MICROFINANCE Europe3 EMNN 2 December ,2007’s bi-annual magazine - - REMN 3 June, 2008’s...

Europen°3 June 2008

The eMN BI-ANNUAL MAGAZINe oN MICRoFINANCe IN eURoPe

MICROFINANCE

EuropeanCommission

ISSN N°: 1955-6179

Progress in social performance by microfinance and its application in Europe •

The triple bottom line for microfinance •

Measuring the social performance of Adie •

Social ratings: Assessing the capacity of microfinance institutions to put • their social mission into practiceaa

Social performance management for microenterprise development in Slovakia •

2EMN’s bi-annual magazine - N°3 June, 2008

Editorial Committee: Allan Bussard (Integra), Jan Evers (EVERS&JUNG), Philippe Guichandut (EMN), Klaas Molenaar (Triodos Facet), Hedwig Siewersten (Triodos Facet), Michael Mamuta and Rigo Ovchiyan (Russian

Microfinance Center).

© European Microfinance Network. This publication is for personal informational purposes only. All rights reserved. No part of this publication may be used for commercial purposes, altered or published in any manner or form without prior permission from the publisher and EMN.

This publication is supported for under the European Community Programme for Employment and Social Solidarity (2007-2013). This programme is managed by the Directorate-Generale for Employment, social affairs and equal opportunities of the European Commission. It was established to

financially support the implementation of the objectives of the European Union in the employment and social affairs area, as set out in the Social Agenda, and thereby contribute to the achievement of the Lisbon Strategy goals in these fields.

The seven-year Programme targets all stakeholders who can help shape the development of appropriate and effective employment and social legislation and policies, across the EU-27, EFTA-EEA and EU candidate and pre-candidate countries.

PROGRESS mission is to strengthen the EU contribution in support of Member States’ commitments and efforts to create more and better jobs and to build a more cohesive society. To that effect, PROGRESS will be instrumental in:

providing analysis and policy advice on PROGRESS policy areas; monitoring and reporting on the implementation of EU legislation and policies in PROGRESS policy areas;

promoting policy transfer, learning and support among Member States on EU objectives and priorities; andrelaying the views of the stakeholders and society at large

For more information see: http://ec.europa.eu/employment_social/progress/index_en.html

INDEXProgress in social performance by microfinance and its application in Europe.................. 4 The triple bottom line for microfinance............................................................................... 8

Measuring the social performance of Adie......................................................................... 13 Social ratings: Assessing the capacity of microfinance institutions to put their social mission into practice......................................................................................... 15 Social performance management for microenterprise development in Slovakia............... 18

3N°2 December ,2007 - REM’s bi-annual magazineEMN’s bi-annual magazine - N°3 June, 2008

“Microfinance Europe” is EMN’s biannual magazine. It aims to provide clear insights into European microfinance programmes with a specific focus on policy measures in support of the development of the sector. Its in-depth articles offer up-to-date commentary on what is happening in the different European countries, how policies and practices are implemented and evolving and what recommendations can be made by practitioners, researchers and academics to promote microfinance and micro enterprise development in the European Union. EMN accepts articles from different sources. The content of each article is the sole responsibility of the author(s) and does not necessarily reflect the views of EMN.

For its third issue, “Microfinance Europe” has compiled a series of articles presenting the challenges faced by micro finance programmes in relation to the measurement of their social performance.

The first article gives an update of the various initiatives worldwide to enable microfinance actors to assess their social performance. The second article describes how Microfinance Institutions (MFIs) can monitor and report the economic, social and environmental effects of their activities (the triple bottomv line). The next article illustrates how Adie in France has started to measure its social performance as part of its tri-annual evaluation program. The fourth article describes how Microfinanza (Italy) has worked in recent years to develop a specific social rating methodology and how it was applied with some MFIs in Romania. The final article gives a concrete and practical example of the way in which Integra (Slovakia) has implemented a Social Performance Management tool that provides feedback on whether the social and impact targets of the program are being met in harmony with the mission and the strategy of the organisation.

EMN would like to thank the authors of the various articles for their contributions.

EuropeM I C R O F I N A N C E


IN The MICRoFINANCe seCToR, The AssessMeNT oF FINANCIAL PeRFoRMANCe Is FAIRLy sTANdARdIsed, whICh eNABLes MICRoFINANCe INsTITUTIoNs (MFIs) To MoNIToR ANd IMPRove TheIR FINANCIAL MANAGeMeNT. oN The oTheR hANd, TheIR soCIAL PeRFoRMANCe, whICh Is TheIR ReAL RAIsoN d’êTRe, Is oFTeN Less APPReCIATed, ANd AT TIMes eveN – wRoNGLy – TAkeN FoR GRANTed.

Recent criticisms relating to the risk of over-indebtedness of clients or of exorbitant interest rates illustrate that, while microfinance can be a tool for development, it needs to be developed professionally and its commitment to social objectives needs to be made explicit.

As a result of these concerns, a number of initiatives have been proposed in recent years to address this issue and to allow microfinance actors to assess their social performance, i.e. their capacity to carry out their social mission. Achieving this mission involves targeting the poor and the marginalised, adapting services to the target group, providing economic, social

and political benefits for clients and their families, ensuring job creation, social responsibility vis-à-vis employees, clients and their operational area, etc.

Today, microfinance institutions wish to and must show not only that they are viable but also that they meet a genuine social need. Various initiatives and networks have been meeting regularly since 2005 at the initiative of CGAP1, the Ford Foundation and the Argidius Foundation as part of the “Social Performance Task Force”2. The objective of the SPTF is to facilitate the development of evaluation and management tools relating to social performance. As a result, a complete range of innovative tools, which were originally developed for microfinance networks in Southern countries but which appear equally useful to European finance institutions, is now available for MFIs.

1 CGAP: Consultative Group to Assist the Poor, a consortium of thirty funders involved in microfinance.2 http://www.microfinancegateway.org/resource_centers/socialperformance

A complementAry ApproAch

These questions and the measuring and management tools which are derived from them seek to meet the concerns both of funders and ethical investors as well as the MFIs themselves. For the first group, what is important is to define verifiable factors or elements relating to the social achievements of the MFIs. For the MFIs, the primary need is to ensure that they adequately meet their social objectives and gain credit for their efforts. For example, strengthening social performance will lead to a reduction of transaction costs, facilitate innovation, increase profits for clients and consequently for MFIs and may also improve financial performance. Moreover, the MFIs want be able to respond to the critiques which have accompanied the strong media interest in microfinance.

Social performance can be analysed as a process which enables verification of whether MFIs are adequately equipped to achieve their objectives (see schema below).

INTENTION AND CONCEPTION What is the mission of the institution? Does it have clear social objectives?

Intention andConception

Internalsystems/ activities

Products Outcomes Impacts

INTERNAL SYSTEMS ACTIVITIES What activities and with what systems will the institution undertake to achieve its social mission?

PRODUCTSDoes the institution serve the poor/very poor? Are the products designed to meet their needs?What will be done to protect consumers, promote participation, etc.?

OUTCOMESHave the clients experienced social andeconomic improvements? IMPACT

Can these improvements be attributed to the activities of the institution?

