FEBRUARY, 2006
This publication was produced for review by the U.S. Agency for 
International Development. It was prepared by Gary Woller 
wollerg@yahoo.com, with edits by Sherry Sposeep of Chemonics 
International, Inc. 
microNOTE #12
Evaluating MFIs’ Social Performance: A 
Measurement Tool 
A. Introduction 
Begun as a social movement, microfinance has evolved into a global 
industry dedicated to commercial principles of operation. Included 
among these commercial principles is the need for financial transpar￾ency. Over the years, the microfinance industry has made significant 
progress developing methods to measure and report financial per￾formance. In contrast, the industry has made little progress develop￾ing methods to measure and report social performance consistent 
with its social roots. The lack of progress in this area owes largely to 
the difficulties and high costs inherent in measuring social perform￾ance. 
Thus, there appears to be significant value in developing a simple, low 
cost, and credible social performance measurement (SPM) tool. This 
microNOTE briefly presents such a tool. As seen in the tool includes 
three components administered in successive steps: (1) a social per￾formance scorecard, (2) a social (or process) audit, and (3) a 
standardized social rating. The social performance scorecard
assesses social performance using a set of simple indicators falling 
under one of seven dimensions of outreach. It assigns a social per￾formance score in each of the seven dimensions as well as an overall 
score. 
The social audit assesses an MFI’s internal processes and the extent 
to which they align its performance with its social mission. The stan￾dardized social rating states the likelihood that the MFI produces 
significant social impact both now and in the future. It, along with the 
scorecard, can be used to compare social performance across MFIs 
and contexts. 
B. Social Performance 
Scorecard 
B1. Conceptual Framework 
The social performance scorecard 
proposes that social performance is 
determined by net social benefit, 
which is determined by the sum of 
customer value, or the net private 
value customers derive from con￾sumption, and social value, or the 
net benefit society derives from the 
production and consumption of 
microfinancial services. 
Customer value and social value in 
turn can be proxied by seven di￾mensions of outreach: (1) breadth, 
or the number of people reached, 
(2) depth, or the poverty status of 
people reached, (3) length, or insti￾tutional sustainability, (4) scope, or 
the number of distinct market of￾ferings, (5) cost, or the sum of 
price, transaction, and opportunity 
costs, (6) worth, or the value of 
products and services consumed, 
and (7) outreach to the community, 
or the MFI’s interactions and rela￾tionships internal and external 
stakeholders. Outreach to the 
community is synonymous with 
“corporate social responsibility.” 
Customer value is determined by 
scope, cost, and worth of outreach. 
Social value is determined by 
breadth, depth, length, and commu￾nity outreach. Net social benefit is 
determined by the interaction of 
each of the seven dimensions of 
outreach. No single dimension or 
combination of dimensions can be 
considered in isolation from the 
others. 
B2. Scorecard Criteria 
Development of the scorecard was 
driven primarily by two criteria 
(among others): feasibility and scal￾ability. Feasibility means that score￾card should be reasonably easy to 
implement without imposing a sig￾nificant burden on the MFI’s re￾sources. Scalability refers to the 
likelihood that the scorecard is 
adopted by a large numbers of 
MFIs. 
A necessary condition of feasibility 
and scalability is that the scorecard 
does not require the MFI to collect 
additional information from clients. 
Any approach that requires addi￾tional data collection from clients 
was judged to have limited poten￾tial for scale. 
Also important to feasibility and 
scalability is that scorecard indica￾tors already reside in or can easily 
be generated by the MFI’s manage￾ment information system. 
B3. Scorecard Indicators 
 The scorecard uses output and 
process indicators to measure so￾cial performance. Outputs are the 
direct and measurable products of 
MFI activity. Internal processes re￾fer to operational processes within 
the MFI that transform inputs into 
outputs. 
Outcome indicators at the client or 
household level were not included 
in the scorecard because they re￾quire additional data gathering from 
clients, thereby violating the feasi￾bility and scalability criteria. 
