The results of microfinance
Developing an assessment tool to improve reporting
By Floris Valkema
F.J.Valkema, S1083252 March 2005
First supervisor university: Mw. drs. H.P. van Peet Second supervisor university: Dr. B.J.W. Pennink
Faculty of management and organization Ministry of Foreign Affairs, University of Groningen, Development Cooperation.
The Netherlands. The Hague, The Netherlands.
Preface
Microfinance started interesting me when I went to Kenya in 2002 to conduct research for a microfinance bank. After working for three months with the clients of this bank I learned what an impact access to money can have on the lives of poor people.
This was the main reason for me to apply for an internship at the ministry of foreign affairs, development cooperation. I wanted to continue conducting research in the developmental world.
I was very glad when I learned that I could do research on the microfinance subject again.
I have worked with great pleasure and a lot of enthusiasm on this thesis within the ministry of Foreign Affairs, precisely the department of Sustainable Economic Development. The internship took half a year, from February 2004 till July 2004.
I would like to thank first of all mr. Johan de Waard, who works as Policy Advisor “Small and Micro Enterprises” at the Dutch Ministry of foreign Affairs, for assisting, monitoring and criticising my work. I would like to thank mrs. Heleen van Peet, my first supervisor within the university, for all the assistance and contributions she made to my research. And as well as my second supervisor, B.J.W.
Pennink.
Further on I would like to thank all the people I had interviews with or discussions about microfinance and for all the relevant information they provided me.
March 2005, Floris Valkema
Executive summary
This executive summary highlights the conclusion and recommendations of this thesis.
The research objective was to develop a reportage model/tool with indicators to obtain insight in the degree of poverty alleviation through microfinance in order to make monitoring and control of the Co- finance organizations possible.
The final conclusion is that the ministry has to start using a simple tool and a complex tool. The simple tool can contribute to better and regular reporting. An example is CGAP’s MDG tool. Since this tool is still in development it is difficult to prove the advantages compared to other tools. The tool can, however, easily provide information about MFO’s and the millennium development goals. It is the objective of CGAP to produce a user-friendly, low-cost and simple tool. These are some important advantages considering the objective of regular reporting.
The second tool, the complex one, is harder to choose. The objective is that this kind of tool provides data about impact, i.e. about the degree of poverty alleviation. None of the tools explained in chapter three fulfil the requirements. One of the tools described in this chapter though is, in my opinion, a worthy substitute.
This tool doesn’t provide impact information but it provides information about the poverty outreach of the MFO’s. The ministry has to choose whether this tool fulfils their requirements.
I would recommend the ministry to start using this tool since it has a couple of benefits:
- To achieve significant direct impacts on poverty it is essential that MFO’s reach poor and very poor clients, and therefore measurement of poverty outreach becomes an important proxy indicator for the success of microfinance in achieving impacts on poverty.
- The data and success of MFO’s can be compared to other MFO’s.
- The MFO’s could use this tool and the information to improve their reporting. They could use the data to prove that they are reaching the targeted poor clients. The PAT is effective in comparing the poverty level of the clients to the local non-clients. In this way the ministry knows whether the MFO is reaching the poor in it’s area.
The tools contribute to each other. The first one is simple and can produce data on a regular basis and the second one provides relevant data to assess the success of MFO’s.
Summary
1. The ministry of foreign affairs consist European Affairs and Development Cooperation. DDE is a department of development cooperation and is, among other departments, responsible for the Co-finance program. Six Dutch development organizations are partner of this program and microfinance is one of their important instruments to fight poverty. Microfinance is organized through microfinance organizations, MFO’s, which operate in development countries.
In order to discuss developments within microfinance, a couple of Dutch microfinance-related organizations are organized in “the microfinance platform”.
It is the objective of the ministry to alleviate poverty through microfinance. In order to evaluate this objective the ministry would like to see the reporting of the partner’s improved.
2. Microfinance is the supply of loans, savings, and other basic financial services to the poor.
Since microfinance is an instrument to alleviate poverty there is a lot of research done to evaluate which aspects of poverty change. Variables of poverty which can be measured are:
impact, social performance and outreach. The ministry has made certain agreements with the Co-finance organizations about the results to be achieved and to measure these results a lot of assessment tools can be used. Each variable can have different assessment tools.
3. Five examples of assessment tools are elaborated. Each tool uses it’s own indicators. The tools vary in complexity, costs and time needed. Some are developed to assist MFO’s to monitor their clients, their poverty status for example, and some are developed to measure the impact microfinance has on clients, which is a very comprehensive study.
4. The objective of this thesis is:To develop a proper reportage model, for the ministry, with proper indicators to obtain insight in the degree of poverty alleviation through microfinance in order to make monitoring and control of the Co-finance organizations able.
The ministry would like to see the reporting of the partners improved in order to have more insight in their results, with respect to microfinance. They want to know to what degree poverty is alleviated.
5. Five variables of Hulme and the control theory of de Leeuw were used to assess what kind of assessment tool the ministry needs and how they can fulfill the requirements for effective control. The conclusion is that the ministry needs two assessment tools to fulfill their
requirements and specifications. They need one monitoring/simple tool and one complex tool.
6. The monitoring/simple tool will contribute to the regular reporting. Data about clients can be achieved and reported. This tool can be used by all the partners and won’t cost much and can be performed continuously. The complex tool will contribute to make evaluation of the main objective possible, alleviating poverty. By this comprehensive tool impact can be measured and proved. Such a tool will cost a lot, take a lot of time and can be performed continuously or by all the partners. An example of such a combination is the CGAP MDG tool and the Poverty Assessment Tool. The last one could provide important benefits for the ministry on the aspect of monitoring and reporting. This tool doesn’t provide information about impact though, which might be a drawback.
7. The final conclusion and recommendation is that the ministry has to decide what kind of monitoring/simple tool would be suitable, what kind of client-data do they request. The ministry needs to question as well what kind of complex approach is needed. Do they want a very comprehensive, impact-proving tool, or do they want one more moderate. In the last case the PAT is recommended. This tool provides data about poverty outreach which is an indicator for the success of microfinance in achieving impacts on poverty.
