Integrating Social Performance Management into Governance of MFIs

This note discusses the importance of integrating social performance into MFIs’ governance framework.

The dynamism of the microfinance sector has brought increasing focus on social performance and the role of governance structures in managing growing financial and social risk. The note states that:

• MFI governance structure plays a critical role to play in providing leadership and strategic direction to the organization;
• Social performance management (SPM) exercises reveal that MFI boards do not participate actively in social performance;
• SPM requires MFI management and the board to be more intentional about achieving mission-driven social objectives;
• SPM begins with effective governance, which puts an organization’s mission into practice at the strategy and operational levels;
• Key social performance principles include legitimacy, voice, direction, performance, accountability and fairness.

Integrating SPM principles into the governance structure will help the board and management understand whether the organization is achieving its mission, balance financial and social goals better, align and improve systems, mitigate reputation and political risk and improve overall performance and financial stability.