Interview with an Expert

FSTRC : Social Performance – is this not the reason for the existence of MFIs?

Agata : In general yes, the microfinance industry should recognize that their performance should not be managed solely on the organizations financial achievements, but also on the fulfillment of its social goals defined by their mission.

Walter : Yes, the MFIs with a social mission seek to serve the socially and/or financially excluded in order to meet their needs and improve their lives. They need to have sound financial results in order to serve their clients in the long-term, but concentrating only on financial results is not what the microfinance industry should be about. We need to keep focus on the double bottom line.

They also aim to operate in an ethical and responsible way in relation to staff, clients, communities and environment within which they work.

Agata: Having said that, we must realize that due to recent trends in microfinance – fast growth, change, drive towards commercialization and achieving good financial results, as well as stiff competition, the achieving of the mission is becoming more challenging.

There are many MFIs in the field, that have forgotten whom exactly (target client), how (appropriate financial services) and for what purpose (improvement of their client’s lives) they have been created.

The role of SPM starts here: SPM is the internal process by which an organization defines its social goals and objectives, makes decisions in line with its social objectives and thereby improves its social performance.

Walter: By virtue of the financial results focus pursued by many MFIs and mentioned by Agata, both strategy development and its operationalization are predominantly one-sided. We need to bring back the social part of MFIs missions to life through a strategic planning process that incorporates very clear and specific goals and objectives in social area thus harmonizing the financial and the social performance. Having done this, the day-to-day management decisions of MFIs and the design and quality of their management systems will have to be aligned with social as well as financial goals.

Integrating Social Performance Management into everyday operations is a way of ensuring that the social mission is being realized. In order to do that in an effective way, MFIs need to reinforce their strategic management practices. More systematic planning and management of strategy will enhance their success.

FSTRC: I understand that you have been working with a new toolkit on Strategic Management (From Mission to Action Management Series for Microfinance Institutions, MFC), which facilitates this process?

Agata : Yes, we have been field-testing and implementing the MFC-developed toolkit on Strategic Management, which offers a set of tools empowering management to achieve

a balance between social and financial performance. Its participatory approach to strategic planning and management is based on the Balanced Scorecard – a set of tools that provide a menu of comprehensive, practical methods for staff at different levels to translate the organization’s mission into daily operations. It makes a mission-driven strategy an ongoing process in which the organizational team responds to internal, external and environmental changes to make progress in one commonly agreed direction.

Walter: Effective strategic management should be inspired and guided by the mission; it should also be on-going and integrated into every level of the organization. Everyone in the institution should be involved, for their activities support or hinder realization of the strategy. An MFI’s strategy cannot be left only to the top management; it should be both understood and executed by all the employees.

What I would like to underline is that the Toolkit helps to communicate the MFI’s mission, strategy and performance targets to all staff.

One of the outputs of using the Toolkit is the strategy map - a one-page document presenting the MFI’s strategy, which can easily be understood by all staff. The process of operationalization of the strategy detailed in the Toolkit is extremely practical and straightforward. Apart from providing a clear roadmap to the process, outputs generated by the organization using the Toolkit ensure that each staff member – from a Loan Officer to the Executive Director - can easily see their contribution to the institutional performance and achievement of specific organization’s objectives. The use of the process as described in the Toolkit also tremendously enhances the buy-in of the strategy by the staff.

Agata: Another key issue which needs to be addressed in that aspect is change management. Change is inevitable during the pursuit of the mission, so it is important to have a set of tools and practices to facilitate smooth transitions.

Using the toolkit the MFI can achieve the next level of maturity and sophistication. It provides opportunities for managers and other staff to develop their strategy skills and knowledge, enhance their grasp of their institution’s strategy and strengthen their contribution to organizational performance.

Agata: From my experience in implementing the toolkit, one of the important issues was that the MFIs discovered that the toolkit is not about introducing something completely new and difficult. It supports the MFIs in their everyday choices aimed at long-term financial and social results. It helps in clarifying their goals and in defining what it will take to achieve those. Thanks to using the tools the MFI could better understand and balance financial versus social objectives on the one hand, and short-term versus long-term objectives on the other.

Walter: Another important thing was that the scorecard applied in the toolkit really helps the institution to set up a mechanism for on-going progress tracking, strategic learning and improvement in a changing environment while staying in line with the organizational mission.

The Toolkit also helps MFIs to clarify and build their competitive advantage allowing them to differentiate themselves from the competition in both client and investor markets.

Agata: Maybe it is the “magic-formula” syndrome. In some cases the expectations were that we will come in, help clarify social goals, help design a SPM report format and that’s it - immediately the institution will be able to manage it’s social goals. This is a much more complex process and requires a deeper understanding of the goals and what is needed to support them, as well as huge commitment (resource and time-wise) from the whole team.

Walter: It also requires a very solid support and understanding from the ED and the governance board.

We had a very dedicated SPM team, whose work was not supported by the ED, and the whole process was unnecessarily halted several times, making it more difficult and lengthy in implementing. This also is true for the governance board. Without their understanding and commitment, the whole process of implementing strategic management for better social performance management can lose its impetus.

Walter: When balancing the challenges and benefits, quite clearly the benefits out weight.

Frankly speaking I think that most of the MFIs should be looking at implementing SPM in a more systematic way. The toolkit developed by MFC (Strategic Management, From Mission to Action Management Series for Microfinance Institutions ) is a great aid in securing that this is done properly. I would also recommend that MFIs seek assistance in implementing the toolkit.

Agata: T his was mentioned before, but I would like to stress again that, when using the MFC developed toolkit, the MFI benefits by an overall strengthening of the managerial functions, clarifying and prioritizing the strategy, aligning systems and processes, and helping to focus on achieving the ultimate goal – impacting the target client as in the MFI’s mission.

Ms Szostek has profound experience in the field of microfinance, for she has been working in the industry since 1994. Her expertise is based on 6 years of grassroots’ experience as a member of the top management team of Fundusz Mikro (Polish MFI) and cooperation with the Microfinance center for Central and Eastern Europe and the new Independent States (MFC). Ms Szostek has been engaged in training and consulting activities on behalf of the MFC for the past 10 years. Thanks to this she has a profound understanding of the microfinance industry and it’s specifics in the region. Ms Szostek’s competencies and technical skills are focused on credit and operational risk, institutional capacity building, in this human resource management, strategic marketing, product development as well as strategic planning with the perspective of social performance. She is also on MFC’s Social Performance Management team.

Mr. Tounytsky has over 10 years experience as a practitioner and microfinance consultant. He has experience providing consulting services and technical assistance to microfinance institutions in Europe, former Soviet Union, Asia and Africa. Mr. Tounytsky is a member of MFC’s Social Performance Management team where he participated in the development of new solution focused on ensuring the double bottom line of MFIs and facilitated a social performance focused strategic planning process in 3 institutions.

Microfinance Centre (MFC) for Central and Eastern Europe and the New Independent States is an international, grass-root network of 110 microfinance institutions from 27 transition countries in ECA with a total portfolio of US $ 746 million and 636 thousand active borrowers, traditionally unbankable.