Social Performance in Microfinance

Introduction to Social Rating

What is rated?

• Social performance, ‘social returns’

• Starting point

is the MFI doing what it says it is?

is the MFI contributing social value?

- analysis of the evidence

• Follows the Social Performance Pathway

Why Social Rating?

Balances financial performance rating

Interest from MFIs, donors, investors

Systematic, focussed, relatively quick approach

Quicker, cheaper – than ‘impact assessment’: ‘improving’ rather than trying to prove

Social Rating Outlook: Evolution – numbers (incl assessments)

Number of SR conducted, by year

2025

33

50

0

10

20

30

40

50

60

up to 2006 2007 2008 June 2009

4 specialist rating agencies:M-CRIL, Microfinanza Rating, Planet Rating, MicroRate

‘pilots’

Social Performance: dimensions

Social Rating covers 1 to 5

Dimensions

1 Context: Country level – socio-economic indicators; microfinance

PROCESS - CAPACITY

2 Mission, Strategy and systems alignment: governance, strategy and management systems

3 Social responsibility:

to clients: values and systems for client protection

to staff: decent working condition and development opportunities through appropriate HR policies

to community and environment

RESULTS – OUTPUTS - PERFORMANCE

4 Outreach - depth and breadth of geographical outreach and target reached

5 Services - variety and appropriateness of financial and non financial services

RESULTS – OUTCOMES

6 Change: changes for clients, households and enterprises associated with microfinance

Process Results

In relation to the pathway

Intent & values

Internal Systems

Impacts Out-comes Out- puts

Social Rating

Process Results

Difference in rating products: Assessment of outputs

Intent & values

Internal Systems

Impacts Outcomes Out puts

PORTFOLIO DATA + secondary data available

+ FIELD INVESTIGATIONMFI data &/or Rating sampleQuestionnaire – new clientsFocus Groups

1 Outreach – who is the MFI serving?2 Services – are they appropriate?

RESULT: Outreach: who is the MFI serving?

Portfolio based information:

Usually available:NB – check clients (not loans)Number of clients % rural % women% in different regions% group based/individualAverage loan outstanding (as % per capita GNI)

Sometimes availableAverage loan disbursedAverage 1st loan disbursed% loans < $300/$400 (or nearest local currency)Loan distribution by sector

Client level information:

New/recent client households% rural, semi-rural, urban, slum% /# poor - below poverty line(s)excluded: % with no formal savings/credit % socially marginal groups

Other profiling:Main livelihoodWomen’s role in supported enterprisesDaughters/sons in school (prim/sec) Quality of life indicators (housing, electricity, sanitationIndirect outreach# employed in supported enterprises – hired/non-family (full/part-time)

RESULT: Appropriate services?

Portfolio based information:

Available:Different financial servicesRelative access to different products/servicesRange of termsNon-financial services and access (as applicable)

Sometimes availableDrop-out rate

Client level information:

Client feedback on products and services – specific features:(amounts, terms, timeliness; group systems)

% also using other financial service providers – other MFIs, moneylenders

Specific issues and suggestions

Reasons for dropout

Approach to scoring (M-CRIL)

1 Weighting the dimensions – according to

- Significance

- Relative effort involved for the MFI

- Reliability of the information

Weighting the dimensions: example M-CRIL Weight

PR

OC

ES

S

Mission/Systems 3.0

Mission - clarity and awareness

Governance and Policy Making

HR systems

Targeting, market segmentation and product development

Social information - monitoring and reporting

Systems for Member-owernship and accountability*

Responsibility to clients 1.5 Code of conduct

Transparency

Cost to clients

Client Interactions

Non-financial services and linkages*

Other Social Responsibility 1.5

Gender approach

Responsibility to staff

Responsibility to community

Responsibility to environment (higher weight for SMEs)*

RE

SU

LT

S

– O

UT

PU

TS

Outreach 2.0

Operations in backward regions/areas

Reaching the unreached

Reaching disadvantaged groups

Depth of outreach - to the poor

Indirect outreach - applicable for SME lending*

Appropriate Services 2.0

Client awareness

Effective (group) systems*

Client satisfaction (esp. with reference to target group)

Client exit Overall social rating 10

*Modifed according to microfinance model

Weighting the dimensions: example contd, M-CRIL Dimensions weight

PR

OC

ES

S

Mission/Systems 3.0

Mission - clarity and awareness 15%

Governance and Policy Making 20%

HR systems 20%

Targeting, market segmentation and product development 20%

Social information - monitoring and reporting 25%

Responsibility to clients 1.5 Code of conduct 20%

Transparency 20%

Cost to clients 20%

Client Interactions 20%

Non-financial services/linkages* 20%

Other Social Responsibility 1.5

Gender approach 30%

Responsibility to staff 35%

Responsibility to community 15%

Responsibility to environment (higher weight for SMEs)* 10%

RE

SU

LT

S

– O

UT

PU

TS

Outreach 2.0

Operations in backward regions/areas 23%

Reaching the unreached 23%

Reaching disadvantaged groups 15%

Depth of outreach - to the poor 40%

Indirect outreach - applicable for SME lending* -

Appropriate Services 2.0

Client awareness 25%

Effective (group) systems* 25%

Client satisfaction (esp. with reference to target group) 25%

Client exit 25% Overall social rating 10

Approach to scoring (M-CRIL)

2 Scoring the indicators derived from:

- Best/optimal practice (clarity, consistency,

quality)

- Context averages (using available information)

Indicator scoring: examples of ‘best practice’

Mission: clear and comprehensive (includes who, where, what for), understood across the MFI

Policy for client protection: written and comprehensive (6 principles); monitored as part of internal audit

Exit rate: below average (contextual) <15-20%

Client awareness of financial conditions >80%

A Social Rating Report

Example – AMK Cambodia M-CRIL 2 page summary with grades up front

Benefits of Social Rating

For the MFI:To provide a clear diagnostic of social performance

strengths and weaknesses, an important step towards the establishment of an effective social performance management system

Same basis as social reporting standards (SPTF/MiX ‘Part 1’ & ‘Part 2), verifies/basis for MFI social reporting To facilitate access to financial capital from social

investors

Benefits of Social Rating

For external stakeholdersTo provide potential donors and investors with the tools

and information for making resource allocation decisions

For the industry:To increase transparency in microfinance

To compare social performance across MFIs

mirrors financial performance rating