Social Performance in Microfinance Industry in Sri Lanka

Study of Five National MFOrganizations

K T Weerasooria – MDS/2011/067

Resources Development Consultants (pvt) Ltd, 55. 2/1 Galle Road, Col-3

Abstract:

Impact from microfinance programs has been questioned. While social concerns are inherent

in MF practice the area of social performance (SP) was not articulated in manner taking

place in recent decades. The research investigated 5 MF organisations in Sri Lanka under

different regulatory frameworks to examine SP. The findings demonstrated fair levels and

different patterns of SP based on criteria in SOCIAL scorecard and institution types. Gaps

prevail in record keeping, transparency as well as clear methodologies to address SP area.

Investigation highlights leadership and institutional factors aidingSP for consideration

towards furthering dialogue and definitions. Further research on application and benefits of

SP required towards encouraging incorporation.

Key Words: micro finance, social performance, MF impact

Background

Microfinance as a field of practice has made great strides of growth in recent decades

(Tulchin, 2006: p.4). It has gained attention as a mechanism to draw previously excluded

groups considered “un-bankable” to be in a position to receive financial services without

collateral through group mechanisms of lending. Most commonly women’s groups form the

basis of this lending (Thilakaratna, et al: 2007,p.2). These developments have led multiple

organisations to enter the Microfinance arena, both from within and without the financial

regulated sector, for example Cooperatives and NGOs in addition to Banks and Finance

Companies. While MF programs have gained attention as an aide in extending financial

services, in regard to poverty alleviation impact it has received many accusations of

inadequacy (Chauwdry 2009: p.2; Karnani A. 2007) . Since the new millennium decade the

concept of social performance has emerged as a mechanism to review MF practitioner

organisations for their commitment and capacity to reach out to the poor in society (IFAD,

2006: p.11). Recognised as a measure of impact from MF program on a society, social

performance is defined primarily as a measure of the social bottom line, making the social

mission a reality through serving larger numbers of poor, improving quality and

appropriateness of financial services, creating benefits for clients, and improving social

responsibility of a MFI1.

Definition of Social Performance

Social performance is measured by social performance indicators (SPI) which are defined

within four key dimensions namely: outreach to the poor and excluded populations;

adaptation of products and services for targeted clients; economic and social benefit for the

clients; corporate social responsibility. (CERISE, SPII: 2005: p.4)2

The first dimension, outreach, examines to what extent the MF organisation is reaching the

‘population excluded from the financial system’. This can range to include ‘social excluded’,

‘the poor’, or even ‘those who are rejected by banks’, and not necessarily poor or excluded.

In the case of the second dimension, adaptation of services to clients, the rationale is that too

often MF services are standardized, and organisations that find ways to better fit the needs

and constraints of clients would be achieving a higher performance of this dimension.

The rationale defining the third dimension, economic and social benefits to clients, addresses

the trust and level of collective action that has developed between the MF institution and the

client. This dimension inquires into whether there is improvement of ‘collective action’,

‘information sharing’, and ‘political lobbying’ leading to ‘self-confidence to facilitate their

economic and social development.’

1The description of social performance provided by the website of the Consultative Group to Assist the Poorest, the apex

association of internationaldonors who support microfinance, i.e. Microfinance gateway.com

2 The definition of social performance provided by - CERISE (Comitéd’Echanges de Réflexion et d’Informationsur les

Systèmesd’Epargne-crédit), a knowledge exchange network for microfinance practitioners, founded in 1998. Both these

organisation networks provide emerging new trends in MF.

The rationale defining the fourth dimension, corporate social responsibility, examines the

level of social awareness of the MF entity and responsible institutional behaviour. The

definition eludes that, ‘social responsibility requires a suitable human resource policy, an

adaptation of the MF corporate culture to its cultural and socio economic context.’

(CERISE, SPII: 2005: p.4).

Research Problem

Social performance is a relatively new dimension in MF practice and management. It

encourages a focus not only on pay back and financial performance, but the impact it is

creating on the community it serves, among clients and within the institution (as per

definitions described in the preceding section). While social concerns are inherent in MF

practice, the area of social performance was not articulated in the manner that is taking place

in recent decades (IFAD, 2006: p.11). Sri Lankan MF organisations are also grappling with

this new dimension and the sector needs to gain experience in applying these new concerns

and requirements. The current research seeks to address this lacuna and investigate MF

organisations in Sri Lanka under different modes of structure and regulatory frameworks to

examine their social performance, and support understanding of ways to improve social

performance and application of these approaches in the MF practice.

Research Objective

The study addresses the major objective of investigating social performance in MF

organisations in Sri Lanka. Among a series of tools in social performance the study utilizes

the SOCIAL scorecard model for its relative simplicity and capture of key dimensions in

social performance, expressed as - S-Social Mission, O-Outreach C – Client type and profile,

I – Information transparency, A – Association with community, L – Labour climate across

these organisations. (Reddy R. 2007:p. 2) (Isern J. Et al, 2007: p. 16-18).

The process followed for the above also enables another objective, namely, the study

examines and analyses the findings to observe for organisational factors and borrower

responses that present implications for social performance.