Contents Page
Preface……… 1
Executive Summary………. 2
Summary……… 3
Contents………. 5
Introduction………. 7
0 The structure of this thesis……… 8
1 Development cooperation……….. 10
1.1 Introduction and Organization chart……….. 10
1.2 The Dutch aid policy………. 12
1.3 The Sustainable and Economic Development Department (DDE)………. 14
1.4 Microfinance……… 15
1.5 The Microfinance Platform……… 17
1.6 Intro Co-Finance Program………. 18
1.7 Introduction thesis………... 25
2 Microfinance………. 27
2.1 Dutch Organizations involved in microfinance………. 27
2.2 Social performance, Impact and poverty assessment………... 31
2.3 Monitoring and reporting, Co-finance and microfinance……… 34
2.3.1 Organizations of the Co-finance program in general……… 37
2.3.2 Agreed objectives microfinance in specific……….. 39
2.3.3 The ministry’s criteria for monitoring and the IOB……….. 40
2.3.4 Monitoring, Reporting and Evaluation at the Co-finance level……… 42
2.4 Summary and conclusion……… 43
3 The various assessment tools and methods within Microfinance………... 46
3.1 Initiatives within social performance……… 47
3.2 The Imp-Act Program……… 52
3.3 The various indicators on client level……… 54
3.4 Summary and Conclusion……….. 60
4 Problem Analysis & Research question………. 62
4.1 Operationalization……….. 62
4.2 Introduction……….. 62
4.2.1 Problems within the platform and microfinance……… 64
4.3 Problem-field……… 66
4.4 Kind of Problem………... 68
4.5 The Owners of the Problem……… 68
4.6 The Organization and it’s problems……… 68
4.7 The Problem Proposition……… 70
4.8 Theory and management control; Deduction and Induction……… 71
4.9 Methods for collecting research data……….. 71
5 Diagnosis: Theoretical perspective and Assessment tool……… 73
5.1 Conceptual model……….. 74
5.2 Hulme’s criteria for designing an assessment tool……….. 75
5.2.1 Objectives of the assessment tool……… 79
5.2.2 Information used……… 80
5.2.3 Reliability……… 82
5.3.4 Complexity……….. 84
5.3.5 Resources………. 85
5.2.6 Summary 5.3 Relationship of the ministry with Co-finance organizations, Control theory……… 86
5.3.1 Degree of control between ministry and it’s partners……… 86
5.4 Conclusion of theoretical perspective and assessment tool……… 93
6 Design of an Assessment tool……… 95
6.1 Product Specification……… 95
6.2 Creating alternative solutions……….. 96
6.3 Choice of solution……….. 98
7 Final Conclusion and recommendations………. 97
8 Reflection……… 103
Bibliography……… 104 Appendix I Organogram
Appendix II Interview questions
Introduction
This thesis is about microfinance. Microfinance is, among other methods, one way to fight poverty, by making access to financial products far more easy. Especially in developing countries it is a very popular and continuously growing poverty-fighting instrument. It’s success, however, might makes us blind for it’s limitations. Does microfinance really help? Does it really alleviate poverty?
These are important questions. Especially when you are a major donor and when you are supporting the microfinance business.
Such a donor is the ministry of Foreign Affairs. They are involved in the Co-finance program through which a lot of development cooperation is organized. Microfinance is one of the responsibilities of the Co-finance organizations involved, like ICCO and Novib.
The ministry doesn’t support those organizations without being critical though. They want to know which results are achieved.
This thesis will focus on the reporting of the organizations within the Co-finance program and about their results, because the ministry would like to see the reporting improved and would like to know the results more precisely.
0. The structure of this thesis
In this chapter the structure of this thesis will be explained. The structure originates from the way I organized my research. The first sub-questions of my thesis will also be introduced here since the first chapters will answer these questions.
The central theme, the research question, in this thesis is: How can the ministry obtain a proper insight into what degree the Dutch Co-finance organizations alleviate poverty through microfinance?
The objective of this thesis is to develop a reporting tool.
The research question and it’s four sub-questions will be further elaborated in chapter four.
The first two sub-questions are important however for the first three chapters. These two questions are:
1. What is the current state of monitoring and reporting regarding the Co-finance organizations and microfinance in specific?
2. Which reporting methods could be defined between the ministry and the Co-finance organizations and what are the differences?
Basically the ministry wants to know in what way microfinance contributes to poverty alleviation. The reporting of the partners must therefore get improved to achieve more insight in the contribution of the MFO’s.
I started my research by gathering information about important elements. I wanted to know how the ministry and development cooperation in special were organized and in what way they were involved in microfinance. I wanted to know as well how the relationship of the ministry with their
(microfinance) partners was.
So, first of all I gathered information about the ministry in general, the involved departments and the way microfinance is organized. Chapter one explains all this: the involved actors and their connection with microfinance. The most relevant terms within microfinance are explained as well.
After I had made clear how the ministry works and what microfinance is and how those two are related I wanted to know more about the Dutch organizations involved in microfinance and about their current reporting, like the criteria/objectives and the ways of reporting. I also investigated what the objectives within microfinance are and how these are assessed. This is all elaborated in chapter two.
So the first chapters will introduce all the relevant aspects concerning this thesis. They will provide an answer to the first sub-questions.
Chapter three will explain a couple of probable assessment tools. By developing and using the right assessment tool the ministry and it’s partners could improve the current reporting and insight in the degree of poverty alleviation.
But what are the possibilities of such tools and which aspects do they measure? Chapter three will provide an answer to these questions. It will lay out five assessment tools, which each measure different aspects.
As described before, the research question and objective will be elaborated in chapter four.
It is important to know that this thesis can be divided into two sections.
- The first three chapters (one, two and three) are introducing and describing all the relevant aspects and concern the first sub-questions about monitoring and reporting.
- The chapters four, five, six and seven will deal with the research question/objective and the last two sub-questions. Chapter five explains the relevant theory and chapter six explains the design of an assessment tool and the choice for a solution. The final conclusion and
recommendations will be made in chapter seven.
1. Development Cooperation
In this chapter I will introduce the theme and topics of my research as well as the Ministry I did research for. In the first paragraph I will describe what kind of organization this Ministry of Foreign Affairs and Development Cooperation in specific is, how they are organized, what their mission is and how their budget is divided.
In the second paragraph I will clarify the Dutch aid policy and in the third I will explain more about the specific department DDE, for whom I did my research, and their specific objectives.
The last three paragraphs concern the microfinance topic.
In the fourth paragraph an introduction to the central theme of my research, which is microfinance, is given. The paragraphs five and six, concern how the ministry deals with microfinance and how the relationship of the ministry with it’s partners is organized.
The last paragraph, seven, will introduce and outline the rest of this thesis.
