How to Measure Social Performance?
The Challenge of the Double Bottom Line in
Paper for the Nepal Microfinance Summit, Kathmandu, February 14-16, 2008
With high levels of poverty in Nepal, particularly in rural areas, microfinance can and
should play a key role in contributing to the improved livelihood of the poor. This
requires strong microfinance service providers which are both financially sound as well
as effective in reaching the (rural) poor. Only through double bottom line businesses
(defined as businesses which strive to achieve measurable social and financial
outcomes) can a significant contribution to poverty alleviation in Nepal be achieved. By
being both commercially viable and socially oriented, microfinance can significantly
contribute to Nepal‘s development goals and the MDGs:
Improved access to microfinance services leads to an intensification and
diversification of micro-entrepreneurial activities, creating employment and
generating income for poor people (MDG 1).
Thanks to increases in income, poor people can afford health services (MDG 4 –
6) and parents can invest in their children‘s education and training (MDG 2).
As the main beneficiaries of microfinance services are women, microfinance
contributes to women's empowerment and gender equality (MDG 3).1
2 Statement of the Problems
2.1 Why Social Performance Measurement?
As shown above microfinance can be an effective means for poverty alleviation and for
achieving social and economic impact. However, this requires effective monitoring of the
social performance of microfinance institutions (MFIs). Social performance can be
defined as ―the effective translation of an organization‘s social mission into practice.
Social performance is not just about measuring the outcomes, but also about the actions
and corrective measures that are being taken to bring about those outcomes.‖2 Social
performance, therefore, looks at the entire process by which impact is created.
GTZ (2005) p. 4ff
SEEP (2006) p. 18
Figure 1: Dimensions of Social Performance
Source: Accion (2007) p. 1
Monitoring social performance is a complex task which requires a considerable
investment of time and resources. So, why is social performance measurement (SPM)
so important for microfinance institutions and what are its benefits?
Focusing on financial performance indicators alone gives an incomplete picture
of the microfinance institution in question as its social impacts and the processes
leading to those impacts are not factored in; even a sound financial institution can
cause harm in a community, e.g. by excluding certain groups and, thus, creating
conflicts within the population.
By relying solely on financial indicators, a microfinance institution may experience
a mission drift when social objectives are replaced by purely financial ones
(particularly when incentive systems reward financial outcomes but not social
Social organizations or investors need information on social performance in order
to have a basis for planning and decision-making; the lack of social performance
information hinders private investment in microfinance by making information
acquisition on social risks and returns more difficult and costly.
The absence of social performance information diverts private investment in
microfinance towards a relatively small number of ―safe‖ investments; particularly
large and/or high profile microfinance institutions offering relatively high financial
returns, even though other microfinance institutions may yield higher returns
when considering both financial and social impacts.
Private investors in microfinance expect transparency and full disclosure, not only
of financial data but also of social performance. When given multiple investment
options, private investors will direct their money towards investments that can
plausibly offer higher risk-adjusted and blended returns.
All of the above implies that microfinance institutions have to understand the relationship
between financial and social return and they need to develop and/or apply a set of tools
in order to achieve both their financial and social goals.3
2.2 The Importance of SPM for Nepal
There are two more reasons why SPM should be of great importance to Nepal‘s
microfinance institutions in particular:
1. Discrimination of certain ethnic and religious groups as well as women and low
caste members has led to huge disparities in income distribution in Nepal.
Poverty incidence is particularly high for Dalits (47%), Terai Janajatis (36%), hill
Janajatis (44%), and Muslims (41%).4 The exclusion of women, castes and
ethnic groups has been identified as one of the root causes of the ten-year long
‗people‘s war‘ and other current conflicts. Microfinance institutions need to
address these disparities and actively promote social inclusion of discriminated
groups by monitoring their social performance.
2. In Nepal‘s current fragile political situation microfinance practitioners need to be
able to show the social impacts and benefits that they bring to the communities.
In many countries worldwide politicians have misused microfinance as a topic
during their election campaigns, lambasting microfinance institutions for high
interest rates and ruthless business behaviour (see case study below).
Box 1 Case Study India: Conflict in Andhra - Would Social Performance Monitoring Have
Provided Early Warning?
The state of Andhra Pradesh in India is home to some of the fastest growing MFIs. SPANDANA,
founded in 1998, has over 800,000 clients today. SHARE has 1.5 million clients, and SKS has
managed to expand to 700,000 clients in just a few years. But this fast growth has led MFIs to run
up against a strong rural development program in India: the World Bank funded and government-
sponsored Indira Kranti Pratham (previously known as Velugu). Indira Kranti provides a range of
services, including savings and credit services, to 12 million women. The program has accused
MFIs of charging excessive interest rates and of lacking transparency in its dealing with clients.
MFIs in turn have felt that their high-quality service was attracting Indira Kranti clients and that
hostility toward them stemmed from their competitive edge.
The situation with Indira Kranti and the government was brewing for some time when, in
December 2005, it exploded. Women‘s groups demonstrated against SHARE, and the Telugu
language press was full of accusations of harsh collection tactics, unethical and illegal operational
practices (such as taking savings, which the MFIs are not permitted to do), high interest rates and
profiteering, as well as accusations about governance structures and MFIs being run as ―family
businesses.‖ In March 2006, the Krishna District collector invoked the state Money Lenders Act to
temporarily seize 50 SHARE and SPANDANA branches.
Although the situation has improved since then, the state government‘s core concerns remain. It
believes that MFIs‘ single-minded focus on profitability and growth leads to a culture of pushing
debt and ensuring strict recoveries—a culture where client welfare is inconsequential.