The research objectives are conceptualised towards supporting the over-arching goal of

examining social performance as a new performance measurement tool in MF practice and

observe evidence on an empirically basis. Thereby, the objective supports improved social

performance and impact of MF programs in the country. Leading from the project objectives

the following research questions are addressed, namely: how successfully have MF

organisations in the country addressed social performance in their operations; what are the

attitudes of the MF organisation management towards social performance and what are the

barriers they face to implement social performance measurement; what are the strengths and

weaknesses among different types of MF institutions in regard to social performance; how

can interventions be made to improve social performance and thereby improve impact of MF

programs.

Research Methods

The study investigated social performance through case study of five leading MF

organisations operating in Sri Lanka. The methodology emerged from the study objective

which is to improve understanding on social performance in the MF sector at the operational

level. The data sources for the study consisted of -

Description of organizations based on their website, annual report, and documents on

their public profile to present background of organization andsocial mission;

Key informant interviews with management representative to understand and observe for

approachesand attention to Social Performance;

Feedback on the SOCIAL Scorecard;

‘Client Stories’– interviews with borrowers to examine economic activity enabled in lives

of borrowers and observe for sustainability and growth in operations.

Case study selection

The five organisations selected to represent different regulatory frameworks among MF

practitioners. Two of the MF entities selected for review were within the non- profit category,

namely the NGO/non profit company and Cooperative; two entities within the private finance

company category and one in the Banking sector. The latter three organisations were

operating within the financially regulated sector. The different regulatory structures provided

an opportunity for comparison of social performance indicator reportingand performance in

these different organisation types. The case study approach enabled the study to look deeper

into social performance and observe for institutional and other features supporting social

performance. The interview and secondary data review approaches provided for broadening

of the review based on the SOCIAL scorecard and a triangulated data source to the study.

While the interviews had anecdotal features, in terms of the analytical discussion provided

the contextual understanding to enable observations on empirical patterns that gave insight to

the MF practice and implications for social performance.

The organizations selected for review in study were: Sarvodaya Economic Enterprise

Development Services – SEEDS; Sri Lanka Women’s Development Service Cooperative

Society Ltd - better known as - Women’s Bank; Central Investments and Finance PCL –

CIFL, Commercial Credit PLC - CC and Hatton National Bank – HNB.

The regulatory frame-work within which these organizations function is as follows:

Organization name Regulatory Type

SEEDS Registered Company, Non-Profit

Women’s Bank Cooperative Society

CIFL PLC Finance Company

CC PLC Finance Company

HNB Private Bank

The research appreciates the need for more in depth studies (i.e. considering the financial

performance aspect) required to better assess social performance (Copestake, 2007), as well

as new research in the SP area that has developed new models for SP building on the four

value areas stipulated in the definition of SP3. However given the limitations and the

parameters within which this research had to operate, the SOCIAL scorecard was utilized for

its relative ease to gather data and put into context using other sources of data used for the

study.

Analysis of Case Studies for Social Performance

As presented under the research objective it is reiterated that the SOCIAL Scorecard provides

data on S -Social Mission, O-Outreach, C-Clients, I-Information Transparency, A-

3Social Net Present Value (SNPV) Serrano-Cinca C. et al 2013. A publication of Solvay Brussels School of Economics and

Management, Centre Emile Bernheim; CEB Working Paper No. 13/013 2013

Association with Community and L-Labor climate, being the key concerns in the social

performance area of MF practice.

The analysis of the consolidated table is taken up by comparing and contrasting the feedback

from each organization to the scorecard as well as considering observations gathered from

other data sources in the study. This is followed by other empirical observations from the

investigation that provides evidence of dynamics within the MF sector that have implications

on social performance. Questions that are not answered or answers that are not clear or

plausible in the scorecard data will be recognized and discussed in the analysis for insights

they offer.

Annex 1 -provides a consolidated table with the feedback on the SOCIAL Scorecard from

allorganizations in the sample. This consolidated scorecard data lends to the overall analysis.

The following discussion extracts the relevant rows from the said consolidated table to

discuss each salient point in regard to social performance separately.

Social Mission (S)

The stated mission of all of these organizations, be they be non-profitor private financial

entity, demonstrate an evident focus on working with the lower income groups and providing

financial and credit plus services. The privately owned organizations show a to-be- expected

bent towards being profit orientation and serving their share holders as well, but they also are

organized in such a manner as to take financial services to lower income groups, for which

there is a demand as demonstrated by the level of their outreach, or number of clients served.

The stated mission of the 5 organizations reviewed are as follows:

Sarvodaya - Vision: A sustainable livelihood with no poverty, no affluence; Mission: To

eradicate Poverty by promoting economic empowerment for a sustainable livelihood.

Womens Bank - In a mission to put the resources, ideas and support of its own members to

raise their socio-economic and cultural status on the principle of self-help and mutual help

without depending on never ending chain of government and external support.

CIFL- Building and improving the prospects of our customers, communities and partners in

order to develop sustainable earnings and growth for our business and thus provide increasing

wealth for our shareholders.