Tools and resources have been developed for each step of this process, providing an extensive range of tools, most of which are very recent, for evaluating and improving MFI social performance.

progress in sociAl performAnce by microfinAnce, And its ApplicAtion in europeCécile Lapenu, CERISE


VArious meAsuring And mAnAgement tools for sociAl performAnce

Several of these tools, which are now widely recognised throughout the microfinance sector, can now be presented which meet the various evaluation needs of MFIs:

Intention andConception

Internalsystems/ activities

Products Outcomes Impacts

CGAP/Ford/Grameen PPIUSAID/IRIS PAT

FINCA FCATOutils SEEP/AIMSOutils MicroSave

INAFI (Oxfam/Novib)

External assessmentby the social ratings:

M-CRILMicroFinanzaPlanet Rating

MicroRate (SPA)

CERISE SPIMFC Social AuditACCION SOCIALTriodos/GRI - TSF

FMO E&S Risk Audit

Strategic questions relating to the consistency between mission and activities: The SPI tool3

Among the tools offered by the various initiatives, the SPI tool developed by Cerise and its partners is known and recognised as the most advanced, standardised and comprehensive tool specifically for measuring the social performance of MFIs and is applied by more than 100 MFIs in the world. Assessment is carried out by means of a questionnaire and an accompanying guide for evaluating the principles, action and corrective measures implemented by an MFI to achieve its social objectives. This takes into account four fundamental aspects:

• Dimension 1: Targeting the poor and the excluded• Dimension 2: Adapting services and products to clients• Dimension 3: Increasing the social and political capital of clients and their families• Dimension 4: Social responsibility of the institution SPI enables MFIs to follow up on their efforts to improve social performance and to develop an internal dialogue on the issue, to gain in transparency and to raise their credibility with respect to clients and funders. Based on strategic considerations, it may also assist in reinforcing the governance systems of MFIs and the knowledge of their business with the objective of improving their financial performance by improving their social performance. The analysis and recognition of social performance also allows for differentiation from the competition by explicitly positioning on the basis of a social approach. Used as an internal tool, the cost is almost nil (free access to the tool); done with the support of an external support, it ranges from 600 euros (with national networks for example) to 5000 euros (from the assessment to the definition of the social strategy to improve the practices)

3 The SPI tool and its user guide can be downloaded on Cerise’s website : www.cerise-microfinance.org

progress in sociAl performAnce by microfinAnce, And its ApplicAtion in europe


Targeting and evaluation of the poverty level of MFI clients: The PAT

The Progress out of Poverty Index (PPI) and the Poverty Assessment Tools (PAT) of IRIS-USAID are composed of simple, non-financial indicators drawn from national studies of households.

These enable the use of a reduced number of indicators (5 to 20) that bear on the level of education, the structure of the family, its capital, etc. in order to estimate the probability that a person is poor (based on absolute poverty thresholds of one or two dollars a day or national poverty thresholds). The Grameen Foundation evaluates the cost of the PPI around 0.5 to 0.8 Euro by client, or 1.5% of the operating costs. These tools are useful for Southern countries and for MFIs which seek to attack deep poverty. They have been primarily designed for MFIs whose main mission was to target the very poor1. They were less suitable for MFIs whose mission is not targeting people solely on the basis of their monetary poverty as is often the case in Europe. However, one recent research and development trend consists in adapting these techniques to establish socio-economic profiles which take better account of different levels of poverty and the notions of exclusion and capacity. Adie, for example, in partnership with Cerise has undertaken work on exclusion scores. In Europe, exclusion and poverty scores may thus be defined by drawing on the techniques developed for poverty evaluation tools. The reference thresholds may be jointly defined by the institutions involved.

The analysis of impact, vis-à-vis the social strategy: Operational and personalised studiesThe analysis of the impact of MFIs has also evolved. Today, there is less emphasis on “proving” impact than on operationally “improving” service for better results for clients. How to implement a simple, reliable and operational analysis of impact? How to ensure that the results are used and that the MFIs have full control over the studies? How to sustain the systems that maximise possible impact?

Since 2001, AIMS/SEEP has made available a detailed guide including both quantitative and qualitative tools for planning and implementing impact evaluations and for analysing all the information generated.

It includes a kit of complementary tools:

Today, in conjunction with analyses of social strategies (e.g. SPI Tool), it is possible to set out a tailor-made impact analysis which will provide direct feedback to the MFIs for their operational responses at client level. These generate information on the strategy and the actions of the MFIs and enable a clear identification of the strong and weak points of the actions implemented. The costs of impact analysis can range from 6,000 euros (SPI/simple impact analysis to improve the practices) to more than 150,000 euros (large sample of clients and control groups, research oriented with in-depth analysis to “prove” the impact).

The external vision and the verification of the effectiveness of the process: Social ratingsSocial ratings, which are a very recent development, enable the quantification of social performance as the probability of achieving the social mission and having an impact. To date, given the lack of information for implementing these ratings, two strategies have been developed. The first, which can be described as a “simple” approach, is based simply on collecting the information accessible at the level of the MFIs bearing in mind that it is not the role of an evaluating agency to generate this information. The second can be characterised as a “comprehensive” approach which includes the gathering of key information on the client profile or the level of satisfaction bearing in mind also the fact that information in the field of social performance was until recently largely unavailable.A simple social rating can cost 3 to 6,000 Euros while a “comprehensive” social rating ranges between 6 and 12,000 Euros (the staff of the MFI is responsible for conducting the client surveys). The cost of the financial rating also needs to be added.

Western European institutions are not yet subject to these ratings but without doubt they will be more open to these ratings which provide information on social as well as institutional and financial aspects. From diagnostic to change of practice: Addressing the governance of MFIsGovernance in the broad sense of decision making power within an MFI has often been neglected when it is in fact a determining element in their success. Today MFIs can improve their social and economic impact by strengthening their governance.

Governance rests on a common base, namely a shared strategic vision, reliable information, mechanisms for making clear decisions, coherence between technical competency and the level of responsibility, effective control organs, strong reactivity against dysfunction.An overall diagnostic of governance is based on the following key questions (Cf. Iram-Cerise guide2):

1 The PAT/Usaid is aimed at answering to the US congress poverty mandate : ensure that at least 50 percent of USAID microenterprise assistance is set aside for the "very poor," defined as those who either live on less than a dollar a day or who are among the bottom half below a country's poverty line.2 http://www.cerise-microfinance.org/

Tool N° 1: Evaluation of impact Tool N° 2: Loss of clientsTool N° 3: Service utilisation Tool N° 4: Client satisfactionTool N° 5: Empowerment of women


1) Who has the decision making power? To identify all the actors involved in the decision making process by illustrating, for example, the gap between the theoretical organisation and real practice.2) How is this power exercised? To understand the mechanisms which orient the choices of the institution and to analyse their strengths and weaknesses.3) How are dysfunctions and crises managed? To evaluate the capacity of an institution to deal with the tensions and obstacles that it needs to overcome in decisive situations.

At the operational level for MFIs, it is a matter of understanding how to play with the levers of the governance mechanisms in order to achieve greater consistency between an MFI’s intentions and the outcomes achieved.

Strengthening social performance by the analysis of the governance of the institutions constitutes one of the most promising possibilities for implementation of this approach. In this perspective, the guide to governance enables MFIs to design and to implement mechanisms which will ensure consistency between the different facets of their social mission and the actions undertaken. MFIs will therefore be able to verify their targeting strategy, for example, by analysing governance as well as the strong and weak points which bear on its impact. Do the stakeholders have a shared vision of the targeting strategy? Is the information available on client profiles? Do operational decisions promote effective targeting? Does the loan officer have the competency and the incentives for reaching the target audience? Does the control allow for verification of the implementation of the targeting strategy?

As a result of this rapid overview we can see that a large complementary range of tools has been developed to enable MFIs to better evaluate their social performance and to identify the means to improve their practices in order to strengthen their impact on their clients. These tools tested and implemented with the MFIs of the South are now starting to be used by European actors.

the ApplicAtion of these tools by mfis from the “north”Today, financial institutions in the North which are involved in microcredit are also seeking to verify that their actions are effectively in line with their social objectives, that they are reaching their target public, both socially and/or financially excluded, and that they provide “value” for their clients.

Thus, in 2007, Adie worked on the implementation of the SPI tool and on the definition of an exclusion score for its clients. It helps Adie to monitor the degree and the evolution of the level of exclusion of borrowers over time, as well as by product and by regional agencies.

Adie’s implementation of the SPI tool required it to be adapted to the context of European MFIs while preserving the main framework (the four dimensions) in order to respect its philosophy by translating each indicator in function of the context. The SPI tool thus enables the evaluation of the social performance of European MFIs in an innovative manner (see the article by L. Coussirat-Coustère). In particular, it offers Adie a synthesis of its results in terms of social performance and enables Adie to compare itself to MFIs from the South.

For organisations like Adie, it is important to be able to measure social performance both in order to ensure that its mission of targeting the excluded remains in focus and to preserve the confidence both of its clients and financial partners.

Adie, by interrogating itself on its social performance, the profile of its clients and its methods of tracking clients with an “exclusion score” for each of its clients, has thus become involved in an international movement for reflection and action to improve its performance.

With respect to MFIs from countries of the South, European institutions do not necessarily identify with the same issue:

Financial exclusion affects a minority of the population in Europe enabling clearer targeting but which is more costly (the client •population is often also excluded socially, as well as having low density, low social cohesion, etc.).The informal sector is smaller and often illegal in countries of the North in contrast to its predominance in businesses financed in •countries of the South. This involves rules and procedures which are much more complex for creating a business and that require a much higher level of follow up as well as “non-financial” services.The priority of some funders in Northern countries is more based on social performance (or at least on the aspect of targeting the •excluded) with respect to financial performance. A percentage of grants are justified on the basis of the reduction of unemployment and the cost of mentoring unemployed people.

