Tweet

Assessing social performance cost-effectively

Written by: id 21

Article Overview: Many MFIs have an explicit social mission that goes beyond profitability such as reducing poverty and exclusion by providing good quality, reasonably priced and sustainable financial services to poor people who are normally excluded from regular banking systems. The link between microfinance services and poverty reduction, however, is far from simple. Positive impacts cannot be taken for granted.

Assessing social performance cost-effectively

Many MFIs have an explicit social mission that goes beyond profitability such as reducing poverty and exclusion by providing good quality, reasonably priced and sustainable financial services to poor people who are normally excluded from regular banking systems. The link between microfinance services and poverty reduction, however, is far from simple. Positive impacts cannot be taken for granted.

Although MFIs have well-established procedures for assessing their profitability the challenge is to develop equally strong standards for measuring their outreach and impact (or social performance). Effective social performance assessment (SPA) must balance the need for methodological consistency (so as to enable learning across different MFIs) with the need to adapt to the vast diversity of MFI programmes and contexts.

SPA can be broken down into four levels:

At the process level, it is important for the boards of MFIs to develop their own routine mechanisms for reviewing the quality of its SPA systems. External investors can help by ensuring that their own quality control activities reinforce the ability of an MFI to meet its mission goals and the needs of its clients.

At the MFI outcome level, it is important for MFIs to be able to monitor who is taking up services, who is continuing to use them and who leaves. MFIs that routinely collect information based on carefully selected poverty indicators can respond quickly to changes. This can have commercial benefit too, in enabling MFIs to identify and consolidate their place in the market.
At the level of individual client outcomes, the trend is away from large impact surveys, to more responsive and flexible methods for assessing benefit to clients based on focus group discussions, in-depth interviews with key informants, and reports arising from routine staff-client interactions.

Wider social impact can be measured through periodic research. As mentioned above a growing number of MFIs are doing this collectively and sharing the results.
It is not enough to develop good SPA. Both MFIs and their donors also need to ensure that the immediate financial and time costs of SPA are more than justified by the benefits. It is therefore critical that SPA is integrated into regular decision-making processes. Effective SPA implies active social performance management. Some case studies illustrate the potential for SPA to be highly cost-effective.

Prizma in Bosnia-Herzgovina, and Small Enterprise Foundation in South Africa have already integrated both client monitoring and assessment into their routine operations. A critical indicator for both organisations is the number of clients leaving the programmes for negative reasons. Simple cost calculations suggest that reducing and holding down exit rates comfortably covers the costs of setting up and maintaining their SPA systems.

Covelo in Honduras and FINRURAL (La Asociación de Instituciones Financieras para el Desarrollo Rural) in Bolivia are both network organisations who took the initiative to coordinate SPA on behalf of their members. In the case of Covelo, involving senior management in the data collection ensured that necessary changes in both products (e.g. loan terms, collateral requirements) and operations were quickly implemented resulting in increased recruitment, savings in administration costs and reduced exit rates. FINRURAL took a similar approach, though using more orthodox impact survey methods and with the wider public as its principal audience. It also contracted out most of the work, rather than encouraging MFIs to do it for themselves.

As these examples show, it is difficult to generalise about what constitutes an appropriate investment in SPA for a 'typical' MFI, since there is no such thing. However, it is useful for MFIs to monitor and compare costs of SPA, both per client interviewed and relative to the total number of clients served. The studies mentioned here suggest that it should be possible even for MFIs with only 10000 clients to run a fully integrated system for no more than 2-3 US$dollars per client per year (including initial set-up costs).

Donors and governments have generally sought to satisfy their need to know about the effects that MFIs have through independent and often very costly impact assessment studies. These studies face many methodological and practical difficulties. Using internally managed systems that are already being developed by MFIs is a promising alternative, and donors can help by investing in such systems rather than develop other independent evaluation efforts. SPA through existing systems can be useful and cost-effective, rather than a costly indulgence. However, it will ultimately be senior management and owners of MFIs themselves who continue to invest in them because they find them sufficiently helpful to achieving their social mission.

James Copestake
Department of Economics and International Development
University of Bath
Bath BA2 7AY
UK

Related Articles
  The Soft Side of Managing Talent is About Making Hard Choices
  Assessing Productivity
  Split-Testing for Assessing the Performance of a Website Design
  How To Run A Staff Appraisal
  Using a scorecard

Article Tags: banking systems, client interactions, client outcomes, commercial benefit, contexts, depth interviews, external investors, flexible methods, focus group discussions, informants, mfi, mfis, mission goals, performance assessment, poverty indicators, poverty reduction, profitability, social impact, social performance, spa systems



Related Forum Posts
Re: Social financing solutions... - CFS can assist social landlords in coming up with practical solutions to combat financial exclusion among their tenants and the local communities where they operate. In the past 10 years, we have worked with a wide range of social landlords, including Trafford Housing Trust, Golden Gates Housing and Southern Housing Group. Based on our expertise in housing and financial inclusion, we offer a range of research and advisory services to social housing landlords: * Needs and gap mapping: We can map the nature and extent of financial exclusion among tenants to help social landlords direct resources where it is needed. * Service provision gap identification: We can map and identify gaps in the provision of financial services, and money and debt advice, and advise social housing landlords on how best to fill these gaps. * Assessing effectiveness of existing interventions: We can help landlords estimate costs of financial exclusion, in the form of evictions and lost rent income, calculate savings in implementing financial inlusion interventions and advise on how to improve existing interventions. * Solutions development: We can help social housing landlords develop practical solutions to problems such as over-indebtedness, arrears and financial exclusion. * Stakeholder engagement and management: We can advise on, facilitate and organise stakeholder engagement events to underpin financial inclusion interventions.............
Laptop v PC - My ten cents worth. I switched from PC to laptop and have never looked back, the freedom to work anywhere is fantastic, you can be totally untethered from the office, especially with wireless broadband. Some observations regarding AMD vs Intel Inspiron debate. While there are few office based real world performance issues between the two machines, the AMD initial cost versus its performance is excellent. And it seems to be quieter too.
Re: What I Read This Week - April 8 - Thanks Zac - I'm still pretty new to Facebook but am impressed with the audience that you can build. You'll see that I'm reading a lot about social media to improve my skill level. The Google +1 button will be interesting to see how it changes the landscape - Google hasn't had much success with their social tools but they are now betting the company on social - the annual bonus of every Google employee, regardless of if they are involved in social projects, is now tied to Google's success in social so it looks like they're really taking it seriously.
Re: Twitter, Social Networking: What's Your method? - The bottom line: You can have thousands of friends, and it takes only a second to add one, if you don't make conversation with them, it is a useless tool, like all social media sites. I know many people who concentrate mainly on social media marketing, and they make money, but it takes time. Personally, I rather skip social media and focus on other stuff, like article marketing, and I use social media only for fun and communicate with best friends.
Re: Owning a social network software...How is it?? - Hi, I am a big fan of social networking software (75% of our business) but what we constantly have to remind people is the concept of a social network has been around for ages. It just so happens MySpace & Facebook made the ability to do it free & online mainstream and the rest is history. Our company finds that pre-developed social networking applications do not create good internet business. The simple reason is a social network is not an internet business; all it is a group of link minded individuals that are able to communicate with one another through the medium you provide. A construction company can build an office building...but that does not make it a profitable business. You need to (1) build your business and (2) build social networking software features around that business. So my advice to you, just like facebook.com opened up their code, make your social networking software open so ANYONE can modify it to meet their needs. Jeff


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Let's Skip the Offshore Horror Stories

Coaching Tip: Identify Your Core Values

Designing Employee-Enhancing Training Programs

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.