CC- Apply our passion for human values through ethical business opportunities, ensuring

development of our staff as individuals and recognise them; as we contribute to the

betterment of our customers through flexible and respectful service, while creating share

holder value

HNB- Combining entrepreneurial spirit with empowered people and leading edge technology

to constantly exceed stakeholder expectations.

Serving people to strengthen their capital base and financial stability is key to all these

missions. While the Non-profit and Cooperative tend to emphasis social cohesion and

acknowledgment of vulnerability, need to address poverty, self help, mutuality, etc.; the

private financial organizations highlight growth of markets and profitability. How effectively

they succeed in achieving their missions will be reflected in their growth and sustainability. A

stated social mission does not automatically enable its achievement; a set of appropriate

service products and effective delivery systems have to be developed along with mutual

accountability to ensure the stability of the generated system.

The sustained operations of these organizations with no major legal issues demonstrate that

functional levels of vibrancy in these businesses are taking place. The interviews and

observational approach demonstrated a fair degree of involvement with their stated mission,

and inclusion of the lower income groups, if not the poorest of poor, taking place through

their operations indicating evidence of social performance.

The level of numbers reached, the client characteristics and changing trend of those client

characteristics of these organizations, will be seen in the responses to the following questions.

Table 1:- Outreach no. 1 (O) – No. of Clients

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

Outreach

No. of active

clients

1,002,979 70,000 14,378 (reg-

4,801; MF-

9577)

106,406 42,752

Source: Research data (Consolidated table annexed to paper)

It is seen that the NGO type organizations seem to be more effective in reaching larger

numbers of clients in the MF category. That said the Finance company, Commercial credit is

also showing good outreach performance. The age and history of the organization seems to

have some bearing but that too not conclusively. SEEDS is the oldest organization in the

sample as it is backed by the Sarvodaya movement and societies. Although SEEDS was

established in the early nineties it builds on the foundation of the Sarvodaya movement which

has a history dating back to 1958, having been incorporation as an act of Parliament in 1972

(Sarvodaya website: page: About us). Their client numbers indicate a reach of over a million,

this seems an almost questionably high figure, and possibility of double counting. However

the long history of Sarvodaya coupled with the low overhead-cost spread of the organisation

through SarvodayaShramadhanasamitees, provides it a degree of credibility to their much

higher numbers, even if considered at 50% of this figure, indicating that it is a market leader

in the sector.

In regard to the other organisations namely, the CC PLC and Women’s Bank indicate a

higher number recording 106,406 and 70,000 respectively. The HNB indicates a

comparatively modest number of 42,752 given its antecedence in a reputed bank and dating

back to the mid nineteen eighties, this is a low figure and not impressive in regard to their

outreach capacity. CIFL PLC records the lowest performance in regard to the number of

clients reached with 14,378 clients. CIFL claims to be on an aggressive growth curve in

regard to their MF portfolio as indicated in their marketing messages as well as reiterated in

their management interview. However CIFL is way below their competitor CC PLC in regard

to clients reached as the latter’s client portfolio exceeds 100,000.

Considering all these organizations together we can see that there is a wide demand for the

MF services as demonstrated by this effective demand by the lower income groups,

especially when the credit marketing organization can get close to the customer through

suitable operational arrangements. The following questions from the SOCIAL scorecard

table show the records as per the number of branches and growth of clients, also indicative of

the outreach aspect of their operations.

Table 2: Outreach (O) no.2 – No. of Branches; and Growth of Clients

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

No. of

Branches

62 152 10 formal – 34

FLS Managers in

22 districts

45 243

Growth

rate of

Clients

4.2% 27% 500% 2nd

year of

operation

82% 28.5%

Source: Research data (Consolidated table annexed to paper)

It is seen that the number of branches per se does not have an apparent relationship to the

number of clients or the growth rate. For instance HNB with 243 branches has only 43,000

MF Clients while SEEDS with 62 branches has over a million persons within their clientele.

The unseen factor here would be the presence of Sarvodaya Credit societies in many villages

around the country promoting SEEDS MF products.

The scorecard as well as managerial interviews indicates that SEEDS is not pushing their

growth rate and it is at a low of 4.2% while the Finance companies are pushing their growth

aspect, most likely both categories are acting under the jurisdiction and guidance of the

Central Bank. Women’s Bank and HNB have stabilized their growth rate at 27% and 28%

respectively which could be the recommended level for their stability as well as the overall

financial market.

Table 3: Configuration of Clients (C)

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

Female

Clients %

63% 99.9%

45% 100% 28%

Clients –

With some

Education

98% 10% 98% 100% ND

Clients -

Rural

78% 40% 95% 90% ND

Clients –

Poor %

3.1% econ

active poor

ND 95% Rural

Poor

PPI Index

introduced

ND

ND – Not disclosed S – Savings; I – Insurance

Source: Research data (Consolidated table annexed to paper)

Examining the figures reflective of the ‘client characteristics’, it is seen that only one

organization states that the rural poor have 95% share of their MF portfolio. The other

organizations are more cautious, and state and the situation modestly, namely SEEDS

indicates that 3.1% are economically active poor, and CC PLC indicates only that PPI index

has been introduced. The other two organizations, Women’s Bank and HNB do not disclose

the “poor” percentage in their MF loan schemes at all. In regard to CIFL’s stated percentage

of 95%, it is not clear on what basis this number has been selected, and it could well be

arbitrary figure, without a clear basis of a poverty measurement.