Many in the microfinance field do not believe in the government‘s characterization of MFIs in
Andhra. But they do feel that some of the MFIs lacked transparency in several areas. This ranges
from opaque governance structures to interest rate calculations. They observed that whatever
social goals MFIs had set for themselves, they were only tracking and reporting on their financial
USAID (2005) p. 4-5
World Bank and DFID (2006) p. 18
performance. Aligning performance indicators to social objectives would have provided an early
warning on any problems clients may have been facing. Tracking improvements in client lives
would have helped demonstrate an MFI‘s social mission.
Source: CGAP (2007) p. 3
3 Objectives of the Paper
As shown in chapter 2 SPM is a must for any microfinance services provider in Nepal for
a number of reasons. This paper is geared towards microfinance practitioners in Nepal,
irrespective of whether they are social are double bottom-line businesses or not.
Analysing its social impacts is a necessity also for institutions which merely have a
commercial interest in microfinance, e.g. commercial banks entering the microfinance
market for profit or risk diversification reasons; measuring their social impact helps these
institutions vis-à-vis politicians and the public when getting blamed for high interest
This paper will show how to structure and organize SPM within individual institutions but
also within the microfinance industry as a whole. It will further elaborate on SPM systems
and tools available internationally and how these systems and tools are best applied.
The paper will also show concrete examples of social performance assessments carried
out in Nepal along with their results and findings. At the end of the paper the author will
give recommendations on what needs to be done in the area of SPM development in
4 Methodology of the Investigation
The theoretical part of this paper is based on recent documents by relevant microfinance
practitioners and development partners/networks. It is aimed at giving the
methodological and theoretical background concerning the issue of social performance
and at describing state-of-the-art SPM systems and tools.
The paper also contains case studies from Nepal where SPM tools have been applied
and discusses the results and implications of the assessments. An in depth social
performance analysis of the Small Farmers‘ Cooperative Limited (SFCL) Dumarwana,
Bara District, by GTZ staff from the Rural Finance Nepal (RUFIN) project. This paper
shows how the SPM was conducted and lays particular emphasis on how the SFCL
Dumarwana has applied SPM tools to increase its outreach among the rural poor.6
4.1 Social Performance Assessment Process
SPM differs from impact monitoring as it not only looks at results but also at the
processes which led to the results. The process starts by looking at the intent and design
of the microfinance institution by looking at its vision and mission and analysing the
The relatively high interest rates in microfinance are – of course – due to the higher transaction
costs of reaching out to poorer customers.
The author would like to note that social performance research refers to a (usually one-off)
analysis of the social performance of a particular institution; this is different from social
performance monitoring which is a management tool used on an ongoing basis. The words social
performance measurement, assessment, and monitoring are used interchangeably throughout
social objectives of the institution.7 The next step is to analyse the institution‘s systems
and to assess whether the MFI has procedures in place which are linked to its social
goals and whether it is carrying out the necessary activities to achieve these social
goals. The third step is to look at outputs and to verify whether the MFI is reaching its
intended clients (usually poor and low-income households, excluded groups, etc.) and if
so, how many of them. Additionally, the product range of the institution and its suitability
for meeting the needs of the target group need to be analysed during this step. The forth
step is to look at outcomes, i.e. whether clients have managed to improve their social
and economic conditions. The impact assessment then tries to analyse to what extent
these improvements can be attributed to the MFI‘s activities. Figure 2 shows the social
performance assessment process and what tools can be used during the individual
steps (a short description of the tools can be found hereafter):
Figure 2: Tools for Assessing Social Performance
Source: CGAP (2007) p. 4
4.2 Social Performance Assessment Tools8
As shown above different tools focus on different steps of the social performance
assessment; e.g. the CERISE tool focuses on intent & design, internal systems, and
outputs only. Thus, in order to assess all aspects of social performance a combination of
various tools is needed. The following gives an overview of five major social
performance assessment tools.
4.2.1 CERISE Social Performance Indicators (SPI) Initiative
The CERISE9 tool assesses the intentions and actions of institutions and whether they
have the means in place to attain their social objectives. The CERISE tool uses a
questionnaire and guide to examine:
1. Outreach to the poor and excluded populations.
2. Adaptation of products and services for target clients.
3. Improvement in social and political capital.
4. Corporate social responsibility (CSR).
As described above not all players in the microfinance business will have social objectives.
The overview on the social performance assessment tools is based on CGAP‘s Focus Note 41
―Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions‖, p. 4ff
CERISE stands for Comité d’Echange, de Réflexion et d’Information sur les Systèmes
d’Epargne-Crédit and is a platform for the exchange of knowledge and information on credit and
The CERISE tool determines outreach to the poor, through indirect means, by analysing
the mission statement, board and staff commitment, and targeting methods. Rather than
analysing client empowerment at household and community level, the tool assesses
their involvement in MFI decision making and the transparency of financial transactions.
Thus the tool is easy to apply and can be administered by the MFI itself.
4.2.2 SPA Tool10
The SPA tool mainly builds upon financial and client information which MFIs regularly
collect and uses it as proxies for the social performance assessment. The SPA tool
includes a scorecard with a set of indicators monitoring six dimensions of outreach:
breadth, depth, length, scope, cost, and worth of outreach to clients and the community:
Breadth of outreach includes the number of borrowers, the percentage of clients
with non-enterprise loans, and voluntary savers as a percentage of borrowers.
Depth of outreach measures average loan size, percentage of female clients, and
percentage of rural clients.
Length of outreach assesses financial performance - profitability and portfolio
Scope of outreach includes the number of distinct enterprise loan products,
number of other financial services, the type of savings offered, and the
percentage of clients with three or more products or services.
Cost of outreach calculates the financial costs in providing services, including
number of days taken to process loans and number of staff visits.
Worth of outreach measures client retention rate, loan loss rate, and portfolio
growth that can be attributed to clients.