However, the reflection on tools like SPI and the work to improve the ultimate social impact on clients is similar for MFIs in the South and in the North as the Adie experience shows.

Adie has a focus on clear targeting as well as on strengthening the competencies of its clients plus its emphasis on social responsibility with respect to clients. It corresponds closely with the profiles of MFIs from the South which are also client-centred and based on a “descending” approach (little client participation) similar to the Grameen Bank or Zakoura in Morocco.

In terms of perspectives, this kind of work can provide an internal guide for reflection on the social strategy and on the outcomes achieved by a financial institution. It can also provide more precise information on the debates that may occur relating to the risk of drift and the positioning of European microcredit actors with respect to their clients.

This deeper evaluation of social performance is innovative in this sector, and more broadly both in France and Europe. The work done with Adie has allowed the design of a tool for evaluating social performance for European MFIs which may also be offered to other institutions that are seeking to better analyse their strategy and to communicate on the nature of their work, particularly within the framework of the European Microfinance Network.

A rebalancing is now under way thanks to the use of these tools which provide actors with the means required to measure and manage the social dimension of their activity and thus to establish microfinance on more solid ground consistent with its double-bottom line.


introduction

Over the past decade, we have witnessed an unprecedented revolution in development cooperation: microfinance. Without exaggerating, it can be stated that microfinance has improved the lives of millions of people by fighting social exclusion and stimulating small enterprise development. Even better, investing in microfinance has become increasingly commercially attractive. It appears that we are witnessing the long-awaited marriage between “doing well” and “doing good”.

The commercial success of microfinance calls for a fundamental question: does microfinance actually lead to sustainable development? To date, it has been widely assumed that providing financial services to the unbanked generates positive development impacts. However, few microfinance institutions (MFIs) really measure and report the social and environmental impact of their microfinance activities, particularly the impacts that go beyond the direct household level.

In this article, we describe how MFIs can monitor and report the economic, social and environmental effects of their activities (triple bottom line). This article also illustrates how MFIs can support their clients in enhancing their social and environmental impact. We believe that these lessons can be useful for European MFIs that want to improve their triple bottom line performance.

WhAt do We meAn by triple bottom line?1.

Organisations that focus on their single bottom line are exclusively concerned with their financial returns. Notwithstanding the importance of profits as a prerequisite for continuity of the business, organisations that want to contribute to sustainable development should take a more holistic approach to performance. Businesses that focus on their triple bottom line include economic, social and environmental effects that their activities generate.

We argue that for MFIs the real development impact is realised at the level of their clients. MFIs that are concerned with their triple bottom line focus on the economic, social and environmental impacts of their clients’ activities, financed by means of microcredit. Whereas MFIs are generally well-informed on their economic impact, attention to social and environmental issues has been limited. Yet, an increasing number of MFIs are measuring their social performance in various areas, e.g. as the percentage of women reached or clients’ improved income situation.

Only a few MFIs go beyond social performance measurement and also include their clients’ impact on the environment and their working conditions. See Table 1 for examples of issues relevant to micro and small enterprises.

Table 1 health, safety and environmental impact of MFI clientsPotential issues at client level

Environmental impact

Disposing (chemical) waste in land or water(Over)use of pesticides, fertilisersClearing forest for land cultivation, causing erosion and land degradationDepleting fish stocks due to unsustainable fishing methods

Health & safety impact

Using toxics without protectionUnsafe, ill-maintained machinesUnprotected electric wiringWaste is lying aroundAnimals are kept near eating / sleepingWorkers exposed to dust, noise, vibration, gas (in-house).Unhygienic practices (washing hands, clean tools, clean water, working with perishable ingredients)

We contend that MFIs interested in contributing to sustainable development should take a triple bottom line approach.

t h e t r i p l e b o t t o m l i n e f o r m i c r o f i n A n c e Geert Jan Schuite and Alberic Pater, Triodos Facet


Why is the triple bottom line releVAnt for mfis?2.

Firstly, despite the heterogeneous nature of the microfinance sector, practically all MFIs have a social mission. By providing financial services, MFIs want to contribute to sustainable development and improve people’s lives1. If MFIs take this mission seriously, they should ask themselves: “what contribution to sustainable development do we really make with our loans?” An increasing number of MFIs are measuring their social impact. This includes identifying the target group (“do we really target the poor?”) and measuring the effects on household level (“is income increased?, are more children attending school?, are housing conditions improved?”).

However, MFIs which really wish to contribute to sustainable development need to take another element into account which goes beyond the social impact at household level, namely that their clients who use micro-credit to run a small business also generate positive and negative social and environmental impacts. Our experience shows that micro and small entrepreneurs working in agriculture and productive sectors potentially cause environmental damage or may be exposed to hazardous working conditions. This can have consequences for the development impact of the MFIs. After all, MFIs providing loans to clients that overuse pesticides, clear-cut pristine forests or work in dangerous labour conditions may not be so sustainable after all, despite the income increase at household level.

Some MFIs are already integrating sustainability aspects in their operations, as shown by these quotes from Microfinance Institutions from Central America, Asia and Africa:

In its 2006 Annual Report, Findesa (Nicaragua) claims that ‘... all our financial effort would not be important if we could not balance it with triple results adding social and environmental impact to our goals.’

Acleda (Cambodia) claims in its 2007 Annual Report that ‘Supporting the community is not just morally sound but good business’.

Reliance’s (The Gambia) leadership in its 2007 Annual Report says that ‘... we recognise the importance of setting up the management and reporting system including sustainability issues now (...) in a way that is good for the community, the environment and for our business.’

Secondly, there is increasing pressure on MFIs to be transparent on their impact and contribution to sustainable development. Donors, lenders and investors are increasingly interested in the quality of the MFIs’ loan portfolio. Social investors in particular pose more stringent criteria on MFIs, relating to the MFIs’ social and environmental impact. MFIs that are able to report on their contribution to sustainable development are more likely to obtain access to funds with favourable terms.

Thirdly, Triodos Facet experienced that MFIs benefit from a client-base which generates positive economic, social and environmental impacts. From a risk management perspective, clients who are involved in hazardous operations may threaten the MFIs’ reputation. Also, entrepreneurs working in unsafe working conditions are more likely to fall victim to work-related accidents and as a result be unable to repay their loan.

From the opportunity-side, clients who reduce waste may also decrease their operational costs and improve profit margins. Similarly, clients who reduce pesticide use may be accessing new (organic certified) markets, with a higher profit margin. Finally, MFIs developing special products, aimed at investments in sustainable technology provide added value to their clients and may attract capital on favourable terms.

1 Atthesametime,anMFIhastooperateasabusiness,withfinancialgoalsandperformanceindicators.

t h e t r i p l e b o t t o m l i n e f o r m i c r o f i n A n c e


Thus, the Triodos Facet experience illustrates several reasons for MFIs to pay attention to triple bottom line performance.

Put your mission into practice NGOs and media will keep scrutinizing the microfinance sector for its sustainable performance. Transparent MFIs will be in a better position to show their sustainability performance.

Employee motivation MFI employees will be motivated and loyal if they understand the social mission and see it in day-to-day operations.

Globalisation and competitive advantage

Organisations that focus on triple bottom line are regarded as more interesting partners. In a global market, this helps to generate a competitive advantage.

Decreased credit risk Improving environmental, health and safety impact at client level increases the quality of the MFIs loan portfolio and can decrease the credit risk.

Providing added value to clients Developing lending products for sustainable investments (e.g. solar panels, organic agriculture, fishing nets with minimum mesh size) can provide added value to clients.

Regulatory developments New international codes and conventions are being released on a regular basis, leading to more stringent rules and regulations on environmental, health and safety, labour, social issues

Expansion of Corporate Governance Codes

More stringent codes on corporate governance are expected, including the call for increased ‘socially responsible shareholdership’.

WhAt cAn mfis do to improVe their triple bottom line performAnce?3.

MFIs could start measuring their triple bottom line performance and issue public reports on their policies, management and achievements. As part of their core business, MFIs can also work on improving their social performance results. We will use two recent Triodos Facet projects to illustrate this.