The other factors in regard to femaleness, education and rural percentage of the clients the

figures are more plausible and clear in reflecting the probable scenario. It is seen that the

education level is recorded at a high level. In regard to education we can assume an eighth

standard level of education and in some cases higher. Only Women’s Bank indicates a low

figure in this regard, with 10% being categorized as educated. This maybe an exaggeratedly

low figure but we can also surmise that Women’s Bank do have an institutional capacity to

reach lower educated groups, and this fact was also corroborated in the client interviews.

The antecedence of the Women’s Bank being in an urban setting reflects their urban rural

client configuration in their reported data, stating only a 40% segment for the rural portfolio.

The other organizations specifically targeting the rural sector low income and poorgroups,

indicate significantly higher figures for their rural component.

The HNB does not disclose the information in regard to the education level, rural or poverty

percentage in their reported data, indicating issues in information transparency in regard to

their client characteristics and targeting in relation to their MF and development banking

stated mission. This however does not detract from their investment in the low income sector

both in rural and urban contexts for business generation and productivity on a stable

foundation.

Table 4: Information Transparency no 1. (I)

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

% clients with

loans not req.

collateral

61%

100%

100%

100%

ND

Avg loan size Rs. 21,637 38,429 MF- 25,000

Reg: Rs.

237,000

27,743/- ND

Avg loan size as

% of A. GNI

7n 2010 and

8% in 2011

ND ND 19.05% ND

ND – Not disclosed S – Savings; I – Insurance

Source: Research data (Consolidated table annexed to paper)

Three organizations, namely Women’s Bank, CIFL and CC categorically state that their MF

schemes do not require collateral. SEEDS, records a portfolio percentage of 61% as having

been issues without collateral, which HNB does not disclose information in this regard. The

client interviews in regard to the later indicate that the Bank requires collateral even from MF

clients that this study met, but they are able to accommodate higher values, and it is probable

that the interest rates are lower especially viz a viz the Finance companies, giving out smaller

value loans to their MF customers.

The starting loan sizes is in most cases between 25,000/- and 50,000/-. The non defaulting

progressing client can build this loan volume up to over one million if opportunity available

in the product/service business. Only HNB does not disclose the data regarding average loan

size, indicating wide differences in the loan size, and/or a tendency to target higher values

loans even in their MF category.

Only two organizations, namely SEEDS and CC PLC reveal their average loan size as a

percentage of the Gross National Income. Where average loan size reported this figure can be

calculated based on the GNI/year of measurement applied. This will not be possible in regard

to HNB as average loan size not revealed.

Table 5: Information Transparency no.2 (I)

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

Client –

Retention

100% 99% Yet in

formative

years

100% 99%

Clients with

Credit

100% 100% all credit

clients

100% Advances,

S, I and

financial

lit offered

Product - %

Savings/Insuran

ce

S-13% S-100%

I-35%

S-100% S-100% S -100%;

I – app to

all

Avg annual

interest rate

22% 18% 36% 50.10% ND

ND – Not disclosed S – Savings; I – Insurance

Source: Research data (Consolidated table annexed to paper)

The information transparency in regard to the annual interest rate has been provided by all in

the sample except for the Bank, showing issues in transparency probably due to complexities

in their interest rate fixtures, i.e. differences in the interest rates maybe practiced based on the

volume of the transaction, loyalty of the client, etc.

In regard to other concerns such as client retention, clients with credit and product

strengthening with savings and insurance the reported data show a positive trend. In regard to

savings percentage only SEEDS indicated a low figure of 13% while all the other

organizations report it at 100% indicating savings enforcement as a stipulated required in

their MF schemes.

In overall we can observe that for the most part SP is an issue these organizations are

concerned with, and would be partially and internally monitored, although they are not

disclosing the relevant data to the public and to research of this kind. There is concern with

issues such as savings and insurance to lend stability to the MF program. Further we can see

that today the norms of practice in MF sector are such that there is fair stability in the system

even without a system of collateral, and instead investments being secured on basis of

women’s groups endorsement and enforced group saving requirement, which provide the

security factor.

Table 6: Association with Community (A)

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

No of

people

served/

Amt

donated

thru com.

projects

31,110

persons

thru on-

going

SEEDS

projs.

ND With Lions Club

CIFL Diamond

Star; Also welf +

relief progs. Val

– I million

People

served - over

500; Amt

donated - not

monitored

27 fin

literacy

&cap

bldprog (for

DevBk)

ND – Not disclosed S – Savings; I – Insurance

Source: Research data (Consolidated table annexed to paper)

None of the organizations surveyed are able to record the value of amount donated through

community projects. However community service programs are mentioned, and the

approximate numbers served are provided in some cases, demonstrating that this is an area

that is given due attention. Only Women’s Bank does not specifically mention a program or

activity of service to people/or community. However all their MF programs are grounded in

grass root Women’s societies which carry out numerous activities to ensure social cohesion

and social capital build up within their loan community, including opportunity for national

and international travel, for their participants and staff who are made up of the participants

themselves. Considered as a collective, their capacity to generate community participation

and transformation of poor rung in society observed to be far higher than the other

organizations reviewed, although number of people served through community projects not

recorded in the scorecard.