A number of indicators which are connected to outreach to the community have to be
collected through interviews. The indicators include percentage of operating revenues
reinvested back into the community, staff turnover, female–male employee ratio among
professional-level staff, benefits to employees, and transparency and management
access for clients.
Besides the scorecard, an independent audit team judges the effectiveness of
institutional mission, management and leadership, hiring and training, monitoring
systems, incentive systems, and strategic planning. The findings of both the scorecard
and the audit of the institution‘s processes both find entry in the final social performance
Thus, the SPA tool assess whether key performance indicators are consistent with social
performance, and whether internal processes are designed and implemented in a way
that aligns policies, behaviours, and outcomes with the MFI‘s stated social mission.
4.2.3 ACCION SOCIAL Tool
SOCIAL is an acronym for the six elements of social performance that the ACCION tool
seeks to capture: Social mission, Outreach, Client service, Information transparency,
Association with the community, and Labour climate:
Social mission: articulation of mission; evidence of understanding & commitment
to mission; measurement of fulfilment of social mission
The SPA tool was developed by Gary Woller with funding from USAID.
Outreach: coverage; depth of outreach; products and services for underserved
Client service: client satisfaction; adequacy of products and services being
offered; use of mechanisms to obtain feedback from clients
Information transparency/ Consumer protection: transparency; efforts to ensure
Association with the community: relations with surrounding community;
contribution to the well being of the community
Labour climate: staff satisfaction; mechanisms to gain feedback from staff
It is designed to complement the financial assessment provided by CAMEL11 by putting
an emphasis on the ability of an MFI to fulfil its social mission.
The assessment is implemented by interviewing management, staff, board members and
clients and reviewing strategies, business plans, and minutes of board meetings. Data
provided by the MFI is validated through comparisons with external surveys, national
data, MIX data, market studies, and other secondary information. The tool also creates
geographic coverage maps to determine both the breadth and depth of coverage.
4.2.4 CGAP–Grameen–Ford Progress out of Poverty Index (PPI)
The idea behind the PPI is to have globally comparable client-level indicators that can
identify the economic levels of clients and demonstrate changes in their conditions. The
tool used is a country specific ―poverty scorecard‖ which is based on a statistical analysis
of national household expenditure surveys.12 The tool (co-branded by CGAP, Grameen,
and Ford) is named the Progress out of Poverty Index (PPI) because it can be used over
time to determine improvements in client economic levels and their ultimate graduation
out of poverty.
Every scorecard uses a small set of simple, easily observable indicators to estimate the
share of clients who are below an established poverty line. The MFI or an external
evaluator visits clients at home and obtains scores for each question. The scores are
then compared to a previously constructed ―poverty likelihood‖ table to determine the
percentage of clients falling below the poverty line. The following table shows a simple
poverty scorecard for India. A total score of e.g. 5 points means that there is a 96.3%
likelihood that the person in question is poor, while a score of 10 points represents an
Table 1: A simple poverty scorecard for India
No Questions Points Actual
1 How many children aged 0 to 17 are in the household?
CAMEL is a an assessment tool developed by ACCION which evaluates the financial and
managerial soundness of microfinance institutions. CAMEL is an acronym for five measurements
of a financial institution: Capital adequacy, Asset quality, Management, Earnings, and Liquidity
Country specific ―poverty scorecards‖ have already been developed for Bangladesh, Bolivia,
Haiti, India, Mexico, Pakistan, and Philippines (see
2 What is the household's primary energy source for cooking?
Firewood and chips, charcoal, or none 0
Any other fuel 8
3 Does the household own a television?
4 How many hectares of land does the household own?
Urban, any amount 0
Rural, 0 to 0.4 4
Rural, 0.41 to 2 7
Rural, >2 10
5 What is the principal occupation of the household?
Agricultural labourers 0
Operators and labourers, bricklayers, construction workers 6
Cultivators, farmers, fishers, hunters, loggers, unknown 8
Sales workers, service workers, transport equipment operators 11
Professional, technical, clerical, administrative, managerial, 13
6 How many almirah/dressing tables does the household own?
Two or more 9
7 Is the residence all pucca (burnt bricks, stone, cement, concrete,
jack board/cement-plastered reeds, timber, tiles, galvanized tin or
asbestos cement sheets)?
8 Does the household own a pressure cooker or pressure pan?
9 Does the household own a sewing machine?
10 How many electric fans does the household own?
One or two 5
Three or more 10
Source: Schreiner (2006) p. 37
4.2.5 FINCA’s Client Assessment Tool
FINCA implemented it‘s FINCA Client Assessment Tool (FCAT) in 2003. It is a
comprehensive assessment tool that includes demographic information, loan
information, household expenditures, asset accumulation, social metrics (health,
housing, and education), business metrics, client satisfaction and exit interview
questions. The assessment is carried out annually by research fellows deployed in the
field who conduct 30 - 45 minute interviews with clients using handheld devices to
capture clients‘ responses.
4.3 Social Rating13
Three microfinance rating agencies (Planet Rating, Microfinanza Rating, and M-CRIL)
are introducing social rating as a complementary product to credit rating.
4.3.1 M-CRIL’s Social Rating
The aim of M-CRIL‘s social performance rating tool is to assess ―the likelihood of an MFI
achieving its social mission in line with accepted social values‖. The analysis covers both
organizational systems as well as results (including client-level indicators). The tool
analyses whether mission statements, policies, and internal systems are suitable to fulfil
the institution‘s social mission and whether there are mechanisms in place for staff and
In addition, short household surveys are conducted to determine whether the poor and
excluded are being served and whether clients have improved their social and economic
The M-CRIL tool is the largest of the assessment tools because it encompasses all
dimensions (intent, activities, output, outcome, and impact) of social performance.