Measure and Report Triple Bottom Line Performancea)

In 2004, Triodos Bank and the Global Reporting Initiative (GRI)1 initiated a project called “Transparency and Sustainability in Finance”. The purpose of this project was to assist MFIs in Latin America, Africa and Asia with the implementation of GRI Guidelines. These guidelines help MFIs with reporting on the economic, social and environmental dimensions of their activities, products and services.

Triple bottom line reporting is much more than just an external communication tool. The sustainability report itself and its development process helps to:

Improve the internal and external dialogue on the organisation’s mission, goals and performance. In the process different •parties are interviewed on their views regarding the organisation’s goals and impact regarding key economic, social and environmental issues. Decision-makers within the MFIs are engaged through strategic meetings and provide final approval or the report. Finally, the MFI management presents the final report to employees and external stakeholders.

Stakeholder perspectiveFindesa’s 2007 Annual Report states that ‘the indicators selected and reported on show the influence of our stakeholder’s vision.’ Findesa was a finalist in the 2008 GRI reader’s choice award.

Act as an early warning system. The expectations and needs of the external and internal stakeholders, such as investors, •clients, NGOs, employees, management, etc. are analyzed to identify risks and highlight opportunities and possible new priorities for the organisation.

Embed sustainability measures and objectives into the institutional management systems and create a sense of obligation to •achieve targets.

Advancement of organisation’s overall management and governance.•

Currently, the international social performance task force is finalising a list of social performance indicators that MFIs can use to report on their triple bottom line performance. These indicators include the “traditional” social indicators (such as “outreach to the poor”) but also include social responsibility to clients.

1 The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and dissemi-nate globally applicable Sustainability Reporting Guidelines.


CGAP Social Performance Taskforce indicators1

Social objectives about outreach (to poor, low income, SME, women)•Social objectives about observing change (in the lives of clients, in communities)•Board, management use of social performance information•Staff incentives•Training on social mission•Entering client poverty level measurement systems•Services geared toward women’s empowerment and gender issues•Client satisfaction surveys•Dropout rate reviews and exit surveys•Social responsibility to clients•Social responsibility to staff•Social responsibility to community•Social responsibility to the environment•Outreach depth and width information•Achievement of change (3-5 yr clients)•

MFIs that wish to use these indicators in their triple bottom line reporting should set their ambitions and actual performance (in terms of concrete measures as well as policies to achieve these) with respect to selected indicators. Reliance (an MFI from the Gambia) was the first MFI to include some of these indicators in its 2007 annual report in addition to the general GRI indicators2.

Improve triple bottom line performanceb)

Reporting is not an end in itself. The results based on the selected TBL indicators help MFIs improve their triple bottom line performance. Our experience shows that MFIs are interested in helping their clients to improve the social and environmental impact of their business, especially when the benefits to the MFI (lower risk profile, added value to clients, etc.) are made clear.

Representatives of about 50 MFIs and MFI Funds followed regional seminars (including participants from Ukraine, Armenia and Bosnia-Herzegovina) on improving social and environmental performance at client level. These seminars followed the traditional loan cycle and explained the relevance of social and environmental aspects in each stage3. Specifically, participants were trained to expand their horizons and to adopt a social and environmental perspective regarding their clients’ business activities.

Regarding the appraisal phase and monitoring visits by loan officers, clear opportunities exist to raise awareness on social and environmental issues among the clients. Triodos Facet developed 24 “sector fact sheets” containing information on the social, health and safety and environmental issues most commonly encountered in the particular sectors. These fact sheets help loan officers with identifying social and environmental risks to their clients and to discuss with the client some suggestions for improvement4. Although the entrepreneurs themselves are the final decision-makers, MFIs recognise that they can make their clients aware of potential social and environmental issues. Loan officers considered these fact sheets to be very relevant especially if the suggestions could help their clients to improve their economic performance too.

2 Recent examples of triple bottom line performance reports and related background information can be found at: http://tblmicrofinance.com/tblreports.aspx3 More information on this approach can be found at http://www.fmo.nl/smartsite.dws?id=5314 The development of these sector fact sheets were part of an assignment for FMO (The Dutch development bank), to support MFIs with improving triple bottom line performance at client level

Lesson 1: Reporting on triple bottom line is relevant for MFIs. The GRI guidelines can support MFIs in formulating their approach towards sustainability reporting. The CGAP social performance indicators can help MFIs to select the core indicators. However, depending on its mission and the social context of its operations, MFIs select those indicators that are most relevant to them.


Figure 1 Example sector fact sheet

recommendAtions for europeAn mfis4.

Most of the examples that were used in this article are derived from our experience with MFIs in other continents. The European setting is different, since, for example, the focus is more on ‘entrepreneurs’ than on ‘poorest of the poor’. This makes the triple bottom line even more relevant for European MFIs as their clients are more likely to be beyond the mere survival level. If African, Latin American, Asian MFIs are already starting to monitor, manage and report their triple bottom line performance, why should European MFIs be left behind? Several recommendations can be derived which seem relevant for MFIs in a European setting:

MFIs that want to embark on a triple bottom line performance ‘adventure’ should perform a ‘reality check’. This help to understand •the real social and environmental risks and opportunities of their clients and helps MFIs to make a well-founded decision. This reality check involves looking critically at several factors:

The mission of the organisationa) : is a social performance intervention at client level compatible with the mission?Client portfoliob) : what social/health and safety/environmental issues are our clients confronted with?Internal operationsc) : do our processes already incorporate social performance aspects?Stakeholders’ expectationsd) : what importance do our stakeholders (donors, investors, government, etc.) attach to social performance?

MFIs are advised to start with a pilot project, focusing on the issues that a majority of the clients face. For example, if the client •portfolio is predominantly agricultural, focus on sustainable agriculture.

Use the GRI framework for triple bottom line performance reporting•

Lesson 2: MFIs that want to improve their triple bottom line performance should focus on the economic, social and environmental aspects at client level. This is where the real impact is generated. In their interaction with clients MFIs may suggest (or in the worst case “require”) their clients to enhance social, environmental, health and safety impacts.


origin of the project

Adie undertakes a general evaluation of its activities and results every three years. This tri-annual study has the following objectives:

To provide accountability to financial partners for the proper use of funds received•To furnish a portion of the material necessary for drafting the strategic plan (which is also prepared every three years)•To enable Adie to orient itself with respect to outside agencies (e.g. other actors for enterprise creation in France and in •international microfinance).

Adie is also a member of the “Social Performance Task Force” which has the objective of sharing and developing tools for evaluation and management of social performance in the field of microfinance. Alert to this theme, Adie was naturally keen to go the next step of measuring its social performance as part of its tri-annual evaluation programme in 2007.

Choice of an external evaluator

Adie engaged Cerise, a collective of French operators and institutions, including Cidr, Cirad, Gret, Iram, and Irc, which supports MFIs in Southern countries, to carry out the evaluation. Since 2001, Cerise has developed the SPI (Social Performance Indicators) tool which is widely known and recognised as the most advanced, standardised and comprehensive tool available for measuring social performance. It meets the measurement needs by means of a questionnaire and an accompanying guide which evaluates the principles, actions and corrective measures implemented by an MFI in order to achieve its social objectives. It is based on four fundamental dimensions:

Dimension 1: Targeting the poor and excluded•Dimension 2: Adapting services and products to clients•Dimension 3: Increasing the social and political capital of clients and their families•Dimension 4: Social responsibility of the institution•

Laure Coussirat-Coustère, Adie

AdAptAtion of the spi tool

Using the SPI tool at Adie required that it is adapted to the context of MFIs in the North while preserving its framework (the four dimensions) and its philosophy (based on each indicator). The adapted SPI tool thus enables the evaluation of the social performance of European MFIs in an innovative manner. In particular, it provides Adie with a synthesis of its achievements in terms of social performance and allows Adie to compare itself with MFIs from the South.

