Social Performance Progress Brief (Volume 1, Number 4)

Publication Date: Nov 2007
Published by: Small Enterprise Education and Promotion (SEEP) Network
Document Type: Paper (PDF)

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This brief aims to build understanding of social ratings and how they may contribute to more transparency and better practice for social performance in microfinance.

This brief discusses the importance of social rating to microfinance institutions. It states that:

• A social rating is an independent assessment of an organization’s social performance using a standardized rating scale;
• The rating process involves evaluating practices, measuring a set of indicators and then scoring them against benchmark levels or internationally accepted standards.

Delving further, it states that social rating:

• Analyzes the processes undertaken by an MFI towards achieving its desired goals;
• Seeks to convey the investors how effective the MFI has been in translating its mission into practice, in line with general social goals;
• Serves the following functions:
  
  • Facilitates the flow of capital into the microfinance industry;
  • Facilitates social investment;
  • Helps MFIs develop an understanding of key data and issues that affect their social performance;
  • Leads to improvement in social performance management practices to achieve deeper outreach, quality of services, client protection and socially responsible behaviors;
  • Contributes to better social reporting and transparency in the industry, informing wider stakeholders including policymakers.

The brief then describes the social rating products of four microfinance rating agencies and concludes with feedback from practitioners in the field of social rating.