mainstreaming microfinance: social performance management or mission drift?

World Development Vol. 35, No. 10, pp. 1721–1738, 2007� 2007 Elsevier Ltd. All rights reserved

0305-750X/$ - see front matter

doi:10.1016/j.worlddev.2007.06.004www.elsevier.com/locate/worlddev

Mainstreaming Microfinance: Social

Performance Management or Mission Drift?

JAMES COPESTAKE *

University of Bath, UK

Summary. — What scope is there for the pursuit of explicit development goals in the context ofincreasing integration of specialized microfinance and commercial banking sectors? This questionand the idea of mission drift is first analyzed using a model that distinguishes between institutions’financial and social performance possibilities, preferences, and assessment systems. The model isused to review findings from action research with an international sample of poverty orientedmicrofinance institutions that suggest some simple steps for improved social performance manage-ment. It is then used to illustrate the relationship between social and financial performance morewidely across the retail financial services sector, and to offer pointers for more policy analysis atthis level.� 2007 Elsevier Ltd. All rights reserved.

Key words — banking, microfinance, performance management, poverty

* Earlier drafts of this paper were presented at the Uni-

versity of Complutense summer school at El Escorial in

August 2005, and the Development Studies Association

Conference at the Open University, Milton Keynes in

September 2005. I am grateful for comments from par-

ticipants at both of these events, as well as from three

anonymous reviewers and from numerous colleagues at

Bath and within the Imp-Act program, particularly Ke-

ith Heffernan, Susan Johnson, and Anton Simanowitz

Final revision accepted: November 6, 2006.

1. INTRODUCTION

Large sums of public and private money con-tinue to be invested in improving access to, andthe quality of personal financial services. Mostof this investment is profit oriented, but manyinvestors are also motivated by social goals.For example, the Consultative Group to Assistthe Poorest (the apex association of interna-tional donors who support microfinance) re-gards microfinance as ‘‘a powerful tool tofight poverty’’ that can help poor people to‘‘raise income, build their assets, and cushionthemselves against external shocks’’ (CGAP,2004a, p. 1). Microfinance is defined here inrelation to its users—rather than in relation toother forms of finance—as the supply of sav-ings, credit, insurance, and payment servicesto relatively poor people. These services arenot only provided by specialized microfinanceinstitutions (MFIs) that belong to the ‘‘newworld’’ of microenterprise finance (Otero &Rhyne, 1996) but also by a diverse group ofstate sponsored and cooperative institutions,particularly postal banks, who serve many poorclients (CGAP, 2004b) along with a growingnumber of ‘‘downscaling’’ commercial financialinstitutions (Marulanda & Otero, 2005; TheEconomist, 2005; Valenzuela, 2002). In theother direction, many ‘‘upscaling’’ MFIs have

172

transformed into regulated financial institu-tions and/or secured better access to commer-cial as well as donor finance, particularly inLatin America (Drake & Rhyne, 2002).

Many commentators have welcomed theblurring of the boundary between microfinanceand mainstream banking on the grounds thatonly with commercial capital can demand forfinancial services among poorer people previ-ously excluded from retail banking services bemore fully met. For example, CGAP (2004a,p. 1) states that ‘‘microfinance will only realizeits potential if it is integrated into a country’smainstream financial system’’. Closer integra-tion is also expected to promote institutionalinnovation and responsiveness to diversesources of demand. However, many commenta-tors—indeed often the same ones—have also

1

1722 WORLD DEVELOPMENT

expressed apprehension that the growing com-mercialization of microfinance is leading to anover-preoccupation with profitability at the ex-pense of poverty reduction and other develop-ment goals (e.g., CGAP, 2001; Christen &Drake, 2002, p. 4; Hulme & Mosley, 1996;Otero, 1999). 1 Arguments for concessional fi-nance (CGAP, 2004a, p. 10) or ‘‘smart subsi-dies’’ (de Aghion & Murdoch, 2005, p. 256)to complement private capital also remainstrong, and a ‘‘quasi-market’’ has evolved. Thisprovides microfinance institutions with a mix offunding from public donors, private non-profitsocial investors, and commercial investors tosuit the perceived private and public benefitsarising from the services they provide.

To the extent that microfinance is motivatedby development ends the question arises howbest to evaluate performance against them.Rigorously measuring the impact of microfi-nance institutions and policies on the multipledimensions of poverty and related goals is tech-nically difficult and expensive (e.g., de Aghion& Murdoch, 2005; Khandker, 1998; Morduch,1998; Sebstad & Chen, 1996), and it is not clearhow far financial institutions themselves shouldengage in such assessment. One view is that im-pact assessment is a task better left to indepen-dent researchers and oriented toward informingpublic policy. At the other extreme is the viewthat the potential of microfinance as a develop-ment tool can only be realized if financial insti-tutions themselves systematically and routinelyinvestigate their own development impact. Anintermediate position favors a mix of more rig-orous ‘‘proving’’ impact assessment researchfor public policy and less rigorous ‘‘improving’’research for internal use by financial institu-tions (Goldberg, 2005; Hulme, 2000). But manyquestions remain. How far can financial institu-tions safely and responsibly compromise on rig-or in order to improve the timeliness and costeffectiveness of impact research? And if finan-cial institutions can find reliable ways of assess-ing impact for themselves, then is public policybetter served by auditing and sharing such ef-fort, rather than by funding expensive indepen-dent studies that are often limited in time andscope? The distinctions between ‘‘proving’’and ‘‘improving,’’ rigorous and reliable re-search into the outreach and impact of microfi-nance are not as straight forward as they mayappear at first sight (Copestake, 2000; Sebstad& Cohen, 2001; Simanowitz, 2001).

In the last few years, debate over impactassessment within non-profit financial institu-

tions has converged with debate over corporatesocial responsibility of for-profit institutions.Both concern incentives to set and monitor so-cial goals, and raise questions about the mana-gerial feasibility of ‘‘multi-tasking’’ (de Aghion& Murdoch, 2005, p. 263) or managing a ‘‘dou-ble bottom line’’ (Tulchin, 2003). Both also ad-dress bigger questions of power and rationality:what political room for maneuver exists (if any)to encourage financial institutions to addresswider social goals, and how far are they techni-cally capable of doing so? Whether it entailsabandoning welfare goals for profit, or viceversa, the idea of mission drift suggests a deeperproblem of lack of transparency and weak per-formance management. More specifically, itcan be argued that social performance assess-ment and management have failed to achievethe same clarity, consistency, and level ofacceptance as financial performance assessmentand management (see Table 1).

A possible danger of extending performancemanagement into the social sphere is that it cur-tails an organization’s flexibility by tying it toquantitative indicators that are poor proxiesof ultimate social goals and so distort perfor-mance incentives (Power, 1997). Worse still isthe risk that the technical discourse of perfor-mance management and auditing obscures anorganizations’ wider historical and politicalrole (Strathern, 2000). However, social perfor-mance indicators can perhaps be used in waysthat complement rather than substitute formore flexible qualitative management, and per-formance management can contribute to moreeffective achievement of wider roles, rather thanobscuring them. In the absence of countervail-ing social performance indicators it is also pos-sible that organizations will focus too much onfinancial indicators. The main emphasis in thispaper is less on the desirability, or otherwise,of social performance management (an issuefor potential users) than on its feasibility.

Section 2 presents a simple framework foranalyzing social and financial performancemanagement, including the widely used, but of-ten loosely defined idea of mission drift. Section3 uses the framework to review lessons from amulti-country action-research program (Imp-Act) into how social performance managementof explicitly poverty oriented microfinanceinstitutions could be improved. Section 4 ex-plores the scope for mainstreaming social aswell as financial performance at the sector level,particularly the scope for persuading or forcingprofit oriented institutions to take explicit

Table 1. Financial and social performance managements compared

Financial performance management Social performance management,including poverty reduction

Main goals Profitability; reduced dependence onsubsidies; reduced risk exposure

Achievement of stated social missionand/or commitments to corporatesocial responsibility over time: for

example, reduction of financial exclusion,poverty reduction, empowerment of

women, compliance with ethical standardsfor consumer protection. Clear indicators,and strategies supporting such goals are

often lacking.

How assessed? Systematic book-keeping andaccounting. Market research

Comply with process qualitystandards; monitor who clients

are (as well as those affectedby services offered indirectly)and how much they benefit.

There has been little consensusabout how to do this.

What for? To inform decisions about prices,products, service delivery systems

and strategies

The same, but with a view to improvingsocial performance as well:

for example, through a better fit withprovision of non-financial services, whether

provided jointly or by other agencies.Mechanisms for linking assessment to

action are often weak and unclear.Incentives to do so are also often weak

Cost effective? Part of the cost of doingbusiness—a legal as well as a

strategic requirement

Fear that explicit social performancemanagement is a drain on financialperformance. Expenditure on socialperformance assessment should beproportionate to potential benefits

arising from its use. Norms regardingwhat is appropriate are weak.