B4. Financial Indicators 
Within the outreach framework, 
financial indicators can provide 
valuable information on social per￾formance. For example, financial 
indicators suggestive of institutional 
sustainability, customer satisfaction, 
or customer loyalty are an effective 
way to measure worth of outreach. 
Sole reliance on financial indicators, 
however, can produce an incom￾plete and possibly warped perspec￾tive of social performance, and it 
creates the risk of mission drift by 
displacing social values with finan￾cial values. Thus financial indicators 
should be combined with social 
performance indicators to give a 
more complete perspective of so￾cial performance. 
B5. The Scorecard 
The social performance scorecard 
has 40 indicators, including five in￾dicators in each of six dimensions 
and ten indicators in outreach to 
the community. The indicators for 
breadth, depth, length, scope, cost, 
and worth are each scored on a 
scale of 0-2 points. Indicators for 
outreach to the community are 
scored either on a 0-1 scale or a 0-
2 scale. Each dimension of out￾reach has a possible 10 points for a 
possible total of 70 points. 
The indicators falling under each 
dimension of outreach are as fol￾lows: 
1. Breadth of Outreach 
1. Number of borrowers. 
2. Clients with non-enterprise 
loans as a percentage of bor￾rowers. 
3. Voluntary savers as a percent￾age of borrowers. 
4. Clients with other financial 
services as a percentage of 
borrowers. 
5. Clients with non-financial ser￾vices as a percentage of bor￾rowers. 
2. Depth of Outreach 
Proposal for a Social Performance Measurement Tool 2 
1. Average loan size as a percent￾age of GNI per capita for new 
loan clients. 
2. Percentage of loans less than 
(a) $300 in Asia, Africa, and the 
Middle East; (b) $400 in Latin 
America and the Caribbean; 
and (c) $1,000 in Europe and 
Central Asia. 
3. Percentage of female clients. 
4. Percentage of rural clients. 
5. Percentage of enterprise loan 
clients selected with direct 
poverty targeting tools. 
3. Length of Outreach 
1. Profit margin. 
2. Return on equity. 
3. Return on assets. 
4. Portfolio at risk < 30 days. 
5. Operating expense relative to 
average loan portfolio. 
4. Scope of Outreach 
1. Number of distinct enterprise 
loan products. 
2. Number of distinct other loan 
products. 
3. Number of other financial ser￾vices. 
4. Type of savings offered. 
5. Percentage of clients with three 
or more products or services. 
5. Cost of Outreach 
1. Real yield on average gross loan 
portfolio. 
2. Nominal yield on average gross 
portfolio relative to prime 
commercial lending rate in 
home country. 
3. Weighted average number of 
days to approve and disburse 
loans after completion of loan 
application. 
4. Percentage of loan clients pro￾viding non-traditional collateral. 
5. Percentage of enterprise loan 
clients whom loan officers visit 
for regular financial transac￾tions. 
6. Worth of Outreach 
1. Loan loss rate. 
2. Client retention rate. 
3. Share of two-year clients still 
with the program. 
4. Share of portfolio growth at￾tributable to existing clients. 
5. Type of market research con￾ducted. 
7. Outreach to the Community 
1. Percentage of operating reve￾nues reinvested back into the 
community. 
2. Percentage of employees that 
have left the firm not including 
pension leaves and deaths. 
3. Female-male employee ratio 
among professional-level staff. 
4. Percentage of employees re￾ceiving at least two days of 
training. 
5. If the MFI has a written, formal 
internal CSR policy. 
6. If the MFI has a written, formal 
code of conduct governing ac￾tions towards employees and 
clients. 
7. If the MFI provides clients for￾mal access to management. 
8. If the MFI provides health in￾surance for full-time employ￾ees. 
9. If the MFI provides credit life 
insurance for borrowers. 