1.1 Introduction and Organization chart1
During my internship of six months I have been doing research for the Dutch Ministry of foreign affairs, which is located in The Hague, the Netherlands. “The ministry of Foreign Affairs is the channel through which the Dutch Government communicates with foreign governments and
international organizations”2. The so called “raison de être” of the Ministry is made clear through their objectives, among which the most important are:
- Promote international order and peace - Promote European integration
- Promote sustainable poverty reduction - To Maintain and Promote bilateral relations.
Development Cooperation (promote sustainable poverty) is one of the aspects of the political field and this aspect is considered highly important within the Netherlands. That’s the reason why there is a special Minister for developmental policy and why a fixed budget- 0.8 percent of GNP- has been reserved for Development Cooperation.
Development Cooperation has it’s own Minister but it is under direction of the Ministry of Foreign Affairs.
1 See appendix for organization chart
2 www.minbuza.nl
The Ministry of Foreign Affairs is divided into five, so called, Directorates-General which all have their own Director-General3. The five Directorates-General are:
1.European Cooperation (DGES) 2.Political Affairs (DGPZ)
3.Regional policy and Consular Affairs (DGRC) 4.International Criminal Court (DGICC) 5.International Cooperation (DGIS).
The last one, International Cooperation (DGIS), is responsible for Development Cooperation policy.
Each Directorate-General is on its turn divided into various Departments.
Visualized it looks like this:
The Minister of Foreign Affairs
The Minister of Development Coop. The Minister of European Affairs
The five Directorates-General (with each a Director)
* (DGIS) * (DGES) * (DGRC) * (DGPZ) * (DGICC)
Various departments
* (DDE) * * * * *
Figure 1-1 Structure of departments
In total approximately 3200 people are working at the Ministry of Foreign Affairs of which
approximately 2000 are working in the Netherlands. The Ministy’s budget for 2004 was 5.34 billion (1.1% of GNP) and 3.8 billion (0.8 of GNP) is reserved for development cooperation.
In 2004 the Co-Finance program was budgeted for approximately 451 million, which is more than 11% of the total developmental budget ( 3.8 billion).
The Minister of Development Cooperation is A. van Ardenne, who is in charge of the Directorate- General for International Cooperation (DGIS). DGIS co-ordinates and carries out development cooperation policy and manages the development budget. DGIS consists of three departments: DML, DSI and DDE. Each department has his function and tasks. DML is the Environment and
Development Department. This department aims to integrate the environmental theme into all components of the Dutch Development Cooperation program.
3 www.minbuza.nl, organizational structure.
DSI is the Social and Institutional Development Department. This department tries to give poor people access to basic social services.
I will be doing my research for DDE, the Department for Sustainable and Economic Development.
This department works for economic growth and employment in development countries. It will be further explained in paragraph 1.3.
Development Cooperation is not only taken care of by the government. The Netherlands supports developing countries through a variety of channels. These range from small-scale individual initiatives to World Bank development activities. A fixed budget of 0.8 % of the Dutch Gross National Product is reserved for development cooperation. In 2003, for example, this amounted to about 3.8 billion.
Broadly speaking, this amount is channeled through four kinds of partners:
- International organizations (such as the World Bank and United Nations), the multilateral channel;
- Governments of developing countries; the bilateral channel;
- Non-Governmental organizations;
- The private sector.
1.2 The Dutch aid policy
The Dutch aid policy is formulated on their website as follows4:
“For several years now, there has been a global consensus on what Development Cooperation should achieve. These ideas are enshrined in the Millennium Development Goals (MDG’s) adopted by the United Nations, which set out what the international community wants to achieve by 2015. They include cutting extreme poverty by the half, and ensuring that all children- girls as well as boys- have primary education. The main objective of Dutch Development Cooperation is poverty reduction, thus contributing directly or indirectly to the welfare and well being of the poor”.
The Dutch Development policy is based on the Millennium Development goals. The Ministry gives special attention to themes as; education, the environment, water, AIDS and reproductive health care.
Achieving the Millennium Goals is seen as a touchstone for the effectiveness of development aid.
The Ministry of Development Cooperation works through bilateral and multilateral channels. Under the direction of Minister van Ardenne the number of countries with which the Netherlands maintain structural bilateral aid relations has been reduced to 36 partner countries. By doing this, better use of capacity, manpower and resources can be achieved.
4 www.minbuza.nl
The Minister has clarified her policy in a document named: “Mutual Interests, Mutual responsibilities5”. In this policy document the following priorities are addressed:
- Concentration; on theme’s like education/environment and aids. And also on fewer countries than in the past with more focus on quality and effectiveness.
- Result-driven; there will be a focus on results and accountability.
- Partnership; Partnerships will be sought in many ways. For example with citizens to get them more involved in Development Cooperation and with private enterprises, in the form of Public- Private partnerships.
- Bilateral policy;
- Regional policy - Integrated policy - Stability fund - Coherence
- Aids/Reproductive health - Multilateral organizations
This document, with the priority themes, and the MDG’s are together the basis for the policy of development cooperation. The MDG’s are more international agreements and the document clarifies the Dutch point of view.
Budget
In order to get a better insight in the importance of the various themes the budget of 2004 is showed below6:
“The budget includes five main objectives, subdivided into fifteen policy articles. Sustainable poverty reduction (policy articles 6 to 12) accounts for most of the spending for the ministry of Foreign Affairs budget. This is due to the fact that the bulk of the Officially Development Assistance (ODA) spending, which is the main component of the budget, falls under these policy articles”.
Budget 2004, expenditure (x 1000 ), 15 policy articles.
1. International order 142.387
2. Peace, security and conflict management 266.580
3. Humanitarian aid 168.586
4. Good governance, human rights and peacebuilding 42.027
5. European cooperation 36.440
6. Bilateral development cooperation 1.277.001
7. EU funds and programmes 423.440
5 www.buza.nl, development cooperation, major policy papers.
6 www.minbuza.nl, Mean Features of the 2004 budget.
8. UN agencies 308.806
9. International financial institutions 283.988
10. Cooperation with civil society organizations 745.600
11. Cooperation in the international education 137.192
12. Cooperation with the private sector 260.338
13. Bilateral relations in the field of politics, economy and the environment 281.574
14. Asylum, Migration and consular services 202.447
15. International cultural policy 15.210
16. Other expenditure 682.268
Total 5.270.884
1.3 The Sustainable and Economic Development Department (DDE)
As described before DGIS consists of various departments and DDE is one of them. I will give an introduction of the structure and objectives of this department and the Division “Entrepreneurship and Business Development” in specific.