While it is apparent that this area of their operations and service is not monitored or recorded,

the fact that all the organizations do give some attention to community outreach programs is

evident. In fact specific mention of outreach activities mentioned in the SOCIAL Scorecard

by four out of the five organizations indicated that it is considered integral to the MF

programs and marketing operations. This was also highlighted in review of CC PLC case

where a newspaper article reported on a family outing event for their clients, clearly a

marketing feature. The case study chapteralso demonstrated that SEEDS Sarvodaya has

linked four community outreach projects through other funding and operational modalities to

their MF schemes. Therefore it is difficult to judge the differing levels of real benefit and

impact of these community outreach activities/programs; some could be considered cosmetic

where as others are better linked to knowledge and skill development of the client. A

judgment and analysis of such programs would require a deeper investigation into those

community programs than afforded through this study.

Table 7: Labor climate (L)

Social

Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

Staff -

Retention/

71.17% -

2012

73.21% -

2011

98%

90% MF in

formative yrs

12.5%

ND

Staff -

Training

ND Over 240

hrs;

72 hrs for MF

Staff

150 hrs 24 hrs

(8x3) ND – Not disclosed S – Savings; I – Insurance

Source: Research data (Consolidated table annexed to paper)

Three out of the five organizations surveyed indicated a staff retention rate of 70%. HNB

does not reveal or has not monitored this information, and CC PLC indicates a low of 12.5%.

The latter is a confusing statistic as this organization is on an aggressive growth curve and

demonstrating stable signs in the market and this well could be a miss interpreted statistic

with its opposite i.e. 85% staff retention, being the probable figure.

Viewed in overall, we can see that in general the staff retention is at a good level and staff

training is also given due consideration with four organizations reporting ongoing annual and

quarterly training programs, with possibility of more frequent team exercises and orientation

training activities for their ongoing promotional and marketing programs.

The Women’s Bank although having not mentioned any dedicated time to staff training in

their feedback to the Scorecard are regular and active in their membership group activities

that provide regular top down, and down to top communication and orientation to be well

updated in their training and system awareness. This factor is further strengthened by

frequent opportunities for women’s group society members to be exposed to travel, nationally

locally or even overseas in some occasion, and development of leadership and decision

making ability among their membership. Although some level of favouritism, unfair advance,

or non professionalism might take place in these selections, the role this organization plays in

capacity development of low income level women cannot be discounted. Factors such as

managerial favour are tendencies that are there in any work place. What we have to be

appreciated however is the formation of social capital enabled; and the lack of such

opportunity for this segment of low income communities in urban and rural contexts if not for

the presence and functioning of organizations such as the Women’s Bank.

Discussions with the field staff during the gathering of Client stories reveal that despite

varying degrees of low salary, staff get used to the position they hold and are change

resistant. Except in the case of driven individuals with a capacity for risk taking and effort,

staff turnover in these organizations are low as it appeared in this investigation. However this

is a factor that can change in the future as the sector expands and changes in its operational

dynamics through competition and infusion of better standards to the sector.

In conclusion to the discussion of the SOCIAL Scorecard,the above findingsindicate evidence

of social performance patterns and application that is prevailing. It is evident that the need

and usefulness of social performance to maintain standards in MF sector and its focus on

lower income groups is being recognized to some extent within the sector and application is

taking place to some degree, while gaps in monitoring and information sharing prevail.

Other Salient Features in regard to Social Performance

Other sources of data in the case studies, namely the organizational review, intuitional and

borrower interviews provided insight as well as triangulation of the data, echoing elements

from the scorecardand also highlightelements from the ongoing social drive in the sector.

The analysis in this regard yielded the following observations.

Managerial attitudes and concerns with social performance

The interview findings demonstrate that social performance is an area of MF practice that

practitioners have gained exposure to and endeavor to address at varying degree. However, in

running of their daily operations social performance aspects are less urgent and financial

performance, prominently collection, is emphasized to keep the institutions operational. The

fair attention to tracking social performance concerns that is taking place as evidenced in the

feedback to the SOCIAL scorecard,indicate that these concerns are being recognized as

increasingly important to drive MF operations, and hence aspects that cannot be ignored.

Issues in application of social performance in the literature and actual practice

While the practitioners appreciate the need for social performance, they struggle to set in

place. This study demonstrates that most businesses have made a start, even as they are still

grappling with ways to improve social performance as well as leverage these efforts to enable

improved result. For instance the fundamental poverty outreach is often a big challenge, and

enabling those in business to stay in business. The progress out of poverty is a tool that is

being introduced, and evident in the case of discussions with the Finance Companies, with

Commercial Credit PLC having already implemented procedures. The other organisations did

not indicate such application. The client information templates in use among the Finance

companies and Banks are part of the process of tracking client performance that MF players

are increasingly recognising, but as the feedback on the SOCIAL scorecard revealed, it is not

always fully disclosed. This is a factor that can be addressed by incorporation of social

performance management approaches in MF practice and encourage the use through in-house

studies and policy. Discussions with practitioners demonstrate that the organisations see

value in tracking features of social performance although this information is not available in

the public domain.

