An Introduction to Social Performance Making Microfinance Matter for Clients and Their Families: Ensuring a Social Performance Bottom Line in the Industry 1

What is Social Performance? The effective translation of an institution’s mission into practice in line with accepted social values that relate to: reaching poorer and excluded clients; improving the lives of clients and their families; widening the range of opportunities for communities. Notes Renewed interest in the social purpose of microfinance stems from a recognition that Microfinance is more than just the delivery of financial services poor people, but was intended to create social values: Improving the lives of poor and excluded clients and their families Widening the range of opportunities for communities 2. Social performance is defined as the effective translation of an institution's social mission into practice (actions, corrective measures, outcomes). Social performance is therefore both the results achieved (in terms of reaching target clients, meeting client needs and change), and the process by which these are created (the actions and corrective measures that are taken to bring about those outcomes). The SP pathway describes the MFI intentions, design and results: Intent Strategy: mission, goals, objectives Design Architecture for change Systems: organization’s policies, procedures, processes aligned with the MFI mission. This includes its information system, appraisal, reward (financial and non-financial incentives), and communication. Delivery of services: that appropriate service design and delivery is what links our social mission, goals and objectives with desired social outcomes. An important aspect of both organizational strategy and outcomes is the range and quality of the services it sets out to provide, and how this fits with the needs and priorities of actual and potential clients. If an MFI is to be effective, appropriate and quality services are essential. By segmenting their clientele, MFIs are better able to understand and meet the specific needs and priorities of different client groups by designing appropriate services Results Reaching target clients: Outreach to the target population. Serving increasing number of poor and excluded people sustainably: expanding and deepening outreach to poorer people Meeting client needs: Improving the quality and appropriateness of financial services available to the target clients through the systematic assessment of their specific needs Change: MFIs have social objectives in terms of changes they wish to see in the status of clients, families and communities. Creating benefits for the clients of microfinance, their families and communities relating to social capital and social links, assets, reduction in vulnerability, income, access to services, and fulfilment of basic needs. Social responsibility: In addition social performance is concerned with the way in which an organisation does business in relation to norms and expectations of its staff and the community. It is therefore concerns with improving the social responsibility of the MFI in relation to its employees, clients, the community in which it operates and the broader industry to which it belongs. 3. There is a distinction between those pathway elements within and without the control of the MFI. For example, we can control our mission, objectives and goals, as well as our systems, service design and delivery. Additionally, we have control over whether we reach target clients and meet their needs, and MFIs can have influence over the change in its clients lives. Therefore it is important to align our systems and services to our mission such that we are more likely to fulfil that mission. Intent Operations Results Social Performance Pathway 2

What is Social Performance? Intent: Clearly defined mission and objectives Reach target market Deliver high-quality and appropriate financial services Respond to the needs of clients, their families, and communities Ensure responsibility of the MFI toward its employees, its clients, and the community it serves Intent Operations Results 3

What is Social Performance? Operations: Actions and corrective measures Align systems with mission Leadership Institutional culture Human resources Training Reward (financial and non-financial incentives) Marketing Service Delivery Intent Operations Results 4

What is Social Performance? Results: Measurable outcomes and benefits Reaching target clients Meeting client needs Creating benefits for clients Social responsibility Results Reaching target clients: Outreach to the target population. Serving increasing number of poor and excluded people sustainably: expanding and deepening outreach to poorer people Meeting client needs: Improving the quality and appropriateness of financial services available to the target clients through the systematic assessment of their specific needs Change: MFIs have social objectives in terms of changes they wish to see in the status of clients, families and communities. Creating benefits for the clients of microfinance, their families and communities relating to social capital and social links, assets, reduction in vulnerability, income, access to services, and fulfilment of basic needs. Social responsibility: In addition social performance is concerned with the way in which an organisation does business in relation to norms and expectations of its staff and the community. It is therefore concerns with improving the social responsibility of the MFI in relation to its employees, clients, the community in which it operates and the broader industry to which it belongs. Intent Operations Results 5

Why Is Social Performance Important? . Achievement: to improve our programs to achieve the social goals we set out in our mission statements Accountability: to be more transparent Furthermore, there are many practical benefits to industry stakeholders 6

Why Is Social Performance Important? To achieve our mission To maintain the social values in microfinance To deliver on the potential of microfinance to contribute to the Millennium Development Goals Strong Financial Performance is not The end goal…rather it is a means to accomplish the social mission Social Performance Financial Performance Mission MFIs have an ethical responsibility to account for their social performance in a reasonably transparent manner. MFIs claim social impact. They solicit funding and investment based on claims of social impact. This entails in turn a responsibility to account for their social performance in a manner that is reasonably transparent to donors, investors, and other stakeholder groups. For a lot of donors who are using tax payer money, they want to know what social returns are given for their subsidies 2. Social performance management is integral to maintaining the social mission of microfinance. Performance measures profoundly shape values and behaviors within organizations. “we value what we measure, we measure what we value” To the extent financial considerations dominate social considerations in assessing and managing MFI performance, the danger exists that social performance will progressively diminish in importance. Social performance management is necessary to ensure that MFIs remain tethered to their historical social roots. 7

