As someone from a social science background, my bias has always been to consider economic inclusion—microfinance in particular—as one aspect of a broader goal, that of social inclusion by virtue of an increased standard of living. By social inclusion, I mean access to education, healthcare and systems that will afford basics such as food/water/shelter. In fact, my interest in microfinance stems from the fact that it can be a powerful tool to usher people into a realm of social inclusion who would otherwise be marginalized as a result of their economic exclusion. After one month in Honduras, this general principal has been qualitatively reinforced time and time again in the stories that I’ve heard from borrowers: I borrow to feel like a productive and useful member of my community, I borrow so that I can give my children a safe home to live in, I borrow so that I can send my kids to school, I borrow to afford medicine.
Even if you don’t buy into my overly-basic definitions of social and economic inclusion (after all I’m no academic), a salient question remains: how do we know that this link exists between microcredit and an increased standard of living, and therefore creates a net social benefit? Is feeling like it enough? Is anecdotal evidence enough? Probably not. Furthermore, the skeptic in me cannot help but ask what if microcredit makes no difference to the population it aims to serve or (gasp!) even does harm? It is no secret that over the years, development theory has been critiqued time and time again for doing more harm than it does good, or simply doing nothing (take a look at William Easterly for example).
However, there is hope! A French microfinance network called CERISE has developed a survey that aims to evaluate the social performance of microfinance institutions (MFIs). The tool does not measure the MFI against some internationally accepted standard, but rather against its own mission and goals. That is, if the MFI says it is primarily focused on lending to eco-friendly enterprises, CERISE aims to prove it. But there is an important distinction to make between measuring an MFI’s social performance and measure its social impact. They survey will NOT reveal the social impact of a given MFI. Currently, this sort of evaluation is still in development. (“Impact” is itself a loaded and controversial term.) However, the survey can tell you if the MFI is performing in ways that are generally beneficial to the social well being of its clientele. How exactly does this differ from impact? Here are some examples. Many of the questions ask if the MFI has a special focus on women, or offers loans specifically tailored to education. Social performance indicates how well the MFI is reaching those populations with those products, whereas impact would measure if those populations were better off due to the particular loan they received. Or, the survey aims to understand how loan officers work to prevent over-indebtedness of clients. Social performance details whether the loan officers are doing accurate risk assessments. Impact would measure how and if the protection efforts had bettered the lives of those individuals (or something along those lines).
Many members of Kiva’s current class of Fellows—myself included—have been charged with the task of completing this comprehensive survey at their MFIs. Kiva aims to have completed the survey with all of its partners by the end of the year. Although perhaps in theory it would be more satisfying to pull out the big guns and answer the impact question, let’s not forget that the social performance assessment is an immensely valuable tool. By understanding how MFIs are performing against their mission and social goals, the microfinance community gains knowledge of the practices that lead to MFI sustainability, beneficial targeting and products, and client protection. The MFI itself is also given a copy of the report to learn where it is performing as expected, and to identify areas for improvement.
On a more basic level, this quantification of social performance is exciting because it fits nicely with the stories we hear from entrepreneurs. Further, it aligns with our gut instincts—as lenders, Fellows and members of the microfinance community—that certain MFI practices not only feel right, but also are likely having a positive effect on the communities they serve.