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AMERMS Course 1: Learning to Cost-Effectively Assess and Manage Social Performance - PPT 2

by Microcredit Summit Campaign

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Learning to Cost-Effectively Assess and Manage Social Performance
(additionnal info on social rating)
ROOM: Impala/Lake Turkana
FACILITATED BY: Freedom from Hunger
Mr. Christian Loupeda (USA)

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Why would an MFI want to have a social rating? Why would an investor want to review an MFI’s social rating?For most MFIs, financial performance only speaks to a fraction of their overall purpose. A social rating serves to place a financial rating into the context of the institution’s social mission and activities. As such, a social rating fills an information gap left by a financial rating—it tells the rest of the story.Social rating agencies have developed systematic, focused, and relatively quick processes for assessing an institution. The process is much less time-consuming and expensive than a true impact assessment, for example.Finally, a social rating is a practical tool that an MFI can use to improve management, rather than trying to prove impact. The former is a means for improving products, services, and outreach. Investors have a direct stake in these improvements.
A social rating provides an external opinion on an MFI’s capacity to put their mission into practice and achieve social goals. Ratings examine an MFI’s social commitment, and the likelihood that it will deviate from its social mission in the future. Ratings answer the questions: Is an MFI doing what it says it is? Is it creating social value through its activities? What is the evidence?There are four rating agencies that offer social ratings: M-CRIL, MicroFinanza Rating, MicroRate, and Planet Rating. They each use their own standardized rating scale, just like a financial rating. (example scales: one to five stars; “poor” to “excellent;” DDD to A). Most ratings examine six key areas of social performance:The socioeconomic context in which the MFI operates. This includes the political and social context of the country, the country’s poverty profile, the county’s regulatory environment, and the institution’s local competition.The MFI’smission, strategies and systems, including the balance between social and financial objectives, and the adequacy of systems to achieve the MFI’s social mission.Outreach includes the MFI’s target clientele (rural/urban; men/women, etc.) as well as the MFI’s ability to attract and retain clients.Client monitoring speaks to the MFI’s collection of data on clients, and their processes for receiving feedback from clients. It usually examines the reliability of the MIS used for the collection and analysis of social data. Social responsibility includes the MFI’s policies and practices toward clients, staff, and the community, as well as how the MFI impacts the environment.Quality of services refers to the diversity and appropriateness of the products and services that the MFI offers. It also examines the transparency of the MFI, the cost of services to the client, and the mechanisms in place to address and resolve client grievances. ________________________________________________________________________________________________________________________________Notes on individual Rating Agencies: M-CRIL and MicroFinanza Rating offer a social rating product that includes a field survey to provide more client-level data. Planet Rating is also piloting a product with field survey. MicroRate offers an opinion on an MFI’ssocial return, in addition to their capacity to achieve a social mission.
Social ratings are beneficial for the industry as a whole, individual MFIs, and investors and donors.Benefits for the industry include: Increasing transparency and allowing comparisons in social performance across MFIs.Benefits for MFIs include: A clear diagnostic of social performance strengths and weaknesses (an important step toward the establishment of an effective social performance management system), and the facilitation of access to financial capital.Benefits for investors and donors include: Information to assist in resource allocation decisions, and a supplement to the due diligence process.

AMERMS Course 1: Learning to Cost-Effectively Assess and Manage Social Performance - PPT 2 Presentation Transcript

Why Have a Social Rating?
Financial performance is only half the story for most MFIs
Puts a financial rating into context
Fills the information gap left by financial ratings
Systematic, focused, relatively quick approach
Quicker and cheaper than ‘impact assessment’
Focuses on improving management rather than trying to prove impact
Social Rating Tools
A social rating provides an external opinion on an MFI’s capacity to put their mission into practice and achieve social goals.
Most ratings examine six areas of Social Performance:
Social Rating Benefits
For the Industry
Increases transparency in the industry
Allows comparisons in social performance across MFIs
For MFIs
Provides a clear diagnostic of social performance strengths and weaknesses, an important step towards the establishment of an effective social performance management system
Facilitates access to financial capital
For Investors and Donors
Provides information for resource allocation decisions
Supplements the due diligence process (see next slide)