A few examples of changes required in the original SPI questionnaire:

The questionnaire, which was originally designed for MFIs in Southern countries, raises the issue of the percentage of agencies located in zones where there is no other MFI or bank subsidiary. In the French context where the concentration of banks is very high, this question is irrelevant and was thus formulated in the following way: What is the percentage of agencies which have been opened based on the criterion of the geographic isolation of the operation/intervention zone or its proximity to a population with depressed socio-economic conditions?The original SPI questionnaire queries MFIs on their knowledge

of the reasons for the abandonment, departure or inactivity of clients and the proportion of inactive clients over the previous year. However, this question only makes sense in a context where it is part of the mission of MFIs to meet the credit needs of their clients. For Adie, which aims to position itself just below the entry point for the banking sector and which only deals with needs linked to the creation and/or development of an enterprise, the analysis required is necessarily different. In fact, the departure of a client may signify that its credit needs are now covered by the banking sector, which is a positive outcome. The question was therefore modified as follows: At the end of a loan cycle, does the MFI attempt to discover possible reasons for any client dissatisfaction? What is the percentage of dissatisfied clients over the past twelve months?The original SPI questionnaire seeks to measure the confidence capital of the MFI with respect to its clients by means of the following question: What is the percentage of growth (or negative growth) of the volume (or number) of voluntary savings collected over the last twelve months?Since Adie does not deal with savings, another criterion was identified for measuring the level of client confidence in the institution, namely the proportion of clients recruited by word of mouth. What is the proportion of persons in contact with us who did so on the basis of a recommendation from an acquaintance who was also an Adie client?

m e A s u r i n g t h e s o c i A l p e r f o r m A n c e o f A d i e


synthesis of results

Targeting the poor and the excluded

Adie’s strong points in terms of social performance are based primarily on the first dimension, i.e. targeting. In effect, Adie targets new clients based on a combination of three factors: geographic (determined by the political boundaries of each city), individual (social minima) and methodological (small sums, without the requirement of a “classical” guarantee). Thus, Adie has developed a proactive policy against social exclusion based on a clear intention plus a strategy of implementation and encouragement. It should also be noted that for Adie this first dimension relates primarily to the notion of exclusion rather than to the notion of poverty. In this sense, this study shows that achieving a better understanding of the linkage between exclusion and poverty, particularly the issue of poor workers, would improve Adie’s work with its target groups. The association could also develop its conception of exclusion, for example, by making clearer distinctions between various rural zones (notion of isolation, phenomena of disappearance of public services, etc.).

Adapting services and products to target clients

Adie offers two flagship products, namely microcredit and the honour loan. With respect to the range and adequacy of its offering, Adie could pose questions on the possibility of different kinds of loan product (emergency loans, loans differentiated according to target groups, experimental “no interest” loans, etc.).Do these respond adequately to the identified needs of the target populations? Were they promoted effectively by Adie and how should they be managed at the level of each agency and delegation,

and at headquarters level? In terms of the quality of service, Adie’s main strength lies in the strong decentralisation of its network. However, it would undoubtedly benefit from better understanding of client satisfaction levels. With respect to non-financial services, Adie’s mentoring work raises the effectiveness of credit through its business development assistance. In this sense, in spite of the cost, it would undoubtedly be positive if Adie were able to homogenise access to its services and to differentiate these services based on client profile.

Increasing clients’ social and political capital

Adie has developed services and structures to reinforce the rights and build up the capacities of its clients (mediators, mentoring, Adie national action to facilitate the process of enterprise creation, etc.). With respect to SPI indicators, one Adie weak point is the lack of client representation in governing bodies. At this level, Adie could consider the advantages and disadvantages for each party of involving clients in the decision making process. Is this feasible? In what form? What would be the pluses of a more participative link with clients?

Social responsibility of MFIs

With respect to its employees, Adie has sought to implement an active human resources policy. The role of volunteers is also emphasised, even if this is not always done systematically in every delegation. With respect to its clients, Adie has also carried out impact studies and implemented corrective measures to better respond to the profile of its clients. Finally, with respect to the community, Adie could work to improve local relations with its partners on specific issues in each zone of operation.

reVieW And prospects

There were few difficulties encountered in the course of this exercise. Once the questionnaire was adapted to the context, a key issue consisted in the choice of the person to fill out the questionnaire and thus to provide matter for evaluation. Should it be an internal collaborator? If yes, then at what level of responsibility? Is there a desire to draw on a collective of respondents? Should a person from outside the structure (i.e. with no conflict of interest to ensure impartiality) be engaged? In such a case, however, the person would need all the same to have a sound knowledge of the business and its mechanisms. For its 2007 evaluation, Adie declined the collective option, which was admittedly difficult to implement within the required timeframe. Instead, it chose to rely on two persons, namely the general manager and the credit manager, who each completed the questionnaire. These two responses did shed light on some of the main points at issue as well as on some less clear aspects. This helped avoid the trap of painting Adie in too favourable a light. Nevertheless, this

choice may have resulted in less appreciation of the findings of the study by Adie’s management structure since few personnel were involved in the process from the beginning.In effect, the main difficulties concern the future, i.e. in the taking on board of the evaluation conclusions. First, Adie will need to adopt a strategy for each of the points raised in the evaluation. Several issues are on the table for the drafting of the next strategic plan, including the redevelopment of the catalogue of microcredit products, the diversification of mentoring services offered to clients. Other recommendations will also need to be considered by the management in order for decisions to be taken, e.g. the issue of client representation in governance structures.Once this first level has been reached, Adie will also need to be able to assess its progress by means of a fresh evaluation by Cerise in approximately two years.Finally, based on this initial work, Adie will need to work with EMN to ensure that European microfinance institutions give greater consideration to social performance in the evaluation of their achievements.


Fabio Malanchini, MicroFinanza Rating

Social Performance Management (SPM) and MeasurmentIn years past, the effectiveness of microfinance institutions (MFIs) was primarily assessed on the basis of evaluations and rating tools that focused exclusively on risk assessment and financial performance. Meanwhile, the social performance and social impact on the intended beneficiaries was taken for granted.Of course, financial information is a key variable that management has to take into account. However, it does not provide a clear answer to the question “are we contributing to the attainment of the mission of the institution?” or “Are our products having an impact on the lives of our clients and empowering them?”The commercialisation of microfinance and the increasing amount of public and private resources invested in the sector have raised the need for practitioners, social investors and donors to better understand the social performance of microfinance, intended as the effective translation of an institution’s mission into practice and achievement of social goals. As is the case for financial performance, social performance is not incidental and needs to be defined, measured and intentionally managed by the MFIs. This trend has thus led to increased attention towards the concept of Social Performance Measurement and Management.Nowadays, donors, social investors and practitioners increasingly feel the need to measure the social performance of MFIs in order to assess the achievement of the so-called triple bottom line, i.e. the achievement of the MFI’s own social goals in a financial and environmentally sustainable and durable way.

MicroFinanza Rating, a private and independent rating agency specializing in microfinance and registered in the EU/CGAP/IADB Rating and Assessment Fund, has worked in recent years to develop a specific social rating methodology, aligning its concept to the common framework of the Social Performance Task Force1. The resultant social performance rating is in an external, credible and accountable assessment which provides objective judgment on the social performance of the microfinance institution.To date MicroFinanza Rating has carried out 16 social ratings in Latin America, Eastern Europe, Caucasus and Africa, through the support of various stakeholders including the Ford Foundation, the EU and Oikocredit. Social ratings performed thus far include, among others: Banco Solidario (Ecuador), FIE (Bolivia) and FDL (Nicaragua). In 2007 MicroFinanza rating also conducted the social ratings of two MFIs (MFI1 and MFI2) in Romania (Enhanced methodology).

microfinAnzA rAting’s sociAl rAting ApproAch

The social rating is an external and credible assessment of the MFI’s institutional capacity to put its social mission into practice

1 An international group of microfinance investors, donors, practitioners and rating agencies dedicated to develop and promote social performance management and measurement.

and to achieve commonly accepted social goals2. It does not only provide objective judgments on the actual social results achieved by the institution (results), but it also conducts an in-depth analysis of the status and effectiveness of the social performance management system in place (process).

Social ratings provide a quantitative and qualitative analysis of the MFI’s strengths and weaknesses as identified in each of the following areas of assessment:

Social Performance Management system• , analyzing the mission clarity and diffusion among staff, the strategy in place to achieve social goals (reaching clients, meeting their needs and achieving impact in their lives), based on the assumption that social performance needs to be intentionally managed in order to get sound and sustainable results. Assessing the alignment of internal processes to the mission and the effectiveness of the monitoring system in tracking the progress towards achieving social goals is also crucial.Social responsibility• , relying on the way an organisation builds its relationship with clients (including customer protection), staff, community and the environment. The analysis focuses on the policies and procedures, as well as on the activities performed by the MFI which might contribute to an overall positive impact on internal and external stakeholders.Outreach• breadth and depth. The coverage and areas of operation of the MFI are identified and their socio-economic condition is compared to the national average. A clear definition of the socio-economic poverty profile and of the financial exclusion of clients is provided, assessing the effective alignment between the intended target and the clients actually reached by the institution.Quality of the services,• assessing the variety of the financial and non-financial services and their adequacy to meet clients’ needs, based on the assumption that it is not sufficient to merely serve the target population, but it is also necessary to provide quality services and reach the goal of client satisfaction.

