In 2012, the Social Performance Task Force published the Universal Standards of Social Performance Management. Created both by, and for, practitioners in the sector, these Universal Standards gather together a collection of good management practices which should enable financial service providers to accomplish their social mission. Since then, how have microfinance institutions appropriated these standards?
In 2014, the social audit tool, SPI4, developed by Cerise, was fully aligned with these standards so as to allow financial service providers to assess their social performance management practices, to identify their strengths and weaknesses and to target possible avenues for improvement.
Accordingly, since 2014, Cerise has collected in a centralised database all of the SPI4 audits which have been performed and submitted. In 2018, ADA and Cerise joined forces to analyse this database and to carry out a study to review the current practices related to the assessment and management of social performance. The study places a particular focus on three questions:
- What are the profiles of the financial service providers that carry out a social audit?
- What are the main strengths and weaknesses of these actors in terms of social performance management?
- What are the potential synergies between social, financial and environmental performances?
The main results of the study can be found below, while the full study is available here.
Profiles of the institutions using the SPI4 tool
Between March 2014 and August 2018, 435 audits were performed and submitted to Cerise by 368 microfinance institutions from 73 countries, with Latin America and the Caribbean and sub-Saharan African regions being highly represented. There are relatively few cooperatives amongst the institutions performing an audit, compared to the number of institutions reporting to the MIX Market. Furthermore, a majority of the institutions are large in terms of their portfolio size and there are as many for-profit as there are non-profit structures.
Strengths and weaknesses in terms of social performance management
In terms of the review of the practices related to social performance management, the institutions in the study sample produced an average score of 65.4%. Generally, the institutions with the lowest scores are: those located in Sub-Saharan Africa, cooperatives, institutions which have a small portfolio and those which target urban areas. This means that these are the types of institutions that have a particular need for support on these issues.
Amongst the six dimensions of the Universal Standards of Social Performance Management, the dimension with the lowest score is that related to the procedures and processes implemented to ensure the commitment of all of the institution’s stakeholders to the social goals (dimension 2). The dimension with the highest score is balance between financial and social performance (dimension 6). Generally, the institutions that received the lowest global scores did not do so due to outlier low scores on one particular dimension, but were generally weaker across all of the dimensions.
Social performance, transparency, environmental performance and financial performance
In 2018, a Transparency Index was included in the SPI4 tool, which makes it possible to assess the seven main representative components of the integrity and transparency of the institutions. The global transparency score for the sample institutions is 69.7%. The scores are higher for the components related to the audit and the publication of accounts and human resource policy, whilst they are lower for the policy on aggressive sales technique and the mechanisms for complaints resolution, which once again highlights the practices which are the most difficult to implement and areas which require specific support.
The SPI4 also includes an optional module, the Green Index, which was developed with support from the e-MFP Microfinance and Environment Action Group, which enables institutions to measure their environmental performance. Of the institutions included in the sample, 28% completed this module, demonstrating their interest and commitment in this area. Generally speaking, these institutions perform better than the others in terms of social performance management. This indicates that the institutions which are the most committed to the achievement of their social missions are those which are also the most concerned with their environmental performance. On the other hand, their environmental performance scores remain low in relative terms, which shows that they probably have a significant need for support and capacity building in this area.
Finally, the SPI4 tool contains some data related to the institutions’ financial performances, which makes it possible to analyse links between good social performance management practices and the quality of the portfolio. Whilst the question of the links between financial and social performances is not new, this analysis is the first to be based on the Universal Standards to define social performance, which is considered here in terms of management, rather than results. The analysis shows that, all other things being equal, the link between good social performance management practices and the quality of the portfolio is positive and statistically significant: the higher the social performance management scores, the lower the portfolio at risk. This strong result should be one more reason to keep fostering the evaluation and the improvement of social performance management practices.
While the usual caveats relating to representativeness and size of samples must be acknowledged, this study takes advantage of a valuable data set, built upon a standard-setting framework years in development, to reveals some very interesting results. These results are welcome not only in empirically supporting the much-argued claim that social performance and financial performance positively correlated, but perhaps even more so in identifying in which particular areas MFIs are succeeding in social performance, and where there remains much room for improvement.
Photo credit: Anne Wangalachi