Realising Mission Objectives: A Promising Approach to measuring the Social Performance of Microfinance Institutions
This paper argues that, microfinance can be more efficient in reaching social and economic impact, together with financial performance, if it is equipped with a mission-based Social Performance Measurement (SPM) system.
The paper reflects on the inefficiencies of current practices for measuring social performance and advances the ongoing debate about developing practical methods for measuring and improving social performance of MFIs. It summarizes ideas for the mission-driven SPM concept: its rationale, development process, and necessary elements of the SPM system, potential uses to the MFI and its costs and benefits.
Further, the paper suggests methods to build a sustainable SPM for an MFI:
- Complete understanding of the institutional goals and needs;
- Identification of target groups of the MFIs;
- Conceptualization of possible and desired impacts;
- Identification of impact indicators and relevant measures;
- Well operational management information system for data collection and analysis;
- Institutionalization of the SPM process.
In conclusion, the paper states that SPM improves overall performance of MFIs, as it:
- Combines social and financial measurement which leads to increased long-term financial returns;
- Enables better client segmentation and risk management;
- Helps in efficient allocation of scarce resources, thereby reducing costs;
- Enables managers to successfully balance institutional and development impact trade-offs;
- Leads to increased efficiency, better product development and strategic decision-making.
