Responsible investment in microfinance: The value added of social audits for the fund managers

01.12.2011
Microfinance's success in terms of scale, poverty alleviation, and return on investment has drawn the attention of financial markets. At the same time, microfinance is under increasing scrutiny as controversies abound over the risks of overindebtedness, microfinance's actual impact on clients, and other contentious issues. Among some investors, the result has been a call to ‘go back to the basics’ - client-centred institutions that offer products that make a difference. Social performance is therefore becoming an integral part of assessments of microfinance institutions (MFIs), and is gaining ground in the investment world. What are microfinance investors doing to systematize social performance management at the MFI level and to improve their own practices as responsible investors? What tools and approaches are being used? This article introduces the approach of social audit through the example of the Social Audit tool for Microfinance investment vehicles (SAM). This tool was designed to analyse investment funds’ strategies and activities with a view to strengthen and systematize their social responsibility approach. SAM was tested by social performance pioneer Oikocredit in 2009, and its experience is shared here including ongoing activities that have been conducted in response to the audit.