Posted by Micol Pistelli
One of the questions raised in the panel: “Taking stock of microfinance: Does it really help the poor?” held last week at Columbia University was to what extent increased transparency in disclosure of SPTF/MIX social performance indicators will positively impact clients.
The SPTF/MIX social performance indicators, if properly tracked and integrated into an MFI’s operations, can certainly help the institution better meet clients’ needs. The disclosure of such information on a public platform such as MIX Market aims to improve transparency of information and data analysis in the industry, with the ultimate goal of improving allocation of funds towards truly socially-oriented MFIs that best serve the world’s poor.
The purpose of measuring social performance over time is so that MFIs can make internal changes in order to meet client needs. MFIs that have begun to track social performance information such as client retention, poverty level of clients, and clients’ over-indebtedness, and have then used this information to adjust their internal policies and strategies, have already experienced positive changes in their program’s outcomes. Some of these stories have been documented in the SPM Practice Guide, Putting the Social into Performance Management.
There is a clear interest by a growing number of microfinance institutions to measure whether and to what extent they are meeting their social goals. MFIs are invited to report on a common SPTF/MIX framework that includes an analysis of the institutions' intent as well as the effectiveness of their internal systems and activities in meeting these objectives. It also includes related outputs and observed changes in clients' lives. Completing this framework requires that an institution track a series of process and results indicators to compare actual performance to desired outcomes.
Process indicators relate to social goals, governance, human resources, policies of social responsibility, and products and services offered, while results indicators refer to outreach, outputs and outcomes. It is a common misconception to equate these results indicators, particularly outputs and outcomes, with impact. Yet outcome indicators (such as job creation, poverty alleviation and children education) are not necessarily indicators of impact. An impact study implies the use of a randomized trial methodology that demonstrates that the changes in the life of a client were caused by the client’s participation in that program and not by other external events or confounding factors. In contrast, outcome indicators simply show the benefits that clients have had during their participation in the MFI.
The goal of tracking social performance indicators is not to prove in an incontestable way that if the person had not participated in that program s/he would have not experienced those changes. The primary objective of these indicators is instead to help an MFI align its systems to its mission in order to better serve its clients and be a socially responsible institution. These indicators help MFIs define who they want to reach, how they plan on serving target clients, and what benefits they want to create. When the SPTF selected the indicators to measure social performance, the idea was find indicators that could both show plausible associations among variables and be tracked by an MFI in a cost-effective way.
The impact that social performance information disclosure can have on clients ultimately depends on how the industry uses this information, in particular investors and donors. Those who invest in microfinance are not investing in “regular” finance, but in a financial institution with a social mission. If microfinance is about offering a service that benefits clients, then social indicators should guide investors’ decisions, which will ensure funding allocation supporting MFIs that best adhere to social principles.
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