How validated? Internal and external audits Norms for internal qualityassurance and external

review of social performanceassessment systems are lacking

MAINSTREAMING MICROFINANCE 1723

social performance assessment and manage-ment more seriously. Section 5 concludes.

2. THEORETICAL FRAMEWORK

Following Yaron (1992), financial perfor-mance is defined here as the extent to whichthe full cost of providing services is directlypaid for by service users. Social performancecan be defined in a large number of ways. Zel-ler, Lapenu, and Greeley (2003), for example,emphasize compliance with minimum opera-tional standards, including external standards

of consumer protection. This is important,but risks divert attention too much from wel-fare outcomes to service users. Three sets ofindicators are widely used: the number of peo-ple using services in a given period (breadth ofoutreach); their social—including poverty—status at the beginning of the period (depth ofoutreach); and net benefit to each, includingindirect benefits to other household and evennon-household members during the period(quality of outreach or impact). 2

Innovation, such as a reduction in the costsof providing services, can result in simulta-neous improvement in both financial and social

C1 C2 C3

PPt+1

FINANCIAL PERFORMANCE

pt

pt+1#

0 0

pt+1* C

UR

RE

NT

SO

CIA

L P

ER

FRO

MA

NC

E

(e.

g. I

MPA

CT

ON

PO

VE

RT

Y)

Figure 1. Strategic options facing MFIs.


performance, but many decisions entail a trade-off over time between them. For example, rais-ing interest rates on loans is likely to improvefinancial performance (assuming inelastic de-mand), but at the expense of current social per-formance (due to reduced net benefit per client,as well as a possible short-term reduction in thebreadth and depth of outreach). Other trade-offs can only be assessed over time, since futuresocial performance will depend upon both cur-rent social performance (e.g., via its effect onusers’ future demand for services) and financialperformance (as a critical determinant of futurecapacity to supply services). Many MFIs haveemphasized the prime importance of servingmore clients through growth. The cost ofinvesting in new capacity has an adverse finan-cial effect in the short-term, but this can be off-set eventually by realization of economies ofscale (Hulme & Mosley, 1996). Improved finan-cial performance is also necessary for growth inorder to mobilize resources; hence there may bea case for lowering current social performanceto enhance future social performance. In con-trast, other MFIs have opted for a slowergrowth strategy: putting greater emphasis oncurrent depth of outreach and impact. Suchdecisions reflect variation in time horizons,but more importantly they reflect path-depen-dent judgements about how current perfor-mance is likely to affect future socialperformance opportunities.

Figure 1 provides a graphical framework toaid thinking about such strategic options. TheMFI’s mission is represented by a set of indif-

ference curves (C1, C2, C3, etc.), each represent-ing a set of combinations of social and financialperformance that are equally attractive. Fromany given initial level of performance (pt), anMFI is constrained in how it can change its po-sition within the next time period by a perfor-mance possibility locus PPt+1 of potentiallyattainable positions. This reflects its room formaneuver, and is determined by scope for pol-icy change, operational reforms, investment,innovation, and growth. Change possibilitiesover one period are illustrated by the five ar-rows:

1. The horizontal arrow represents agrowth-first strategy, subject to the rule thatcurrent social performance should not getany worse.2. The vertical arrow represents a currentclients-first strategy, subject to the rule thatfinancial performance should not get anyworse.3. The arrow pointing upward and to theright represents an intermediate strategy.Assuming the MFI is successful in reachingthe PPt+1 line, then one such strategy is opti-mal: in the case shown it is p�tþ1.4. The arrow moving up and to the left rep-resents a trade-off strategy of improved cur-rent period social performance at theexpense of financial performance. To be sus-tained this would require an increased rateof subsidy. This could be justified by theimproved social performance, but if so theindifference curves would have to beredrawn.


5. The downward sloping arrow also repre-sents a trade-off strategy: this time toenhance financial performance by reducingcurrent social performance. This might takethe form, for example, of deliberately target-ing richer and more profitable clients.

Performance in the current period will deter-mine possibilities in the next period. These arenot shown in the diagram, but could be drawnas a new performance possibility curve (PPt+2),above and to the right of the point (pt+1) at-tained in the previous period. To the extent thatpast performance is an important influence onfuture performance, then it is also possible toplot multi-period trajectories. A virtuous cycleof improved performance inducing furtherimprovements would take an MFI upwardand to the right, whereas a vicious cycle couldlead it down and left toward the origin.

In addition to illustrating strategic options,the diagram clarifies the transparency issue.The first issue is how accurately a financialinstitution is able to assess its performance pos-sibilities at the beginning of any period, and tomeasure its actual performance at the end ofany period. This is more than a technical issue,since it also depends on willingness to allocatebudgetary resources to the task, and thereby re-strict the strategic room for maneuver that per-formance ambiguity might otherwise allow(Martens, Mummert, Murrell, & Seabright,2002). A second issue is the extent to whichfinancial institutions have clearly defined pref-erences. The term mission drift suggests an un-planned or hidden change in preferences, whichis also endogenous (i.e., a response to past per-formance): less rational than a conscious (evenif contested) change in preferences, but morethan total ignorance of actual performance out-comes.

As an example, assume that an MFI takes ac-tions intended to take it from point pt to p�tþ1only to end up at p#

tþ1. This in itself is better de-scribed as mission failure than drift. But fromthis new starting point it is unlikely that theMFI would continue to aim for P �tþ1 in the sec-ond period. Indeed P �tþ1 might even fall com-pletely outside any realistic assessment ofwhat is possible (i.e., lie above the ex ante pro-duction possibility frontier for the new period,PPt+2). In such a situation, choosing a new tar-get performance outcome for the next periodwithout a change in underlying preferences isbetter described as pragmatism than missiondrift. At the opposite extreme an MFI couldredefine its preferences in order to provide an

ex post rationalization of the actual perfor-mance outcome. In this example, this could bedone by expressing a stronger preference forfinancial performance over current social per-formance (i.e., making the indifference curvessteeper until p#

tþ1 rather than P �tþ1 becomes theoptimal target). This is closer to the idea of mis-sion drift, but links it firmly to blatant self-serv-ing opportunism and so is better regarded as aspecial case. A more general definition is thatthe steps taken to achieve a given performanceoutcome directly induce changes in preferences:the shape of indifference curves is endogenouslyinfluenced by changes in performance possibil-ities and outcomes.

In a mythical world of perfect information,the directors of a financial institution wouldset performance goals, managers would makedecisions to achieve them, outcomes could bemonitored systematically and lessons learnt.But leaders of financial institutions are at besthandicapped by lack of timely and reliable evi-dence about performance. At worst their goalsand preferences change opportunistically in re-sponse to actual performance outcomes ratherthan being a fixed point against which perfor-mance can be guided and assessed. To sumup, the model above suggests three steps to re-view the extent to which financial institutionssystematically manage their performance orare guilty of mission drift: review how financialand social performance is assessed; review therange of available performance possibilitiesand strategies; and review how preferencesand goals are formed and adjusted in the lightof performance.

3. APPLICATION TO POVERTYORIENTED MFIS

This section applies the framework presentedin Section 2 to non-profit MFIs, drawing onexperience under a global action research pro-gram, called Imp-Act. This was launched in2000 to explore ways of improving the mea-surement and management of poverty reduc-tion by MFIs. 3 Twenty-two organizationssuccessfully bid for support to carry out theirown action-research over a three year period,ending in April 2004. 4 These comprised 16 di-rect providers of microfinance services, threeNGO promoters of user-controlled savingsand credit groups, and three MFI networks(see Table 2). A premise of the program wasthat debate over the social performance of

Table 2. Details of participants in the Imp-Act program

Organization, country, description, andyear established

Imp-Act action research project goals and selectedpublications arising from them

BRAC (Bangladesh Rural AdvancementCommittee), Bangladesh. A large NGOwith goals of poverty alleviation andempowerment of poor people in ruralareas. It takes a holistic approach,emphasizing income generation, and socialdevelopment, and offers savings and groupbased financial services to women. 1972

To assess indirect and wider impact,including that of new microinsurance

products (Chowdhury & Bhuiya, 2004)

CAME (Centro de Apoyo al Micro Empresario),Mexico. An NGO providing financial servicesto small business operators in south-eastMexico City, principally using a village-bankingmethodology, 1993

To review its village banking modeland to strengthen internal social

performance assessment capabilitythrough partnership with local researchers

CARD (Center for Agriculture and RuralDevelopment), The Philippines. A poverty-focusedMFI that uses both solidarity-group and ‘‘creditwith education’’ methodologiesto provide financial services to women, 1986