4.3.2 Microfinanza Social Rating
Microfinanza Rating has created two different types of social rating:
1. Social Rating Survey: this rating is similar to the one done by M-CRIL rating. It
too covers the whole range of social performance dimensions, including the
social and economic context in which the institution works; its mission, strategies,
and systems; the quality of its services; its social responsibility; and client-level
information. In this rating, Microfinanza Rating surveys clients directly.
2. Social Rating: this is a simplified version of the Social Rating Survey and
excludes direct client surveys. Instead, the rating assesses information available
at the institutional level (including staff interviews). But it too provides diagnostic
information on how well the institution is achieving its social mission by meeting
its social responsibility goals and providing quality services to its clients,
especially the poor.
4.3.3 Planet Rating
Differing from the ratings by M-CRIL and Microfinanza, Planet Rating relies completely
on data available at the MFI level. The rating is based on an analysis of internal
processes, documents and information and on socio-economic and sectorial
national/regional data. It covers four major areas:
1. Institutionalisation of the social mission.
2. Targeting and service offering.
4. Social responsibility.
The description of the social ratings by M-CRIL and Microfinanza Rating is based on CGAP‘s
Focus Note 41 ―Beyond Good Intentions: Measuring the Social Performance of Microfinance
Institutions‖, p. 8-9; the information on Planet Ratings is taken from the Planet Finance
4.4 Social Performance Measurement/Research in Nepal
As shown above, a number of useful tools have been developed and implemented over
the last few years. As in almost all other areas of microfinance, these concepts and
methods need to be adapted to the Nepali context.14 SPM must always make reference
to the country context. Furthermore, it needs to take into account the mission and model
of each MFI: specific indicators may be adjusted (or omitted) depending on the MFI
model. For example, indirect indicators of outreach (e.g., hired employment in credit-
supported enterprises) are applicable to MFIs that do not focus on the poor, but aim to
provide finance to micro- and small enterprises.15
So far, no comprehensive SPM has been carried out for the microfinance industry in
Nepal. Nevertheless, all major and a number of smaller microfinance players are
carrying out some sort of SPM. The following paragraphs highlight two assessments
conducted and the tools used by different stakeholders in Nepal, namely GTZ, and
Nirdhan Utthan Bank Ltd. (NUBL).
4.4.1 SFCL Social Performance Research
In 2007, GTZ tested some SPM tools in order to improve its monitoring and evaluation
concerning the Small Farmer‘s Cooperatives Ltd (SFCL).16 It is important to follow a
structured approach when carrying out this kind of social performance research in order
to get unbiased results which enable the MFI to improve its client targeting and to better
fulfil its social mission. The following is an example of how such an SP research can be
1. Deciding on your objectives for the research: the first step is to decide what
information you want to obtain. Possible questions here would be who uses the
institution‘s services and who is excluded? Or why are clients leaving the
institution and fail to fully utilize its services? Or what is the effect of the
institution‘s products and services on current clients?
2. Deciding on what resources to utilize for the research: this step is of
particular importance if the SP research is carried out by the MFI itself;
conducting research always entails a considerable use of time and/or financial
resources. But as will be shown later in this paper proper SP research can
contribute significantly in strengthening the financial position of an MFI (through
an increased customer base, savings mobilization, loan portfolio, and decreased
3. Planning the research: these steps comprise of developing (or simply choosing)
research tools, agreeing on the methodology for using the tools (including sample
size and selection), training staff in the use of the tools, and preparing detailed
data collection plans.18 Furthermore, decisions on data cleaning and entry, and
data analysis have to be made.
For example, a simple ―poverty scorecard‖ for Nepal could be developed using the poverty
scorecard developed for the Indian market.
Sinha (2006) p. 1
SFCLs are the main beneficiaries of the joint Agricultural Development Bank of Nepal Ltd.
(ADBL), Small Farmers Development Bank Ltd. (SFDBL) and GTZ project ―Rural Finance Nepal‖
(RUFIN). For more information on the project see http://www.gtz.de/en/weltweit/asien-
pazifik/nepal/20635.htm or http://www.microfinance.org.np/
The following research plan is based on Imp-Act (2005), p. 2ff. and was used in a similar form
during the GTZ‘s social performance research for the SFCLs.
An overview on nine research tools can be found in Imp-Act (2005), p. 7-8
4. Selecting the sample: the size and structure of the sample are important factors
in order to get unbiased and meaningful results. As a rule, it will be necessary to
select quite large sample sizes for survey work (usually at least 100 respondents)
and smaller samples (e.g. less than 30 individuals or groups) for qualitative
techniques. Regarding the structure, it can be interesting to organize focus group
discussions (FGD) with people who are not yet members of an MFI in order to
understand why certain people are excluded.
5. Conducting the research: the research should adhere to the guidelines and
data collection plans developed during step 3. An important issue here is to
respect the privacy of clients; you have to clearly and carefully explain to
participants of the survey the purpose and the anticipated consequences of the
research, as well as how the data will be used and stored.
6. Analysing the data: a critical aspect is to transform the data gathered into useful
information. This requires ensuring that the team conducting the assessment
possesses the necessary analytical skills to perform this task.
7. Writing the report: the last step is to process the information collected and
presenting it in a short and concise way. It is important to remember what
objectives had been outlined during step 1 (this includes who the target audience
is) in order to write a balanced ed report.
The GTZ team in Nepal followed the steps mentioned above during the social
performance research conducted in 2007. The methodology followed primarily a
qualitative method which involved using a mix of secondary research followed by board
members/employee‘s workshops, group discussions and an in depth interview with the
SFCL manager. The research draws heavily on the findings of five focus group
discussions (FGD) which were conducted with:
1. members of the steering committee
2. female clients
3. clients from socially excluded groups
4. a mixed group
5. a group of people who were not members of the SFCL.19
The information was collected in the following for core areas (on the basis of pre-defined
indicators which can be found in Annex 1:SPM Indicators for SFCLs).