DDE has his tasks, objectives and responsibilities, which are:
- Contribute to the Dutch position on international economic policy issues, including trade, favoring the interests of developing countries;
- Assist governments of developing countries to strengthen the enabling environment for pro-poor economic development through embassies, international organizations and private organizations, including NGO’s;
- Enhance the role of the private sector in promoting pro-poor economic development.
DDE works mainly within the area of the policy articles: International order (1), European Cooperation(5), Bilateral Development Cooperation(6), Cooperation with the private sector(12).
DDE has three divisions: National Policy Environment Division (DDE/NB), Entrepreneurship and Business Development Division (DDE/OB) and International Markets Division (DDE/IM). In total there are working approximately 20 people for DDE. Each division has more of less the same amount of people (6/7).
During my internship I have been doing research for the division OB. As their name reveals this division wants to stimulate entrepreneurship and the development of businesses in developing
countries. They want for example through the support of Microfinance, create the necessary facilitations for starting a (small)business.
Other themes and programmes that fall under the responsibility of OB are: the Development Related Exports Transactions Program (ORET) and the Industry and Environment Program (MILIEV).
The topic of my research concerns microfinance. Microfinance is an important aspect of OB’s policy since it is one of the various instruments to alleviate poverty and because it stimulates and contributes to entrepreneurship and business development. Johan de Waard “Policy Advisor of Small and Micro Enterprises” has the microfinance theme in his portfolio. He was my mentor during my internship.
1.4 Microfinance
In this paragraph I will introduce the microfinance subject. It gives an impression of what
microfinance actually is, what can be achieved with it and why it is important for fighting poverty.
The Ministry’s policy will also be explained and an introduction to the Dutch microfinance platform is made, which will be elaborated in paragraph five.
First of all I will address the following questions: What exactly is microfinance? Who are the clients and How does it help the poor? I will use the information provided by CGAP7, a platform organization for microfinance, to define the following terms:
¾ What is microfinance: “microfinance is the supply of loans, savings, and other basic financial services to the poor”.
“People living in poverty, like everyone else, need a diverse range of financial instruments to run their businesses, build assets, stabilise consumption, and shield themselves against risks. The poor rarely access services through the formal financial sector. They address their need for financial services through a variety of financial relationships, mostly informal.
Financial services for the poor have proved to be a powerful instrument for poverty reduction that enables the poor to build assets, increase incomes, and reduce their vulnerability to economic stress”.
During my time in Kenya for example, poor people could apply for a loan at a microfinance bank called SMEP. But before they would get a loan they had to be introduced by a person who was already a member and than, after a period of practice, they could really get a loan. All the members were organized in groups and these groups were responsible for each other’s debts. So when one person didn’t repay the others had to pay his debt. This method made sure that only
7 CGAP, www.cgap.org
responsible people were elected and a side effect was that the members gave each other advice about their business.
¾ Who are the clients of microfinance: “The clients of microfinance fall into four poverty levels:
Destitute, Extreme poor, Moderate poor, and Vulnerable non-poor. The client group for a given financial service provider is primarily determined by its mission, institutional form, and methodology”.
¾ How do financial services help the poor: “Poor people, with access to savings, credit, insurance, and other financial services, are more resilient and better able to cope with the everyday crises they face. Even the most rigorous econometric studies have proven that microfinance can smooth consumption levels and significantly reduce the need to sell assets to meet basic needs. With access to MicroInsurance, poor people can cope with sudden increased expenses associated with death, serious illness, and loss of assets.
Many studies show that clients who join and stay in programs have better economic conditions than non-clients, suggesting that programs contribute to these improvements. A few studies have also shown that over a long period of time many clients do actually graduate out of extreme poverty.
Although access to financial services opens up possibilities of improving the economic conditions of the poor, in some cases, clients can be left worse-off. Ill-advised can lead to too much debt”.
To clarify the ministry’s policy on microfinance, their view has been formulated in the handout “The ministry’s views on building financial systems for the poor”8.
This report states that an effective financial sector is an important prerequisite for economic growth.
The ministry has the aim: “to improve living conditions for the poor, reducing their vulnerability by protecting them from certain risks and giving them choices, and enabling local social and economic development”. And: “Apart from microcredits, the importance is recognized of other financial services such as savings, payments services and insurances”.
The ministry has a main principle in contributing to microfinance: “Focus on empowerment and gender mainstreaming with a view to achieving equal opportunities for women and men.
A balance needs to be struck within microfinance between social and financial objectives. Costs need to be assessed for both their impact on the poor and performance, i.e. efficiency of the financial institutions involved”.
8 Dutch Development Cooperation, Handout, February 2004, The Hague.
Dutch coordination of microfinance
A Dutch Microfinance platform9 has been initiated in 1997 in order to create a partnership approach.
The aim of the Platform is cooperation in areas such as:
• A joint approach to common areas of interest such as the impact of microfinance.
• Exchange of information resulting in a common comprehensive database on Dutch Microfinance provision.
• Initiatives to improve Dutch Microfinance provision through greater insight into the comparative advantages of Platform members.
• Standardised indicators to measure social and financial objectives.
• Adherence to internationally accepted practices and standards and cooperation with initiatives that promote their application.
The next paragraph will elaborate on this microfinance platform topic.
1.5 The Microfinance Platform10
This paragraph describes the Microfinance Platform; its members and its objectives.
In 1997 the first effort to coordinate microfinance activities resulted in the workgroup of co-finance agencies, Cordaid, Hivos, ICCO and Novib and their main funder the Dutch government.
The platform consists nowadays of fifteen organizations that work together to improve the effectiveness of their microfinance activities.
The Platform was originally formed to improve the quality, effectiveness, efficiency and transparency of the Dutch microfinance offer.
Some of the organizations involved have a special relationship with the ministry because they are:
“Co-finance Organizations”. These are Novib, Cordaid, ICCO and Hivos. Later on Plan and Terre des Hommes joined.
The term “Co-finance” means that they have a special subsidy relationship with the ministry. The majority of the current Co-finance organizations use the subsidy to support activities on various themes of private organizations in developing countries. Among these private organizations are a lot of microfinance organizations and so the Co-finance organizations are involved in microfinance as well.
These various relationships make it a bit complicated but in short all the Platform members are involved in microfinance and some of them just have a special subsidy relationship with the ministry.
The Co-finance subject will be further elaborated in paragraph 1.6.
In 2003 a donor peer review11 was performed by the Consultative Group to Assist the Poor (CGAP)12.
