What do you mean by social performance measurement? Why is it important?

What do you mean by social performance measurement? Why it is important for the MFI to consider the social performance indicators?

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    Social performance measurement (particularly in context of MFIs) means the assessment of performance of micro-finance in regards to how well they have been able to serve the poor or vulnerable poor and fulfilled the mission/vision of inclusiveness of financial services. The measurement of effectiveness of Micro-finance institutions in uplifting the society (particularly those who are poor) in areas and manner as expected is the motive of social performance measurement.

    The social performance measurement may include following dimensions:

    • Poverty reduction: How well the MFIs have been able to reduce the poverty in the targeted areas or among their clients can be one dimension which can indicate the social performance of MFIs. One of the core objectives of MFIs is to help uplift the financial status of bottom of pyramid people. And hence their effectiveness in poverty reduction is one way to assess social performance.
    • Financial inclusion: Another core objective of MFIs is financial inclusion and to provide banking facilities to the unbanked sectors. In conventional banking, commercial banks didn’t provide any services to needy poor people. That is why MFIs was born to help solve this social issue and fulfill this need of poor people. Therefore, how deep down the pyramid has MFIs been able to take their services also indicate their social performance.
    • Micro-enterprise creation: Helping entrepreneurial poor people to establish micro-enterprise not only uplift the economic status of that client but also the one he/she employs. Therefore MFIs should encourage such enterprise creation activities. Measurement of this can also be key factor in assessing the social performance of MFIs.
    • Economic empowerment: MFIs should able to engage poor and vulnerable poor people in income generating activities and therefore help them uplift their economy.
    • Social, legal and political empowerment: Apart from economic empowerment of poor people, like we have discussed for long, MFIs role doesn’t end there. MFIs should also take responsibility to socially, legally and politically empower the poor people through education, training and confidence building. Therefore, effectiveness of MFIs in this regard can also be another measure of social performance.

    It is very important for MFIs to consider the social performance indicators because it is how they can know the effectiveness of their services. While earning profit and being sustainable is one of the objective and function of MFIs but that is not the core objective of why MFIs were established. It was established with the only purpose to promote financial inclusion by serving the poor and vulnerable people at the bottom of pyramid, those who were deprived of these services and help foster the economic development of every level of people. Indicators such as GESI (Gender Equality and Social Inclusion), Outreach indicators, etc. gives them the fair idea of how well they are fairing when it comes to extending their services to all kind of people, sticking true to the principles of micro-finance. The areas where the performance is not well can be corrected by taking certain measures. Therefore, these indicators help these MFIs institute to evaluate their performance time& again to set their actions accordingly to meet these goals and objectives.

    Novice Answered on January 25, 2018.
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