Summary: Sustainable Solutions for Microfinance - Measuring Social Performance in Latin America

Panelists:

• Micol Pistelli, Director of Social Performance, Microfinance Information Exchange (MIX)
• Jody Rasch, Senior Vice President, Social Performance Group, Moody’s Analytics
• Rebecca Ruf, Manager, Network Engagement, Women’s World Banking
• Carolina Velazco, Under-Director of International and Academia Relations, Grupo Compartamos

Summary

On December 4, AS/COA hosted a panel on measuring the social impact of microfinance in Latin America. As a relatively new field in the world of microfinance, panelists agreed that social performance goes beyond standard metrics and data collection. The process of measuring how microfinance impacts the well-being of its clients requires cross-sector collaboration, innovation, and a cultural understanding of the market.

Watch a video of this event.

Defining Social Performance

Micol Pistelli from the Microfinance Information Exchange (MIX) opened the panel with an overview of social performance indicators collected from 900 microfinance institutions (MFIs). Pistelli noted that Latin America surpasses the rest of the world in the amount of social performance data collected, which is in part due to the strong local networks in the region.

The MIX’s work on social performance began in 2009 with the creation of the Social Performance Indicators (SPI) in collaboration with the Social Performance Task Force (SPTF). According to the SPTF, social performance is the “effective translation of a microfinance organization's mission into practice in line with commonly accepted social values,” such as creating benefits and serving clients in a sustainable manner, improving the quality of financial services, and the social responsibility of MFIs toward their clients.

Pistelli outlined the four performance development goals for MFIs, which include poverty reduction, growth of existing business, employment generation, and gender equality and women’s empowerment. Although MFIs are putting these various criteria at the forefront of their missions, many are struggling to prove that they are meeting their goals. For example, over 70 percent of MFIs listed poverty reduction as their main mission, but less than 20 percent are collecting the appropriate data measuring this goal, according to Pistelli. But overall, organizations such as the MIX are working toward creating greater transparency for social performance indicators in microfinance.

Social Responsibility and Sustainability

When exploring the prospects for sustainability in microfinance, panelists agreed that the longevity of the microfinance industry does not only depend on the well-being of its clients, but also on the investor and the MFI itself. Jody Rasch from Moody’s Analytics noted that using indicators such as Moody’s Social Performance Assessment (SPA) not only upholds an investor’s commitment to social responsibility, but increases financial returns. Jody argued that “there is no such thing as a purely financial investor” and that there is reputational risk involved when discounting the well-being of microfinance clients.  

Carolina Velazco from Grupo Compartamos explained that as a non-profit turned for-profit institution, Compartamos aims to eradicate financial exclusion while evolving its business model. The company has now expanded to Peru and Guatemala, with its main subsidiary remaining in Mexico. Velazco noted that many of the people who were involved in Compartamos as an NGO are still investors in the company, which helps keep the company’s vision in place. “Becoming a public company involves educating the investor,” said Velazco, pointing out that many at Compartamos visit their clients in person. Compartamos also maintains a strong corporate social responsibility initiative. Since 2006, the Board of Directors has dedicated 2 percent of the company’s annual returns to corporate social responsibility programs, donating over $1 million in 2012 to financial education, infrastructure, and health initiatives.

For MFIs in Latin America, many face challenges in putting social performance at the forefront of their operations. Moody’s SPA scorecard, which collects data from 155 institutions, broke down data into various categories such as social mission, strategy and leadership, customer relationship, measurement of social outcome/impact, human resources, and environmental performance. Rasch pointed out that Latin America scored well in customer protection and customer relationships, but ranked low in strategy and leadership, governance, and depth of outreach.

Women and MFIs

Rebecca Ruf from Women’s World Banking (SWWB) noted that by working solely with female clients, the organization faces a variety of challenges in measuring social performance. In 2011, SWWB launched the Gender Performance Initiative (GPI), which focuses on women as a distinct market and analyzes the challenges female clients face. Many of the barriers to women’s mobility in business are cultural, and it is for this reason that it is crucial to train loan officers and utilize data when making decision regarding clients.

Velazco explained that one of Compartamos’s most successful initiatives is Crédito Mujer, which works with groups of women in building their businesses. This group approach to financial inclusion creates a sense of responsibility among women. Crédito Mujer also provides benefits such as additional credit, protection through basic life insurance, and a network of medical and educational discounts.

Ruf also pointed out that women’s income is essential to a family’s well-being, yet is highly undervalued. For families working in agriculture, men tend to have higher incomes, but only get paid once or twice a year. Women’s incomes may be less, but they receive a greater number of payments a year which help pay for the agricultural activities conducted by men. Ruf noted that while women’s income is often undervalued, their wages can actually equal between 25 to 60 percent of household income.

SWWB works with MFIs to better meet the needs of women by creating more flexible loan terms, diversifying products, and training loan officers. According to Ruf, women highly value their relationships with the loan officers, who give them legitimacy and visibility. Many of these women are being recognized for their abilities for the first time, which is the very essence of empowerment.

The Cost of Social Performance Indicators

Although there are a variety of initiatives that are working toward measuring social performance, panelists agreed that this process is costly in a variety of ways. Rasch noted that using social performance as rating criteria is difficult and expensive. “Social metrics tells you what you’ve done, not what you’re going to do,” said Rasch. Ruf also raised the question of how money is being spent within the MFI, and if the organization is willing to dedicate the time and money to collect data. Despite these drawbacks, social performance metrics are one of the most thorough methods to understand how microfinance has impacted its clients.