9 www.microfinance.nl
10 www.microfinance.nl
This was an initiative taken early in 2002 by Development Ministers, heads of agencies and CGAP. In total 17 international agencies volunteered to participate, among whom the Netherlands.
The purpose of the Dutch review was to identify the success factors and constraints of the Dutch Microfinance offer, in order to improve aid effectiveness. This peer review was not an evaluation of detailed portfolio reviews, but rather focused on each agency’s internal procedures, practices and processes.
The platform was involved as well in this review because a lot of “Dutch Microfinance” collaboration is structured in the form of this platform.
The review made some recommendations for the platform: They start by mentioning that the Platform offers increased opportunities for collaboration, which is positive. There are, though, some challenges and aspects to be improved according to the review:
Challenges13:
- There is uneven technical expertise within the platform.
- Information flows remain inadequate among Platform members.
- Very little systematic lesson-learning takes place within the development cooperation system.
Recommendations for the ministry and the Platform:
- The Platform should define priority roles and a work plan.
- The Platform should launch a comparative advantage exercise; the platform could make a major contribution by launching an exercise to help its members determine their comparative advantage in microfinance and the then align activities with their comparative advantage.
In short the platform is complimented for the fact that it makes good collaboration possible but there are some weaknesses to overcome.
1.6 Introduction Co-finance Program
In this paragraph I will explain the Co-finance Program: The history and objectives of the program, how the partners were selected, how they are/were evaluated and monitored.
The relevance, for this thesis, is that the six Co-Finance organizations get a lot of subsidy by the ministry and are responsible for a reasonable part of the Dutch development cooperation.
They are all involved in microfinance, which means the majority of the Dutch microfinance offer is carried out by these organizations and this makes it worth to learn more about this program.
11 Donor peer reviews, Tackling Aid Effectiveness from the Top: Microfinance as a Test Case, 13 August 2003, p. 6
12 CGAP is a consortium of 28 public and private development agencies working together to expand access to financial services for the poor in developing countries. CGAP is a resource center for the entire Microfinance industry. See also: www.cgap.org
13 Donor peer reviews, page 6.
My attention goes to the objectives of the Co-finance program and the way the Co-finance organizations report/monitor on these goals. This will be the focus of my thesis.
The terms Co-finance and microfinance are a bit confusing ; As said before in paragraph 1.5 these terms seem to intertwine. What is the difference? The Co-finance program means quite literally that the six organizations involved (Hivos, Novib etc.) are helping the government to divide the Dutch development budget among proper organizations and projects in developing countries.
Microfinance, though, is just an instrument/theme within development cooperation, as many other instruments like health, education, nutrition etc. The term finance makes it a bit confusing but the Co- finance program is something completely different than microfinance.
The Co-finance program is explained in this paragraph with the help of an evaluation report14 as information source. This evaluation report evaluated the performance of the Co-finance program and was performed by an independent control-group. The opinions and conclusions of this report are for a major part used in this paragraph. Since my thesis focuses on monitoring and reporting within
microfinance this evaluation report provides useful information on this subject within the Co-finance program in general. The focus of this thesis will be elaborated in chapter four.
The main findings of the report are highlighted here. When the term “report” is used the report referred to under footnote 14 is meant.
The history of the Co-finance program
The report starts by saying that: “The Dutch ministry finds the contribution of the private organizations to development cooperation very important. The biggest part of the subsidy to the private organizations goes to the so-called Co-Finance Program. This Program started in 1965 and a selection of organizations receives through this program 10 percent of the total budget of Development Cooperation. The organizations from the beginning were: Novib, Cordaid and ICCO. Hivos joined in 1978 and PLAN in 1999”. Terre des Hommes has joined now as well.
The majority of the Co-finance organizations use the money to support activities of private
organizations in the “South15”. These activities comprise a vast amount of different aspects. Because Microfinance is one of the tools they support it is important to know what kind of relation, history and agreements they have with the Ministry.
Objectives
14 Final report Control-group Evaluation Co-Finance Program, 11-2002, see www.minbuza.nl, search: bijlage rapport stuurgroep evaluatie.
15 The South: the Developmental countries (wich are mostly located in the south).
The report describes the objectives of the program as follows: “The goal of the Co-finance Program is to contribute to structural poverty alleviation. The central vision of this program is that NGO’s (Non- Governmental Organizations), besides the government and the market, also have an important role in solving poverty problems. The Co-finance organizations are expected to have the knowledge and the channels to canalize the support to private organizations”.
About the agreements made, the report says: “The Ministry finances the programmes of the Co- finance organizations, which are responsible for the implementation, and the contracts have a period of four years.
Important is that the contract, between the Ministry and the Co-finance Organizations, has a general character. The objectives are described briefly and some general points of attention are described.
The requirements the ministry has are described as follows: “The activities must be implemented in a program, which has a broad theme, comprises many sectors and is divided over various continents”.
So, it can be concluded that the objectives are not described and agreed in detail but rather broadly.
The Dutch Co-finance program is unique, according to the evaluation report, because of a couple of characteristics:
- Finance for a couple of years based on a global agreement.
- Responsibility afterwards - Control on a distance
- Independent decision making
- A high entrée barrier (for potential Co-Finance organizations)
According to the evaluation report16 the Co-Finance organizations do have a lot of support and trust from the government since the beginning of the program and that’s why they could develop from a comfortable position: they had a lot of freedom of operating, the control was on a distance and the allocated budget was only increasing. Later on this changed and slowly more evaluation-studies were performed.
Evaluation of the Co-finance program
About the evaluation of the program is said that in the beginning a broad confidence was existent that good results were achieved. Since the nineties there came more doubt, however, and the first impact- studies took off in that period.
One of those first evaluation-reports concluded for example that a clear policy-framework was missing within the Co-finance program as well as insight in the results achieved.
16 Final report Control-group Evaluation Co-Finance Program, 11-2002.
An interesting perspective is that the report questions if it is efficient and effective that the Co-finance organizations work within so many countries, sectors, themes and target-groups (microfinance is for example one of their sectors/themes among many others). A lot of interests and different goals could make it difficult to measure the results.
One of the central themes concerning evaluation studies was result-based operating. This theme created though some problems. An evaluation report of 2000 concluded that is almost impossible to give a clear and trustful judgement about the effects and impact of the Co-Finance program.