To strengthen internal market researchand social performance assessment

capability, sharing best practices withother members of the Philippines

Microfinance Council (Joyas & Alip, 2003)

CERUDEB (Centenary Rural Development Bank Ltd),Uganda. A national commercial bank with a missionto provide financial services to all Ugandans, includinglow income and agricultural clients, 1982

To incorporate social indicators intoits computerized MIS in order to

be able to monitor the profileof its clients and improve its

credit rating system (Mosley &Rock, 2004)

CMF (Centre for Microfinance), Nepal. A networkthat aims to strengthen the capacity of 63 members(with 65,000 clients) to provide sustainable financialservices, especially to poor women. It provides trainingand technical assistance, undertakes research, andpromotes better policies for microfinance. 1998

To carry out an impact study ofmember credit unions, comparing

those that were self-organizedwith those that were externally sponsored

CYSD (Centre for Youth and Social Development),India. An NGO that promotes microfinance forwomen through self-help groups as part of itsintegrated development services to improve thelives of poor and excluded people in Orissa throughcommunity organization and rural institutionbuilding, 1982

To develop new monitoring tools,including a system for rating

the quality of self-help groups.To carry out wider/indirect impactassessment (Dash & Kabeer, 2005)

FINCA (Foundation for International CommunityAssistance), USA. An NGO supporting a globalnetwork of 24 affiliated MFIs offering villagebanking services to poor families, 1985.

To build a system for annualmonitoring of the poverty status

of clients at country program level

FINRURAL, Bolivia. A national network of14 MFIs (serving 188,000 clients) with a strongcommitment to improving savings facilities inrural areas. Several members (includingCRECER and PROMUJER-Bolivia)provide complementary non-financialservices, and are registered as NGOs, 1993

To develop the capacity of the networksecretariat to do impact assessments formembers on a sustainable basis to meet

MFI needs, but in a way that can beconsolidated so as to inform national policy

debates (Aliaga et al., 2005; Marconi &Mosley, 2004)


Table 2—continued



FOCCAS (Foundation for Credit and CommunityAssistance), Uganda. A cooperative creditassociation that combines village banking and‘‘Credit with Education’’ methodologies to providefinancial and educational services to poor ruralwomen, 1995

To strengthen market research and client statusmonitoring, mostly through the use of focus

groups, with technical support fromMicroSave (Africa).

FPC (Funding the Poor Cooperative), China. Aproject of the Rural Development Institute of theChinese Academy of Social Sciences, using agroup-lending methodology to offer financialservices to poor rural clients (mostly women)in two Provinces, 1994

To deepen understanding of optionsfor social performance assessmentthrough international networking

KDA (K-REP Development Agency), Kenya.A microfinance research and innovation companylinked to K-REP Bank, whose main goal is topromote improved access to financial services, 1984

To assess the impact offarmer service associations

operating in less densely populatedparts of the country.

LAPO (Lift Above Poverty Organization), Nigeria.An MFI that uses solidarity-group lending(mostly with women) in concert with non-financialservices such as training and awareness-raising, 1993

To explore different approachesto measuring progress toward

its poverty-reduction mission (Garuba, 2005)

MFC (Microfinance Centre), Poland. A trust with66 institutional members serving 280,000 clients across22 countries in Eastern Europe, the Balkans, andCentral Asia. Its main role is to provide memberswith technical support services, 1997. DEMOS(Croatia), FORA (Russia), Inicjatywa Mikro(Poland), INTEGRA (Slovakia & Romania),PARTNER, and PRIZMA (Bosnia-Herzegovina)participated in Imp-Act

To assist in institutionalizingsocial performance assessmentwithin the region, as well as

conducting specific studies intothe role of wider impact of

microfinance (Kline, 2003; Kline, 2005;Matul & Tsilikounas, 2004; Mosley et al.,

2004; Pawlak, 2005; Woller, 2004)

ODEF (Organizacion de Desarrollo EmpresarialFemenino), Honduras. A registered MFI offeringindividual and group based financial services to clients,particularly women in rural areas. One of the 21institutional members of the national Covelo networkof MFIs in Honduras serving 131,000 clients, 1992

To develop capacity (throughpilot studies using ‘‘SEEP-AIMS

tools’’ and learning by doing)to carry out client exit,

impact satisfaction, loan use,and empowerment studies

among MFI’s belonging to theCovelo network (Copestake, 2004b)

PRADAN (Professional Assistance for DevelopmentAction), India. An NGO that promotes sustainablelivelihoods for poor and socially disadvantaged peoplein rural areas through an integrated approach, includingsupport for financial services to women through

self-help groups, 1983

To institutionalize self-help group impactmonitoring through developmentof an ‘‘internal learning system’’

based on pictorial diaries maintainedby group members (Noponen, 2003)

PROMUC (Promocion de La Mujer y la Comunidad),Peru. A partnership of 12 NGOs to develop villagebanking services (with 28,000 members) as a mechanismfor small business promotion, poverty reduction, andthe empowerment of women, 1994

To develop (through learning by doing)internal capability of the secretariat

and member NGOs to carry outpoverty and impact assessment for

internal and external audiences(Copestake, Dawson, et al., 2005)

(continued on next page)


Table 2—continued



PROMUJER, Peru. One of four MFIs set up by a USbased NGO, it seeks to empower women through theprovision of financial services, as well as programson health, family planning, and child development, 2000

To carry out an in-depthstudy of direct and indirectimpacts of its services with

particular reference to genderand intra-household relations

SAT (Sinapi Aba Trust), Ghana. MFI providingfinancial services to poor people using Trust Bank andindividual lending methodologies. It is one of the 50MFIs supported by the Opportunity Internationalnetwork, 1994

To build internal capability to use‘‘SEEP-AIMS’’ tools, and develop

a comprehensive impact monitoringand assessment system (Opoku, 2005)

SEEP (Small Enterprise Education and PromotionNetwork), USA. A network of 55 US-basedinternational microenterprise promotion agenciesserving 23 million clients either directly or throughpartnerships. Members include Accion, CareInternational, Freedom from Hunger, FINCA,Mercy Corps, Opportunity International, andPlan International, 1985

To encourage peer exchange andlearning in poverty and ‘‘client assessment’’

among member NGOs and their MFIaffiliates, to document the changes

introduced, and to disseminatelessons learnt (SEEP, 2005; Woller, 2005)

SEF (Small Enterprise Foundation),South Africa. An MFI using group-lendingmethodology to provide sustainable financialservices to poor women in the LimpopoProvince, one of the poorest regions ofthe country. Two programs run in parallel,one designed specifically for very poorclients who are identified using participatorywealth ranking, 1993

To review and streamlineits internal poverty assessment and

impact monitoring systems(Baumann, 2005; Roper, 2003;

Van de Ruit & May, 2003)

SHARE (Society for Helping to AwakenRural Poor through Education), India.One of the world’s fastest-growing MFIs inthe 1990s. It aims to provide financialservices and training to poor and verypoor women in Andhra Pradesh, 1989

To carry out an in-depth study ofindirect impact, and to strengthen

internal SPA capability(Cortijo & Kabeer, 2005)

UMU (Uganda Microfinance Union),Uganda. It offers flexible group-lendingservices for micro business operatorsand people with low incomes, 1997

To build up internal capabilityto do client assessment, including

(latterly) through ‘‘data warehousing’’

Adapted from Copestake, Greeley, et al. (2005, pp. 15–20 and 179–180). MicroSave Africa was also an importantparticipant in Imp-Act, but not a direct contract holder. For a more comprehensive list of publications arising fromImp-Act see the website: www.imp-act.org.


MFIs was dominated by external interests (ofgovernments, donors, and researchers) at theexpense of MFIs themselves. Participants weretherefore given freedom to explore ways ofimproving their social performance assessmentsystems to meet their own, rather than exter-nally dictated ends. The resulting projects var-ied widely in purpose and outcome, as shownin the second column of Table 2.