10. If the MFI discloses the effec￾tive interest rate on all loans. 
C. The Social Audit 
C1. Social Audit 
The social (or process) audit pro￾vides an independent, external as￾sessment of (1) the MFI’s self￾reported social performance in￾formation and (2) the quality of the 
MFI’s internal processes, including 
their consistency with the MFI’s 
social mission and their effective￾ness at aligning performance with 
social mission. The social audit uses 
two general methodologies. One is 
a thorough review of internal and 
external documentation relevant to 
the organization’s social mission. 
The second is a series of individual 
or group interviews with manage￾ment, staff, board members, and 
clients. 
At the conclusion of the audit, the 
audit team issues a report that 
summarizes the audit findings. The 
report includes a completed social 
performance scorecard and a social 
performance rating based on (1) 
the MFIs social performance, as 
measured by the scorecard, and (2) 
the quality of the MFIs internal 
processes. The social performance 
rating uses a standard scale that 
rates the likelihood that the MFI 
produces significant social impact 
both now and in the future. 
C2. Internal Processes 
Standardizing the social audit is 
necessary to facilitate comparisons 
across MFIs and contexts. This in￾cludes standardization of both the 
social rating scale and the internal 
processes to be audited. Five in￾ternal processes in particular ap￾pear to offer good potential for 
standardization. Each is common 
Proposal for a Social Performance Measurement Tool 3 
to all MFIs and contributes in a sig￾nificant manner to social perform￾ance. They include (1) mission 
statement and communication and 
management leadership, (2) hiring 
and training, (3) incentive systems, 
(4) monitoring systems, and (5) 
strategic planning. 
1. The mission statement is an 
explicit expression of the MFI’s 
purposes and values. Organiza￾tions with a clear mission state￾ment tend to be more effective in 
social mission fulfilment. The MFI’s 
social mission needs to be commu￾nicated clearly and consistently re￾inforced down the hierarchical 
chain. This is the responsibility of 
management. Active, committed, 
and consistent management leader￾ship is necessary to transform so￾cial mission from mere words into 
institutional action. 
2. Hiring, promotion, and train￾ing offer the MFI excellent op￾portunities to communicate and 
reinforce social mission. Hiring 
and training are also an integral 
part of the socialization process 
necessary to create an organiza￾tional culture supportive of social 
mission fulfilment. 
Hiring and promotion afford the 
MFI the opportunity to screen for 
candidates who possess the per￾sonal outlook and values consistent 
with the MFI’s social mission and 
who are committed to social mis￾sion fulfilment. 
3. Incentive systems do as much 
as anything to influence atti￾tudes, values, and behavior 
within the MFI. An incentive sys￾tem that rewards management and 
staff for behaviors consistent with 
social mission will prove powerful 
in promoting social mission. 
In contrast, an incentive system that 
ignores social mission considera￾tions is much less likely to produce 
behaviors and outcomes consistent 
with social mission. It may even 
produce behaviors and outcomes 
contrary to social mission. 
4. Performance monitoring is 
necessary to align the MFI’s ac￾tivities with its social mission. 
Performance monitoring entails the 
routine collection of performance 
information. It a management tool 
that is used to inform management 
decision making and planning for 
the purpose of comparing organiza￾tion performance to organizational 
goals and mission. 
5. Strategic planning deter￾mines the objectives, activities, 
and values at the MFI. It involves 
establishing organizational priori￾ties, setting performance goals, es￾tablishing action plans, and devising 
criteria to assess fulfilment of per￾formance goals. The inclusion of 
social considerations into strategic 
planning signals the relative impor￾tance an MFI attaches to social mis￾sion. 
C3. Social Audit Process 
The social audit can be divided into 
three distinct phases: preparation 
phase, audit phase, and report 
phase. 
1. The preparation phase is the 
period prior to the social audit 
during which time the social au￾dit team works with the relevant 
MFI to learn about the MFI, pre￾pare a work plan, and arrange 
logistics for the audit. The social 
audit team should ideally consist of 
two members. Each member of 
the audit team should be capable of 
conducting independent research. 
The preparation phase includes the 
following tasks: 
1. Review all internal and external 
documents related to the MFI’s 
social performance. 