Poverty Impact – the role played by organizational structure and institutional models

The scorecard feedback as well as the other data collection approaches demonstrated that it

was not always the ‘poorest of the poor’ who are recipients of MF programs. The Client

feedback also indicates such a pattern. Only in two cases, both clients of the Women’s Bank,

was there evidence of clear vulnerability in regard to survival as evidenced by sanitary, safety

and crowding conditions of living, as found in the case of two households reviewed under

their clientele. Since the case study was not able to take on large sample of loan takers for

this study it is difficult to gauge to what extent the poor and vulnerable are reached by this

organisation; however the study clearly revealed that the Women’s Bank has a capacity to

reach out to the poorer segments of society much better than the other institutions in the

sample.

Organisational models such as Women’s Bank have tangible benefits for social performance,

and offer new areas of research and scope to further expand the concept of social

performance. Through models such as the Women’s Bank future growth in the MF sector

could yield greater social performance and warrants further research and investigation.

Role for Credit plus Services in Facing Economic slump/growth

The credit societies for the issue of MF lending programs provide a powerful tool for

discerning individuals who have positioned themselves to make investment. Handled

effectively it can serve in capacity of a financial and knowledge club/hub, providing not only

money, but knowledge, skills and markets. The scenario faced by a gem cutting operator

from among the HNB clients having made a shift to mushroom cultivation when faced with a

slump in the USA economy that created sharp reduction to his jewellery sales, is a case in

point. This demonstrates that growth and slump factors in the larger global, national and

regional economy greatly affect opportunities and movement of thehome based industries as

well, even though they are of micro scale. This client’s ongoing links with the HNB enabled

him to finance efforts to shift from gem cutting industry to mushroom cultivation during the

course of the last 3-4 years.

However this client claimed he did the knowledge gathering to set up the new venture as well

as the market identification on his own. It should be noted that he was also a prudent

economic and financial planner as he had augmented his income with renting out rooms to

factory and office workers engaged in the vicinity and the larger Colombo metropolis.

Although not mentioned, there is possibility that financial training from HNB has been of

influence to bring about this impact.

The financial organisation, if well aware of how he made this shift, can up hold him as

example and utilize as a resource person to strengthen their clientele and stimulate ingenuity.

Further, the need expressed by this client demonstrates a requirement for business incubators

in the MF sector

Strength of the Women’s group model to mitigate failed Projects

Noted by default the existence of failed projects would clearly be present. However the study

did not set out to examine factors behind success or failure factors of MF clients, but to

observe for the general type of client the MF schemes reviewed capture for dimensions of

social performance captured. It is very evident that the success of the women’s group model

is what has given MF venturing capital the confidence and foundation to reach out to more

vulnerable groups in a systematic way than previously considered the norm. Investigation to

examine issues and find best practice ways to further stabilise and stimulate the investment

capacity of this model, is an area that deserves further research. Collaboration with the

practitioner women’s organisations themselves in carrying out this research would support

insightful findings.

Supportive factors for Social Performance from social and institutional milieu of MF practice

A key factor supporting the sustainability and faith in the sector that should be recognized is

that there are national champions, who can be even be considered luminaries, who have taken

the courageous effort to promote MF and take it to the rural and urban low income groups in

the country. This is especially in the case of SEEDS and Women’s Bank. While HNB also

entered this segment of the financial market in the later nineteen eighties, their reach and

numbers in the MF category are far less than the NGO and also the Finance companies,

although the latter entered the MF market actively only in the last decade. The resulting mix

in the MF demonstrate good result, and further gives the NGO sector a much needed

competition to address complacency and improve standards.

While recognizing this process, this study demonstrates strengths in the NGO and

Cooperative model to reach poor segments of the community. Therefore, fortified with new

processes and policy for improved standards, these models should be encouraged to play a

bigger role in spearheading the sector.Fostering a supportive social milieu in the MF sector

would be a good resource to generate ideas, keep the sector vibrant and reach out to poor

through an effective capacity for social performance in these organizations.

Presented below are three key concerns that emerge from the findings that would help create

such a culture that would support social performance.

Evidence of Nationally Rooted MF Luminaries/Champions

The evidence of home grown entities in the form of organizations begun by A T Ariyaratne

and Nandasiri Gamage bring a luster to the MF sector in Sri Lanka. These structures should

not be destroyed but encourage ongoing improvement and watch dog element with

appropriate policy, to keep exploring efficient and relevant ways to promote social

performance and keep building on the social capital that has been achieved.

However at the financial institutional level there is a tendency to favor the Banks and Finance

companies due to the formal process-based stakeholder groups that back their operations. A

good balance of both different types of institutions, i.e. Banks, Finance Companies,

Cooperatives, NGOs etc should be fostered to ensure diverse segments of society are served

vibrantly. Checks and balances should be developed to drive the various players in a way that

serves the clientele/citizens of this country.

