Measuring the Social Impact of MFIs: Why Is It Important

Measuring the social impact of MFIs Why is it important

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If you are into microfinance, you must be doing a lot to help the poor and reduce poverty in society. But have you ever thought if everything your MFI doing is effective? In other words, are you measuring the social impact of MFIs’ works? If not, let’s learn why measuring the social impact of your MFI is important.  

Microfinance is a financial service sector that particularly aims to provide credit, savings, insurance, and other financial products to low-income individuals who are typically excluded from accessing traditional financial services. The main goal of microfinance is to alleviate poverty and promote financial inclusion by providing access to credit and other financial services to those who are otherwise unable to obtain them.

But the question is, how do you know at what level your MFI is contributing to financial inclusion? Well, in order to know that, you must measure the social impact. To determine whether this particular sector is actually achieving its goal of alleviating poverty and promoting financial inclusion.

This article will explore the reasons why measuring social impact is important and how you can do it effectively.

Why Measure Social Impact?

Before we move on to how you can measure the social impact of MFIs, let’s learn why it is important. It will give you more exposure to the topic and help you understand what to do.

Let’s get down to business, then!

To Determine Effectiveness

Measuring social impact is crucial in determining the effectiveness of microfinance initiatives. And without measuring impact, it is impossible to know if microfinance is actually making a positive difference in the lives of low-income individuals.

The impact measurement process helps to determine if the microfinance sector is meeting its goals of alleviating poverty and promoting financial inclusion. Depending on the result, you can actually take necessary actions by knowing what changes need to be made to improve its effectiveness.

To Allocate Resources

Another important reason why measuring the social impact of MFIs is important is to allocate resources properly. Measuring social impact can help to allocate resources more effectively. By knowing the impact of different microfinance initiatives, your microfinance organization can prioritize its spending and allocate resources to the initiatives that are making the most positive impact. This can help ensure that resources are used most efficiently and effectively.

To Improve Services

Measuring social impact can also help MFIs to improve their services. We all know the benefits of audit in a company. If so, what does it do? Well, it helps you find your weaknesses and strengths, which can help you further understand what needs to be done. And for MFIs, measuring social impact serves the same purpose.

The question is how?

Well, by tracking the impact of different microfinance initiatives, organizations can identify areas where improvements can be made. For example, if a particular initiative is not having the desired impact, organizations can analyze why this is the case and make changes to improve its effectiveness.

How to Measure Social Impact

I hope you understand why we need to measure the social impact of MFIs. Now it is time to learn how you can measure the social impact of your MFI initiative. And to do that, there are many metrics and aspects that we need to take into consideration. However, we will discuss the most obvious factors without which it is impossible.

1. Identify the Objectives

The first step in measuring social impact is to identify the objectives of the microfinance initiative. The objectives will typically include alleviating poverty and promoting financial inclusion. If you are able to identify the objective, the next step is to determine how you will measure the objective.

Whether financial inclusion is the main goal, you may have a unique way to address that objective. For example, you can focus on a particular aspect of people’s lives. And you also need to identify which we guess you have and work on it.  

2. Choose the Right Metrics

Once you have identified the objective, now is the time to choose the right metrics, which is one of the most crucial aspects in measuring the social impact of MFIs.

Some common metrics used in microfinance include the number of people reached, the amount of credit disbursed, the repayment rate, and the level of financial inclusion. However, it is important to choose metrics that are relevant to the objectives of the microfinance initiative and that accurately reflect the impact that it is having.

The metrics should also include the financial condition of borrowers after the microfinance initiative. And this way, we can track the real impact of your microfinance initiative.


3. Collect Data

Once you choose the metrics, the next step is to collect data. You can collect this data through surveys, focus groups, and other methods. But you should also remember that there should be consistency and reliability in the way you collect and analyze data because it is the only way to ensure that it accurately reflects the impact of the microfinance initiative. Having a technology solution helping with data collection can help you make things faster, safer, and more effective.

4. Analyze the Data

Once you have collected all the data, it is important to analyze it carefully. This involves looking at the data in different ways to identify trends and patterns and to determine if the microfinance initiative is achieving its objectives. The analysis should be done in a transparent way that takes into account any limitations of the data.

It is tough to analyze such an amount of data and get the results of the social impact of MFIs unless you have some software to help you with this. A software solution can make it easy to analyze the data and get the result faster.

5. Share the Results

Finally, it is important to share the results of the impact measurement process with relevant stakeholders. This includes the people who are benefiting from the microfinance initiative, as well as the organizations and donors who are supporting it. Sharing the results helps to increase transparency and accountability, and it can also help to improve the effectiveness of the microfinance sector.

When measuring the social impact of MFIs, microfinance owners start thinking it is not that easy. But it is easy actually if you have the means to do it. In this case, the right core banking solution with a social impact measuring feature can help you.

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