2. Send a copy of the social per￾formance scorecard for com￾pletion by the MFI prior to the 
audit. 
3. Create the audit work plan and 
submit it to the subject MFI for 
comment. 
4. Arrange the logistics of the 
work plan with the subject MFI. 
2. The audit phase is the im￾plementation of the social audit. 
The work in the social audit con￾sists principally of in-depth individ￾ual or group interviews with 
management, board members, staff, 
and clients. The interviews should 
focus on questions related to the 
quality of the five critical internal 
processes. The audit team will also 
review the social performance 
scorecard with management and 
verify the reliability of the re￾sponses. 
At the conclusion of the audit, the 
audit team will draft a summary of 
its principal findings and present it 
to senior management and Board 
members. Based on this meeting, 
the audit team will make necessary 
corrections and note areas of dis￾pute. The outcome of this meeting 
will form the basis for the final re￾port. 
3. The report phase pulls all the 
information together. The final 
report will be completed within a 
month of the audit and sent to the 
MFI’s management for review. 
Aside from pointing out factual er￾rors, which the auditors are obli￾gated to correct, the MFI can make 
additional comments or sugges￾tions, although the auditors have no 
obligation to accept either. 
Proposal for a Social Performance Measurement Tool 4 
The final report will include at least 
six sections: 
1. Executive Summary. 
2. In-depth narrative summary of 
the MFI’s performance in each 
of the seven dimensions of out￾reach. 
3. Statement expressing the audi￾tors’ confidence in the validity 
of the information reported in 
the Social Performance Score￾card. 
4. In-depth narrative summary of 
the MFI’s performance in each 
of the five critical internal proc￾esses. 
5. Completed social performance 
scorecard. 
6. Copy of the social performance 
rating system showing the MFI’s 
score along with all the possi￾ble rating categories and corre￾sponding definitions. 
C4. Estimated Level of Effort 
(LOE) 
The estimate LOE to complete the 
social audit ranges from 13-17 days, 
as seen below. 
Phase Number 
of Days 
Low 
Esti￾mate 
Number 
of Days 
High 
Esti￾mate 
Preparation 
Phase 
Team Leader 2 2 
Audit Team 
Member 
1 1 
Audit Phase 
Team Leader 3 5 
Audit Team 
Member 
3 5 
Report Phase 
Team Leader 3 3 
Audit Team 
Member 
1 1 
Total 13 17 
C4. Markets for Social Audits 
Two primary markets are envi￾sioned for the social audit: the mar￾ket for social audits integrated with 
financial rating and the market for 
stand-alone social audits. Field￾tests of the social audit tool are 
currently planned in conjunction 
with one or more of the financial 
rating agencies so as to determine 
how the social audit can be inte￾grated at minimal incremental cost 
into the financial rating exercise. 
The social audit will also be offered 
to meet the demand (heretofore 
latent) demand for a simple, low￾cost social performance measure￾ment tool among MFIs, MFI net￾works, investors, and donor 
agencies. An important part of this 
approach will be to establish stan￾dard, or “best,” social audit prac￾tices and to adapt the specific audit 
process on a case-by-case basis 
consistent with established best 
practice. 
This process requires that training 
standards be established and en￾forced through an accreditation 
process. Accreditation will not only 
help ensure the quality of the social 
audit process, but it will also serve 
as an important signaling device 
that will reduce the information 
asymmetries between consumers 
and providers of social auditing 
services. 
D. Social Performance 
Rating 
D1. Rating Scale 
At the conclusion of the social au￾dit, the social auditors issue a re￾port that includes a standardized 
social performance rating. The so￾cial rating is based on the MFI’s 
outreach and the quality of its in￾ternal processes, defined as the 
extent to which internal processes 
serve to align behavior and out￾comes to social mission. The social 
rating is the auditor’s best, in￾formed estimate of the likelihood 
that the MFI produces significant 
social impact both now and in the 
future. 