(a) Social performance assessment

Table 3 illustrates several of the problemswith some of the dominant performance indica-tors prevailing at the start of the Imp-Act pro-gram, using data from 17 participatingMFIs. 5 First, operational self-sustainability(OSS) is included to exemplify financial perfor-mance and is not discussed further here (see

http://www.imp-act.org

Table 3. Illustrative performance indicators for selected MFIs

OSS (%)a No. of clients (’000) Credit/client ($US)b Time period

t = 1 t = 2 % dif. t = 1 t = 2 % dif. t = 1 t = 2 % dif. t = 1 t = 2

BRAC 124 127 2 2,993 3,493 17 49 n/a n/a Dec-00 Dec-03CAME 135 133 �1 24 38 58 1,458 1,526 5 Dec-01 Dec-03CARD 141 134 �5 50 113 126 170 108 �37 Dec-01 Dec-03CERUDEB 136 138 1 17 45 165 586 772 32 Jan-01 Jan-04FINCA 115 112 �3 190 256 35 121 170 40 Dec-01 Dec-03FOCCAS 42 80 90 11 16 45 36 56 57 Mar-01 Mar-04FPCc >100 >100 n/a 10 14 37 103 130 26 Mar-01 Mar-04KDAd 106 n/a n/a 7 29 314 72 n/a n/a Dec-00 Dec-03LAPO n/a 119 n/a 15 23 53 38 60 59 Dec-01 Dec-03ODEF n/a 113 n/a 9 11 22 358 621 73 Dec-00 Oct-03Prizma 107 134 25 3 12 300 0 0 n/a Dec-00 Dec-03PROMUC n/a 117e n/a 13 28 115 106 130 23 Dec-00 Dec-04Promujerf 66 128 94 8 12 50 90 110 22 Dec-01 Dec-02SATg 42 82 95 11 16 50 37 56 52 Mar-01 Mar-04SEF 66 99 50 12 22 81 77 139 80 Jun-01 Jun-04SHARE 107 134 25 49 86 76 61 140 128 Dec-01 Dec-02UMU 98 126 29 8 29 263 100 217 117 Dec-00 Dec-03

Adapted from Copestake et al. (2005, p. 14). For acronyms see Table 2.a OSS refers to operational self-sufficiency, or the percentage of operational costs covered by interest and fee incomein the month indicated.b Mean loan outstanding per active borrower, converted at the then current exchange rate.c Data for Yixian and Nanzhao branches only.d Data for farmer service associations only.e Figure for 2002.f Promujer Peru only.g Refers to group loans only.


Von-Pischke, 1998; Yaron, 1992). Second, thenumber of active loan clients exemplifies indica-tors of breadth of outreach. Growth was posi-tive in all cases, but the aggregate figure doesnot reveal the extent of client churning (exitand entry) and begs the question how ‘‘active’’can best be defined. Third, credit outstandingper client has been widely used as a crude indi-cator of depth of outreach. It increased in 13cases, fell only for one (CARD) and was notavailable for three. However, there are manypossible reasons for an upward trend including:accumulation of loan arrears; increased debt-capacity (whether due to positive impact orexogenous factors); a shift toward richer clients(hence possibly mission drift); and the effect ofchanges in dollar exchange rates and inflation.Averages can also be skewed by a small numberof relatively large loans in the portfolio (as inthe case of CAME). Together these factorsgreatly limit its usefulness as a social perfor-mance indicator (Dunford, 2002).

One objective of Imp-Act was to contributetoward the identification of a more useful andcomprehensive set of social performance indi-cators that could be monitored routinely in

the same way as financial performance indica-tors. Enthusiasts for harmonization argued thatthis would reduce uncertainty and confusion bymaking it easier for investors to compare socialperformance between MFIs. But others fearedthat an overzealous drive to establish standardbenchmarks would undermine diversity ofgoals and context-specific approaches to theuse of microfinance as a development tool.An intermediate approach—and the oneadopted—was to work toward a simple processstandard for social performance assessmentthat could accommodate a variety of indicatorsand approaches (Copestake, 2003a; Imp-Act,2005). This erred on the side of minimalism, gi-ven many experiences of MFIs and their spon-sors investing in excessively elaborate systemsof assessment.

Three broad points of consensus emerged asto what this should include. First, MFIs withan explicit poverty mission should routinelymonitor not only breadth of outreach (i.e., totalnumber of clients) but also depth. Although itwas not possible to agree on a standard set ofindicators for this, there was methodologicalconvergence, with many MFIs and their


sponsors adopting a combination of proxy pov-erty indicators, with leaders in the field, such asPrizma, using simple but transparent scorecardcalibrated against national household surveydata and poverty estimates. 6

Second, MFIs should routinely monitor clientexit and turnover. If clients choose not to leave,and are not hoodwinked or coerced into usingservices, then this is itself a useful indicationthat the impact of the services they are using isless likely to be negative. It follows that out-reach data should at the very least be supple-mented by statistics on exit, including routinereports on why clients leave—particularly thosewho only recently joined, and whose under-standing of terms of service (particularly debt)could have been inadequate (Copestake, 2003b).

Third, MFIs should invest in capacity to as-sess progress toward social goals from loyal cli-ents too, through being able to conduct orcommission appropriate market and impact re-search (Cohen, 2002; Sebstad & Cohen, 2001;Woller, 2002). This can be conducted throughquestionnaire-based surveys, semi-structured,key informant interviews, and focus groups:the priority being to test, update, and augmentexisting organizational understanding of cli-ents’ experiences (as well as indirect and poten-tial impact) rather than to provide rigorousproof of impact for an uninformed externalaudience. Case studies of PRIZMA, SEF, andfour MFIs in Honduras demonstrated howsuch work can pay for itself and hence avoidbeing a drag on financial performance. 7

Returning to the theoretical framework sum-marized in Figure 1, these practical lessonsamount to defining the Y-axis (social perfor-mance) as the number of active users of differ-ent services adjusted for loyalty and clientsatisfaction (as a proxy of service quality) andpoverty status (with greater weight ascribed topoorer or otherwise disadvantaged clients). So-cial performance is improved by serving moreclients, by serving poorer clients, by broadeningthe range of services they receive, by servingthem for longer periods, and ensuring that ser-vices do no harm. While this definition fallswell short of capturing all aspects of the socialmission of all MFIs (e.g., community-wide im-pact) it is precise, operationally feasible, andcomparable. At the very least, socially mindedexternal sponsors should monitor whether theMFIs they support have, and are finding waysto strengthen, a social performance assessmentsystem that is consistent with the above points(Imp-Act, 2005).

(b) Performance possibilities

Having argued that there is some conver-gence on social performance assessment, wenow turn to the question of strategic room formaneuver. Without denying the scope for somemanagerial wizardry, the major determinantsof financial performance are well understood:realistic pricing of products (particularly inter-est rates); strong cost control and productivityenhancement, risk and liquidity management,portfolio quality control, and continuous inno-vation in response to customer requirementsand market conditions (Christen, 1998; Otero& Rhyne, 1996; Woller, 2002). The key ques-tion concerns how much scope MFIs have sys-tematically to improve social performance atthe same time. Analysis of experience of MFIsparticipating in the Imp-Act program high-lighted four areas (Copestake et al., 2005, pp.157–177).

First, targeting has a critical bearing ondepth of outreach. The most important formis geographical. Serving poorer areas does notnecessarily mean lower profits, since such areasmay be subject to more limited competition,but it often results in significantly increaseddepth of outreach. Examples are PRIZMAand PROMUJER. Both operate in environ-ments where proliferation of MFIs led to mar-ket saturation, forcing incisive action to securea market niche in order to survive. Many MFIsalso directly target poorer clients by using apoverty means test. This remains controversial:deliberately excluding better-off clients can re-duce opportunities for cross-subsidization andgrowth, as well as weakening an MFI’s compet-itiveness. But as with geographical targeting,such targeting can also help an MFI to developits comparative advantage in a specific marketsegment. SEF is a particularly interesting exam-ple because it operates poverty targeted andnon-targeted services alongside each other.This enables it to vary the balance between so-cial and performance goals through realloca-tion of resources between them.

Second, an even more powerful indirect tar-geting mechanism is product design. MostMFIs started out by replicating products pio-neered by others: solidarity loans of GrameenBank, or village banking services on the FIN-CA model, for example. However, most havebecome more flexible, diversified their services(to include savings and insurance, for example),and often also simplified product terms andconditions. These changes exert a powerful


influence not only on MFIs’ profitability butalso on the kinds of clients attracted and the ex-tent to which they benefit. Johnson (2005)develops the point with specific reference topoorer women, but it applies to other groupstoo: the more carefully diverse needs and prior-ities are identified the better.

Third, internal organizational changes, par-ticularly frontline staff recruitment, trainingand performance incentive systems are critical.Performance contracts that seek to align finan-cial rewards of staff to those of the MFI havebecome standard practice, but better social per-formance assessment (particularly of staff andbranch wise exit rates) creates opportunitiesfor aligning staff incentives to social goals aswell (SEF again being a good example). Moregenerally, social performance managementcontributes importantly to ‘‘low powered incen-tives’’ that improve staff motivation, retention,and productivity (de Aghion & Murdoch, 2005,p. 267).

