Independent Research and Policy Advocacy

Social Performance Reporting – Should organisations evaluate themselves?

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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.

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4 Responses

  1. I find this talk about social reporting and social bottomline total mumbo-jumbo. Here are the parts of your arguement that I find objectionable:

    1. That there is a trade-off: I am surprised that you implicitly pronounced verdict that scale and providing services to millions of individuals is not "social" enough. You have to argue the nature of the trade-off carefully before building recommendations on top of it.
    2. You argue for reporting so that "international organisations" may not be led astray. I do not see why like any other market participant, an interntional orgnisation cannot make its own due diligence calls as per its priorities. Why impose paperwork requirements to benefit a narrow set of organistions who are fully capable of mking their own decisions?
    3. Why do you need reporting to track outreach? Ask them or read their annul reports!
    4. An MFI is typically governed by its Board and regulated by the respective Regulator. These represent the shareholder and the customer typically. If neither is asking for additional information, why would the MFI have to do more? You dont argue the nature of the information externality at all

    And finally, if you believe there is "mission drift" with capital markets access, you are in the wrong business!

  2. I personally believe that the notion of social business as different from commercial business is itself a somewhat mistaken and an articificial one. All businesses have to add value otherwise very quickly they are no longer businesses — they are non-performing assets! These could be oil refineries such as Reliance Industries or construction companies such as Larsen and Toubro or financial inclusion focussed efforts such as IFMR Trust — I think it would be open to debate which one is adding more "social" value — they are all creating jobs (providing livelihoods) and improving well being of both their employees and their customers and adding to the long-term competitive advantages of India.

    It is true that in the world of commerce there are often businesses (such as cigarettes and alcohol) that one may wonder if they are indeed adding value or destroying it even though they seem to pass my test of being viable businesses and are far from becoming non-performing assets. The same question is being asked of microlenders who lend at very high interest rates. In my view that is where competition and activisim come in — they ensure that super-normal profits are competed away and that businesses (apparently social or not) are forced to stay within accepted norms. Thankfully the level of activism against smoking is growing by the day. For alcohol the evidence seems to be that it is excessive drinking that is the problem and not small amounts so really the challenge is not at the production end but perhaps partly also at the consumer end.

    The worry that I have (and share with Bindu) with Social Reporting is that it at its best it can seriously distract the attention of the business from its core task of adding value by doing what it does best and at its worst it can be used to hide inefficiency and to even conceal direct violations of the law. For example, the most social value that microlenders can add, in my view, would be to grow as fast as they can to serve as many customers as possible and do so at the lowest possible interest rates and still remain profitable and viable. As Bindu points out all this information can be obtained easily from the annual report without any need for additional Social Impact reporting.

  3. Dr. Mor and Bindu, I had understood social performance reporting to be different from social impact reporting. So, it is not 'we raised the income levels of 1 lakh customers through 50 branches' but 'we served 1 lakh customers who belong to x,y,z income brackets through 50 branches in p,q,r areas that were chosen because financial outreach is limited there (as reported by A journal).' Thus, it is credible reporting of the decisions made with the organisation's social mission in mind. You are right this information should not require any additional paperwork and can be received from Annual Reports that have them.
    Point is while financials are audited externally- making the numbers tolerably reliable- there is no norm for reporting the reasons behind the numbers. The decisions (that come from the social mission of inclusion, sustainability etc.) that drive the financial and operational numbers may not always be clear. That is why social performance reporting. In that pursuit if MFIs understand their clients better, answers to issues such as multiple borrowing may emerge.
    Also, I am not saying there is a trade-off between scale and mission aligned-ness, that there is mission drift. By reporting the social nature of the work they have done- the quality of their numbers and outreach, ideas such as mission drift can be silenced is what was being suggested.
    You are right that in the name of SPR, articulate mumbo-bumbo-ers may seek to misle, but i still feel that it is better than having just dry numbers reported.

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