1. Outreach to the poor and excluded
2. Adaptation of the services and products to the target clients
3. Improved social and political capital of clients
4. Social Responsibility of the institution 20
4.4.2 NUBL’s Client Data Management System (CDMS)
Since 2002 Nirdhan Utthan Bank Ltd. has developed a very comprehensive client data
management system (which incorporates elements of SPM) in order to better
understand their customers and to verify whether NUBL reaches out to the people it
intends to, the poor.21
Pant and Shrestha (2007) p. 3
Pant and Shrestha (2007) p. 6
NUBL (2004) p. 2
The CDMS involves all staff of NUBL, from the main data collectors, i.e. the loan officers,
to the compilers of data, i.e. branch and area managers, to the top management and the
monitoring unit, which analyse and use the data.22
The system consists of various tools to regularly monitor NUBL‘s customers with a
particular focus on assessing whether its clients are able to significantly improve their
livelihood situation. The system monitors five areas to assess in what poverty category
its customers fall:
1. Education ranking
2. Land ownership ranking
3. Housing ranking
4. Living standards ranking
5. Food sufficiency ranking
In each category the evaluator asks (and verifies) a number of questions. For example
for the housing ranking:
Table 2: NUBL’s housing ranking
Area Variables Points
Wall for cement joint brick or stone wall 5
for mud joint brick or stone wall 4
for uncooked brick wall 3
for mud-wall or bamboo (tati) wall 2
for straw or santhi wall 1
Roof for RCC or RBC roof 5
for tin or stone or cement tile roof 4
for mud tile roof 3
for Khar roof 2
for straw roof 1
Water for houses with drinking water source such as personal
source water-tap, tube-well or dug-well 3
for houses with drinking water from community group
owned and managed water facility such as community tube-
well, dug-well, tap-stands 2
for houses with drinking water from common and not well
managed water sources 1
Toilet for HH that uses at least sanitary pan 2
for HH that uses pit latrine 1
None for lower than above
Source: NUBL (2004) p. 8
Based on above results customers are categorized into A, B, C, D, and E (category A
having the highest scores. The poverty rating of the customer is then made using either
a two-dimensional model (e.g. using only the results from the housing ranking and the
land ownership ranking) or a multi-dimensional model.23 Of particular interest for this
assessment is to see whether customers managed to upgrade over the years.
The CDMS comprise of three more additional parts:
NUBL (2004) p. 3-4
NUBL (2004) p. 5ff
1. Client empowerment monitoring which looks into such aspects as: influence in
household decisions, participation in social and community organizations,
participation in public processes and political institutions, self-confidence in
accessing public services, and harmony at home.
2. Client drop-out monitoring which looks at the reasons why customers choose to
terminate their relationship with NUBL.
3. Customer satisfaction monitoring through regular market research.24
CDMS has already been piloted in two branch offices in Bhairahawa and Kotihawa (both
in the Bhairahawa area). The people from NUBL involved in this process find that the
CDMS has proven very valuable in helping to better understand their customers and
analysing how well NUBL manages to reach out to the poor. The information gathered
through the system helps the staff concerned to improve their products and procedures.
The biggest challenges in the development of the CDMS were (a) to develop meaningful
indicators for the poverty ranking, (b) to design easy-to-use software which can process
all the data inputted and (c) to convince staff and customers of the importance of the
tool. In particular, the last issue needs to be addressed carefully; loan officers have to
carry out customer interviews and might be unhappy about the extra workload. Only if
they see the benefits of the CDMS they will buy in and apply the tools properly. The
customers also need to have the tool carefully explained to them, otherwise might be
reluctant to answer the interviewer‘s questions .25
5 Results and Findings
As shown in the previous chapters, SPM has become an important aspect for
management of MFIs. With increased scrutiny of microfinance by the public and
politicians as well as increased involvement of private investment in this area, social
performance is (or, better, should be) high on the agenda of policymakers, microfinance
practitioners and international development partners.
But, as has also been shown, SPM is a complex process which requires a substantial
investment of resources and in new skills. The justification for such an investment lies in
the need to substantiate the double bottom line in microfinance. Experience around the
world has also shown that the substantial investment in SPM may pay off through
greater loyalty of clients (and even staff motivation).26
5.1 MFIs are able to reach out to large Numbers of Poor People
Unfortunately, a common framework encompassing all microfinance services providers
has not yet been developed worldwide (or for the Nepali context, for that matter). But
assessments of social performance and impact show that there ―are over 750 million
accounts in various classes of financial institutions that are generally aimed at markets
below the level of commercial banks, and that a substantial fraction of these institutions'
clients are probably poor or near-poor.‖27 This by no means implies that microfinance
has already reached all poor people: CGAP estimates the figure for potential
NUBL (2004) p. 11ff
This assessment was given by Mr. Prabin Dahal, Senior Manager of Nirdhan Utthan Bank
Sinha (2006) p. 1
CGAP (2004) p. 1
microfinance clients to be 3 billion people. 28 Additionally, the question arises how many
microfinance institutions are able to achieve the double bottom line, i.e. reaching out to
the poor and operate in a financially sustainable way?
5.2 A Number of MFIs Worldwide are able to achieve Financial
Sustainability (FSS) while reaching out to the Poor
A number of successful MFIs who actively target the poor and excluded have emerged
worldwide over the last couple of/few decades. But an in-depth analysis conducted by M-
CRIL on 27 MFIs in Bangladesh, India and Myanmar could not find a strong correlation
between financial sustainability (measured as FSS) and poverty outreach, meaning that
institutions were not automatically sustainable when they reached out to the poor, but
rather that it was only possible for a number of well-managed institutions to be so.