Fourth, MFIs’ room for maneuver dependsupon their operating environment: particularlythe extent of unrealized demand, opportunitiesfor innovation, the extent of regulation, and ac-cess to different forms of finance. While individ-ual MFIs have little influence over thesechanges, the range and quality of external rela-tionships they forge with other commercial andnon-commercial organizations (as well as theirmarket positioning) is a critical determinantof their social performance. In many countries,a scissors-like combination of increased compe-tition and more stringent terms of aid have re-duced short-term room for maneuver, forcingmore radical cost-saving and innovation. WhileMFIs compete with each other, they also col-laborate extensively, both informally andthrough formal networks. They seek flexiblefinancial and technical support from donorsand governments, and are also wary of beingoverly controlled by them. Strong financial per-formance and a good understanding of thewider financial system have opened up oppor-tunities for some to mobilize equity and debt fi-nance to permit faster growth. Equallyimportant, most MFIs depend on mainstreamfinancial institutions to make payments andhold deposits, leaving them vulnerable to in-creases in bank charges. CAME, for example,faced a potential financial crisis when theregulated financial institution that held itsvillage bank accounts threatened prohibitiveincreases in bank charges for each transac-tion.

Hence although the very existence of MFIsmay be a symptom of the mainstream financialsystem’s limited outreach, the quality of theirrelationship with it nevertheless remains criticalto their performance. Meanwhile, donors andspecialist intermediaries provide MFIs with fi-nance and technical support that can help tosoften the trade-off between growth, depth,and quality of outreach. The main challengefacing MFIs is then to make good use of suchsupport without at the same time becomingoverly dependent on it, or allowing it to under-mine their financial discipline and autonomy(Adams & Pischke, 1992; Copestake, 2006;Schmidt & Zeitinger, 1998). Performance possi-bilities or strategic options faced by MFIs mayhave narrowed somewhat due to increasedcompetition and tougher terms of donor fund-ing, but they remain substantial.

(c) Performance preferences

Mission statements of Imp-Act participantscovered all aspects of outreach: breadth, depth,range, quality, and sustainability. They rangedfrom minimalist (e.g., to widen access to safeand sustainable savings facilities) to more holis-tic (e.g., to empower women through groupbased savings, credit, and training). EvenCERUDEB (a commercial bank) advertizedclear social goals to promote agricultural andrural development. However, the significanceof such statements depends on how muchweight MFI leaders and boards attach to themin decision making. Tension often existed be-tween board members and senior managers:those with a stronger commercial business orbanking background (retired central bankers,accountants, and business entrepreneurs) andthose with stronger social or voluntary sectorbackground (NGO managers, activists, andacademics), for example.

To move beyond metaphor, the phenomenonof mission drift must also be explained in theseterms. Appointment of those with more com-mercial experience in a quest for improvedfinancial performance may be seen by otherboard members as a means to improve long-term social performance, but leaves open thequestion whether they will be able to retaincontrol. In the case of MFIs aiming for trans-formation into commercial banks, new boardmembers also bring financial responsibilitiesto commercial investors and private for-profitshareholders. These changes can become self-reinforcing if newcomers also perpetuate more


simplistic understanding of the nature of pov-erty (e.g., as simply a problem of lack of accessto credit). In terms of Figure 1 such drift entailsan endogenous and cumulative flattening of theindifference curves.

Larger MFIs (BRAC being a leading exam-ple) have been able to avoid such a danger bycombining the acquisition of financial expertisewith sustained investment in improving andupdating internal understanding of the natureof poverty at all levels of the organization. Thiscan be harder for smaller MFIs for whom thebigger danger may be mission lock-in ratherthan drift: borne of incumbent directors’ fearsof being unable to control or limit the processof commercialization once it has started. Lead-ers also have a vested interest in lack of trans-parency about social performance, to theextent that uncertainty and ambiguity givethem more room for maneuver in the struggleto reconcile multiple internal and externalexpectations and demands (Das & Poole,2004; Martens et al., 2002; Pritchett, 2002).

4. TOWARD A SECTOR WIDEAPPROACH

Having suggested above that there is consid-erable scope for improved social performancemanagement within MFIs, this section exploresthe scope for doing so more widely across acountry’s entire retail financial services sector.There are two arguments for doing so. First, de-spite their rapid growth, poverty oriented MFIs’are in most countries still a relatively minor pro-vider of such services (CGAP, 2004b). 8 Inter-national donors recognize that reducingfinancial exclusion requires engagement withpublic and for-profit financial institutions also(e.g., CGAP, 2004a; DFID, 2005). Second, sec-tor wide social performance is determined notonly by the actions of individual financial insti-tutions, but also by the wider public policy re-gime governing them and the whole economy.Within this wider landscape the question of per-formance management in the financial sectorgoes beyond how far it can contribute to overalleconomic growth, important though this is. Italso concerns how it can improve growth elas-ticities of employment creation and povertyreduction by offering services that help smallerbusinesses to expand and poorer people to pro-tect themselves against economic instability(World Bank, 2006). This section providespointers for further investigation at this level

by using the model presented in Section 2 brieflyto discuss public policy in relation to the perfor-mance possibilities, preferences, and assessmentmethods of for-profit as well as non-profitfinancial institutions.

For the purpose of public policy analysis,Figure 1 can be reinterpreted by letting the hor-izontal axis represent the overall profitability ofthe financial system (before taxes and subsi-dies), and the vertical axis a function ofbreadth, range, depth, and quality of outreachof the whole officially regulated retail financialservices sector. Indifference curves can bedrawn on the diagram to represent public pol-icy preferences, with policies being classifiedas either liberalizing or restricting the perfor-mance possibilities of the whole sector. This isillustrated below with reference to experiencesin India, Mexico, and South Africa.

The extensive human and financial resourcesof commercial banks have long been viewed bygovernments as potentially powerful contribu-tors to social as well as economic developmentgoals: their co-option by Indira Gandhi into In-dia’s strategy to eliminate poverty after 1969being a leading example. In terms of Figure 1,this can be depicted as a trade-off strategy inwhich banks were forced to enhance current so-cial performance at the expense of currentfinancial performance through accelerated ruralbranch expansion and allocation of credit topriority sectors and weaker sections of society.There is evidence that the policy of forced ruralcommercial bank branch expansion did con-tribute to rural poverty reduction during theperiod in which it was in force (Binswanger &Khandker, 1995; Burgess & Pande, 2005). Butthe effect of this and other interventions onlong-term economic growth and hence indirectpoverty reduction are much harder to assessand remain a matter of debate.

In sharp contrast to this are episodes offinancial liberalization where the need to im-prove current financial performance of banksprompted some sacrifice in current social per-formance. For example, the rapid increase inforeign ownership of banks in Mexico during1995–2002 was associated with branch contrac-tion, escalating user fees, and a fall in the pro-portion of the population with bank accounts(Caskey, Ruız Duran, & Maria Solo, 2004; Ha-ber, 2005, p. 2344; The Banker, 2004; Nino-Zarazua, 2006). 9

As was the case with MFIs, debate over pub-lic policy trade-offs should not crowd out dis-cussion of possibilities for improving financial


and social performance at the same time. Forexample, product innovation that improvesbreadth of outreach can also help to realizeeconomies of scale that improves financial per-formance. A complication here is that perfor-mance possibilities over time are driven inpart by induced innovation, and so cannot bedrawn independently of financial institutions’own incentives (what might be called ‘‘missionpull’’). For this reason, it is generally safer tolet indifference curves in Figure 1 representfinancial institutions’ own preferences ratherthan those of public policy makers. In the caseof for-profit institutions they can be thought ofas converging to some minimum threshold ofsocial performance, measured in terms of bothmarket share (breadth of outreach) and clientsatisfaction (quality of outreach). Subject tomaintaining these at some minimum standardthen bank owners strive to improve financialperformance and hence move to the right ofthe diagram. The issue is then what incentivesmight induce them to find innovative and sus-tainable ways of moving upward at the sametime as they seek to move right.

Satisfied customers are also likely to be goodcustomers, and raising public expectations(through consumer education, for example)can raise current social performance by encour-aging banks to invest more in service quality towin and maintain client loyalty. But there isalso a danger that over-zealous imposition ofcorporate social responsibility norms and con-sumer protection legislation could also discour-age banks from seeking to provide services topoorer clients. More important is the effect ofcompetition on bank incentives to maintainand expand market share by reaching out tonew customers at the ‘‘access frontier’’ (Von-Pischke, 1991). Prahalad and Hammond(2002) have added a twist to this argument bysuggesting that businesses who successfullyoperate across this frontier (and nearer to the‘‘base of the pyramid’’) are also likely to suc-ceed more generally because of the rigorousper transaction cost efficiency required to doso, combined with potentially huge economiesof scale. However, an additional considerationis the protection and enhancement of banks’brand loyalty, reputation, and goodwill. Thiscuts both ways. To be associated too closelywith low-end, but potentially profitable, busi-ness exposes them to criticism for charging usu-rious interest rates and profiteering, even if theterms of service are better than anything elsethese clients can obtain. On the other hand,

measures that reduce services—through branchclosures or increased minimum deposit require-ments, for example—can expose banks to criti-cism for red-lining districts and implementingfinancial apartheid (e.g., Klein, 2001, p. 307).The framework for performance managementset out here poses important questions abouthow far banks can improve their reputationfor corporate social responsibility not by savvymedia management or philanthropy but bydemonstrating how far competitive innovationin their core business activities do result in im-proved breadth, depth and quality of outreach(Copestake, 2003a; Tulchin, 2003).