The report emphasizes that the Co-finance organizations used to have a lot of independence and within the existing objectives were just a few references and testable criteria present. That’s why a control- group, formed in 1998, has developed a reference framework to make the expectations and underlying logic of the Co-finance Program more explicit. It is important to realize that these expectations are only becoming tangible in specific context, like microfinance for example.
The underlying belief is that within the Program the Co-finance organizations and their partners can contribute to poverty alleviation in a way that is complementary to other actors.
The report uses four questions as framework:
1. In what way have the Co-finance organizations elaborated and performed the objectives of the program?
2. How is the selection and collaboration with the partners filled in and how can they be assessed?
3. What are the results of the program and how are they to be evaluated?
4. What is the specific contribution of the Co-finance organization to the main objective of the Co- Finance program – structural poverty alleviation- and how is this contribution to be evaluated?
The most important request to the control-group was to evaluate the effects of the program. In the report is therefore the criterion for effectiveness the most important.
Due to the many actors in the development chain it is hard to allocate performance to an individual actor. That’s why the report states that in order to have a proper insight into the performance of the program it is important to view the mutual relations of the various actors/organizations. It concluded that there are many levels and within each level there are different objectives, policies, projects and programs, which are continuously under change.
Co-finance organizations and their partner organizations.
In the nineties the partner selection, partners elected in development countries, became influenced by the following factors:
- Internal policy development. Those partners who could fulfill the policies where selected.
- Pressure to work more result-based and more focus on professionalism. Those partners with a professional management were selected.
- Expenditure pressure: Due to the relation GDP and the budget for the program the amount of money to be spend increased. So the Co-Finance organizations sought more partners.
- Donor competition: The amount of donors is increasing which makes it hard to find proper partners.
In the last years the Co-Finance organizations have emphasized to their partners the importance of more attention on monitoring and evaluation. In some area’s this succeeded but in others it was harder than expected. This came due the fact that it was difficult to transfer the new requirements of
monitoring and evaluation into practice.
Relevance and appraisal of the partners of the Co-finance organizations
The report states that the relevance of the partners is defined by what degree their targets and activities correspond with the objectives of the policy framework. A lot of different evaluation studies have been performed to assess the relevance of the partner selection. The general opinion is that the partners are relevant and there are almost no partners whose policy doesn’t correspond with the objectives. In the case of the Co-Finance organizations it appears that the selection is in line with the objectives and they have chosen partners of high quality.
Results of the Co-finance program
The report clarifies that in order to show the effectiveness of the program first the results must be summarized. The goal is to give insight on the results of the target-group level. The report emphasizes that a point of attention here as well is that results are not always measurable or will only over a long period of time. It is also doubtful whether results can be related to the actions of an organization or to external influences.
The report describes that the policy framework of the Co-finance program doesn’t provide many handles to develop criteria for measuring effectiveness. The policy-framework defines poverty reduction as “the durable improvement of poor groups and individuals” but doesn’t define who the targeted poor are and which aspects and dimensions of poverty and poverty reduction are meant. The policies of the Co-finance organizations don’t provide more information either. They have elaborated the general objectives, but have omitted the translation to measurable indicators and criteria.
And in order to make it possible to do a pronouncement about the effectiveness of the results the following perspective has been chosen: In the case the activities were focussed on direct poverty alleviation research has been done to evaluate who where actually reached and which effect the intervention had on their situation.
So the partners didn’t make clear who they wanted to reach or in what degree but the researchers did measure which kind of groups were actually reached. It makes it though hard to tell whether the organization fulfils it’s strategy when they don’t set a target.
Regarding Microfinance for example it was made clear from evaluations that the access of poor groups to credit was improved. The people involved in the research are very pleased with the supplied
services. Especially repeated access to financial services sorts effect, which was proven by a study in Kenya. Effects were noticed on the level of the enterprise, the household and the individual.
The Co-finance organizations do succeed generally in reaching the poor groups and individuals. There is though a difference in the amount of people reached. Roughly can be said that those organizations, with a specialized service, reach a relatively small amount but have more impact than those with a bigger amount.
In general the report concludes about the effectiveness that when the results of the objectives of the separate projects are measured the outcome is a fairly positive judgement. The results were good but just for some parts of the targeted groups.
Regarding the overall target “to supply a durable contribution to structural poverty alleviation”
however it isn’t clear if and in what degree the interventions can fulfil this.
First of all the report concludes that the Co-finance organizations don’t rule the whole aid-chain from the beginning to the end. A range of factors influences the results of the interventions and are outside the control of the Co-finance organizations. The second point is the expectation that the Co-finance program can contribute to structural poverty alleviation might be too ambitious. The judgement of the results might be different when the objectives and the means of the program are approached with more realism.
The reality is, the report describes, that poverty has many dimensions and the barriers to solve this problem change continuously. This means that contribution to structural poverty alleviation must take place over the whole range and in each sector, thus must be multiform. Most of the interventions supported by the Co-finance organizations can, due to the limited means, handle just one dimension of poverty.
The overall conclusion, finally, is that the interventions supported by the Co-finance organisations have positive effects on the poor people. The impact is, though, harder to prove. Sometimes effects appeared only temporarily, other times the durable effects couldn’t be proved.
Final Analysis and Conclusions of the control-group The report ends with a final analysis.
From the analysis of the results it becomes clear that the Co-finance organizations must make a better analysis of the dynamics of poverty. The question arises if the Co-finance organizations have the proper technical knowledge about the areas where they are active. When more Co-finance
organizations specialise on areas or sectors the better they can fulfil their role as a donor because then they have more handles and criteria for partner selection and finance.
Concerning the partners the report noticed that the Co-finance organizations didn’t have any partner- policy or criteria for selecting partners. Only recently the partner-policy has been more elaborated. The Co-finance organizations have tried to make the relation more official.
The report states that the cooperation between Co-finance organizations and the Ministry is based on the principle that the organizations must be able to function as autonomous organizations, who fill in their own policy and way of working.
In the researched period the Ministry has failed to point out on which themes and areas the Co-finance organizations were expected to have their comparative advantages. There is also not made explicit with which measurable criteria the performance of the Co-finance program can be judged. This has, in combination with a general and ambitious policy framework, caused a lot of uncertainty. The Co- finance organization got a lot of decision freedom and they got the responsibility for the performance.
In the most recent years the Ministry has put more stress on result-based responsibility, but without stipulating the contents successfully. The focus has therefore moved more to the accentuation of the financial and management/administration aspects.
Regarding the comparability of the Co-Finance organizations it can be concluded that the Co-Finance organizations have more or less the same policy, activities and kind of partners.
