Friday, November 14, 2014

Emphasis on Analysis and Improving Operations, not just Collection and Reporting

Collecting social data is not the objective; rather it is selecting those metrics that best support the Board's ability to design and oversee social strategy and management's efforts to execute that strategy in progressively more efficient and effective ways.

 Studies, surveys, institution data, client data… there is a lot of data being collected.

The financial industry is constructed around data and the availability of data.  The information that this data provides allows financial institutions to scale, increase outreach, manage risks and enhance profitability.  Although MFIs have multiple bottom lines, their approach to data should be no different than a purely profit-maximizing institution. This importance of data in enhancing performance in each bottom line has been acknowledged in microfinance and motivates, in part, the significant time and effort expended to develop the social performance data collection tools that have launched over the past few years.  The MIX Market plays a large role in increasing the transparency of the industry and other initiatives like the forthcoming SPI4 self-assessment and the GIIRS Rating will continue to provide platforms which support social data collection.  These platforms, plus companies’ proprietary collection methods, provide the means for gathering comparable data suitable for bench-marking in a relatively efficient way. BUT in many cases, the data are not being used to manage and improve social performance, but almost exclusively for communication with external stakeholders.

There is far less analysis being done.

Social data collection and social performance standards have become widely accepted as an important tool in maintaining support for international microfinance, especially since the critiques and crises of 2009-2011 caused many to question the social value of microfinance.  But while many MFIs do collect social data and subscribe to standards to allay the concerns of external stakeholders, they rarely use that information to inform their own decisions about how to better articulate operational targets and streamline their operations.  The data collection is simply not being translated into the most important part: analysis and learning from that analysis to improve and advance the industry at every level. Grassroots has seen this demonstrated in its governance involvement in multiple MIVs and MFIs – they collect a lot of data, but aren’t using it for any substantive purposes.  Not only is this a wasted opportunity, but threatens to transform the whole social performance management effort from a good faith attempt to refocus microfinance on the client into an empty exercise in compliance. 

Why is there such a lack of analysis and resulting implementation?

The all too frequent failure to take advantage of the availability of improved data and more robust benchmarks and comparables to improve social performance reflects different constraints for different players, but the common result is that the data all too often stay in the databases or at best, in reports that are little read.  The immediate reasons differ; for MFIs they are a focus on efficiency and achieving financial targets; likewise for investors and funders there are the challenges of meaningfully aggregating metrics across multiple sectors as well as pressure to achieve financial benchmarks; and for nearly everyone there are challenges of training staff and modifying MIS.  Underlying all these constraints, however, is a common theme:  what are the priority goals of the MFI and how do social performance data support the achievement of these priority goals?  Not all MFIs specify social goals, but most do.  And  even if they are as broad as “increasing financial access” data can be collected and analyzed to help management, boards and shareholders articulate their goals in measurable ways – Access for who?  Measured how?  With what intended results? – and use the answers to refine strategy and enhance operations.  Unless the social bottom line is positioned with equal weight with other, financial goals, social data collection and reporting will fall far short of its potential as a powerful instrument in improving the double bottom line performance of MFIs. It is ultimately up to the funders and investors to mandate regular social performance data to be included alongside financial data reporting from their portfolio companies.  If social data were required to be reported at this level, regular and thorough analysis would increase and the industry would benefit.

Stakeholders and industry players need to begin taking advantage of social data to enhance performance.

The industry needs to use the available data much more to inform the dialogue on social performance, set targets and determine which strategies, products and services are most effective at meeting social objectives.  While a number of technical assistance providers support this type of “evidence based” approach, this “supply push” needs to be complemented by “demand pull” from investors and directors. Steps in this direction will enable the industry to better learn from the information and make better decisions more quickly, while avoiding the wasted effort and cynicism associated with leaving data sitting in Excel spreadsheets around the world.

Grassroots’ has been working to support effective “demand pull” by focusing on the Board and Management levels.  The approach starts with creating simple dashboards that focus on social data relevant to each company's articulated mission and then delivering this in a concise report with annual targets, trends over time and benchmarks, so it can be routinely reviewed by the Board alongside standard financial metrics.  We expect that over time, the metrics followed by each company will be refined and replaced to focus more precisely on the institution’s particular mission.  A company may even develop some of its own unique metrics which are not captured by the standard industry platforms, and this is fine.  The point is that collecting social data is not the objective, rather it is selecting those metrics that best support the Board's efforts to design and oversee social strategy and management's efforts to execute that strategy and make sure they are used to these ends.  Grassroots’ believes that integrating data analysis into operations starts at the top: the Board must provide direction and Management drives implementation.  As this kind of social performance data analysis becomes routine, and not just a side thought or an empty exercise in compliance, the industry will feel the positive results that occur when progress is shaped by information and evidence.  

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