Last June, at the annual Social Performance Task Force meeting in Jordan, the members of the Microfinance CEO Working Group and their lead social performance directors announced their plan to conduct the first large-scale analysis of the Universal Standards for Social Performance Management (USSPM) in practice, a process we called “beta testing.” You may recall our blog post about the plan last summer.

After a year of work, we’re ready to share our results, as detailed in the new working paper, “Insights from ‘Beta Testing’ the Universal Standards for Social Performance Management.”

As many of you know, the Universal Standards for Social Performance Management are a set of 99 “Essential Practices,” organized into six sections:

• Section 1: Define and Monitor Social Goals
• Section 2: Ensure Board, Management, and Employee Commitment to Social Goals
• Section 3: Treat Clients Responsibly (Essentially tracking the Smart Campaign)
• Section 4: Design Products, Services, Delivery Models, and Channels that Meet Clients’ Needs and Preferences
• Section 5: Treat Employees Responsibly
• Section 6: Balance Financial and Social Performance

The Universal Standards are considered applicable to all double bottom line microfinance institutions, and meeting the Standards signifies that an institution has strong social performance management practices. Clearly, implementing all 99 Essential Practices requires careful thought, planning, and execution, but we wanted to learn more about the process of translating the Standards into action. We partnered with more than 20 MFIs to work to answer a number of questions, including:

• Process of Assessment: What does it take to conduct an assessment against all 99 of the Essential Practices? How do we use the information that an assessment reveals to improve practices?
• State of Social Performance Management: How do MFIs view their current practices vis-à-vis the Standards?
• Feedback on the USSPM: Do MFIs find the Universal Standards to be relevant, achievable, measurable, and understandable?

We found that a full assessment of an institution’s social performance management practices is an in-depth undertaking that requires significant planning and multiple parties, often lasting several days to a week. Because it is an extensive process, interested parties should take some time to think about what approach might work best for them. Working Group members utilized a variety of approaches, ranging from self-assessments to quasi-audits with focus groups and client and staff interviews. Each approach varied in depth, specificity, and resources, but ultimately the correct type of assessment depends on the MFI’s intent – e.g., increase awareness around social performance management versus preparation for a social rating.

No matter the approach, MFIs found the assessment process to be valuable, often reporting that the assessment helped them improve overall staff understanding of social performance management best practices. Many institutions created action plans for improving their practices over time.

We found that the participating MFIs believe they already meet 78 percent of the 99 Essential Practices – a very high view of current practice. MFIs also indicated that most of the outstanding Essential Practices were achievable in some timeframe, usually one to two years.

MFIs performed best on Section 4 (Design Products, Services, Delivery Models and Channels that Meet Clients’ Needs and Preferences) and Section 5 (Treat Employees Responsibly). The institutions varied widely in the challenges they encountered, but on average they struggled most with Section 1 (Define and Monitor Social Goals), and had the most questions and concerns about the Essential Practices in Section 6 (Balance Financial and Social Performance).

Our results found that the USSPM are, on the whole, relevant, practical, and achievable for MFIs. However, even though most of the participating MFIs had a strong grounding in social performance management, many still struggled with understanding or measuring some Essential Practices, or felt overwhelmed by the process. As the industry evolves and develops, we’d like to work together with the SPTF and other interested parties to help ensure the Standards can be made clear, simple, and approachable to MFIs of all sizes and levels.

We believe that the USSPM are an important step forward for the industry, and we hope others will take on the challenge of assessing themselves against and implementing the Standards. We hope our findings contribute to the exciting ongoing conversation about what it means to institute responsible microfinance practices.

To read the full report, click here. To learn more about the USSPM, please see the SPTF web site.

*This post was modified from its original version on May 23, 2013. The original version included a different Average USSPM Compliance chart.

Have you read?

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Support the Global Appeal for Responsible Microfinance!

Microfinance CEOs: Smart Campaign Certification is a “Clear Step” Toward Responsible Microfinance

The following post was originally published on the CGAP Blog.

Microfinance investors are now openly discussing responsible investment, including balancing returns and how to reduce risks of market saturation and over-indebtedness, more than ever before. Investors agree it’s time for action. At the mid-year Social Investor Roundtable, convening of the Sangam Group (CEOs of the ten largest MIVs) and annual Development Finance Institutions (DFI) consultation on responsible finance last month they agreed on a “to-do” list of six concrete actions:

1. Join the discussion on balanced returns: Many participating investors had signed the Principles for Investors in Inclusive Finance (PIIF). Most agree that the balanced returns principle is the most difficult to pin down. The topic came up frequently: How much is too much, when it comes to prices and profits in the sector? Several MIV CEOs asserted that their commercial business model was the most effective way to drive responsible financial inclusion at scale. Eyebrows around the room shot up when one fund manager stated the target return of his fund: 20 percent. Other fund managers disagreed with the philosophy that such returns are consistent with responsible practice and desirable client outcomes. “We’re fooling ourselves” to suggest that there are few trade-offs between the financial and social bottom lines, they said. By policy some funds agree to take a lower return in the short run if it translates into better rural outreach or services like deposits that clients need and want. Sangam MIVs formed a working group on balanced returns and will feed their perspectives into related discussions led by the PIIF and Social Performance Task Force (SPTF). If you’re an investor, you should join one of these processes and help the search for a pragmatic but meaningful understanding on balanced returns.

2. Use the new Lender Guidelines on avoiding over-indebtedness. Market saturation was another hot topic: What can and should investors do about risks of market saturation and over-indebtedness? Investors in the AvOID Working Group have developed a Lender Code of Practice, which outlines steps investors should take in market analysis, due diligence, monitoring, and governance engagement. The Code has now been finalized and integrated in the PIIFs. Your investment organization can benefit by integrating the guidelines into your processes.