Figure 3: Comparing depth of outreach and financial
Source: Sinha and Brar (2005) p. 3
5.3 Nepali MFIs can achieve their Social Objectives in a
There is more than anecdotal evidence that a number of Nepali MFIs are fulfilling their
social mission whilst operating on a sustainable basis. Unfortunately, no comprehensive
studies have been carried out in this area. Additionally, no common understanding about
poverty and social performance measurement or what microfinance encompasses has
been developed so far.
GTZ carried out a social performance assessment of one of its beneficiary MFIs in 2007.
The study concluded that of the 1,672 households reached by SFCL Dumarwana, Bara
District, by July 2007 a high proportion were to be considered as poor. 74% of its
CGAP (2004) p. 13
customers were women, 50% came from socially excluded groups, 50% were landless
tenants and 25% were illiterate individuals (the categories are not mutually exclusive).29
The study team found that Dumarwana SFCL really gives a clear example of how an
MFI can positively touch all three dimensions of sustainable development (economic,
social and environmental)
The SFCL had been instrumental in bringing together the different ethnic groups in the
VDC and thus contributed to maintaining social peace even during the People‘s War.
Thanks to its good social performance, the SFCL has not only survived the conflict
unharmed, but even managed to grow during those difficult times. 30
Households which were members of the SFCL had significantly better access to savings
and credit than their non-member counterparts. Almost all of the SFCL members were
able to generate income from more than two livelihood sources. This led to higher
incomes (compared to non-member households) which had a favourable impact on their
expenditures on food, education and health. 31
Another research conducted by the Centre for Micro-Finance (Pvt) Ltd (CMF) as part of
the worldwide SPM initiative Imp-Act32 showed that MFIs can operate sustainably even
in the hilly districts of Nepal which – in general - are more difficult to access for
microfinance services providers than the Tarai (lowlands). The four microfinance
cooperatives which were assessed assisted communities not only to increase their
income but also to, e.g. build up social capital or increase female participation in
decision-making processes in their households. However, the research also showed that
the cooperatives still had difficulties in reaching out to the (ultra) poor in their
5.4 Investment in Social Performance Research can pay out for
As stated at the beginning of this chapter, measuring social performance requires both
time and financial investment. Experiences worldwide, however, show that MFIs can
benefit tremendously from such exercises not only in terms of being able to better fulfil
their social mission but also financially.
This same experience was had by MFIs in Nepal which also conducted social
performance analyses. The following case study shows in what ways MFIs can benefit
Box 2: Expansion of SFCL Dumarwana based on SP research results
After conducting a household survey in 2005/06 the SFCL Dumarwana realized it had not yet
managed to reach out to all of the poor in its VDC and decided to increase its outreach both
within its existing area of operation (i.e. VDC Dumarwana) as well as in the adjoining VDC
Pipra. The SFCL developed a vision to include only women from Dalit, ethnic and backward
communities as new members in order to fulfil its social mission to serve the poorest of the poor
villagers. The SFCL management proposed to its board to apply a solidarity group model with
collateral-free loans (with five members each where `first two members receive loans; after their
repayment two more members receive loans, and, finally, the group leader receives a loan).
Pant and Shrestha (2007) p. 2
Pant and Shrestha (2007) p. 2
Pant and Shrestha (2007) p. 7
Sharma et al. (2005) p. 50ff
VDC stands for Village Development Committee and is an administrative unit in Nepal.
In the beginning, the board members were very sceptical about this idea and raised several
questions such as: ―Why only women?‖, ―Why collateral free loans?‖ as well as many more.
Some board members feared that this new policy would create problems in the future. However,
after long discussions the board was convinced that the new policy would both help the SFCL to
achieve its social goals as well as strengthen its financial position through increased membership
and business. The new policy was passed and SFCL Dumarwana started its business expansion;
GTZ together with its partners ADBL and SFDBL supported this process by providing advice on
how to best increase business and provided incentives for the fastest and strongest growing
SFCLs during the fiscal year 2006/07.
Within one year SFCL Dumarwana was able to increase its membership by 94% and the number
of borrowers by 43%. The SFCL board and management learnt that in order to serve very poor
(particularly excluded and disadvantaged groups), one has to go to these people‘s doorsteps,
otherwise it is difficult to reach out to them. The SFCL also discovered that repayment rates for
collateral-free loans were higher than for collateralised loans as the customer relation is much
closer with people who are usually excluded from participation in microfinance or other schemes.
Therefore, through analysing its customer base and reaching out to formerly un-served poor, the
SFCL is now in a much stronger financial position and, also, better fulfils its social mission.
Source: Roshan Shakya, Microfinance Advisor, GTZ Nepal
5.5 SPM is particularly important in fragile Environments
SPM has become an important management tool for MFIs worldwide. There is a point to
be made that SPM is even more vital for Nepali MFIs for two reasons: (1) to protect
themselves against accusations from politicians and the public that microfinance is not
helping the poor, and (2) to steer clear from threats of conflict parties who either try to
extort money or accuse them of being partial, for example by excluding certain groups
from accessing their services.
Box 3: Importance of SPM in conflict or war environments
During the People‘s War, the Kewalpur SFCL, a women-only SFCL, received massive threats by
the Maoist People‘s Liberation Army (PLA). In response to this, the SFCL organized village
meetings where they educated the villagers about the purpose of the cooperative (serving the
poor and excluded) and its principles (e.g. open membership, social inclusion, women
empowerment). This was intended to let the Maoists living in the village know about how and why
the cooperative is helping the village. The women of the SFCL also engaged in direct dialogues
with Maoists and even asked them how they could further improve their institution. The Maoists -
unable to counter the women‘s arguments - left the cooperative unharmed.
