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Social Performance in Microfinance Introduction to Social Rating

Social Performance in Microfinance Introduction to Social Rating. What is rated?. Social performance, ‘social returns’ Starting point is the MFI doing what it says it is? is the MFI contributing social value? - analysis of the evidence Follows the Social Performance Pathway.

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Social Performance in Microfinance Introduction to Social Rating

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  1. Social Performance in MicrofinanceIntroduction to Social Rating

  2. What is rated? • Social performance, ‘social returns’ • Starting point is the MFI doing what it says it is? is the MFI contributing social value? - analysis of the evidence • Follows the Social Performance Pathway

  3. Why Social Rating? • Balances financial performance rating • Interest from MFIs, donors, investors • Systematic, focussed, relatively quick approach • Quicker, cheaper – than ‘impact assessment’: ‘improving’ rather than trying to prove

  4. Social Rating Outlook: Evolution – numbers (incl assessments) ‘pilots’ 4 specialist rating agencies: M-CRIL, Microfinanza Rating, Planet Rating, MicroRate

  5. Social Performance: dimensions Social Rating covers 1 to 5

  6. In relation to the pathway Results Process Impacts Intent & values Internal Systems Out- puts Out-comes Social Rating

  7. Difference in rating products: Assessment of outputs Results Process Impacts Intent & values Internal Systems Out puts Outcomes 1 Outreach – who is the MFI serving? 2 Services – are they appropriate? + FIELD INVESTIGATION MFI data &/or Rating sample Questionnaire – new clients Focus Groups PORTFOLIO DATA + secondary data available

  8. RESULT: Outreach: who is the MFI serving? Client level information: New/recent client households % rural, semi-rural, urban, slum % /# poor - below poverty line(s) excluded: % with no formal savings/credit % socially marginal groups Other profiling: Main livelihood Women’s role in supported enterprises Daughters/sons in school (prim/sec) Quality of life indicators (housing, electricity, sanitation Indirect outreach # employed in supported enterprises – hired/non-family (full/part-time) Portfolio based information: Usually available: NB – check clients (not loans) Number of clients % rural % women % in different regions % group based/individual Average loan outstanding (as % per capita GNI) Sometimes available Average loan disbursed Average 1st loan disbursed % loans < $300/$400 (or nearest local currency) Loan distribution by sector

  9. RESULT: Appropriate services? Client level information: Client feedback on products and services – specific features: (amounts, terms, timeliness; group systems) % also using other financial service providers – other MFIs, moneylenders Specific issues and suggestions Reasons for dropout Portfolio based information: Available: Different financial services Relative access to different products/services Range of terms Non-financial services and access (as applicable) Sometimes available Drop-out rate

  10. Approach to scoring (M-CRIL) 1 Weighting the dimensions – according to • Significance • Relative effort involved for the MFI • Reliability of the information

  11. Weighting the dimensions: example M-CRIL *Modifed according to microfinance model

  12. Weighting the dimensions: example contd, M-CRIL

  13. Approach to scoring (M-CRIL) 2 Scoring the indicators derived from: • Best/optimal practice (clarity, consistency, quality) • Context averages (using available information)

  14. Indicator scoring: examples of ‘best practice’ Mission: clear and comprehensive (includes who, where, what for), understood across the MFI Policy for client protection: written and comprehensive (6 principles); monitored as part of internal audit Exit rate: below average (contextual) <15-20% Client awareness of financial conditions >80%

  15. A Social Rating Report Example – AMK Cambodia M-CRIL 2 page summary with grades up front

  16. Benefits of Social Rating For the MFI: • To provide a clear diagnostic of social performance strengths and weaknesses, an important step towards the establishment of an effective social performance management system • Same basis as social reporting standards (SPTF/MiX ‘Part 1’ & ‘Part 2), verifies/basis for MFI social reporting • To facilitate access to financial capital from social investors

  17. Benefits of Social Rating For external stakeholders • To provide potential donors and investors with the tools and information for making resource allocation decisions For the industry: • To increase transparency in microfinance • To compare social performance across MFIs mirrors financial performance rating

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