In order to respond to the different demands of diverse stakeholders and to adapt to the various stages of MFI maturity, MicroFinanza Rating has developed two distinct social rating products, the Standard social rating and the Enhanced social rating. The main difference between the products is represented by the sources of information used. Both products involve meetings with staff, documents and data review and secondary sources. However, while in the Standard social rating the analysis is based on the information available at institutional level, the ESR is complemented by client level data. In particular, the collection of client level data in the Enhanced social rating is realised through a client survey and through several focus groups with clients. The client survey involves a representative sample of recent clients3 and a multi-stage cluster sampling design

2 Among the social goals (SG) the mission refers to: SG-1:Reaching target clients (poorer and excluded); SG-2: Meeting client needs and demands; SG-3: Im-proving the lives of clients and their families3 The sample is between 130 and 190 clients with 95% of confidence and 7-10% precision.

s o c i A l r A t i n g s : Assessing the cApAcity of microfinAnce institutions to put their sociAl mission into prActice


aimed at identifying the socio-economic profile of clients and their satisfaction level, while focus group discussion is designed to gather detailed feedback from clients belonging to distinct segments about their satisfaction with the services.It is clear that the more complete and in-depth analysis allowed by the client level investigation (survey and focus groups with clients) give a large added value to the Enhanced social rating, especially considering the early development stage of internal social performance monitoring systems in the industry and the need to cumulate evidence and create benchmarks.

mAin findings of sociAl rAings’ experience

In our experience thus far we have had the opportunity to apply our social rating methodology to a variety of MFIs, identifying noteworthy differences in the commitment to achieving the social goals expressed in the mission. The adherence of MFIs to the mission was found to have some, though not a total, relation with the size and legal form of the MFI, being that small size and non-regulated NGOs were more aligned in general terms. However, the main driver seems to be the owners’ shareholders (or members/founders in the case of NGOs) approach and, overall, their capacity to perform an effective social guidance and get the management team committed. Also due to the innovative approach of social performance—which involves a differentiated approach with respect to the traditional concepts of impact evaluation and corporate social responsibility—in the majority of cases large gaps were identified in the social performance management systems between best practices and current performance. In other words, the definition of a clear mission and social goals, the design of a specific strategy, the setting of SMART objectives and putting in place systems aligned to the mission presented generalised shortcomings. Depending on the underlying intentions of the MFIs activities, social responsibility towards the community and the environment is motivated by various reasons, ranging from the genuine desire to have a positive impact to the marketing of the institutional image. Meanwhile, standards of client protection seem to be a function of the legal framework (interest rate ceilings invariably produce lower transparency1), of the degree of market maturity and of the regulatory status of the MFI. In our experience the alignment of the profile of clients reached to the intended target is acceptable in the majority of cases, even if it is worth mentioning that MFIs with larger size and geographical coverage usually present a higher variance in the poverty profile of clients2. In addition, in countries in which we have worked the real depth of outreach, both in terms of poverty and access to financial services, is found to be in rural areas even though in some cases the marginal urban areas present severe, even if different, socio-economic conditions.Quality is often higher in mature MFIs and is closely related to the degree of competition present in the market niches targeted. It was not surprising to find that the client perception varies according to the degree of market development, since generally clients from unserved areas are less demanding than experienced customers. However, regardless of the context, one of the most important drivers of client satisfaction is the customer service.The social rating experience is also useful input to the debate about the trade-off between financial and social performance in

1 Interest rate ceilings usually hamper the sustainability of MFIs and force them to charge various forms of non transparent fees and commissions in order to increase their revenues to an acceptable level.2 MFIs operating in a large number of regions and offering services to a large number of clients usually works with different typologies of clients because of the different regional features which influence the typology of clients available and the need to target different kind of clients in order to reach scale.

microfinance. On the one hand, there are a number of synergies between social and financial performance which weaken the trade-off hypothesis. For example, strong synergies are found between serving a less “competed” market segment and bringing financial services to the excluded, as well as achieving a higher client trust through a varied and appropriate offer, reducing the cost and risk of credit operations and consolidating the market share. Moreover, an adequate dissemination of the mission among staff, coupled with a strong social leadership and strategy represent an important advantage to building a positive work environment and controlling staff turnover, a fundamental issue for financial performance, especially in small MFIs exposed to key-person risks. On the other hand, it is clear that strengthening social performance management systems entails strategic decisions based on cost-benefit considerations, where the cost is represented by investments in human resources, technology and systems, and the benefits are ultimately translated into mission achievement and improved relationships with stakeholders.

The specific findings of our social rating experience in Romania are the following:

The adoption of an updated and clear social mission is •strongly recommended as a basis for social performance management. Strengthening the strategy to achieve social goals, including setting governance guidelines and specific objectives and targets is necessary to mitigate the risk of mission drift in delicate phases such as ownership transition and institutional transformation (as was the case of one of the MFI involved in the social rating exercise). The achievement of social goals may become a secondary, casual effect, while it should be intentionally managed.The MFIs demonstrated an overall socially responsible •attitude towards staff, both in terms of monetary and non-monetary conditions, even if the staff evaluation and training present some room for improvement. Compared to peer groups, the cost charged to clients is high; on the other hand, the transparent disclosure of credit conditions is a valuable strength. Among the positive elements of social responsibility towards the community worth mentioning is the contribution to business formalisation, the promotion of a healthy business environment and of the credit culture in rural areas. Nevertheless, adequate systems to manage and monitor the direct and indirect environmental performance of MFIs are not currently in place.At the date of the social ratings (September 2007), compared •to other experiences, the overall breadth of outreach in terms of number of clients and geographical coverage was not yet very broad, with MFI1 presenting a lower coverage than MFI2. Mainly due to its large rural presence -76% of clients3- MFI2’s outreach is significantly deeper than that of MFI1, presenting a clear urban concentration and the financing of clients with better socio-economic conditions. MFI2’s deeper outreach is shown by variables such as the incidence of poverty among clients, their level of education4 and the access to financial services5, among others. However, it is worth mentioning that, due to the larger size of the businesses financed, the job sustaining effect of MFI1 is very good, and much larger than that of MFI2.The variety of credit products was found to be higher in MFI1• 6

3 Data as of June 2007, including RAEF portfolio.4 Among MFI2 clients, 52% just completed the primary school, and only 5% has a university degree, while in the case of MFI2 52% of clients completed the secondary school and 26% have completed university.5 Recent clients without previous access to formal credit: MFI1=40%; MFI2=52%.


than in MFI2 (individual and group methodology, from small businesses to start-up product). Overall, the clients gave a positive feedback on the adequacy of the products and customer service, especially appreciating MFI2’s delivery system in rural communities and MFI1’s flexibility; however, in both cases, the cost and collateral requirements are perceived as able to be improved.

lessons leArned

Throughout MicroFinanza Rating’s experience in social performance management and social rating assessment we have actively sought feedback from all stakeholders involved. Indeed, many lessons have been learned regarding the needs of practitioners and other stakeholders as well as the benefits of social rating.

First and foremost, the social rating helps microfinance institutions prove and improve their SPM systems with both internal and external benefits. Learning about social performance is a process and social rating can greatly contribute to this even if there is still work to do in promoting MFI awareness about the concept of SPM and measurement.Regarding the process and tools utilised for social performance assessment, we have found that loan size proves to be a rather weak proxy of poverty, highlighting the large added value of the Enhanced social rating and the need to improve the MFIs’ internal monitoring systems for the client profile. Also to this end, a strong synergy has been experienced between the client survey and the PPI tool6, which provides reliable and cost-effective information about clients’ income/consumption levels. Finally, SPM is moving towards standards and comparable indicators, and we are making efforts to reach them with our social rating. However, this will not be a short process.

As far as the benefits are concerned, the social rating was found to be very useful both as an internal management tool and as a reporting tool for external stakeholders. First of all, highlighting the strengths and weaknesses of the social performance dimensions considered, the social rating enables management to identify the strategic priorities and consequently focus on the areas that require intervention in order to align to the best practices of social performance management.Moreover, the social rating gives external stakeholders the opportunity to monitor the social efforts of their partner-MFIs according to internationally recognised standards and to allocate the available resources according to their social objectives.

