A lending institution in the inclusive-finance space that is for-profit and for-social good may be making multiple trade-offs where either profit or social good takes the backseat. To see whether the balance sheet of these decisions matches and justifies the institution’s calling itself a ‘social-business’, transparent social performance reporting is essential. Given that financial transactions such as loans from many international organisations happen on the basis of perceived social impact along with financial performance, building a strong norm for reporting initiatives for and measurement of social impact is justified.
Social performance reporting (SPR) could also make business sense- with one eye on the consideration they have for their clients, staff and the environment, lending institutions may actually be able to make better financial decisions as well. For-social-good may not always be not-for-profit.
Further, with SPR, little understood issues such as the true impact of loan sizes and multiple loans might start making much more sense if even the qualitative experience (recorded and presented in earnest and objectively) of a large number of lending institutions is put together. By just articulating that they have reached out to their clients, MFIs could be bringing out stories which answer many of the questions about the effects of access to finance. Seeing that a few institutions have begun reporting their social performance progress card along with their financial performance report and clearly investing in tracking client analytics gives one the confidence to ask for more!
Advocating SPR makes sense for an organisation with a mission such as ours too. This kind of evaluation by originators we partner with will be increasingly important because we care about universal financial inclusion and outreach is an important parameter within the SPR framework propagated by thought leaders such as CGAP.
For an industry that traces its roots to the social goal of access to finance for all, theories such as that of mission drift with greater capital markets access and the pressure to grow make the bottom line less important than the social bottom line. SPR can aid in determining that social bottom line.
See this CGAP focus note to know more about social performance measurement and reporting: Beyond Good Intentions: Measuring the social performance of Microfinance Institutions.