Putting the social into performance management: state of practice

Microfinance has proven successful but if it is to continue to be viable and receive support, microfinance institutions (MFIs) must be able to demonstrate that they are fulfilling their mission as well as their broader social responsibilities.

Today, many successful MFIs understand that strong financial performance facilitates the pursuit of social objectives. The practical steps MFIs need to take to develop their strategy, set objectives and align their systems to achieve these dual goals are the essence of social performance management (SPM).

This report draws upon the lessons learnt emerging from the Imp-Act Consortium Global Learning Programme on social performance management (SPM), a two-year project which seeks to gather evidence of effective SPM and understand its organizational value. SPM is about achieving social goals and being socially responsible. It’s a process that enables MFIs to align their strategic planning and operational systems to a deeper understanding of client poverty and vulnerability. More broadly, because MFIs work with poor and vulnerable communities, they have an implicit responsibility to protect clients from harm and from over-indebtedness, as well as to treat both staff and clients with respect and dignity.

SPM has three components:

• setting clear social objectives and creating a deliberate strategy to achieve them
• monitoring and assessing progress towards achieving social objectives
• using social performance information to improve overall organizational performance.

To date, the social performance agenda has largely focused on the development and application of tools and indicators. But as more MFIs assess and rate their social performance, there is an increasing demand for social performance improvement. In this way, social performance management speaks to a real and current need, and more MFIs are taking steps to link up their strategy, information and decision-making.

Beyond the potential financial and operational benefits, MFIs cannot afford to take the risks associated with disregarding their social objectives. MFIs can avoid these risks and achieve their social mission by going back to basics: by understanding who their clients are and how to work with them to overcome their vulnerability, and by managing their organizational performance in a way that balances social and financial goals.