The social performance rating in￾cludes ten rating categories as fol￾lows: 
AAA: Excellent internal processes 
aligning performance with social 
mission. Excellent outreach. Ex￾tremely likely to create significant 
social impact now and in the future. 
AA: Very strong internal processes 
aligning performance with social 
mission. Very good outreach. Very 
likely to create significant social 
impact now and the future. 
A: Strong internal processes align￾ing performance with social mis￾sion. Very good outreach. More 
likely to create significant social 
impact now and in the future. 
BBB: Adequate internal processes 
aligning performance with social 
mission. Good outreach. Likely to 
create significant social impact now 
and in the future. 
BB: Weak internal processes align￾ing performance with social mis￾sion. Good outreach. Likely to 
create significant social impact with 
threat to long-term social impact. 
B: Weak internal processes aligning 
performance with social mission. 
Adequate outreach. Less likely to 
create significant social impact now 
and in the future. 
CCC: Weak internal processes 
aligning performance with social 
Proposal for a Social Performance Measurement Tool 5 
mission. Weak outreach. Less likely 
to create significant social impact 
with threat to long-term social im￾pact.
CC: Poor internal processes align￾ing performance with social mis￾sion. Adequate outreach. Less 
likely to create significant social 
impact with serious threat to long￾term social impact. 
C: Poor internal processes aligning 
performance with social mission. 
Weak outreach. Unlikely to create 
significant social impact both now 
and in the future. 
D: Poor internal processes aligning 
performance with social mission. 
Poor outreach. Extremely unlikely 
to create significant social impact 
both now and in the future. 
D2. Advantages of Social Per￾formance Rating 
The advantage of social perform￾ance rating is that it provides a 
standardized format for comparing 
social performance across MFIs and 
contexts. The social rating system 
employs simple proxies measuring 
the MFI’s outreach and the quality 
of its internal processes. This proc￾ess entails tradeoffs, but given the 
overarching objectives of feasibility 
and scalability, the tradeoffs are 
deemed worth it. 
E. Concluding Remarks 
Field-tests of the social audit tool 
are currently planned in conjunc￾tion with one or more of the finan￾cial rating agencies so as to 
determine how the social audit can 
be integrated at minimal incre￾mental cost into the financial rating 
exercise. 
The social audit will also be offered 
to meet the demand (heretofore 
DISCLAIMER 
The views expressed in this publication do 
not necessarily reflect the views of the U.S. 
Agency for International Development or 
the U.S. Government. 
latent) for a simple, low-cost social 
performance measurement tool 
among MFIs, MFI networks, inves￾tors, and donor agencies. An im￾portant part of this approach will 
be to establish standard, or “best,” 
process audit practices. 
This requires that training stan￾dards be established and enforced 
through an accreditation process. 
Accreditation will not only help 
ensure the quality of the process 
audit, but it will also serve as an 
important signaling device that will 
reduce the information asymme￾tries between consumers and pro￾viders of social auditing services. 
During the field-tests, the social 
performance scorecard will also 
undergo revision, including the indi￾cators used in the scorecard and 
the scoring system. 
A unique value of this social audit is 
that its component pieces (score￾card, process audit, and social rat￾ing) can be used separately or in 
different combinations, depending 
on the needs of the user. Each of￾fers insight into different dimen￾sions of social performance, and 
each can be standardized across 
MFIs and contexts. 
The SPM tool proposed here rec￾ognizes the value of traditional im￾pact assessments and monitoring 
household-level outcome indica￾tors. These should be pursued 
wherever possible. However, there 
is also tremendous value to a sim￾ple, complementary approach that 
offers potential for scale and stan￾dardization. The proposed SPM 
tool was designed specifically for 
this purpose. 
It is acknowledged that the pro￾posed SPM tool is not a final prod￾uct. It is fully expected that the tool 
will continue to evolve through 
experimentation and use. Yet, it is 
necessary to begin the process 
someplace. It is hoped that the 
proposed tool offers a productive 
beginning for this process. 
Proposal for a Social Performance Measurement Tool 6