From Social Rating to Seal of Excellence: Utility or Futility?

This paper examines whether social rating or social labelling can reinforce an MFI’s social mission. Microfinance began with the promise of poverty reduction and with a social bottom line. It gave loans to help poor people become responsible and entrepreneurial.

It soon became clear that an MFI’s social impact is minimal if it is not sustainable. This led to a focus on the double bottom line of profits and social impact. The double bottom line mission seems to have gradually become reduced to a focus on profits. Key conclusions include:

• MFIs do not need to invest in ratings or certification in order to attract capital;
• Social ratings may be required to mollify the government and the media;
• Performance ratings are of academic interest only;
• Researchers should first study the methodology of the rating agency to see what is being rated, if ratings are being undertaken.

The paper recommends that research should determine whether the poor really discriminate between labelled and non-labelled products and firms supplying them, before undertaking an exercise in labelling MFIs. MFIs exposed to international pressure may improve their internal processes in response to labels.