Why Is Social Performance Important? Accountability MFIs have a responsibility to be transparent about their social performance Who are our clients? What changes are taking place in their lives? Transparency leads to greater accountability which leads to greater social performance We claim results, we have to be accountable for them 8

Why Is Social Performance Important? Practical benefits to industry stakeholders Creates a more client-centered organization Demonstrates “blended returns” to donors and investors Permits social performance benchmarking Facilitates better financial performance Social performance management benefits MFI clients. The process of managing social performance potentially yields numerous benefits for clients, including services more appropriate to their needs, more product choices, better customer service, and a greater voice in program operations and policies. Social performance management helps MFIs create a more client-centered organization with products and services that are more demand-driven. A social performance management system will help the MFI, among other things, to accomplish the following: segment its portfolio so as to identify market niches, opportunities and problems, monitor how clients use services so as to determine how well they meet clients’ needs in line with their capacities, innovate to improve client satisfaction and loyalty through appropriate products and better customer service, verify the results of programmatic changes to determine if they have made a difference; and track intended and unintended impacts on client households and the wider community and understand the role the MFI plays in promoting these changes. Social performance management allows socially-oriented MFIs to demonstrate their “blended returns” to donors and investors. In the absence of widely accepted social performance measures, donors and socially responsible investors typically base funding decisions on financial performance alone. The result is that funds tend to flow to a disproportionately small percentage of high-profile MFIs. Managing social performance allows MFIs to demonstrate social performance, arguably leading donors and investors to reallocate a portion of funding toward socially-oriented MFIs offering higher or competitive blended returns.[1] Blended returns refer to an organization’s financial and social returns combined in some way to arrive at a more holistic picture of the organization’s total return. Blended returns may also include an organization’s environmental returns, which refer to the organization’s impact on the natural environment. Social performance management contributes to social performance benchmarking. Information on social performance, which is generated as part of a SPM system, is necessary to allow MFIs, donors, socially responsible investors, and other stakeholders to compare social performance across institutions and contexts, which is in turn necessary to establish social performance standards and benchmarks. Social performance management can facilitate better financial performance. Managing and improving social performance will potentially allow the MFI to increase program growth by making the MFI more attractive to potential clients and by increasing client retention through the monitoring of, and responsiveness to, clients’ experiences in the program. Social performance management allows MFI managers to measure and manage the tradeoffs between financial and social performance. MFIs are double bottom-line organizations seeking a combination of financial and social returns. At times, financial and social objectives may conflict requiring some way to manage the tradeoffs that arise in such cases. A social performance management system will generate the information necessary for an organization to manage these tradeoffs in a more strategic and effective manner. It will also help management identify problems in program effectiveness at an early stage, before they become damaging to the organization. 9

What Does It Mean to Manage Performance? Deliberately managing to achieve desired results Performance is not incidental What it explicitly defined and measured is what is managed Need to define desired performance Need to measure against desired performance Performance Management Social Performance Financial Performance Mission 10

How Can MFIs Manage Social Performance? Apply social lens to performance management Translate mission into goals and objectives Monitor and assess performance towards goals and objectives Use information to improve practice Build on existing systems and processes Appraisal, rewards, communication, training Monitoring & assessment Decision-making processes Monitoring Use Intent Design Results Social Performance Pathway Assessment Notes 1. Strengthening social performance does not happen haphazardly: like financial performance, it requires a deliberate and systematic approach. Given many competing institutional priorities and the fact that most MFIs’ performance management is biased towards financial objectives and performance, day-to-day decision-making usually favours financial rather than social performance. 2. "Managing" social performance refers to the process of measuring, analyzing, reporting and using social performance information to achieve social outcomes and impacts. To be useful, this information needs to be integrated into MFIs’ operations—systems, processes, programmatic design and value systems. In other words, it must be institutionalized. Intent Operations Results Social Performance Pathway 11

Visit the Social Performance Resource Center Next Steps Visit the Social Performance Resource Center Sign the Social Performance ‘Declaration of Principles’ Give this presentation to Board of Directors and Senior Management Attend a social performance management training Commit to receiving a social audit and/or social rating 12

Where To Go For Further Information? Social Performance Resource Center http://microfinancegateway.com/resource_centers/socialperformance Management training Technical Assistance Tools Rating, audit and other forms of assessment 13

Thank You! --Social Performance Resource Center --Training Programs in Social Performance Management List upcoming dates and locations…..this can be updated before each presentation. This will be listed on the Imp-Act website and the Resource center Notes: 1. The SP Resource Center provides links to all of the above mentioned initiatives (in Bobbi’s chart). You can talk about the training of the Imp-Act Consortium and next available dates/locations. 14