Source: Shrestha (2007) p. 4
6 Conclusions & Recommendations
This paper shows that SPM is a must for microfinance institutions: the simple
assumption that microfinance will ―somehow‖ trickle down to poor people is not enough
in these times where the use of public funds or social investment is under much scrutiny
by the public and the investors themselves.
Results from SPM worldwide prove that microfinance can indeed achieve the double
bottom line. Also in Nepal a number of microfinance players are able to reach out to
large numbers of poor and excluded groups while at the same time generate enough
profits to sustain operations in the long run. However, no common standards are applied
which makes comparison between institutions difficult and, possibly, creates market
distortions as politicians, investors, and international development partners do not have
sufficient information to make informed decisions about where to put their funds.
Additionally, the MIS systems of many MFIs (both regarding financial as well as social
performance) are not yet well enough developed to provide this kind of information.
The paper has shown a number of SPM methods and tools which have been tested
worldwide and/or in Nepal. MFIs and other microfinance stakeholders need to analyse
the suitability of the various methods and tools for their specific purposes and make
adjustments, where needed. The provision of social performance information based on
proper analysis will help them (1) to strengthen their own financial position and better
fulfil their social mission, and (2) to provide them with empirical evidence from the field
that microfinance indeed reaches out to the poor and helps them to better their lives.
The latter will not only help them improve their image amongst the general public but can
also assist them in attracting more investment or refinance, either by government
institutions, financial institutions, development partners and/or social investors.
In order to achieve all of the above, the author would like to give a number of
1. Investment in MIS: microfinance institutions, possibly supported by government
and development partners, have to invest in their MIS and monitoring systems.
Only institutions with well-designed customer databases and the capacity to
analyse the information gathered will be able to implement SPM.
2. Design of suitable SPM tools for Nepal: the methods and tools described in
this paper have to be scrutinized for their suitability for the Nepali perspective and
- in a second step - the tools selected have to be adapted to the context.
Microfinance institutions can either build up the necessary human resources
internally or by outsourcing it to specialized microfinance support institutions or
3. Joint understanding of SPM: the Nepali microfinance industry has to develop
common standards for SPM. A starting point should be to come up with joint
definitions of e.g. poverty; the development of a simple ‗poverty scorecard‘ as
described in Table 1 can be a starting point.
4. Dissemination of SPM results: the results from SPM have to be disseminated
to the general public (e.g. through the media), to policymakers (e.g. through joint
seminars) and to prospective investors (e.g. through the microfinance
marketplaces like the MIX MARKET35). This will help to create an improved
image of microfinance in general, a more favourable (policy) environment, and,
hopefully, increased investment in MFIs.
5. Regulations on Social Investment: microfinance institutions are currently not
entitled to attract foreign equity investment. Only after the Central Bank (NRB)
removes this barrier will Nepali MFIs have access to the large pool of funds
which are currently being invested in microfinance. Thus, a change in regulations
concerning foreign investment has the potential to strengthen the capital base of
Nepali MFIs and will – at the same time – foster them to become more
transparent in terms of social and financial performance as international investors
will look very carefully at whether a prospective MFI achieves the double bottom
line or not.
Accion: ―In Sight 24: Guidelines to Evaluate Social Performance‖, Boston, 2007
CGAP: ―Occasional Paper No. 8 - Financial Institutions with a ‗Double Bottom Line‘:
Implications for the Future of Microfinance‖, CGAP Washington, 2004
CGAP: „Focus Note No. 41 - Beyond Good Intentions: Measuring the Social
Performance of Microfinance Institutions‖, CGAP, Washington, 2007
GTZ: „Der Beitrag von Mikrofinanzierung zur Erreichungder Millennium Development
Goals (MDGs) und des Aktionsprogramms Armut 2015 - Die Erfahrungen der GTZ―,
GTZ, Eschborn, 2005
Imp-Act: „Planning Research to Assess Social Performance – Guide for Managers‖, Imp-
Act Secretariat, Institute of Development Studies, University of Sussex, Brighton, 2005
NUBL: ―Approaches and tools for Client Data Monitoring Systems (CDMS)‖, Nirdhan
Utthan Bank Ltd., Kathmandu, 2004
Pant, Anupa and Roshan Shrestha: ―Assessment of Social Performance and Social
Impact of Dumarwana SFCL‖, GTZ, Kathmandu, 2007 (unpublished)
Schreiner, Mark: „A Simple Poverty Scorecard for India‖, Washington University in Saint
Louis, Saint Louis, 2006
SEEP: „Social Performance Glossary―, SEEP, Washington, 2006
Sharma, Namratta; Roshan Shrestha and Navraj Simkhada: ―Impact Assessment of
SACCOs in Nepal‘s Hill Districts‖, Centre for Micro-Finance (Pvt) Ltd, Kathmandu, 2005
Shrestha, Roshan: ―Community Participation and Conflict Management: The Case of
Small Farmer Co-operatives Ltd.‖, GTZ, Kathmandu, 2007 (paper presented at the
―International Conference on Sustainable Development in Conflict Environment:
Challenges and Opportunities‖ organized by CECI in Kathmandu, Nepal, on January 18,
Sinha, Frances and Amrit Brar: ―M-CRIL Technical Note 3: Can MFIs achieve the Double
Bottom Line?‖, M-CRIL, Gurgaon, 2005
Sinha, Frances: ―Social Rating and Social Performance Reporting in Microfinance -
Towards a Common Framework‖, EDA/M-CRIL, Argidius Foundation, and the SEEP
Network, Washington, 2006
USAID: ―Proposal for a Social Performance Measurement Framework in Microfinance:
The Six Aspects of Outreach‖, USAID, Washington, 2005
World Bank and DFID: ―Unequal Citizens: ―Gender, Caste and Ethnic Exclusion in Nepal
– Summary‖, World Bank and DFID, Kathmandu, 2006
Annex 1:SPM Indicators for SFCLs
Indicators to measure the social performance of SFCLs
1. Outreach to the poor and excluded
1.1. Mission and objectives of the SFCL
Does the SFCL have a social mission and objectives?
