Quantifying Feelings: the Role of Social Performance in Microfinance

27 August 2010 at 14:00 18 comments

As someone from a social science background, my bias has always been to consider economic inclusion—microfinance in particular—as one aspect of a broader goal, that of social inclusion by virtue of an increased standard of living. By social inclusion, I mean access to education, healthcare and systems that will afford basics such as food/water/shelter. In fact, my interest in microfinance stems from the fact that it can be a powerful tool to usher people into a realm of social inclusion who would otherwise be marginalized as a result of their economic exclusion. After one month in Honduras, this general principal has been qualitatively reinforced time and time again in the stories that I’ve heard from borrowers: I borrow to feel like a productive and useful member of my community, I borrow so that I can give my children a safe home to live in, I borrow so that I can send my kids to school, I borrow to afford medicine.

Even if you don’t buy into my overly-basic definitions of social and economic inclusion (after all I’m no academic), a salient question remains: how do we know that this link exists between microcredit and an increased standard of living, and therefore creates a net social benefit? Is feeling like it enough? Is anecdotal evidence enough? Probably not. Furthermore, the skeptic in me cannot help but ask what if microcredit makes no difference to the population it aims to serve or (gasp!) even does harm? It is no secret that over the years, development theory has been critiqued time and time again for doing more harm than it does good, or simply doing nothing (take a look at William Easterly for example).

However, there is hope! A French microfinance network called CERISE has developed a survey that aims to evaluate the social performance of microfinance institutions (MFIs). The tool does not measure the MFI against some internationally accepted standard, but rather against its own mission and goals. That is, if the MFI says it is primarily focused on lending to eco-friendly enterprises, CERISE aims to prove it. But there is an important distinction to make between measuring an MFI’s social performance and measure its social impact. They survey will NOT reveal the social impact of a given MFI. Currently, this sort of evaluation is still in development. (“Impact” is itself a loaded and controversial term.) However, the survey can tell you if the MFI is performing in ways that are generally beneficial to the social well being of its clientele. How exactly does this differ from impact? Here are some examples. Many of the questions ask if the MFI has a special focus on women, or offers loans specifically tailored to education. Social performance indicates how well the MFI is reaching those populations with those products, whereas impact would measure if those populations were better off due to the particular loan they received. Or, the survey aims to understand how loan officers work to prevent over-indebtedness of clients. Social performance details whether the loan officers are doing accurate risk assessments. Impact would measure how and if the protection efforts had bettered the lives of those individuals (or something along those lines).

Many members of Kiva’s current class of Fellows—myself included—have been charged with the task of completing this comprehensive survey at their MFIs. Kiva aims to have completed the survey with all of its partners by the end of the year. Although perhaps in theory it would be more satisfying to pull out the big guns and answer the impact question, let’s not forget that the social performance assessment is an immensely valuable tool. By understanding how MFIs are performing against their mission and social goals, the microfinance community gains knowledge of the practices that lead to MFI sustainability, beneficial targeting and products, and client protection. The MFI itself is also given a copy of the report to learn where it is performing as expected, and to identify areas for improvement.

On a more basic level, this quantification of social performance is exciting because it fits nicely with the stories we hear from entrepreneurs. Further, it aligns with our gut instincts—as lenders, Fellows and members of the microfinance community—that certain MFI practices not only feel right, but also are likely having a positive effect on the communities they serve.

Entry filed under: FAMA Honduras, Honduras, KF12 (Kiva Fellows 12th Class), Prisma Microfinance. Tags: , , , , .