An important conclusion from the report is that the evaluation of the program is troubled by the lack of insight in the relation between ambitious program-objectives and the diverse operational practice with a lot of partner-organizations in a lot of countries. It has been showed that the connections in the chain of organizations are constantly the weak parts. On the upper part of the chain the ministry hasn’t succeeded to connect clear priorities to the subsidy and to make criteria for monitoring and evaluation.
The same happens, according to the report between partner-organizations and target-groups. This causes problems in the relation between the ambitious objectives and the reality and between the policies and the real performance of the organizations. It is a challenge to solve this problem and especially because there is more demand to result-based working. A solution could be to make the policy less ambitious
The expectations of the program are now very high, and the objectives very ambitious. But is this realistic, the report questions. The truth is that the scale of most of the interventions is rather limited and the coherence between them is hard to determine.
The report states that what seems to lack is a realistic expectation of the possibilities of the Co-Finance Program to contribute to structural poverty alleviation. And; “This asks for clear policy objectives and to make this operational in realistic, and measurable, objectives. But is also asks for the
acknowledgement that management and control in the realization of these objectives is only partly possible”.
Summarizing the previous parts it can be concluded that;
- The original made agreements and objectives were quite broad and the involved organizations quite independent in their decision-making. There was no doubt that good results were achieved.
- Later on more evaluation was implemented and made clear that insight in the results lacked.
- Results (effects and impacts) proved to be hard to measure due to the few amounts of criteria present, the many organizations (on different levels) involved, with their objectives, and because it was hard to relate results to the actions of an organization and isolate them from external
influences.
- The objectives of the various partners were formulated but not on the level of measurable indicators and criteria.
- The “sustainable poverty reduction” objective might be too ambitious since the organizations don’t rule the whole aid chain and they can mostly handle just one dimension of poverty.
- Evaluation showed though that their interventions had positive effects but that the impact was hard to prove.
- The ministry has put more focus on results-based responsibility but without stipulating the contents properly.
- There was a lack of insight between the ambitious program-objectives and the diverse operational practice.
- The ministry has failed to connect clear priorities to the subsidy and to make criteria for monitoring and evaluation.
1.7 Introduction research.
The previous paragraphs have made clear that the general objective was formulated by the ministry but wasn’t made operational, that this objective was presumably too ambitious and that the ministry failed to give clear monitoring and evaluation criteria.
These conclusions are for a great part related. It is hard to formulate monitoring and evaluations criteria when an objective isn’t made operational. The partner organizations haven’t formulated their objectives as well, so for them it is also hard to measure their intended effects.
The focus of my thesis is about monitoring and evaluation within microfinance in specific. A proper set of criteria might clarify the focus of the ministry and give a more precise view of their objectives.
The ministry would like to see the current reporting of their partners, the Co-finance organizations and the MFO´s, to be improved.
But before focusing on the tools for monitoring and the proper criteria I will introduce and explain the basics of microfinance in chapter two. Chapter three will outline possible tools for better reporting and in chapter four the problem statement will be described. Chapter two and three are important to understand the relevant aspects of microfinance and to understand which kind of assessment tools play a role. After the problem statement in chapter four the diagnosis and design will be made in chapter five and six.
2. Microfinance
In this chapter I will elaborate the microfinance subject. A brief introduction has been given earlier but a lot of questions are still unanswered. For example how microfinance is organized in the Netherlands;
who are involved? What are the developments and what are the results? Another interesting question is on what aspect the microfinance organizations should be monitored and assessed. Should they reach as many poor as possible and if so what is the definition of poor? Should they be financial sustainable and what if that is conflicting with the strategy to reach the very poor?
In paragraph one I will explain which Dutch organizations are involved in microfinance, what their objectives are and how they are organized.
In paragraph two I will introduce and clarify some key-terms of microfinance:
- Social performance - Impact
- Depth of outreach (poverty assessment) - Client needs.
In the last paragraph I will clarify how the Ministry monitors and evaluates the Co-Finance organizations and Microfinance in specific.
2.1 Dutch organizations involved in Microfinance
As described earlier, the Dutch development Cooperation, the Ministry, has the objective to alleviate poverty. Microfinance is one of the instruments to carry out this objective. The Ministry doesn’t provide microfinance themselves though but uses Co-Finance organizations to outsource microfinance.
These Co-Finance organizations, however, do not offer microfinance services directly to the end user but through “intermediaries”, their partners17. These types of partners vary between community-based organizations, co-operatives, specialised or non-specialised Non-Governmental organizations (NGO’s) and formal banks. Their general name is “a Microfinance organization”.
The whole chain of microfinance consists of four actors: the Ministry(1) supports the Co-Finance(2) organizations in the Netherlands. The Co-finance organizations (2) support the Microfinance organizations/Institutes (MFO’s/MFI’s) (3) in the developing countries. And these Microfinance organizations (3) offer a range of Microfinance products to the clients (4, poor people). The abbreviation MFO is used in this thesis for Microfinance organizations as well as Microfinance institutes.
17 Microfinance activities of Dutch Organizations, A first inventory study, FACET BV, September 2000
Figure 2-1 microfinance chain Objectives of Dutch organizations involved in Microfinance
To clarify the vision and policies of the Dutch organizations involved in Microfinance the inventory study by Facet18 is used:
“The overall objective of support to financial services in developing countries can for all organizations be described as: “to contribute to sustainable improvement of the living circumstances of (poor) people in developing countries through improved access to financial services”.
“This overall objective has been translated in more specific objectives, which can be summarized by two schools of thinking:
- 1. Development of sustainable financial institutions. Much emphasis is laid on profitability, cost recovery and financial performance.
- 2. Improved financial institutions are an instrument (among other instruments) for poverty alleviation. Much emphasis is put on impact of financial services delivery on the lives of poor people”.
The Facet report mentions that the interviewed Dutch organizations can be classified along the continuum between these two schools of thought: “Some organizations put more emphasis on the sustainability of the instrument (the Microfinance organization) and others more on the improved
living conditions of the poor people served by the Microfinance organization”.
The Facet report states that all the Dutch organizations find “Good Governance” an important prerequisite for the establishment of a relationship with a Microfinance organization (MFO).
The organizations all have their own indicators for good governance, like transparent reporting, broad representation in the board etc. It is, though, difficult to define indicators for good governance.
The Dutch organizations also pay attention to performance of the MFO. They use performance indicators, which are for most organizations well laid down in their policy documents, according to Facet. The orientation behind these indicators is related to financial and development issues.