1.2. Geographic and socio-economic focus in client-group targeting
Does the SFCL provide loans to:
workers with insecure status
1.3. Methods and tools for targeting
What tools are applied to improve the depth of poverty outreach of the
1.4. Size of transaction
What is the average size of transaction?
Does the SFCL agree to provide loans only secured by ‗social‘ collateral?
2. Adaptation of the services and products to the target clients
2.1. Range of services
How many different loan products does the SFCL provide?
Does the SFCL provide consumer /emergency loans?
How many different voluntary savings products does the SFCL provide?
Does the SFCL provide insurance products?
Is there any flexibility concerning repayment?
2.2. Quality of services
In rural areas, what is the maximum distance between clients and the
How often does the credit committee come together to approve loans?
Has the SFCL ever conducted any market surveys in order to improve the
quality of services to the clients?
What is the percentage of client drop-outs or inactive clients over the last
Has the SFCL ever conducted any surveys on client drop-out?
2.3. Non-financial services accessible to the clients
Does the SFCL provide or support access to the following non financial
Non financial services related to financial and economical
management of the loan: business training, management of
family budget, access to market, innovation, etc.?
Non financial services related to social needs: literacy training,
health services, access to social workers, etc.?
Has the SFCL ever used tools to involve its clients
in the design of the services provided?
3. Improvement of social and political capital of clients
Does the loan statement differentiate between the amount of the principal
and the amount of the interest and fees to be paid in order to give
information to the borrowers which is easy to understand?
Do clients receive written statements for every loan transactions?
Do clients receive written statements for every savings transactions?
Do clients have access to the SFCL‘s annual accounts?
3.2. Clients representatives
Do clients of the SFCL elect representatives to an representative body?
Do these bodies have an effective impact on decision-making and actions
of the SFCL management?
How often do these bodies meet staff managers?
Is there a system of rotation of the elected members?
Is there a system of training for representatives / elected members?
What is the percentage of women among client representatives?
Does the SFCL provide leadership training for clients?
Does the SFCL have power to influence decisions concerning policies of
the local government?
Are any SFCL‘s leaders elected to the VDC?
Is the SFCL mobilizing any VDC funds?
4. Social responsibility of the institution
4.1. Human resources policy
What is the starting salary for loan officers (p.a.)?
What is the budget for training of employees (p.a.)?
Do employees participate in decision making?
How many employees have left the SFCL during the last 12 months?
4.2. Social responsibility towards the clients
Has the SFCL ever had to change its products and services due to
negative impact on social cohesion or welfare of its clients?
Does the SFCL provide any type of insurance that frees the family from
the burden of debt in cases of borrower death. of the borrower?
Does the SFCL propose specific measures in case of natural disaster?
4.3. Social responsibility towards the local community
Does the SFCL take care that its actions are compatible with the local
culture and values?
Does the SFCL work with local loan officers who can speak the local
language and know the local culture?
How often has the SFCL assisted the local community through financial
support for community projects?
Has the SFCL ever had to change its products, services and way of
functioning due to negative impact on the social cohesion or welfare of
Indicators to measure the social impact of SFCLs
1. Employment creation for the excluded
Increased part-time and permanent wage labour for the socially excluded
2. Empowerment (i.e. position of individuals in their family and communities; social
Increased ability to participate in the meetings and speak one‘s mind
Increased cooperation amongst group members/friends
Increased cooperation between husbands and wives
Increased literacy in legal matters
Better access to social networks
3. Health related issues
Improvements in toilet facilities
Reduction in illness
4. Child education & other child related issues
Increased awareness of the importance of equal treatment of female
Improved access to education for children
Decreased prevalence of child marriages
Indicators to measure the economic impact of SFCLs
1. Increased incomes
2. Increased savings
3. Better access to food
4. Easier access to credit
5. Increased self-confidence concerning financial transactions
6. Increased female participation in income generating activities
Annex 2: List of Abbreviations
ADBL Agricultural Development Bank Limited
CAMEL Capital adequacy, Asset quality, Management, Earnings, and Liquidity
CDMS Client Data Management System
CERISE Comité d’Echange, de Réflexion et d’Information sur les Systèmes
CGAP Consultative Group to Assist the Poor
CMF Centre for Micro-Finance (Pvt) Ltd
CSR Corporate Social Responsibility
FCAT FINCA Client Assessment Tool
FSS Financial Self-Sufficiency Ratio
GTZ Deutsche Gesellschaft für Technische Zusammenarbeit - German
RUFIN Rural Finance Nepal Project
M-CRIL Micro Credit Ratings International Ltd
MDG Millennium Development Goals
MFI Microfinance Institution
MIS Management Information System
NRB Nepal Rastra Bank – Central Bank of Nepal
NUBL Nirdhan Utthan Bank Ltd
PPI Progress out of Poverty Index
SEEP Small Enterprise Education and Promotion (Network)
SFCL Small Farmer Cooperative Limited
SFDBL Small Farmer Development Bank Limited
SOCIAL Social mission, Outreach, Client service, Information transparency,
Association with the community, and Labour climate
SPM Social Performance Measurement
USAID United States Agency for International Development
VDC Village Development Committee