Social Responsibility And Financial Performance: No Need For A Trade-Off

While the microfinance industry continues to strive for increased client services and improved portfolio quality, there’s always going to be constant pressure to remain focused on profit maximization. That being said, microfinance institutions (MFIs) are also finding that there are meaningful (and profitable) synergies that exist between social performance (SP) and financial performance (FP).

A recent study by the Microfinance Information Exchange (Microfinance Synergies and Trade-offs: Social versus Financial Performance Outcomes ) identified relationships between SP and FP, and found that. . .

• Improving client retention and devoting funds to further enhance the skills of staff workers directly improves financial performance. This means that qualitative factors, such as client relationships and staff discipline, could be intricately linked to a firm’s profitability.

• Critics of high interest rates must understand that these costs are a result of exclusive targeting towards the very poor. This reality illustrates that MFIs can reach more people and increase efficiency by easing its targeting requirement.

• Social performance factors must be emphasized in order to increase financial performance. In this sense, fully training employees and creating prudent human resources policies is directly tied with an increase in productivity and efficiency.

Microfinance Information Exchange Data concludes that “[m]any statistically significant results were found confirming some of the starting hypotheses. This suggests some internal consistency in the data reported. This research confirms many of the trade-offs and synergies between SP and FP.”

Although this is merely one study and should not be generalized for the entire microfinance community, it does illustrate that there is some kind of notable interaction between social and financial performance.

With most folks praying for a recovery, should MFIs only concentrate their efforts on purely financial factors? Or do you think this interaction between SP and FP is worth continued study in the microfinance sector?

Social Responsibility And Financial Performance: No Need For A Trade-Off originally appeared in Green Chip Stocks. Green Chip Review is a free 2x-per-week newsletter, is the first advisory to focus exclusively on investments in alternative and renewable energies.

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