Understanding social performance with theory of change

In the world of microfinance, there are social returns to be accounted for, in addition to financial accountability. Implementing a social performance framework to conduct such accountability assessment enables organizations to understand whether their activities align with the mission and the extent to which it is so. This is effectively done in retrospect of the Theory of Change defined while initiating the project.

What is Social Performance?

Social performance is how well that mission is becoming a reality thanks to the organization's actions. But it also includes internal factors, considering how the organization is run. In this way, stakeholders get a holistic view of the “social” in social enterprise organizations.

Given its comprehensiveness, a wide range of indicators is required to complete this social canvas fully. Depending on your organization type, you may want to complement this process using an existing standardized metrics framework. We’ll look at these issues, but before diving in, let’s look at the social performance concept itself.

The Importance of Measuring Social Performance

For this blog, we’ll focus on how an MFI (Microfinance institution) explores how well it is executing its mission through a social performance lens.

Some of the social aspects an MFI might examine include the services it offers to marginalized communities, the revenue of its client's businesses, the greater impact of its lending on local communities, etc.

The importance of social performance assessment can be seen in the wide array of areas covered by such an audit. The process enables an MFI, for example, to not only determine its impacts but also identify and improve lower-performing areas of its portfolio or organizational structure.

The Social Performance Task Force, a global membership organization, has developed a wide array of resources to support the execution of a social performance audit. This includes guides that share best practices in social performance management for financial institutions with social missions.

They’ve outlined a five-step process to implementing their Universal Standards successfully. That process can be found here and includes an in-depth breakdown of the necessary indicators to be thorough in this social accounting.

For a brief glimpse into how implementing social performance management helped an organization better achieve its strategic (both financial and social) goals, check out this video detailing a case study in Uganda. Notice also how, internally, employees are empowered by this process, making social goals a key part of decision-making at all levels.

 Indicators for Social Performance Framework

Of course, to determine any level of social performance, you need to establish indicators to measure that performance. The SP14 Audit guide defines the importance of social indicators:

Use indicators to measure your progress toward each of your social goals. The indicators you choose should be directly relevant to your social goals and useful for internal decision-making.

As shown in this table from that same guide, indicators are mapped to the social goals that the organization has defined. In this case, you can see that the organization has listed several indicators for each goal.

The guide recommends using at least one indicator per goal. However, depending on the resources available, the context of the beneficiary environment, stakeholder pressure, etc., more than one indicator can be used.

Lastly, and still quite significant, the organization has also defined how such indicators (i.e., the results obtained) will inform decision-making. Explicitly defining this aspect of metrics is often overlooked but is extremely important because it holds these strategies accountable to action, and decision-making during and after they are implemented.

 Social Performance Assessment

While guides, like the audit document linked and shown above, give organizations a useful starting point to execute these processes, they shouldn’t be considered the end-all solution. Other frameworks can complement these audits, especially existing metrics frameworks commonly used across different social sector areas.

We need to look no further than the IRIS metrics to give a specific example. In fact, the Microfinance Information Exchange and the Social Performance Taskforce have created a document that aligns IRIS metrics to the social performance assessment process undertaken by MFIs.

We’ll look at an example using the same indicator shown in the image above, “% clients living in rural areas.” Given the nature of the work of MFIS, this will be a commonly used indicator. Framing it within the IRIS metrics language, Client Individuals: Rural (PI1190), enables organizations to report to external stakeholders in a reporting language that is more broadly understood (especially when compared to customized metrics).

Of course, the metrics package you choose will depend on the nuances of your organization, its context, impact goals, etc. A useful starting point for any social enterprise in determining indicators is its Theory of Change (TOC). The TOC-driven approach can inform your entire impact management process, and especially during a social performance audit. Let's listen to how you can improve performance using short and frequent actions.

Remember the social goals mentioned above? Those flow into indicator decisions -- choosing a framework like IRIS, for example -- and ultimately help create the final metrics package. The image shown here demonstrates how the TOC-driven process moves through these decisions.

With a TOC-focused approach, the Sopact Impact Cloud can help you grapple with the social performance audit, whether you are an MFI or not, leveraging its comprehensive metrics packages and end-to-end functionality for impact management.

Learn More: Theory of change