It is worth returning to the issue of publicpolicy in the light of this discussion, and underthe banner of ‘‘making markets work for thepoor’’ suggested by Porteus (2004). He con-trasts five ways by which governments caninfluence banks’ social performance: (a) to en-hance competition by providing competing ser-vices themselves or directly subsidizing othersto do so; (b) to transfer to selected consumersthe means to buy financial services from others;(c) to require existing providers to extend ser-vices through cross-subsidization; (d) to exer-cise ‘‘moral suasion’’ on financial institutions;and (e) to catalyze market expansion and devel-opment by coordinating and/or underwritingrisk sharing, innovation, and capacity building.In the South African context of a struggle tomatch political with economic transformationshe emphasizes the last two options. The 2003Financial Sector Charter constituted an explicitsocial contract negotiated between the bankingsector and the government: banks being jointlygranted continued autonomy, but in return fora commitment to contribute to reduction of un-equal access to financial services inherited fromthe apartheid era. This in turn prompted collec-tive commitment to offer a new generation ofbasic (branded Mzansi) bank accounts to at-tract new clients. 10

While it is too soon to make a judgmentabout this policy compromise, the South Afri-can experience raises the question as to how so-cial performance (principally in the form ofoutreach and client satisfaction surveys) canbest be assessed. As with MFIs, banks are bestplaced to review their own performance and toact upon findings, but there may also be a rolefor the government in encouraging them to se-cure agreement on simple standards for doingso, as well as on mechanisms for pooling datato permit sector wide monitoring of trends.South Africa’s FinMark Trust is a leading


example of public–private collaboration inbuilding institutional capacity for doing so.Such initiatives can also improve availabilityof raw data for independent econometric re-search into the effects of financial sector devel-opment, enabling it to move beyond apreoccupation with its effect on economicgrowth to address its effects on financial exclu-sion, inequality, and poverty as well (e.g., Hon-ohan, 2004). Much more empirical research isalso needed into the cost effectiveness of differ-ent sector wide strategies, including how incen-tives for MFIs to up-scale and for banks todown-scale are affected by different regulatoryframeworks and financing mechanisms.

Overall, this brief discussion suggests thatnotwithstanding the stronger profit orientationof many mainstream financial institutions thereis scope for them to review their social perfor-mance more systematically both out of enlight-ened self-interest and in response to publicpolicy. Measurement of such performance neednot require very radical changes to routine mar-ket research activities, such as monitoring clientprofiles and satisfaction. Given the public goodnature of some of this information there is alsoscope for sector wide monitoring of financialinclusion and satisfaction along lines being pio-neered by networks as diverse as FINRURALin Bolivia and the FinMark Trust in SouthAfrica.

5. CONCLUSIONS

This paper set out to do three things: to clar-ify what is meant by mission drift, to review theextent to which poverty oriented MFIs are suc-cessfully able to avoid it through better socialperformance management, and to explore thescope for more systematic balancing of socialand financial goals more widely across nationalretail financial services sectors. First, a simple

model distinguishing between social and finan-cial performance preferences, possibilities, andassessment systems was used to suggest thatmission drift can most precisely be defined asex post changes in stated preferences to fit un-planned performance outcomes. This is morelikely where MFIs’ goal setting, performanceassessment, and management systems are weak.

Second, evidence was reviewed fromImp-Act: an action research program intoperformance management systems of a globalsample of explicitly poverty oriented MFIs.While there was much diversity of practicethis suggests that many MFIs do have strongsocial as well as financial performance prefer-ences, significant room for maneuver in man-aging them, and that there is scope for themto do so better. Improved goal setting andstrategic planning, routine monitoring of thepoverty status of clients and ex-clients, acapacity for follow-up research into the rea-sons behind observed changes (when unclear),and periodic reviews of these activities can allbe carried out more cost effectively and sys-tematically. This can help to accelerate thepace of innovation and growth in a more pov-erty and gender aware manner, and to reducemission drift. It can also help to moderatesome of the more extravagant claims aboutthe potential of microfinance as a develop-ment tool.

Third, there is scope for better social perfor-mance management more widely. The concep-tual framework developed in this paper foranalysis of MFIs can usefully be applied toresearching how other financial institutionscontribute to economic growth and equitygoals. A significant step in this direction wouldbe a voluntary process of improving monitor-ing, analysis, and reporting of trends in stan-dardized indicators of financial inclusion andclient satisfaction across all providers of retailfinancial services.

NOTES

1. A key argument concerns the financial incentives toabandon poorer customers on the grounds that they areless profitable (e.g., Mosley, 1996, p. 27). CGAP (2001,p. 14) provides a useful illustration of the complexity ofthe issue. It found that average loan sizes (taken as aproxy for poverty outreach) of ‘‘transformed’’ MFIs inLatin America were indeed typically greater than thoseof unregulated financial NGOs in the same region.

However, rather than attribute this to mission drift itargues that the first group was never as focused onserving very poor clients as the second.

2. See Navajas, Schreiner, Meyer, Gonzalez-Vega, andRodriguez-Meza (2000) and Greeley, Copestake, Kab-eer, and Simanowitz (2003) for a more extended discus-sion. This summary of course avoids the difficult issue of


how observed changes in poverty status of clients, andeven more so indirect impact, can be attributed with anyconfidence to use of financial services. For a recentdiscussion of this perennial issue, see Copestake, Gree-ley, Johnson, Kabeer, and Simanowitz (2005, chapters2–5) and de Aghion and Murdoch (2005, Chapter 8).

3. Imp-Act stands for ‘‘improving the impact ofmicrofinance on poverty: an action-research program’’and was sponsored by the Ford Foundation. For moreinformation, see Copestake, Greeley, et al., (2005).Further case study material from the program isavailable in Brody, Greeley, and Wright-Revolledo(2005) as well as in special editions of the IDS Bulletin

(Greeley et al., 2003), the Journal of International

Development (Mushtaque, Chowhury, & Mosley, 2004)and Small Enterprise Development (Copestake, 2004).

4. Selection took place over a year, mostly on the basisof revealed commitment to exploring new ways offinding out more about the effect of MFI services onpoverty. Prior experience of action-research was not acriterion, and most organizations hired consultants tosupport their own staff.

5. This sample comprises the 16 direct providers offinancial services directly funded under Imp-Act plusPrizma (supported via MFC). The three promoters ofuser-controlled services (CMF, PRADAN, and CYSD)and the three network organizations (FINRURAL,MFC, and SEEP) are also discussed in the paper.

6. See Copestake, Greeley, et al. (2005) for a review ofthe poverty data collected under Imp-Act. In addition,Copestake, Dawson, Fanning, McKay, and Wright-Revolledo (2005) compares two methods of povertyoutreach and impact assessment for a single MFI inPeru. Hatch and Frederick (1998) review simpler score-cards and other poverty monitoring instruments, whileadditional poverty correlate models have been developedspecifically for MFIs at the University of Maryland(Zeller, Johannsen, & Alcaraz, 2005).

7. Imp-Act (2005) provides prescriptive guidelines forcarrying out such studies, in a way that augments ratherthan replaces the SEEP (2001) tools, and guidelines

developed by MicroSave Africa. Such studies are likelyto be far more cost effective when they can build upon asolid base of routine monitoring of exit rates and clientpoverty status (Copestake, Dawson, et al., 2005). Costeffectiveness studies are presented by Woller (2004),Copestake (2004b), and Baumann (2005). Marconi andMosley (2004) demonstrate how the cost of morerigorous impact assessment can be reduced by conduct-ing them simultaneously and consistently for severalMFIs at once.

8. Moreover, a potential weakness of performanceassessment at the level of specific MFIs is that it fails totake into account how far their services are substitutingfor those provided by competitors (Von-Pischke, 1991,p. 364). From a more radical perspective, Weber (2004)also criticizes MFIs for diverting public attention awayfrom much larger and adverse social performance effectsof mainstream financial sector reforms. One componentof Imp-Act sought to address this problem by exploringways of assessing performance across the whole financialsector (Johnson, 1998, 2004; Copestake et al., 2005, pp.126–156). Linked to this was recognition of the publicgood nature of social performance findings, hence aninterest in how it could be jointly produced throughMFI networks (Copestake et al., 2005, pp. 189–197).