It is also important to mention the lessons learned about social investors, donors and microfinance networks, who should play an important role in disseminating and promoting the social performance management and measurement in MFIs, putting in place systems to increase transparency and stimulating the MFIs social performance by recognizing positive results. On its side, MicroFinanza Rating is working to tailor its products and adapt the focus and tools of analysis to match the particular needs of specific stakeholders.

Finally, thus far we have found very interesting synergies between social performance assessment and technical assistance to strengthen SPM systems. By analyzing in detail the status and effectiveness of the SPM system of an MFI, the social rating provides the basis for designing effective technical assistance

6 Country-specific poverty scorecard developed on the bases of an analysis of correlation between the level of poverty of a population and other asset/life condition variables easier to collect.

intervention to introduce systems in order to track, monitor and manage social performance.

The specific lessons learned in Romania are intimately related with the peculiarities of the socio-economic context, compared to the one of developing countries where MicroFinanza Rating has conducted the majority of social ratings. Even if it is still lagging behind in the EU group, Romania is classified as an upper-middle income country by international standards. The social rating methodology applied in Romania was adapted in order to take into account the socio-economic profile of the microfinance market, its larger financial needs and the specific regulatory framework.Overall, poverty and access to basic services are more critical issues in developing countries than they are in Romania, while on the other hand, the indirect outreach obtained through the job creation effect of financed businesses is far more relevant in Romania. The survey on clients conducted within the social rating process was adjusted accordingly and a larger weight was assigned to issues such as business characteristics and job creation, rather than to extreme poverty. As a result, the outreach indicators were tailored to the type of microfinance clients targeted in Romania, not only describing the poverty profile of clients, but also setting the basis for analysing the business sector and legal form, and its effect on job creation and support.At the same time, the specific cultural context of Romania called for shifting the focus of social responsibility criteria from women’s empowerment, which is one of the major issues in developing countries, to business environment and transparency which plays a key role in the growth of the Romanian micro and small enterprises’ sector.It is also worth mentioning that the legal framework has improved consumer protection and transparency of operations by requiring to make available to the interested parties all the necessary information regarding terms and conditions.Starting from the assumption that MFIs are called to serve the sectors excluded from the formal financial circuit, the rural sector in Romania seems to be a strategic market, since agricultural and non-agricultural financial needs are unattended by the banking system. However, the microfinance industry has to face the consequences of the introduction of EU regulation which has enlarged the financial needs of the agricultural sector due to the quality and security standards required (with higher capital requirements compared to the usual amount financed by microfinance). Therefore in order to fully respond to the demand of the marginal rural sector in Europe, a wider approach involving different stakeholders, in addition to microfinance providers, may be crucial. The experience of social rating in Romania indicates that, even if the characteristics of the analysis have to be tailored to the specificity of the environment (upper-middle income which has joined the EU), having a clear idea of the alignment of the system and the performance of an MFI with the social mission and better understanding of the target reached remains a crucial issue which can support the development of a strong and transparent microfinance sector aiming to serve the excluded from the formal financial sector.


bAckground:

Integra works in 6 countries of Central and Eastern Europe (Slovakia, Romania, Bulgaria, Serbia, Russia and Croatia) as well as three countries of East Africa (Kenya, Sudan, Ethiopia). Integra’s programs involve both microenterprise development for excluded groups as well as small and medium enterprise development with poverty alleviation or development focus (social venture capital funds)

Integra’s microenterprise development (MED) program focuses on women at risk. This includes single mothers, refugees, divorcees, women with low educational achievement, women members of minority groups, women married or partnered with chronically unemployed spouses, victims of domestic violence, etc.

Integra’s MED programs typically involve the following engagement with the client:

selection process•group training in enterprise development skills•business plan development•loan disbursal•ongoing mentoring•business development services•networking•

The Integra MED process is illustrated below:

Clients in poverty,

unemployed, without

opportunity.

Integra Micro-Enterprise Development process

Empowered clients, sustainable businesses, new

jobs, families helped

HR Development

Business skills• IT skills• Communication skills• Coaching• Thematic training•

Financial ServicesMicrocredit•Other financial •servicesPublic program •partnershipsFinancial institution •partnership

Market Access Services

Brand•Consulting•Retail•Wholesale•Business linkages•

Community building = developing social capital

Building trust, community engagement and promoting virtuous value systems through community groups, mentoring, networking opportunities and counseling.

s o c i A l p e r f o r m A n c e m A n A g e m e n t f o r m i c r o e n t e r p r i s e d e V e l o p m e n t i n s l o VA k i A


Allan Bussard, Integra

While Integra’s social venture capital funds involve equity investments of up to €500,000 in social enterprises, credit provision is a relative minor aspect of Integra’s MED activities in Slovakia, with only about 20% of microenterprise clients taking a loan. These loans average €2,500. Within the microenterprise target group, Integra focuses exclusively on enterprise development, providing a range of business development services in addition to credit.

In 2003, in partnership with the Microfinance Centre (MFC, Warsaw) and the Imp-Act Consortium, Integra began the development of a new monitoring system. The goal of the project was to adapt and extend the existing Integra management information system (MIS), which tracked financial data, into a comprehensive Client Management System (CMS), that would also track a range of livelihood and business impacts on clients in the Integra microenterprise development program for disadvantaged women.

The purpose of this was to develop a Social Performance Management (SPM) tool that would serve to give feedback to Integra managers on whether the social and impact targets of the program were being met in harmony with the mission and strategy of Integra. Integra assigned two staff to develop this,

namely Daniela Olejarova (Corporate Social Responsibility project manager) and Lea Uhrinova (senior MED loan officer). This new program was developed in 2003.

conceptuAl frAmeWork:

Rather than simply develop a system that measures what was going on already, we began with research on the core problem that we were trying to solve, namely poverty and social exclusion among women.

As poverty has complex causes, poverty alleviation calls for a complex response. Thus, since the program focus was on poverty alleviation, we concluded that single proxy measures such as loan repayment, or participation in training would not truly indicate whether poverty alleviation is taking place.

We took as a starting point the pioneering work of Robert Chambers and others, which provided a conceptual framework to understand the complex roots of poverty, and the corresponding interventions necessary. In particular, the description of the poverty trap in which many of the socially excluded find themselves provided a useful typology for the Integra CMS.

PPoovveerrttyy TTrraapp - lack of material assets

- substandard housing - no land, livestock or equipment - no title to assets

- poor health & nutrition

- bad water & sanitation - poor hygiene - too many dependents - weak or expensive health services

- lack of reserves - no savings - few choices - manipulation by social conventions or unproductive expenditures - difficult climate conditions

- no access to services & information - weak infrastructure - rural location - illiteracy - race, gender, age or political exclusion

Vulnerable

Physical Weakness

- lack of influence - few connections - low social capital - lack of political participation - corrupt environment - few bargaining tools

- low trust - broken relationships with community - fear of supernatural powers - no hope that change is possible - bad choices - distorted picture of self and personal value.

Isolation

Adapted from R Chambers, J. Christian, B. Meyers

Powerless

No capital

Spiritual

Poverty

s o c i A l p e r f o r m A n c e m A n A g e m e n t f o r m i c r o e n t e r p r i s e d e V e l o p m e n t i n s l o VA k i A


This conceptual framework was translated into a range of macro indicators, specific indicators and proxies, so that practical growth in key areas could be measured.

We opted for a range of measurements that track client growth in four key areas, which we identified as macro indicators. Within these macro indicators there was a range of secondary indicators and proxy measurements.

The macro indicators that were chosen are: - Abundance: is the client experiencing adequate provision in key livelihood areas? - Empowerment: is the client gaining a greater number of choices? - Character: are changes occurring that allows the client not to fall back in to poverty? - Service: is the client becoming a functioning and useful community member?

These are supplemented with a description of 4 key issues, 7 questions, 15 specific indicators and 43 proxy measurements. An overview is given below:

Macro indicator Issue Questions Specific indicators Proxy Measurements

ABUNDANCE Breaking poverty cycleIs income being created?Are choices increasing?

