The four microfinance rating agencies - M-CRIL, Microfinanza Rating, Planet Rating and MicroRate - are currently developing and piloting social rating products. As a credit rating does for financial risk assessment, a social rating will be an independent assessment of an organization's social performance using a standardized rating scale - in terms of the 'risk of not achieving social mission' or 'the likelihood of contributing social value'. A social rating does not judge the worthiness of an MFI's mission, but seeks to convey to investors how effective the MFI has been in translating that mission into practice, in line with general social goals. Ideally, a social rating will complement a credit rating, which focuses on profitability and institutional capacity. The combination of financial and social analyses should enable potential - especially 'social' - investors to place funds in organizations that best serve the double bottom line of meeting an altruistic mission while demonstrating sound financial management.
As in the case of credit ratings, social rating will serve several functions. Both ultimately aim to facilitate the flow of capital into the microfinance industry. Social rating is ideally placed to facilitate social investment. By participating in the rating process, MFIs develop an understanding of key data and issues that affect their social performance and aspects to address to improve further. If an MFI has already conducted internal studies on the efficacy of its services, the independent social rating will validate those studies (or highlight weaknesses) and assess how the findings of such studies are useful for the MFI. In the long term, being subject to formal evaluations should also decrease the risk that MFIs deviate from their social missions and values. The expectation, in fact, is that social ratings will lead to development and improvement in social performance management practices to achieve deeper outreach, quality of services, client protection and socially responsible behaviors in general, just as credit ratings have led MFIs to adjust their financial practices to better achieve sustainability. The data generated through social ratings will also contribute to better social reporting and transparency in the industry informing wider stakeholders including policymakers.
Social Ratings have been developed by the following four rating agencies. There are broadly two different products that are available: a 'comprehensive' rating and a 'thin' rating. To read about the difference between a 'comprehensive' rating and a 'thin' rating click here. For more information on each of the ratings click below.
To see an example of each please click on the following:
- M-CRIL Social Rating for Cashpor Micro Credit Limited, India
- MicroFinanza Social Rating for Moznosti Saving House, Macedonia
- MicroRate Social Rating for ProMujer, Nicaragua [Spanish]
- Planet Rating Social Rating for Prisma, Peru [English] [Spanish]
Background Reading on Social Rating and Social Performance Reporting in Microfinance: