Social Performance Indicators Blog

Going the Distance: MFIs' Geographic Outreach

Posted by: Taea Calcut

 

The provision of financial services to different geographic areas can support income and employment generation among underserved rural and urban clients. In the coming days, the Social Performance Indicators Blog will examine MFIs' geographic outreach through data from over 200 MIX Social Performance reports and interviews with select MFIs. We will explore issues including the percentage of clients served in different geographic locations, particularly those below the national average of development, as well as the services offered by MFIs to clients living where no financial services are provided. Remember -- readers' thoughts on this topic are, as always, welcome in the comments below!

Socially Responsible Investors: The MFI Perspective

Posted by: Katherine Oglietti and Taea Calcut

Over the past three weeks, the Social Performance Indicators Blog has presented guest posts and interviews from socially responsible investors who spoke about the relationship between financial and social performance and how their companies promote social returns on investment. But what is the MFI perspective on socially responsible investments? To answer this question, we recently asked five MFIs from around the world that work with our featured investors and other socially-oriented firms to discuss their own experiences with the due diligence process. Specifically, what aspects of social performance do MFIs find investors to be most interested in assessing? Do investors’ priorities align with the MFIs' missions? Do MFIs see socially responsible investing as a means to contribute to the achievement of their social goals?

The majority of the MFIs interviewed affirmed that investors evaluate social performance as part of the due diligence process, but one mentioned that some investors took social performance as a given and did not evaluate it. When asked which social performance indicators the investors were most interested in assessing, MFIs gave a variety of answers, demonstrating, as one MFI put it, that “investors generally look at the majority of the indicators, since ultimately they are looking for a balance between financial, social, and environmental parameters.” They did, however, state that indicators of interest to the investors were among the 22 core indicators standardized by the Social Performance Task Force (SPTF) and captured within the MIX Social Performance Report.

Oikocredit's New Department: Social Performance and Financial Analysis

 

Guest post by: Ben Simmes

Director Social Performance and Financial Analysis, Oikocredit, Netherlands

 

In July 2009, Oikocredit began a Social Performance and Financial Analysis department. This reflects the importance Oikocredit gives to social performance. From a long term perspective, we may say that microfinance has entered a third stage of development with its recent focus on social performance.

The first stage was the recognition of the importance of microfinance as a way to reach out to millions of poor people around the world who had no access to financial services. In 1975, Mohammad Yunus and also Oikocredit started to give loans to poor people. This first stage was extremely difficult as many did not believe that microfinance would work. The general opinion was that the loans would not be repaid, but the contrary was true. Loans were repaid and gradually more and more organizations joined Yunus’s efforts. NGO's began to specialize in offering credit; some of them transformed into non-banking financial institutes and even banks. Along with development agencies and social investors, commercial investors started to look at microfinance as a meaningful investment.
 

Calvert Foundation: A Social Perspective for “Good Business”

Posted by: Katherine Oglietti

Interview with: Eliza M. Erikson

Portfolio Manager, Calvert Foundation

 

The Calvert Foundation is a nonprofit organization that, according to its website, uses “investment capital, rather than conventional philanthropy, to create a sustainable, scalable model that enables nonprofit organizations and social enterprises to address critical social problems.” The Calvert Foundation offers a Community Investment Note, where individuals have the option to target their investment in different nonprofit sectors. Investors choose a 0-3% interest rate on this managed bond, opting at times for a 0% financial return in order to maximize their investments’ social returns in areas such as affordable housing, microcredit, small business development, community facilities, and social innovations. In the following interview, Eliza Erikson, who manages the Calvert Foundation’s international microfinance portfolio, describes the link between strong social performance, healthy portfolio quality, and client satisfaction.

MIX:  Does social performance reporting influence Calvert Foundation's choice to invest in a given MFI? If so, in what way?

Ms. Erikson: I would not say that social performance reporting alone influences our choice to invest in a given MFI. From the outset, we want to be sure that the MFIs accessing our loan capital have a strong focus on delivering essential products and services that are affordable, accessible, and appropriate for lower-income clients living at the “Bottom of the Pyramid.”  That strong client orientation should not only be the foundation of an MFI’s social mission, but at the heart of its business model and financial performance. It keeps their clients coming back for more and attracts new clients, sometimes away from the competition. This strong focus on the lower-income client and their perspective is not necessarily “social” in nature. I would argue that it is good business, especially if you are in the microfinance business.

BlueOrchard’s Initiatives in Social Performance

Guest Post by: Sarah Leshner
Senior Investment Analyst, BlueOrchard

BlueOrchard has, since inception, consistently used widely understood and accepted tools and benchmarks for analyzing the financial and operational performance of the MFIs in our portfolios.  In January 2009, the CEOs of BlueOrchard Finance and BlueOrchard Investments jointly proclaimed the firm’s ambition “to improve our capacity to collect quantitative and qualitative data on the social performance of our lending activities.” We are proud that in the past year we have indeed begun developing similarly rigorous systems and tools to assess, monitor, and articulate the social performance of our investments.

The mission statements of MFIs that BlueOrchard works with typically include a core objective to provide financial products to low-income clients that will help them grow their businesses, thereby improving the quality of life for themselves and their families. They often include as well the specific objectives of empowering excluded segments of the population and contributing to the socio-economic development of the community. BlueOrchard recognizes that in the context of MFIs’ tremendous growth around the world over the last several years, and the associated need for increased efficiency, scale, and profit, it has become ever more critical to ensure that institutions remain true to their mission, tailor products to meet their clients’ needs, and lend responsibly by fully disclosing all costs and properly assessing appropriate debt levels for their clients. This is at the heart of an MFI’s social performance.