Income levelPersonal income increaseHousehold income increaseBusiness income increase

Living standard

Housing improvementsEducation opportunitiesNutrition improvementsHealth improvements

Investment

SavingsBusiness investmentsAssetsInsuranceBusiness innovation

EMPOWERMENT Release from deprivation Is their voice heard?Is there hope in the future?

Political participation

Participation in associationsAdvocacyPolitical positions

Influence Successful campaigns/lobbyingWho listens to clients

Gender equityWomen holding positionsWomen’s asset ownershipWomen as owners/managers

Self confidenceSelf esteem growthRisk toleranceCommunication abilities

CHARACTERMature and responsible living

Are new habits emerging?Are destructive behaviours changing?

SecuritySelf identity as secure personEmotional stability

Social Capital VolunteerismCharity

Family

Involvement with childrenDomestic violence Divorce or marital breakdownSexual behaviour

IntegrityTax paymentsBribery and corruptionAccounting practices

StewardshipEnvironmental responsibilityHuman resources managementAccountability increase

SERVICE Contribution to community Are the clients agents of change? Employment

Number of workplacesEmployment for vulnerable groupsQuality of employmentPay levels

Infrastructure Community improvements due to client advocacy or contribution

Harmony Racial and gender equity promotion


dAtA collection: The proxy measures listed above were translated into a series of client questionnaires, which were designed to be administered to the client at several points in her experience with the Integra MED program.

Since Integra maintains contact with clients after their formal completion of the BDS services, data is also collected one year after completion, whether the training or the loan cycle.

Questionnaire number D1 D2 D3 D4 D5 D6

First contact TC

Training (in the middle) TC

Training graduates without a loan

Year after training graduation * TC Training graduates with a loan

Signing of a contract LOMiddle of the loan cycle LO LOEnd of the loan cycle LO LO LOYear after graduating the loan cycle LO LO

TC:Training Coordinator / LO:Loan officer

The data is collected at the client level by the staff involved with the clients. This is passed to the Integra impact assessment officer, who inputs the data into a proprietary data base, which provides reports that are available to managers and loan officers for review and evaluation.

rAnge And type of dAtA collected:There are 6 separate client forms employed:

D1 – Intake form D2 – Baseline social impact formD3 – Baseline business impact formD4 – Follow-up social impact formD5 – Follow-up business impact formD6 – Exit form

The main indicator areas tracked on the client forms or questionnaires are:

D&C Demographics / contactI1 BusinessI2 HouseholdI3 IndividualI4 CommunityN Needs, preferences, complaints, satisfactionE Exit reason, loan use

Different client forms are used to track different types of impact data. The different client forms tracks the different indicators as indicated in the following matrix:

D1 D2 D3 D4 D5 D6D&CI1-BI2-HI3-II4-CNE

The business indicators track change in the following areas :

Data ResponseMonth and year of business start up dateMonth and year of business closing dateProportion of loan repaid from business scale of 1-5Source of loan used to repay loan scale of 1-5Purpose of loan 7 possibilitiesEmployment - no. of full time number- no. of part time number- no. of family workers numberAverage monthly sales numberAverage monthly cash balance numberOther liabilities numberCapital investments yes/noDebt increase/decrease yes/no

The Household Impact indicators track changes in the following areas :

Data ResponseAdults (over 18) in household number Children in household numberIncome earners in household number Unemployed in the household number Sources of household income 7 optionsAverage monthly household expenditure number Savings 5 optionsInvestments 5 optionsLife insurance yes/noPension savings yes/noImprovement in household assets yes/noTime spent with children per week 5 options


The Community Impact Indicators track changes in the following areas :

Data Response

Participates in how many organisations 5 options

Voluntary involvement in groups Scale of 1-5

- same or different religion yes/no

- same or different ethnic group yes/no

- same or different occupation yes/no

- same or different educational background yes/no

Local community involvement as business 5 options

Local community involvement as individual 5 options

Financial support of community projects as business yes/no

Financial support of community projects as individual yes/no

The community impact questions relate mostly to tracking the formation of social capital, which is considered as a fundamental condition for livelihood improvements. There are two main types of social capital: bonding social capital, which measures the quality of relationships within a given community, and bridging social capital, which measures the quality of relationships between members of different communities.

AnAlysisOnce the data is gathered, of course there needs to be the capacity to do analysis of the data in order to discover patterns. The Integra CMS software is capable of producing a range of different kinds of reports.

The three main types of reports produced are

impact reports•statistical reports•Business Development Services (BDS) reports •

Impact ReportsIA 1 – Change over timeIA 2 – Cross sectional - clientsIA 3 – Cross sectional - population at riskIA 4 – Cross sectional – still in businessIA 5 – Change in social capital over timeIA 6 – Cross sectional view on social capital

Statistical reportsFinancial and use of service ReportsGuarantee fund paymentsProgram Performance ReportLoan interest incomeLoan repaymentsCash flow planBDS overviewTrainings overviewPortfolio quality report

Business Development Services reportsNo. of seminarsNo. of seminar participantsNo. of conferencesNo. of conference participantsNo. of support groupsNo. of support group meetingsNo. of support group participantsNo. of newsletters issuesNo. of newsletters recipientsNo. of clients in mentoring programNo. of market access usersNo. of business consultation usersTime spent in consultation (hours)No. of consultations

The system is able to produce both longitudinal and cross section reports. Longitudinal reports compare the same type of information from the forms of the same client over time. This allows us to compare whether there has been growth in the impact indicators for a given client. For example, has her business income grown during a specific time period?

Cross-sectional reports provide data on selected impact indicators among all or a range of client at any given point in time. For example, what is average business income among clients in Bratislava compared with that of clients in Eastern Slovakia?

number/profile of pArticipAnts

The database now includes complete data on 958 clients for whom data was collected into the Integra CMS. These were exclusively clients involved in Integra’s microenterprise development program for women at risk, which operates in four locations across Slovakia. obserVAtions (WhAt Worked/WhAt didn’t Work?)In partnership with EMN, in the second half of 2007 Integra conducted an evaluation of the use and value of the CMS toward the fulfilment of the Integra mission.

What is good: •

The system gathers very useful data, and provides a •comprehensive overview of the state of the program. Because the data is gathered from each client, rather than a •sample, it is very accurateThe reports are easy to create and directly accessible to •management an staff in the programThe CMS helps in providing reports for donors and investors, •and saves a lot of staff time in accessing data.Integra can provide a range of data for impact assessment that •is not commonly available to other similar agencies. This gives a competitive advantage to the program.

What is not so good:•

The data collection process is time consuming and adds to the •workload for our loan officers. As a result, often data collection was delayed and did not produce timely information. The software used (MS Access) becomes slower as the volume •


of data growsAlthough there is an ambition to revise the CMS to become web-based so as to be accessible to staff in Integra’s 4 country offices, this •has proved too costly thus far. The initial budget for the development of the CMS was exceeded by more than 50%•Our original intention to implement the CMS in all Integra programs in Central and Eastern Europe (Russia, Romania, Bulgaria and Serbia •as well as Slovakia) was not fulfilled. This was due to financial restraints and differences in the type of program from country to country. Program staff and managers do not use the data as much as had been hoped. They feel they know their clients well, and do not need •such a system to give them the data they need to provide the kind of client support services necessary.

fundAmentAl limitAtions: At a fundamental level, the CMS can gather data on our client group, but cannot establish causality. What is meant by this is that there is no way to provide a direct link between client participation in our program and improvements in her livelihood, business or social capital. What we can establish is that during the period in our program, the client experienced changes in the areas tracked.

To establish causality, we would need to engage in the widespread use of control groups, so as to compare the circumstances of our clients with those outside our program. This is both beyond the scope of our mission, exceeds our resources, and is unlikely to succeed in collecting reliable data from women outside our program who would have no reason to share such detailed information about their businesses or households.

summAry:The Integra CMS continues to provide useful data for managing and improving our program offer to the target group, women at risk. It is directly linked to our mission of poverty alleviation for this group.

On the other hand it is a complex system to maintain, and does not provide a definitive answer to the most important question we would like to ask, namely “does involvement in our program help the women, their families and their businesses to enjoy qualitative improvements?”

references:Robert Chambers “Whose Reality Counts?” ITDG Publishing, London, 1997Christian, Jayakumar. “God Of The Empty-Handed”, Monrovia, California: MARC (World Vision), 1999 Bryant Meyers, “Walking With the Poor: Principles and Practices of Transformational Development”, Orbis Books, Maryknoll, New York, 1999

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