreach in under-served areas, do profits translate into better services and is improved efficiency balanced by appropriate staff incentives and salary? Read the full article

Defining responsible finance performance: understanding efficiency

The high costs of microfinance institutions (MFIs) are often misunderstood, especially in comparison with other credit industries.  For all costs that must be covered by interest rates and fees paid by borrowers, operating expenses represent 63 per cent on average, financial expenses 21 percent, and profits less than 8 percent.  Therefore, from the point of view of efficiency it makes sense to focus our discussion on operating expenses. Financial expenses are less able to be controlled by MFIs, while profits explain only a small share of costs.

From the point of view of social performance, MFIs should try to improve efficiency while balancing social responsibility to staff (appropriate salaries and incentives to staff) and social responsibility to clients (thorough the provision of high quality services at low cost and sound consumer protection principles). Read the full article

Defining responsible financial performance: the role of profits

Profits have been among the most controversial topics in the microfinance community and are intricately linked to our views on the social impact of microfinance institutions. Can institutions make profits and improve the lives of their clients at the same time? Can we identify institutions with profit levels that threaten the welfare of their clients?

To answer these questions, we need to measure profit levels using a simple set of standardized indicators; before considering standards for profits, we will need to explore what those measures can tell us. In the end, returns stand as a good measure of financial performance, but do not provide clear guidance for building standards on social performance. Read the full article

MIX Presentation: Research on “Responsible” Growth and Returns

This webinar addresses part one: How to think about growth and two: the role of profits of a four-part series covering our current state of knowledge about the relationship between key financial and social performance indicators, produced as a prelude to the annual meeting of the Social Performance Task Force, June 19-24 in Den Bosch, Netherlands. Access the full presentation

10. Defining reponsible financial performance: how to think about growth

What are the tradeoffs, if any, between social performance and growth? In other words, can we determine how much growth is too much, and prescribe sustainable levels of growth for particular MFIs?  Probably not: the answer depends on each MFI and its operating environment.

From the point of view of social performance, there are potentially many trade-offs associated with fast-growing MFIs including: neglecting responsible finance principles and shifting from the original target populations to different markets and products.  Since the main focus in recent years has been on portfolio quality problems, especially as they relate with consumer protection principles and over-indebtedness of borrowers, MIX has evaluated the connection between growth and portfolio quality, leveraging all historical data currently available on MIX Market. In addition to growth, this analysis explores the role of additional elements including: aggregate microfinance country growth, market saturation, the age and size of MFIs, different types of institutional growth, and local macroeconomic conditions. Read the full article

Sub-Saharan Africa Microfinance Analysis and Benchmarking Report 2010

In the past two years, 34 MFIs, from 21 countriesa in SSA covering close to 2.3 million borrowers, have reported social performance information to MIX. A majority of financial service providers reporting were NGOs (12), cooperatives (11), and NBFIs (9). One rural bank and one bank also reported.

Data collected reveal that these financial service providers are becoming aware of the importance of social performance management as a complement to financial performance management at double-bottom-line institutions. Social performance is increasingly integrated into strategic planning processes. Nevertheless, social indicators are not yet systematically tracked, and the implementation of policies related to staff training on social performance and consumer protection are at a more incipient phase compared to providers reporting on social performance from other regions. Read the full article- (English, French)

Eastern Europe and Central Asia Microfinance Analysis and Benchmarking Report 2010 

The analysis provides a first look into the social goalsof ECA MFIs and how well they are able to report on thesegoals. 33 The data show many MFIs still have difficulties reporting on the actual outcomes related to their mission. Social performance reporting reveals that there is work still to be done to track how actual outcomes align with MFI missions. Ninety-four percent of the MFIs reporting from ECA list “growth of existing business” as a development goal and indicate a strong focus on low-income clients. However, less than half of these same MFIs were able to report the number of enterprises financed during the past two years, and only 26 percent track employment in financed enterprises. Read the full article- (English, Russian)

2010 Arab Microfinance Analysis and Benchmarking Report 

Data collected on social performance from 24 MENA MFIs over the past two years revealed a region where micro- and small enterprises compose the main target market, with a focus on female clients. These MFIs list poverty reduction among their top development goals, although poverty outreach is not a commonly –tracked indicator. On the other hand, MFIs are starting to adapt their internal policies and systems to better track social performance indicators and developing proactive policies relating to staff training on social performance and consumer protection. Overall, however, social performance indicators are not yet systematically tracked and MFIs still have difficulties reporting on the actual outcomes related to their mission. Read the full article- (English, French)

Data Brief # 7: Microfinance Synergies and Trade-Offs: Social vs. Financial Performance Outcomes in 2008

In the Data Brief No. 7, MIX lead researcher Adrian Gonzalez addresses the trade-offs and synergies associated with reporting both the financial and social performance information of Microfinance Institutions (MFIs). Because microfinance is a quickly evolving industry, a higher value is being placed on the social performance of each MFI as a way to measure its impact on its local community. Critics believe that social performance reporting, in addition to the reporting of financial information, creates added pressure for MFIs and detracts from the efficiency and productivity of the institutions. Others argue that an increased value on social performance will create better human resource policies and staff training for the MFIs.  Read the full article

Microfinance Market Report for Latin America and the Caribbean 2010 

Data collected by MIX over the past two years show that the majority of LAC MFIs conceive of microfinance chiefly in terms of poverty alleviation, have a broad target market composed mainly of micro entrepreneurs, and serve about 14 million borrowers. The region offers a variety of financial products and services, with a strong alignment towards certain markets, such as women, but less so towards other poor and/or vulnerable populations. Only a minority of MFIs track poverty data and the poor represent 31 % of entry clients. Some MFIs have established innovative approaches to deepening outreach by adapting services to the different needs of their target market and by adopting a more holistic approach to relieving poverty that includes education and health services. A rising number of MFIs are investing more resources in improving their client protection policies but more effort is needed concerning the reinforcement of procedures and operations meant to promote and improve communication with clients. Read the full article- (English, Spanish)

 

 Return to the Social Performance Resource Center