Grassroots has been very active in
recent years in supporting initiatives intended to improve SPM and metrics in
microfinance and the broader impact industry.
While no standardized system will meet all the needs of management and
directors, there should be one solution that can largely meet their needs and
also provide a framework for communicating with investors and the larger
audience. Grassroots believes it is time to begin to choose which of the
various tools is currently able to best fill these roles. This post shares Grassroots’
view of the current status of the SP management, metrics and ratings landscape. An upcoming post will expand on Grassroots’
rationale for the initiatives it will choose to continue to participate in and
support going forward.
Social Performance
(SP) and Social Performance Management (SPM) have been lead topics in
conversations about microfinance in recent years, escalating in priority as the
industry’s social value has come under challenge. With this increase of attention on the
subject and the enhanced emphasis on management, measurement and reporting, many
initiatives have been created to address the evident gaps that were discovered. Such a proliferation of both microfinance-specific
initiatives and impact industry ones has resulted in a lengthy list of initiatives
with slightly different emphases but large areas of overlap.
* PIIF, GIIRS and PRISM are the only investor-level initiatives.
** Awarded to
investors achieving 55% or more of financed MFIs reporting social performance
information
to MIX.
From the start, Grassroots
has believed that it was imperative that microfinance be able to systematically
assess the social value created alongside the financial returns. As long ago as 2004, it developed an in-house
social value metric to help guide its investments through the Gray Ghost
Microfinance Fund. As momentum built
behind third party systems that might develop into broadly accepted industry
standards, Grassroots was an early and very active supporter (see table). In providing this broad support, Grassroots
hoped to facilitate the emergence of industry standards and conventions around
which the microfinance sector and, ideally, other impact sectors could
coalesce. Grassroots has never believed that it was desirable that the
multiplicity of initiatives that have been launched in recent years should all
endure, even if the financial resources were available to support them, which is
clearly not the case.
After five years of
supporting multiple initiatives through significant commitment of both
financial and human resources, Grassroots believes that the time has come when
we and other industry participants must make some hard choices. The issue is not whether all of these
initiatives provide some incremental value; Grassroots believes that most or
all do. Instead the choice must be based
on which initiatives provide the most substance for management, directors and
the broader audience of investors and observers in the most efficient way
possible?
This question is
relevant not only for Grassroots, but for the entire industry as it attempts to
focus limited financial and human resources on those initiatives that offer an
efficient methodology for SP management, measurement and reporting to be put
into practice and integrated globally. Right now there is the risk that key players,
from the MFIs on which the industry is based to the investors who support them,
will throw up their hands and deem SP and SPM as “busy work”, or just another
exercise in compliance that is time consuming, frustrating and not worth the
resources it takes to fulfill all the slightly different reporting requirements.
The industry needs coordination,
cooperation and consolidation of these many SP initiatives if they are to
retain senior level commitment and attention and avoid being dismissed as
burdensome and redundant. SP and SPM are
at the heart of microfinance and financial inclusion, and the initiatives supported
going forward must provide and report the substance efficiently, justifying the
time and resources that industry players are expending.
The issues of redundancy,
burden and expense of the current SP infrastructure has been raised in other
conversations and the need for rationalization has been broached. Beth Rhyne at Accion’s Center for Financial Inclusion
addressed this issue in her blog post
from March. She opined that players need
to question the status quo of the current infrastructure and “be open to the
possibility that the organizational structures that exist today may have to
evolve.” Other industry participants
have also posited the idea of further coordination and consolidation among
initiatives to untangle and simplify the current scrum of different systems. The finite resources available for SPM must be
sharply focused on how best to support the creation of social value to help
poor people worldwide and communicate these outcomes to the broader audience.
Recent efforts to
consolidate at least some of the existing initiatives have focused on CERISE’s
SPI 4, which attempts to provide metrics useful both for MFI management and for
investors and other interested parties and reduce burden by combining
requirements of SPTF, SMART and MIX. The
SPI 4 has recently undergone pilot testing by MFI practitioners and MIVs. The coming months will give a broader
audience the opportunity to assess whether it efficiently meets management
needs and how it can relate to non-microfinance reporting systems like GIIRS (a
focus for Grassroots as we continue to expand beyond microfinance-specific
investing.)
Grassroots believes that the end clients are at the center of SP and
SPM and the core value of the entire sector is to ensure that they are
receiving the services and products needed to lift themselves out of poverty
and better their living situations. The
best way of delivering to these clients is by improving practices at the MFI
level; this is where we find the substance and the SP and SPM initiatives that
focus on this level have seen the most progress over the years. Furthermore,
because MFI/ financial intermediaries are the players on the ground with direct
contact with the end clients, Grassroots considers initiatives supporting their
work to be the ones best suited for moving the landscape towards coordination
and consolidation and, therefore, in need of continued support. Other efforts, while important during the
last few years while SP and SPM maneuvered their place into the industry, need
to merge so that there is no burden linked back to SP and SPM in general. Grassroots places itself at the forefront of
this shift because we see such a change as critical to the continued success of
the microfinance institutions who serve the poor and crucial for the realization
of global financial inclusion.
An upcoming post will expand on
Grassroots’ rationale for the initiatives it will choose to continue to
participate in and support going forward.
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