Industry-wide interest in social performance stemmed from a long held belief that while financial sustainability was essential to address the financial needs of the hundreds of millions excluded from the formal sector, it was not sufficient to ensure that social objectives, which anchor much of the passion and commitment to microfinance, would be automatically met. However, the concept of social performance was met with genuine reservations: Will this end up as another cumbersome and costly donor mandate? Do we really need a new set of reporting standards? Is it even possible to have standardized measures of social performance? The following represents some of the apprehensions expressed about social performance and responses to them.
1. Social performance is too vague a concept to be useful.
Social performance is no vaguer than the concept of financial performance. While one assesses the financial health of institutions, the other determines whether their social objectives are met. These social objectives may vary but many MFIs, especially those rooted in the NGO world, usually commit to serving very poor and excluded groups, bringing about positive changes in client lives, and improving their social responsibility towards their employees, their clients and the community they serve.
2. We know we’re providing a useful service since poor people keep coming back. Why do we need to set up new systems to determine whether we’re being socially useful?
People coming back does indeed signal a strong “demand” for services. However it does not automatically imply that people’s conditions are improving. In fact spiraling indebtedness (where clients borrow to pay back other debts) can be one reason why clients keep coming back. For many in the industry, financial service provisions are not an end in itself. It is important for the possibilities such access opens up – for improving client conditions and for clients taking greater control over their lives. We cannot assume that such changes occur only if people come back for more credit. We need to look at the quality of services, client satisfaction, and actual improvements in client conditions.
3. We already track enough financial indicators; why do we need to track more indicators?
For many in the industry only a double bottom line can ensure that the fundamental objectives of financial services to the poor are being met. Tracking financial indicators, while necessary, only provides a one-dimensional analysis of microfinance. Adding social indicators allows for a more holistic assessment.
4. Social performance is just a way for donors to make burdensome demands.
The social performance movement seeks to put “truth in advertising.” If we say that we are reaching the poorest, then we should have the evidence to back it up. Many individuals, donors, foundations, and governments put money in microfinance with the belief that microfinance helps poor people. To be accountable to these tax-payers, philanthropists, and donors, we must be able to report on how (or whether) microfinance helps poor people.
5. Investors are already interested in microfinance, so why do we need to track social performance to attract investors?
Investors use easily available information to decide where to invest their money. Currently, this information is limited to financial indicators. Programs with excellent social outcomes, but moderate financial ones (because of some of the tradeoffs associated with these two outcomes), are not receiving the recognition (or investments) they may merit. Social performance can even out this information imbalance so that programs with excellent social benefits receive support while they achieve sustainability at a more gradual rate.
6. If we cannot prove impact, we shouldn’t be talking about “social performance.”
We recognize that proving impact is difficult and costly. It therefore makes no sense for every MFI to have to conduct impact assessments. There are simpler ways to demonstrate if client conditions are improving, without attributing a causal linkage between such improvements and program participation. Social performance management encourages MFIs to create systems and practices to guarantee that they are in the best position to have impact. Social performance is about tracking such improvements, and much more. It is also about whether the poor are being served, about the quality of services, and about MFI relationships with clients and the community.
Click here to read Measuring Social Performance: The Wrong Priority. The author cogently expresses the key concerns of skeptics.
Click here for more thoughts from Koenraad Verhagan of the Argidius Foundation and Alex Counts of the Grameen Foundation USA who discuss why they believe social performance matters.