As Facet describes: “Depending on the position of the organization along the continuum of the two schools of thought more or less emphasis will be put on either:
- Financial ratios like return on investment, profitability, financial sustainability and cost efficiency or
18 Microfinance activities of Dutch Organizations, A first inventory study, FACET BV. FACET is a financial consultant focused on small and medium enterprises, www.facetbv.nl
Ministry Co-Fin.
Organ.
MFO’s/
MFI’s
Clients/
Poor People
- Development indicators like outreach, impact (economic, social, environment) and gender equality.
All organizations use a mix of the above-mentioned indicators when assessing the MFI and the result of their investors”.
These two dimensions are also known as the Financial performance and Social performance. In order to assess an MFO both performances are measured. Financial performance is in line with the first school of thinking. The idea is that it is very important to have a stable/sustainable financial institution since the poor people lay their trust(money) in the hands of the organizations. When an MFO would go bankrupt it would be a disaster for the direct clients but for the image of the industry as well.
Financial performance can be assessed by using the following most commonly used indicators19: - Portfolio Quality: Portfolio quality ratios report information on the percentage of non-earning
assets, which in turn decrease the revenue and liquidity position of an MFO (repayment ratio, portfolio quality ratio and loan loss ratio).
- Productivity and Efficiency: Productivity and efficiency ratios provide information about the rate at which MFO’s generate revenue to cover their expenses.
- Financial Viability: Financial Viability refers to the ability of an MFO to cover its cost with earned money. An MFO cannot rely on donor funding to subsidise its operational costs indefinitely.
- Profitability: Profitability ratios determine an MFO’s net income in relation to the structure of its balance sheet.
- Leverage and Capital Adequacy: Leverage describes the extent to which an MFO borrows money relative to its amount of equity. Thus, it states the relationship of funding assets with debt versus equity. Capital adequacy refers to the amount of capital an MFO has relative to its assets.
This gives us a rough idea what financial performance means and how it can be assessed.
Assessment of financial performance is broadly institutionalized and this is proved by the following facts:
- There is a set of standard indicators
- There is consensus about terms and definitions to be used within the Microfinance industry - There are several agencies specialised in MFO’s financial performance evaluation
- MFO’s may use one evaluation report internally as well as for several of their partners (from donors up to investors).
19 Performance Indicators for Microfinance institutions, Technical Guide, Micro-rate, 2003
Financial performance is institutionalized because it is an important requirement for the continuation of an MFO. And in order to perform on social indicators the financial performance first needs to be sufficient. Without being a sustainable Microfinance organization it is hard to excel on other issues.
Social performance though is far from being institutionalized. Various organizations, like CGAP and Cerise-Argidius, are developing indicators to measure social performance.
While it is quite understandable that financial performance is so important it isn’t immediately clear what the relevance of social performance is. A way of understanding the difference and importance is to take the example of a regular commercial bank. Its main objective is to gain more profit and thus is the financial performance extremely important. The shareholders are playing a big role in this perspective. But the commercial bank also has a social performance to keep in mind. This is called
“Corporate Social Responsibility” (CSR). The most important actors here are the stakeholders: clients, partners, people living in the neighborhood, the environment, etc. The difference between a
commercial bank and a Microfinance organization/bank is the balance between financial and social performance. This is related to the difference in their mission/objectives: A Microfinance organization was/is founded with a developmental mission so the focus will be more on the stakeholders/social performance than the shareholders/financial performance.
To explain the recent focus on the social performance/developmental impact, I will use the report
“Overview of impact assessment related objectives and methodologies20”:
Donors, social investors and practitioners alike have stimulated the social focus:
- Donors need to justify their investments of public money in terms of achieved developmental value and contributions to MDG’s,
- Social investors want to be informed in a credible and transparent way on the social returns of their investments, and
- Microfinance practitioners (MFO’s), most of whom have a developmental mission, like to have indications on the effects of their work as well as on how to improve outreach and quality of their financial services. Practitioners are more and more recognizing the value of increasing their understanding of their clients, so they can design better programmes that are more effective in reaching their organizational mission, at retaining clients and improving operational efficiency.
The background of and the motivation for social focus and developmental impact is now more clarified. But what exactly is social focus?
In the next paragraph I will explain the relevant terms concerning the social focus: social performance, impact, and poverty assessment. In chapter three the various instruments/models to measure these
20 Overview of impact assessment related objectives and methodologies, E.Bosch, June 2004.
indicators will be described. These models show the alternatives to formulate criteria for monitoring and reporting.
2.2 Social Performance, Impact and Poverty Assessment.
In order to get acquainted with the various topics I will provide a summary of the various perspectives.
I will start with social performance and impact since they are sometimes mixed up.
Social Performance and Impact
There is a lot of literature about social performance and impact but in very few the terms are clearly defined. The SPI-report21, which will be reviewed later, does help stipulating the terms:
“The Social Performance of an organization comprises the relations of the organization with its clients and other stakeholder groups”. The social performance is thus measured on the organizational level.
“It is assumed that the impact of an organization on socio-economic and environmental dimensions of its clients/communities follows from its structure, conduct and performance. Hence only the structure, conduct and performance of the institution are assessed, and not the actual effects on the lives of the clients”22.
Impact, though, is23: “the change in welfare and quality of life (in all of its dimensions) among clients and non-clients (and the wider local, national and global community) due to the activities of an organization”. “The measurement of impact is a subset of performances”. Impact is, thus, measured at the client level.
When related to poverty alleviation it is the impact that has to be measured. To investigate the effect of Microfinance on poverty, various poverty-indicators have to be assessed in the client’s life. An indicator for example could be the change in the quality and quantity of food consumed by the family of an MFO-client. When this variable shows an increase than we could say there is a positive impact and one dimension of poverty has been alleviated. The question arises why we would want to know the social performance of a MFO when we can measure the impact. Except for the fact that social performance deals with all the stakeholders and impact only on the client level, impact tells us directly to what amount poverty has been decreased. The SPI report doesn’t really motivate their consideration and choice but a few possible reasons in advantage of social performance, when compared with impact, come up in the various literature:
21Social Performance Indicators Initiative; Zeller, Lapenu, Greeley, Cerise Platform, October 2003
22 Overview of impact assessment related objectives and methodologies, E.Bosch, June 2004, p.11
23 Social Performance Indicators Initiative; Zeller, Lapenu, Greeley, Cerise Platform, October 2003, p.4.
