From the Field: Getting the Board on Board
By Nitin Madan
Me: “Are you a responsible financial provider?"
Board Director: "Yes"...(thinking deeper)..."of course" (almost rethinking the affirmation)
I have had several such exchanges in my interactions as a social performance consultant and advisor to the microfinance sector. During my interactions with senior managers, they candidly admit to the struggle it is to get their BoDs to consider SPM as seriously as they consider financial performance. This is particularly true in countries such as Cambodia, where the sector has witnessed several total buy-outs or majority stake investment by investors with little or no experience in microfinance. What makes the situation grave is that these takeovers have happened in some of the largest and emerging MFIs.
Why is this relevant? Simply put – the BoD plays a critical role in any organization, including setting the organization culture and direction. If that culture and direction is profit maximization, then the balance between social and financial performance of the financial service provider (FSP) is adversely affected. In all likelihood, client-centricity is also sacrificed at the altar of profit maximization.
In December 2019, RIFF-SEA, which is managed by the SPTF, and the Cambodia Microfinance Association (CMA) approached me to conduct a one-day workshop to help BoD of various MFIs in Cambodia understand the advantages of balanced performance management. We planned the workshop to help participants identify governance challenges and roles of the BoD.
Two themes sparked maximum discussion: the idea of managing toward a double (and triple) bottom line has been gaining greater acceptance over the past decade and half. Latest figures show that over 368 MFIs across 73 countries have undertaken 435 SPI-4 audits. As a result, there are enough data points to analyze the links between client-centric practices and profitability and portfolio quality. While data collection processes and analysis are constantly being refined, it is clear that in the long term there is a positive correlation between RIF and portfolio
quality. Participants debated the correlation between RIF and profitability too, and concluded that more data (particularly timeframe for such achieving profitability) is required to confirm that over time a negative correlation can become positive.
Another area discussed intensely was reporting on social data. Board and management reporting matrices lean heavily towards financial performance. This is a likely result of indicators for measurement of financial performance being more clearly defined than social indicators. We discussed how there are many financial performance indicators that also reflect social performance. For example, what matters more is how ratios such as Return on Assets or Portfolio at Risk are used. It’s important to question whether financial performance benefits investors and funders only or if it has beneficial effects on clients. During the workshop, we used sample reports and indicators to
build participant interest and confidence. For several, it was a happy realization that they do collect a lot of "social" data already, and we identified areas where additional data can easily be collected.
Bringing the Board on board with SPM should be, in my view, a primary concern for various microfinance networks globally. As the workshop in Cambodia showed us, many are already working in that direction, but a more structured discussion is often needed to highlight the work already done and build on that systematically.
Check out a short publication about how to guide your board to manage social performance. And this more detailed guide about your board's social performance management roles and responsibilities.
To learn more about RIFF-SEA trainings and co-financing opportunities, see below.