An article in the Daily Mirror (Sep 8th

2012) where the authors name is not revealed, points

to the public attention on need for regulation in the MF sector. Although not yet

institutionalized the plans for a MF regulatory body are on the drawing board and it is

intended that the proposed authority will have the power to issue licenses, register, regulate

and supervise microfinance institutions irrespective of whether they are companies, non-

governmental organizations or co-operative societies. The article further pointed out that a

large number of micro-finance institutions are currently operating in the country without any

regulatory or supervisory controls.

The current research findings support the argument that any regulatory bill should not favor

Banks and Finance companies over NGOs and Co-operatives. In fact positive discrimination

towards the NGO and Co-operative sector should be encouraged, as practiced in the

education quota system the world over, to support equity in society. This research

demonstrated the social performance and strength of the Non-Profit/Company and Co-

operative models in the MF sector to reach the grass root and locally placed groups to

generate economic activity and productivity at low capital investment, conducive for stability

in the country.

It is widely known that Sri Lanka has innovative and sustainable practices on the ground in

regard to MF practice that has been show cased to the world through international writers in

the MF literature. These are aspects that the local policy makers should make a more

concerted effort to review and harness for a greater partnership approach in the national and

international contexts, and enable opportunity for integrated and stable development.

A Key Lesson – Value of Partnerships

Inclusion of SP dimension into MF management provides an entry into examining the

partnership building capacity and role the MF organization is playing in the community.

These can take the form of organizing the poor / low income groups, skills and capacity

development to enable flexible response and withstand economic shocks . The capacity of a

MF organizationto enable these factors would be an indicator in evaluating the organizations

outreach strength in SP.

Successful and effective partnerships are a key factor in keeping operations dynamic at the

apex as well at the individual client level(Thillekeratne, et al. ). It is the achievements in this

regard that have enabled the new paradigm of MF operations become effective and

sustainable, amply demonstrated in this statement from the said research: What is new in

microfinance is the innovative methods of providing credit to the poor (e.g., the usage of

social collateral such as group guarantee instead of physical collateral, progressive lending

approach, peer pressure and peer monitoring), mobilization of savings from the poor and

linking credit provision to savings, social mobilization process that involves awareness

building and formation of self-help groups and provision of other services such as insurance

to cover risks and distresses faced by the poor (Thilekeratne et al, 2009: p. 1)

Effective partnerships not only at the grass root level but at the financier level can bring in a

exponential as well as sustainable impact to the MF sector. This has the potential to help

infusion of better standards and strengthen ability to preventmission drift away from service

focus, as well as keep their operation stable /financial sustainable. Thereby organizations like

Women’s Bank who have capacity to get close to MF client can strengthen themselves with

alliances with the financial regulated sector, like Insurance companies and Banks, enabling

them to give attention to social performance in sustainable ways. With partnerships of this

nature MF organizations can truly position themselves in the role they are meant to play – a

facilitator of economic partnership building for lower income groups in society.

Summary of Analysis and Observations towards Policy Recommendations

Considering the social performance of all five organizations presented above in an

overarching sense, it is evident that the driving forces behind these organizations originate

from dynamic entrepreneurial personalities from diverse capital and community groups in the

country, who have through building up effective partnerships been able to set up successful

MF programs and associated operational activities. All supervisory structures should foster

this business drive, even as regulatory measures are introduced to both stimulate as well as

discipline the sector operations.

The feedback on the SOCIAL scorecard, interviews and interactions with the management

and client groups reveal that SP concerns and monitoring are by no means ignored. There is a

healthy recognition of these factors as elements that support the effective operation and

sustainability of the MF programs. As in the case of any lending operation, microfinance

clients are faced with the challenge of running their micro enterprises and paying back their

loans, while the MF lending industry is challenged with collection of payments and finding

ways to be effective as a finance and solution provider. Despite these challenges the practical

role that each play to encourage economic activity and investment is evident, bringing the

once un-bank-able community within a bankable net. Elements of practicing SP that has

brought MF to this position. Therefore if SP is regularized, institutionalized and carried out in

a targeted manner in MF operations will aid the financier to stay on course to provide a better

effective and sustainable service, as well as enable the borrower to enhance skills and obtain

fair credit services.

While the SOCIAL scorecard data and interviews indicate that SP indicator dimensions are

understood and recorded to some extent there is room for improvement as well as

understanding on how to apply the information to strength the ongoing programs and

management. This is especially so in case of concerns in: a) poverty tracking (PPI) b)

recording of education level/skill type of clients c) average loan size and movement trends d)

financial and business training, CSR programs, etc and e) investment in staff and HRD.

Although keeping records on SP will be an additional record keeping effort at the

organizational level, the cost need not be prohibitive if integrated to ongoing operations as a

matter of course. Such record keeping could potentially be leveraged to aid in partnership

building with clients as well as funding/insurance partners. The evidence supports that the

effectiveness of partnership building has played a vital role in enabling success of MF

operations.

