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) 4 specialist rating agencies: M-CRIL, Microfinanza Rating, Planet Rating, MicroRate ‘pilots’

Social Performance: dimensions Social Rating covers 1 to 5

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 Outco mes Out puts PORTFOLIO DATA + secondary data available + FIELD INVESTIGATION MFI data &/or Rating sample Questionnaire – new clients Focus 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/individual Average loan outstanding (as % per capita GNI) Sometimes available Average loan disbursed Average 1 st 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 livelihood Women’s role in supported enterprises Daughters/sons in school (prim/sec) Quality of life indicators (housing, electricity, sanitation Indirect outreach # employed in supported enterprises – hired/non-family (full/part-time)

RESULT: Appropriate services? Portfolio based information: Available: Different financial services Relative access to different products/services Range of terms Non-financial services and access (as applicable) Sometimes available Drop-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 * Modifed according to microfinance model

Weighting the dimensions: example contd, M-CRIL

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 stakeholders  To 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