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The Relationship Between Social and Financial Performance in Microfinance

Par Rémy William Angora, Florent Bédécarrats et Cécile Lapenu

Evidence from 126 Assessments
www.cerise-microfinance.org cerise@globenet.org


Is social performance profitable?

The question may be cynical, but nevertheless relevant for microfinance to keep its “promise” of being an economically viable development tool (Morduch, 1999). For years, the sector focused on sustainability and growth, measured in terms of financial performance. For the most part, sSocial performance was taken for granted, which led many microfinance institutions (MFIs) to neglect its measure and management. Concerned by this trend, pioneer practitioners, investors and donors have taken steps to address social performance by developing tools, methodologies and assessment frameworks. As criticism of the sector has increased, social performance has been mainstreamed (Copestake, 2007). But has it been expense of financial performance?There are contradicting viewpoints regarding the pairing of financial sustainability and social objectives. Some observers suggest an incompatibility, pointing to problems of mission drift experienced by MFIs that pursue profitability by insisting on physical guarantees, increasing loan amounts and targeting the better-off (Christen, 2001). Others emphasize synergy, arguing that social performance improves mutual trust, client participation and satisfaction, which translates into higher repayment rates and lower transaction costs (Lapenu, 2007). While these assertions draw on case studies, the research has not been extensive enough to draw sector-wide conclusions.Insufficient data has long been the main obstacle to answering this question. Reliable results are simply not easy to come by. Impact studies are limited, costly to replicate and difficult to compare (Copestake, 2003). Recent works using sophisticated techniques (Cornée, 2006; Gurtierrez-Nieto & al., 2007; Cull et al., 2009; Mersland & Strøm, 2009; Lensink & Niels, 2009) have mainly used financial data and inadequate social performance indicators such as portfolio size, average loan size or number of women clients (Armendariz & Szafarz, 2009; Dunford, 2002). These proxies offer little more than a vague idea of depth of outreach–only one of the many dimensions of social performance. Moreover, they only account for credit operations, effectively ignoring other aspects of microfinance.

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