3. Support country-level research on market saturation and over-indebtedness: In addition to guidance that individual investors can use to rein in over-indebtedness, investors are also working together on analyzing such risks at the country or market level. DFIs and MIVs have supported this work in countries such as Azerbaijan, Bosnia-Herzegovina, Kosovo, the Kyrgysz Republic. Most recently, Blue Orchard, Incofin, and Oikocredit stepped up to jointly fund an innovative methodology in Cambodia that combined country-level proxies for market penetration, indicators of MFI lending practices, and surveys and qualitative research on borrower indebtedness and related factors. Findings were presented at the Social Investor Roundtable and will be formally released later this month. Sangam members committed funding to replicate the study elsewhere. Other investors can join and support expansion of this important work in additional markets.

4. Set reasonable covenants. Another investor working group has developed and adopted lender guidelines for covenants that support responsible microfinance, including practical guidance on acceptable investor actions when an MFI breaches a covenant. Recommendations include acceptable levels of Return on Assets (between zero and ten percent) and a requirement for investees to undertake a Smart self-assessment on client protection in the first three months. Nine investment fund managers and three DFIs have already endorsed the guidelines and several have started integrating them in their new loan agreements. Check out how your covenants stack up to this new standard of “reasonableness.”

5. Harmonize your social performance management indicators and make it easier for your partners and staff: The ALINUS working group (Aligning Investor Due Diligence and Monitoring Practices) has identified key indicators for partners to report on progress against the Universal Standards for Social Performance Management (USSPM). In addition to reducing reporting burdens, use of these indicators will help ensure comparable information from the analysis undertaken by investors, raters, and auditors. ALINUS invites investors to comment on a draft set of indicators next month. Another cross-industry group is working to develop a full set of USSPM indicators, which will go out for public comment in May.

6. Be more transparent and report. For the first time a group of investors reported on their implementation of the Principles for Investors in Inclusive Finance while piloting the PIIF Reporting Framework. Results are encouraging and summarized in the PIIF Report on Progress. From now on reporting will be mandatory for all signatories, which should create more accountability. Even investors who have not yet signed up to the PIIFs may find the reporting framework a useful tool to assess how well they are doing on their investment practices.

These heated debates and coordinated investor efforts are good news. They signal maturity and investors’ desire to move beyond the crises to concrete actions – individually and collectively – that will help make the sector more responsible. Taken together with recent initiatives to certify MFI compliance with the Smart Campaign client protection principles and to improve transparency on responsible investor behavior through the PIIF, they demonstrate momentum and sincere steps to define what precisely the microfinance sector means when we say we are learning from experience.

Image Credit: Gayanath Wimaladasa/CGAP

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Mary Jo Kochendorfer, on right, at AFMIN Annual Conference in Uganda.

This post by Mary Jo Kochendorfer was originally published on the Progress out of Poverty blog. Progress out of Poverty is an initiative of the Grameen Foundation that assists microfinance institutions and other organizations measure and track the poverty levels of groups and individuals, and in turn better manage their programs.

This past summer, the microfinance industry recently celebrated a milestone when the Social Performance Task Force (SPTF) released the Universal Standards of Social Performance Management (USSPM) after a worldwide consensus-building effort. After much work and collaboration, the microfinance industry, by way of the SPTF, came together and put forth standards which outline the best practices for monitoring and managing social performance. The SPTF defines social performance as “the effective translation of an institution’s social mission into practice in line with accepted social values.” Following the SPTF annual meeting back in June, regional microfinance networks have also prioritized social performance in their agendas.

Last month, the Africa Microfinance Network (AFMIN) hosted its annual conference in Kampala, Uganda to discuss “the State-of-the-Practice of Social Performance Management in Africa.” While there, I participated in a panel on Poverty Measurement Tools along with colleagues from Caurie-Microfinance, VisionFund International and CGAP.

(Got 15 minutes? Watch my presentation on poverty measurement with the PPI.)

It was exciting to see that so many organizations are interested and currently embarking on measuring poverty of their clients. For me, one of the highlights was listening to Alex Counts, CEO of Grameen Foundation, speak on the importance of putting clients first and the role of CEOs. During his speech he made a compelling argument for organizations to embrace the Universal Standards and take action.

“The time of ‘letting a thousand flowers bloom’ is ending,” Alex said, alluding to the ways in which the microfinance industry has approached the subject of social performance management. “We no longer have that luxury. We must unite and work together to use these standards and improve them through our experiences.” Rather than each institution defining its own SPM approach and practices, we can finally unite behind the standards.

Why the urgency? Alex highlighted that over the past few years, the entire microfinance industry has fallen into controversy thanks to the mistakes of a few microfinance institutions (MFIs) that neglected – or altogether abandoned – the mission to help the poor. Though these institutions are not representative of the majority of the worldwide microfinance industry, they have damaged the industry’s reputation and undermined the work of MFIs that are committed to a social mission. The USSPM are a clear and practical response to this crisis.

Alex challenged professionals at AFMIN to demonstrate their commitment to social performance by staying honest and pro-active. Specifically, Alex urged CEOs to both adopt and assess the standards, stressing that there is power in collective action. Grameen Foundation, as a member of the Microfinance CEO Working Group, will work with partner organizations to ‘beta test’ the standards.

To read the rest of this post, visit the Progress out of Poverty blog.

To learn more about the Microfinance CEO Working Group, visit their webpage. 

Image Credit: Grameen Foundation

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