Conclusions

The findings of the research indicate that infusion of social performance dimension into the

management of MF sector is gradually taking place and is a boost to encourage better

standards of performance. In some cases MF organizations are applying SP dimensions

withoutlabeling it as such, i.e. Women’s Bank does not record their community development

activities although their community interventions interwoven to their routine practice, and are

extensive.

The evidence from the study indicates that the MF sector perceives growing opportunity in

the sector and is being challenged to grow. The competition is enabling standards including

social performance. Further research, organizational inquiry and partnerships are required to

better apply social performance, support to financial sustainability and program impact. This

new dimension of MF operations and performance is a boost to the sector to expand its

services on a foundation of service delivery and innovationwhich can better leadto poverty

alleviation and impact.

References

1. CERISE (2012) Impact and Social Performance The Microfinance Knowledge

Network

Viewed Sep 2012: http://www.cerise-microfinance.org/-impact-and-social-perfomance;

2. Chowdhury, Anis (2009) Microfinance as a Poverty Reduction Tool – A Critical

Assessment, DESA Working Paper No. 89

3. Chopstake, James (2007) Mainstreaming Microfinance-Social Performance

Measurement or Mission Drift; World Development Vol. 35 No. 10 pp. 1721-1738,

Elsevier Ltd

4. IFAD (2006) Assessing and Managing Social Performance in Microfinance

5. Isern J. Abrams J. Brown M. (2008):Appraisal Guide forMicrofinance Institutions,

Resource Manual, Consultative Group to Assist the Poor/ World Bank

6. Karnani A. (2007) Microfinance Misses its Mark, Stanford Social Innovation Review

magazine, Summer 2007

7. LMFPA: Micro Finance Act out soon, (author not stated); Daily Mirror Newspaper,

Business supplement, September 8th

2012

8. Reddy R. (2007) Guidelines to Evaluate Social Performance,ACCION International

Insight

9. Serrano-Cinca C, B. Gutierrez-Nieto and N.M. Reyes (2013): A Social Approach to

Microfinance Credit Scoring, Solvay Brussels School of Economics and Management,

Cetnre Emile Bernheim

10. Tilakaratne G. ,Wickramasinghe U. , Kumara T. (2005) Microfinance in Sri Lanka: A

Household Level Analysis of Outreach and Impact on Poverty,Poverty and Social

Welfare Series No. 7, Institute of Policy Studies (IPS), Sri Lanka

11. Tulchin D, edited Grossman J, (2006) Microfinance: Sustainable Tool for Urban

Poverty Alleviation, Social Enterprise Associates

12. Social Performance Overview page on CGAP operated website microfinance gateway;

viewed May 2012

http://www.microfinancegateway.org/p/site/m/template.rc/1.26.12263/

Annex 1 - SOCIAL Scorecard - Consolidated Findings from Sample.

Social Performance

Feature

SEEDS Women’s

Bank

CIFL PLC CC PLC HNB

Social Mission / type

of organization

Company -

Non Profit

Co-operative Public quoted

Finance Co

Public quoted

Finance Co

Private -

Bank

Outreach - No.

active clients

1,002,979 70,000 14,378 (reg-4,801;

MF-9577)

106,406 42,752

No. of Branches 62 152 10 formal – 34 FLS

Managers in 22

districts

45 243

Growth rate of

Clients

4.2% 27% 500% 2nd

year of

operation

82% 28.5%

Female Clients %

63% 99.9% 45% 100% 28%

Clients – With some

Education

98% 10% 98% 100% ND

Clients - Rural 78% 40% 95% 90% ND

Clients – Poor % 3.1% econ

active poor

ND 95% Rural Poor PPI Index

introduced

ND

% clients with loans

not requiring

collateral

61%

100%

100%

100%

ND

Avg loan size Rs.

21,637

38,429 MF- 25,000

Reg: Rs. 237,000

27,743/- ND

Avg loan size as % of

Annual GNI (gross

n.inc)

7% in 2010

and 8% in

2011

ND ND 19.05% ND

Client – Retention 100% 99% Yet in formative

years

100% 99%

Clients with Credit 100% 100% ? all credit clients 100% Advances, S,

I and

financial lit

offered *

Product - %

Savings/Insurance

S-13% S-100%

I-35%

S-100% S-100% S -100%; I –

app to all

Avg A. interest rate 22% 18% 36% 50.10% ND

No of people served/

Amt donated thru

com. projects

31,110

persons

thru on-

going

SEEDS

projs

ND With Lions Club

CIFL Diamond

Star; Also welf +

relief progs. Val – I

million

People served -

over 500; Amt

donated - not

monitored

27 fin literacy

&cap bldprog

- for DevBk

**

Staff - Retention/

71.17% -

2012

73.21% -

2011

98%

90% MF in

formative yrs

12.5%

ND

Staff - Training ND Over 240

hrs;

72 hrs for MF

Staff

150 hrs 24 hrs (8x3)

ND – Not disclosed S – Savings; I – Insurance

* http://www.hnb.net/data/development_banking/financial_literacy.php

* * By the Development Banking Division (not HNB as a whole); 27 financial literacy and capacity building

programs http://www.hnb.net/data/investor_relations/annual_reports.php