I Am Happiest When… Costa Rica…in ten seconds

18 Comments

  • […] past all of these questions, there is the point brought up  in detail on Kiva Fellow Betsy McCormick’s August blog . Even if one of these tools work to perfection, the reality is that microfinance does not exist […]

  • […] performance of its Field Partners (two informative blogs on the topic were written by Kiva Fellows, Betsy McCormick and James […]

  • […] She is headed to the Philippines for KF13, where she will interview borrowers, gather data for CERISE, and track down her long-lost […]

  • […] for more information / para más información: Webpage/página web, Recent blog (August) / blog reciente (Agosto), Recent blog (June) / blog reciente […]

  • […] for more information / para más información: Webpage/página web, Recent blog (August) / blog reciente (Agosto), Recent blog (June) / blog reciente […]

  • […] world. Especially with the Cerise Social Performance Assessments that Kiva is conducting (Read more here), Kiva’s MFI partners get to participate in setting some shared standards for the microfinance […]

  • 7. donaldhart  |  5 September 2010 at 22:33

    Hi Betsy — I’m just now reading through this enjoyed the post. Thanks articulating social performance.

  • 8. 50 Hour Weeks and Climbing Peaks « Eburdullis  |  1 September 2010 at 02:31

    […] great tool considering the depth and breath of services that microfinance institutions can offer). Read here another fellow´s blog about the subject. So, I collect data and do interviews to fill out this 60 page […]

  • 9. julieshea  |  31 August 2010 at 04:58

    Betsy (and other KF actively conducting CERISE),

    There is one question I keep coming back to with regards to the Social Performance. It claims to measure an MFI’s SP against its own mission statement. Yet, the questions for each survey don’t vary based on the mission statement do they? For example, even if an MFI has no intention of targetting women, it is “punished” for not targetting women in the survey, right? I really like the idea of measuring an MFI against its own mission statement rather than an international standard – but is that really what’s going on?

    Julie

    (PS although I am technically also a SP Fellow, my fellowship has not turned out to include any CERISE work – hence all of my curiosity about it!)

    • 10. betsywmccormick  |  7 September 2010 at 13:46

      Hey Julie,

      Great point about the mission statement. My only guess has to do with how the results are interpreted. Perhaps there is an additional round of review that rates the MFI’s performance according to their mission. That is, even tif you “lose points” on the survey itself for not catering to women, the MFI may still fall into a larger category of “high social performer.” However, since I’m not sure of the exact process in the review stage, I can’t be sure!

      Betsy

  • 11. Fehmeen | Microfinance Hub  |  29 August 2010 at 10:56

    Thanks for elucidating the difference between social performance and impact, but surely, social performance can only be commendable if it leads to a positive social impact. Then why don’t we have ‘complete’ tools that measure both?

    • 12. Betsy  |  30 August 2010 at 07:57

      Hi Fehmeen,

      This is a great question, and one I wish I had a better answer to. Although CERISE and Mix Market are both currently working on quantifying social performance, as I understand it, those tools have yet to make the jump to an impact analysis given the “newness” of microfinance. I am under the impression that both organizations are working to get to a point where impact can be measured (CERISE especially mentions the issue of impact on their website) but that we just haven’t gotten there yet. Sorry I am unable to provide any more detail!

      Betsy

    • 13. Fehmeen  |  8 September 2010 at 09:59

      Thanks for sharing. That helps

  • […] although it does cover the most prominent social performance and impact assessment tools (read difference) available today. As microfinance continues to emerge as a lucrative business and social […]

  • 15. eburdullis  |  28 August 2010 at 07:28

    awesome blog! I was thinking about writing about CERISE next but looks like you got it covered!

  • 16. Sam  |  28 August 2010 at 06:58

    Great blog betsy. Very well worded account of CERISE and what it means.
    Jeff, we try and put our names on either the little blurb on the home page or at the bottom. It doesnt always happen, because we spend a great deal of time making sure our blogs are amazing, and informative for you, and sometimes forget little things, like our name.
    This blog was by Betsy McCormick.
    I hope you have a great day, and that answers your question

  • 17. Jeff  |  27 August 2010 at 16:30

    I have asked this on some other Kiva Fellow blogs but didn’t get an answer. Is there a reason why some of these blogs are anonymous? I don’t see anyone’s name associated with this one.

    • 18. Betsy  |  30 August 2010 at 07:58

      Hey Jeff,

      Thanks for reading. Sorry–I had no intention of making this anonymous. In my excitement to post, I forgot to add my name!

      Betsy McCormick, KF12


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