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How can we measure whether MFIs are successful or not?
Since most MFIs have a social mission they are judged firstly, on whether they are they reaching the poor, and secondly, on whether they are helping them move out of poverty. How can we measure this? To begin with, financial criteria such as repayment rates are useful indicators of the performance of a MFI. We can generally assume that the purposes for which the loans are being used are in fact generating returns because the loans are being regularly repaid and borrowers are seeking repeat loans. This is one indication that an MFI is in fact successful.
Other financial criteria, such as number of loans to female-headed households, loan size, the purposes for which the loan is ostensibly used, average loan size, number of loans per employee, etc, are also useful indicators of a programme’s relative success. These indicators allow us to draw up a profile of borrowers in terms of gender, age, location, marital status and type of financed activity, which can be compared with the target group of borrowers for example as well as the efficiency of the MFI concerned. This is why MFIs regularly present a summary of their financial performance that combines the indicators such as the above and value of loans outstanding, financial and operational sustainability, portfolio at risk, etc.
However, the above are not sufficient indicators as they tend to focus on the institutional health of the organisation rather than the health or well-being of the borrower. High repayment rates can be misleading, for example, when borrowers seeks funds from third party sources so that they can repay on time but in the process become further indebted. The numbers of loans given to women may hide the fact that husbands or other male relatives on occasions appropriate loans and invest badly or misuse the money altogether leaving women borrowers with heavy repayment burdens. We can not, therefore, rely solely on such financial indicators to measure the performance of microfinance programmes. There is a need, therefore, to complement the information gathered through monitoring financial criteria with more in-depth qualitative social performance analysis that examines the changes in the lives and businesses of borrowers. This information is also useful because it helps us understand the ways in which borrowers utilise loans, the constraints they face, reasons for success or failure, etc. This information is directly relevant to operational design issues, and can assist in improving the services offered in a way that not only increases impact on borrowers but also improves the performance of the MFI itself.