9. The debate over financial repression can also bedepicted using the diagram. Controlling lending rateswill increase net worth of the service to existingborrowers and perhaps attract some new ones (someimprovement in current social performance) but at thecost of reducing bank incentives to provide the service inthe future (reducing financial performance and long-term social performance). However, if interest rates arepushed up too high, then the adverse affect on currentclients may also reduce future lending opportunities.

10. Public policy to address financial exclusion inMexico is more focused on non-profit institutions ledby the public savings bank Bansefi (Banco del Ahorro

Nacional y Servicios Financieros). Meanwhile for-profitbanks have a separate initiative led by Banco Azteca,aimed more at improving access to financial servicesamong middle income households (Caskey et al., 2004;The Economist, 2004).

REFERENCES

Adams, D., & Pischke, J. D. V. (1992). Microenterprisecredit programmes: Deja Vu. World Development,20(3), 463–470.

Aliaga, I., Marconi, R., & Mosley, P. (2005). Micro-finance networks and the evaluation of socialperformance: The case of FINRURAL, Bolivia.In A. Brody, M. Greeley, & K. Wright-Revolledo

(Eds.), Money with a mission 2: Managing socialperformance in microfinance (pp. 138–146). Bour-ton-on-Dinsmore: ITDG Publications.

Baumann, T. (2005). Imp-Act cost-effectivenessstudy of Small Enterprise Foundation, SouthAfrica. Small Enterprise Development, 15(3),28–40.


Binswanger, H. P., & Khandker, S. R. (1995). Theimpact of formal finance on the rural economy ofIndia. Journal of Development Studies, 32(2), 234–264.

Brody, A., Greeley, M., & Wright-Revolledo, K. (2005).Money with a mission 2: Managing social perfor-mance in microfinance. Bourton-on-Dinsmore:ITDG Publications.

Burgess, R., & Pande, R. (2005). Do rural banks matter?Evidence from the Indian social banking experiment.American Economic Review, 95(3), 780–794.

Caskey, J. P., Ruız Duran, C. & Maria Solo, T. (2004).The unbanked in Mexico and the United States, April.Unpublished report. Washington, DC: World Bank.

CGAP (2001). Commercialization and mission drift. Thetransformation of microfinance in Latin America.Occasional Paper, January. Washington, DC: Con-sultative Group to Assist the Poorest.

CGAP (2004a). Building inclusive financial systems.Donor guidelines on good practice in microfinance,December. Washington, DC: Consultative Group toAssist the Poorest.

CGAP (2004b). Financial institutions with a doublebottom line: Implications for the future of microfi-nance, July. Occasional Paper. Washington, DC:Consultative Group to Assist the Poorest.

Chowdhury, A. M. R., & Bhuiya, A. (2004). The widerimpacts of BRAC Poverty Alleviation Programme inBangladesh. Journal of International Development,16(3), 369–386.

Christen, R. P. (1998). Keys to financial sustainability.In M. S. Kimenyi, R. C. Wieland, & J. D. VonPischke (Eds.), Strategic issues in microfinance.Aldershot: Ashgate.

Christen, R. P., & Drake, D. (2002). Commercialization:The new reality of microfinance. In D. Drake, & E.Rhyne (Eds.), The commercialization of microfinance:Balancing business and development. Bloomfield:Kumarian Press.

Cohen, M. (2002). Making microfinance more client led.Journal of International Development, 14(3), 335–350.

Copestake, J. G. (2000). Impact assessment of microfi-nance and organizational learning: Who will survive?Journal of Microfinance, 2(2), 119–134.

Copestake, J. G. (2003a). Simple standards or burgeon-ing benchmarks? Institutionalising social perfor-mance monitoring, assessment and auditing inmicrofinance. IDS Bulletin, 34(4), 54–65.

Copestake, J. G. (2003b). Unfinished business: The needfor more effective microfinance exit monitoring.Journal of Microfinance, 4(2), 1–30.

Copestake, J. G. (2004a). Social performance assessmentof microfinance: Cost-effective or costly indulgence?.Small Enterprise Development, 15(3), 11–17.

Copestake, J. G. (2004b). Cost-effectiveness of microfi-nance client assessment in Honduras. Small Enter-prise Development Journal, 15(3), 52–61.

Copestake, J. G. (2006). Flexible standards for con-trolled empowerment? Microfinance as a case-studyof aid management. In S. Folke, & H. Nielson (Eds.),Aid impact and poverty reduction. London: Palgrave/Macmillan.

Copestake, J. G., Dawson, P., Fanning, J.-P., McKay,A., & Wright-Revolledo, K. (2005). Monitoringdiversity of poverty outreach and impact of micro-finance: A comparison of methods using data fromPeru. Development Policy Review, 23(5), 703–724.

Copestake, J. G., Greeley, M., Johnson, S., Kabeer, N.,& Simanowitz, A. (2005). Money with a mission.Microfinance and poverty reduction. Bourton-on-Dinsmore: ITDG Publications.

Cortijo, M. J. A., & Kabeer, N. (2005). Methodologicaland organizational lessons from impact assessmentstudies: The case of SHARE, India. In A. Brody, M.Greeley, & K. Wright-Revolledo (Eds.), Money witha mission 2: Managing social performance in micro-finance (pp. 55–67). Bourton-on-Dinsmore: ITDGPublications.

Dash, A., & Kabeer, N. (2005). The challenge ofsustainability in India’s poorest state: The case ofCYSD. In A. Brody, M. Greeley, & K. Wright-Revolledo (Eds.), Money with a mission 2: Managingsocial performance in microfinance (pp. 55–67). Bour-ton-on-Dinsmore: ITDG Publications.

Das, V., & Poole, D. (2004). Anthropology in themargins of the state. Oxford: James Currey.

de Aghion, A. B., & Murdoch, J. (2005). The economicsof microfinance. Cambridge: MIT Press.

DFID (2005). Banking the underserved: new opportunitiesfor commercial banks: exploring the business case,April. Unpublished working paper. London: PolicyDivision of the Department for International Devel-opment.

Drake, D., & Rhyne, E. (2002). The commercializationof microfinance: Balancing business and develop-ment. Bloomfield: Kumarian Press.

Dunford, C. (2002). What’s wrong with loan size?Unpublished paper. Davis: Freedom from Hunger,March. www.freefromhunger.org.

Garuba, S. (2005). Institutionalizing a social perfor-mance management system in LAPO, Nigeria. In A.Brody, M. Greeley, & K. Wright-Revolledo (Eds.),Money with a mission 2: Managing social performancein microfinance (pp. 26–39). Bourton-on-Dinsmore:ITDG Publications.

Goldberg, N. (2005). Measuring the impact of microfi-nance: taking stock of what we know. Washington,DC: Grameen Foundation USA. www.gfusa.org.

Greeley, M., Copestake, J. G., Kabeer, N., & Simano-witz, A. (2003). Microfinance, poverty and socialperformance. IDS Bulletin, 34(4), 1–155.

Haber, S. (2005). Mexico’s experiments with bankprivatization and liberalization, 1991–2003. Journalof Banking and Finance, 29, 2325–2353.

Hatch, J. & Frederick, L. (1998). Poverty assessmentby microfinance institutions: A review of currentpractice. Micro-enterprise best practice program.Bethesda.

Honohan, P. (2004). Financial development, growth andpoverty: How close are the links. In C. Goodhart(Ed.), Financial development and economic growth:explaining the link. London: Palgrave.

Hulme, D. (2000). Impact assessment methodologies formicrofinance: Theory, experience and better practice.World Development, 28(1), 79–98.

http://www.freefromhunger.org

http://www.gfusa.org


Hulme, D., & Mosley, P. (1996). Finance againstpoverty. London: Routledge.

Imp-Act (2005). Social performance management in micro-finance: guidelines. Brighton: IDS Publications, incollaboration with the Microfinance Centre, Warsaw.

Johnson, S. (1998). Programme impact assessment ofmicrofinance: the need for an analysis of realmarkets. IDS Bulletin, 29(4), 21–30.

Johnson, S. (2004). The impact of microfinance institu-tions in local financial markets: A case study fromKenya. Journal of International Development, 16(3),501–518.

Johnson, S. (2005). Gender relations, empowerment andmicrocredit: Moving forward from a lost decade.European Journal of Development Research, 17(2),224–248.

Joyas, L. M., & Alip, A. R. (2003). Institutionalisingimpact monitoring and assessment of microfinance:Experiences from the Philippines. IDS Bulletin, 34(4),85–93.

