Microfinance Horizon

6 November 2010 [CGAP]

Microfinance institutions (MFIs) across the world are showing a strong commitment to transparency and accountability in their efforts to reduce poverty, with a growing number reporting on the social benefits of their activities to their investors and to the public.

CGAP, with its partners the Michael & Susan Dell Foundation, the Ford Foundation, and the Social Performance Task Force, is encouraging MFIs to demonstrate their commitment to transparency through the Social Performance Reporting Awards, administered by the Microfinance Information Exchange (MIX).

Around 350 MFIs submitted reports on their social performance to the MIX this year for the Awards, easily surpassing the 200 that were received in 2009. Of these, 173 MFIs have received awards or certificates to recognize their efforts to report on the social dimensions of their work.

“This is a tremendous response to the call for greater transparency,” said Xavier Reille, Lead Microfinance Specialist at CGAP. “We have seen nearly a doubling in the number of applications to the Awards in a single year, and it shows the sincerity of MFIs in their mission of providing financial services to the poorest people, as well as to their own financial bottom lines.”

The surge in interest in the Social Performance Reporting Awards was driven by MFIs in Latin America and in Asia. The number of MFIs reporting from Latin America leapt to 157 from 81 a year earlier, while in Asia the figure climbed to 90 from 41. Another 67 MFIs applied from Europe and Central Asia, up from 51 a year ago. In contrast, both the Africa and the Middle East and North Africa regions saw little change, with 18 MFIs reporting.

The majority of MFIs reporting to the MIX on their social performance were medium-sized or large institutions, which together represented 64% of all applicants.

“We hope that the obvious enthusiasm for the Awards as a means of showcasing social performance will encourage MFIs in Africa and the Middle East to take note and put greater emphasis on the social aspects of their work in those regions,” said Micol Pistelli from MIX, the administrator of the Award. “It is obvious both from the number of applications to the Awards, and the large number of Awards given, that many MFIs recognize the importance of transparency, but there’s still a long way to go to drive that message home.”

The Social Performance Reporting Awards provide a yardstick for those wanting to assess an MFI’s commitment to showing progress in helping their clients, supporting their staff, and protecting the environment.

As such, the awards reward openness and accountability in reporting, not the actual performance of MFIs on these measures. More than 200 MFIs submitted reports on their social performance in 2009 to MIX and this number is expected to increase significantly in the second round of awards.

To qualify, MFIs provide reports on a set of social performance monitoring indicators that have been developed and refined through the Social Performance Task Force in cooperation with industry leaders. One of the most important indicators is the degree to which MFIs are measuring the poverty level of their clients and which poverty-measurement tools they are using.

The awards feature three levels of recognition:

GOLD AWARD: awarded to MFIs that complete the report, provide data on poverty measurement, and have a social rating that includes auditing of the poverty tool used by the MFI.

SILVER AWARD: awarded to MFIs that complete the report, and also provide data on poverty measurement.

CERTIFICATE: awarded to MFIs that complete the Social Performance Standards Report

An award will also be given to microfinance networks or associations that have more than 50%of their affiliates reporting on social performance to MIX.

In 2010, 19 MFIs have received gold awards, 32 won silver, and 122 were recognized with certificates. Additionally, five networks received awards for the strong social reporting of their affiliates.