Microfinance and Social Performance

Abstract Microfinance refers to an array of financial services—including loans, savings, and insurance—available to poor entrepreneurs and small business owners who have no collateral and, otherwise, would not qualify for a standard bank loan. Those who promote microfinance generally believe that such access will help poor people out of poverty. For many, microfinance is a way to promote economic development, employment, and growth through the support of micro-entrepreneurs and small businesses; for others, it is a way for the poor to manage their finances more effectively and take advantage of economic opportunities while managing the risks. One of the newer fields that is getting more attention within microfinance is the measure of microfinance institutions’ (MFIs) social performance, which broadly is an indication of how well an MFI meets the social goals outlined in its mission and vision. Social performance is reflected in a wide range of indicators, including an MFI’s policies towards employees, like providing health care or maternity leave; to what degree an MFI targets the poorest of the poor for financial services; an MFI’s policies on environmental conservation; how low an MFI keeps its interest rates; how transparent an MFI is about these interest rates and other loan terms; and how an MFI’s services translate into improved lives for their clients.