Khandker, S. R. (1998). Micro-credit: Impact, targetingand sustainability. IDS Bulletin, 29(4), 11–20.

Klein, N. (2001). No logo. London: Flamingo.Kline, S. (2003). Sustaining social performance: Institu-

tionalising organisational learning and poverty out-reach in Prizma, Bosnia-Herzegovina. IDS Bulletin,34(4), 34–43.

Kline, S. (2005). Measuring and managing change inBosnia-Herzegovina: Prizma’s steps to deepen out-reach and improve impact. In A. Brody, M. Greeley,& K. Wright-Revolledo (Eds.), Money with a mission2: Managing social performance in microfinance(pp. 98–113). Bourton-on-Dinsmore: ITDG Publica-tions.

Marconi, R., & Mosley, P. (2004). The Finrural impactevaluation service: A cost-effectiveness analysis.Small Enterprise Development Journal, 15(3), 28–40.

Martens, B., Mummert, B., Murrell, P., & Seabright, P.(2002). The institutional economics of foreign aid.Cambridge: Cambridge University Press.

Marulanda, B., & Otero, M. (2005). The profile ofmicrofinance in Latin America in ten years: vision andcharacteristics, April. Boston: Accion International.www.accion.org.

Matul, M., & Tsilikounas, C. (2004). Role of microfi-nance in the household reconstruction process inBosnia and Herzegovina. Journal of InternationalDevelopment, 16(3), 429–466.

Morduch, J. (1998). The microfinance schism. WorldDevelopment, 28(4), 617–629.

Mosley, P. (1996). Metamorphosis from NGO tocommercial bank. The case of BancoSol in Bolivia.In D. Hulme, & P. Mosley (Eds.). Finance againstpoverty (Vol. 2). London: Routledge.

Mosley, P., Olejarova, D., & Alexeeva, E. (2004).Microfinance, social capital formation and politicaldevelopment in Russia and Eastern Europe: A pilotstudy of programmes in Russia, Slovakia and Romania.Journal of International Development, 16(3), 407–428.

Mosley, P., & Rock, J. (2004). Microfinance, labourmarkets and poverty in Africa: a study of sixinstitutions. Journal of International Development,16(3), 429–466.

Mushtaque, A., Chowhury, R., & Mosley, P.(Eds.). (2004). The social impact of microfinance.Journal of International Development, 16(3), 291–528.

Navajas, S., Schreiner, M., Meyer, R. L., Gonzalez-Vega, C., & Rodriguez-Meza, J. (2000). Microfinanceand the poorest of the poor: Theory and evidencefrom Bolivia. World Development, 28(2), 333–346.

Nino-Zarazua, M. (2006). Financial services in a lowincome area of Mexico city: from physical access toeffective use, Unpublished Ph.D. University of Bath.

Noponen, H. (2003). Assessing the impact of PRA-DAN’s microfinance and livelihood interventions:The role of the internal learning system. IDS Bulletin,34(4), 66–75.

Opoku, L. (2005). Achieving the double bottom line: Acase study of Sinapi Aba Trust’s client impactmonitoring system, Ghana. In A. Brody, M. Greeley,& K. Wright-Revolledo (Eds.), Money with a mission2: Managing social performance in microfinance(pp. 114–126). Bourton-on-Dinsmore: VCH.

Otero, M. (1999). Bringing development back intomicrofinance. The Journal of Microfinance, 1(1),8–19.

Otero, M., & Rhyne, E. (1996). The new world of micro-enterprise finance. London: IT Publications.

Pawlak, K. (2005). The potential of regional networks tostimulate innovation in microfinance: Lessons fromthe Microfinance Centre (MFC) in Eastern Europe.In A. Brody, M. Greeley, & K. Wright-Revolledo(Eds.), Money with a mission 2: Managing socialperformance in microfinance (pp. 147–156). Bourton-on-Dinsmore: ITDG Publications.

Porteus, D. (2004). Making financial markets work forthe poor. Marshalltown, South Africa: FinMarkTrustwww.finmarktrust.org.za.

Power, M. (1997). The audit society: Rituals of verifi-cation. Oxford: Oxford University Press.

Prahalad, C. K., & Hammond, A. (2002). Serving theworld’s poor profitably. Harvard Business Review,(September), 48–56.

Pritchett, L. (2002). It pays to be ignorant: A simplepolitical economy of rigorous program evaluation.Journal of Policy Reform, 5(4), 251–269.

Roper, K. (2003). Refining performance assessmentsystems to serve sustainability, poverty outreach andimpact goals: the case of the Small Enterprise Foun-dation in South Africa. IDS Bulletin, 34, 76–84.

Schmidt, H. R., & Zeitinger, C.-P. (1998). Critical issuesin microbusiness finance and the role of donors. InM. S. Kimenyi, R. C. Wieland, & J. D. Von Pischke(Eds.), Strategic issues in microfinance. Aldershot:Ashgate.

Sebstad, J., & Chen, G. (1996). Overview of studies onthe impact of microenterprise credit. Washington,DC: Management Systems International.

Sebstad, J. & Cohen, M. (2001). Microfinance, riskmanagement and poverty. Final report of the USAID‘‘AIMS’’ project. Washington, DC: ManagementSystems International. www.mip.org.

SEEP (2001). Learning from clients: Assessment tools formicrofinance practitioners. Washington, DC: SmallEnterprise Education and Promotion network.

http://www.accion.org

http://www.finmarktrust.org.za

http://www.mip.org


SEEP (2005). Building successful microfinance institutionsthrough client assessment. Washington, DC: SmallEnterprise Education and Promotion network.

Simanowitz, A. (2001). From event to process: Currenttrends in microfinance impact assessment. SmallEnterprise Development, 12(4), 11–21.

Strathern, M. (2000). Audit cultures: Anthropologicalstudies in accountability, ethics and the academy.London: Routledge.

The Banker (2004). Report condemns Mexican banks. 4thOctober.

The Economist (2004). Mexico’s Bansefi aims atneglected sectors. 20th September.

The Economist (2005). The hidden wealth of the poor: Asurvey of microfinance. 5th November.

Tulchin, D. (2003). Microfinance’s double bottomline. Boston: MicroCapital Institute.www.microcapital.org.

Valenzuela, L. (2002). Getting the recipe right: Theexperience and challenges of commercial bankdownscalers. In D. Drake, & E. Rhyne (Eds.), Thecommercialization of microfinance: Balancing businessand development. Bloomfield: Kumarian Press.

Van de Ruit, C., & May, J. (2003). Triangulatingqualitative and quantitative approaches to themeasurement of poverty: A case study of Limp-opo Province, South Africa. IDS Bulletin, 34(4),21–33.

Von-Pischke, J. D. (1991). Finance at the frontier. Debtcapacity and the role of credit in the Private economy.Washington, DC: World Bank.

Von-Pischke, J. D. (1998). Measuring the performanceof small enterprise lenders. In M. S. imenyi, R. C.

Available online at www

Wieland, & J. D. Von Pischke (Eds.), Strategic issuesin microfinance. Aldershot: Ashgate.

Weber, H. (2004). The ‘‘new economy’’ and social risk:Banking on the poor? Review of International Polit-ical Economy, 11(2), 356–386.

Woller, G. (2002). From market failure to marketingfailure: market orientation as the key to deepoutreach in microfinance. Journal of InternationalDevelopment, 14(3), 305–324.

Woller, G. (2004). The cost-effectiveness of socialperformance assessment—the case of Prizma inBosnia-Herzegovina. Small Enterprise DevelopmentJournal, 15(3), 41–51.

Woller, G. (2005). Client assessment lessons learnt fromthe Small Enterprise Education and Promotion(SEEP) network, USA. In A. Brody, M. Greeley, &K. Wright-Revolledo (Eds.), Money with a mission 2:Managing social performance in microfinance(pp. 157–171). Bourton-on-Dinsmore: ITDG Publi-cations.

World Bank. (2006) World Development Report: equityand development. Washington, DC: World Bank.

Yaron, J. (1992). Assessing finance institutions: A publicinterest analysis. Washington, DC: World Bank.

Zeller, M., Johannsen, J., & Alcaraz, G. (2005). Devel-oping and testing poverty assessment tools: resultsfrom accuracy tests in Peru. IRIS, University ofMaryland. www.povertytools.org.

Zeller, M., Lapenu, C., & Greeley, M. (2003). Socialperformance indicators initiative, final report. Paris:Comite d’Echange, de Reflexion et d’Information surles systemes d’Epargne-credit (CERISE), October.www.cerise-microfinance.org.

.sciencedirect.com

http://www.microcapital.org

http://www.microcapital.org

http://www.povertytools.org

http://www.cerise-microfinance.org

mainstreaming microfinance: social performance management or mission drift?

Documents