In the microfinance industry success of a given microfinance institution (MFI) is typically associated with financial performance measured by the quality of loan portfolio, operating efficiency and profitability.
Yet increasingly these indicators relay only part of the story from a performance perspective in microfinance. Most MFIs today are striving to meet both financial and social performance targets, effectively managing a double bottom line. Strong financial performance clearly supports an MFI’s ability to deliver on its social goals, and on the flip side achieving social success will generally translate into solid financial performance.
The microfinance industry has undoubtedly improved the lives of millions of people by combatting social exclusion and stimulating small enterprise, all the while becoming more attractive commercially. However, with commercial success comes closer scrutiny.
The general assumption is that providing financial services to remote and poorly served locations will result in an organic process of positive impact. But increasingly, the question being asked is ‘where is the proof?’.
More and more microfinance institutions are required to measure and report the social and environmental impact of their activities, to demonstrate scientifically how microfinance really does lead to sustainable development. MFIs need to monitor and report the economic and social effects of their activities – the double bottom line.
Double bottom line reporting is much more than a proof point or compliance metric. Effective reporting enables external parties to relate to the institution’s performance, the expectations and needs of the external and internal stakeholders such as investors, clients, employees, management, etc. These variables need to be measured, monitored and analyzed to identify risks and highlight opportunities. This in turn may well highlight possible new priorities for the organisation. It also helps improve the organisation’s overall management and governance and enable better decision-making at the operational and strategic levels.
Increasingly the industry, whilst not typically subject to formal regulation in most countries, is looking to standards such as those put forward by the SEEP (Small Enterprise Education & Promotion) Network and the SPTF (Social Performance Task Force) as a means to establish best practice guidelines for the level and nature of metrics that are tracked.
The only question is - are there systems available for this and are they at a price point that enables MFIs to implement them? In short – yes, there are solutions emerging that can offer this at a reasonable price.
Crucially the growing acceptance of cloud technology and software as a service is providing tools for the industry to demonstrate its value, offering a new wave of performance management solutions aimed at the microfinance industry.
The combination of maturing technology with targeted software solutions is enabling the microfinance world to achieve its goal – not simply ‘doing well by doing good’, but at last having the means to demonstrate it too.