Download - Mission Drift Understand It, Avoid It
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Microfinanceisapotentiallypowerfultooltofightpovertyandhelppoorpeopleraisetheirincome,accumulateassets,andcushionthemselvesagainst
externalshocks.Atthesametimeleadersofthemove-mentrecognizetheneedforahard-nosedcommercialoutlookifitistobesustainable.Tothisendmanyspecial-izedmicrofinanceprovidershaveformalizedandscaleduptheiractivitieswhile,intheotherdirection,manyregu-latedfinancialinstitutionshaveexpandeddownstream.
Goodreasonsexisttowelcomeaboundaryblurbetweenmicrofinanceandmainstreambanking.Onlywithcommercialcapitalcandemandforfinancialservicesamongpoorerpeoplebemorefullymet.Closerintegra-tionalsopromotesinnovationandgreaterresponsivenesstothediverseclientneeds.However,thedangerthatcommercializationofmicrofinancewillleadtoanover-preoccupationwithprofitabilityattheexpenseofpovertyreductionandotherdevelopmentgoalsisgreat—missiondriftisanever-presentpossibilityforMFIsandoftenirreversible.
Becausemicrofinanceismotivatedbydevelopmentaswellaseconomicgoals,thequestionariseshowbesttoevaluateperformanceagainstmultipleandpotentiallyconflictinggoals.Themainissueisnotsomuchthedesirability ofbroaderperformancemeasurementbutitsfeasibility.Technicalperformancemanagement“bynumbers”isdifficultunderthebestofcircumstances;measuringtheimpactofmicrofinanceinstitutionsusingevencrudeestimatesofhouseholdincomeistechnicallydifficult,expensive,andperhapsbetterlefttoindependentresearcherswhocandoitmorerigorously.However,thepotentialofmicrofinanceasadevelopmenttoolwillonlyberealizediffinancialinstitutionssystematicallyandrou-
tinelymeasureperformance,andiftheydoitinresponsetointernaldemand,notinresponsetopressurefromotherorganizations.
KEY CONCEPTS
Threekeydimensionsofsocialperformancearebreadth of outreach(thenumberofpeopleusingservicesduringanyperiodoftime),depth of outreach (thesocialstatusofclientsatthebeginningofanyperiod),andimpact(thenetbenefitstoclientsandthoseindirectlyaffectedbytheiruseoffinancialservices).Financialperformanceisprimarilythepercentageoftheservice’sfullcostthatisdirectlypaidforbytheusers.
Innovationsthatreducethecostsofprovidingservicesbringimprovementinbothfinancialandsocialperformance.Butotherdecisionsentailatrade-offovertimebetweenthem.Forexample,raisinginterestratesonloansislikelytoimprovefinancialperformance(assum-inginelasticdemand)butattheexpenseofcurrentsocialperformance(duetoreducednetbenefitperclientandpossibleshort-termreductioninbreadthanddepthofoutreach).Mostbenefitsoftrade-offsonlycomeovertimebecausefuturesocialperformancedependsonbothcur-rentsocialperformanceandonhowfinancialperformanceaffectsthecapacitytosupplyservicesinthefuture.
AnotherexampleisthegrowthrateoftheMFI.ManyMFIshaveemphasizedtheprimeimportanceofservingmoreclientsthroughgrowth.Thecostofinvestinginnewcapacityhasanegativefinancialeffectintheshortterm,butthismayeventuallybeoffsetbyeconomiesofscale.Improvedfinancialperformanceisalsonecessaryforgrowthinordertomobilizeresources;thereinliesthecaseforloweringcurrentsocialperformancetoenhancefuture
By James Copestake • i l lustrat ions by tyler pack
Mission Drift—Understand It, Avoid It
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socialperformance.Incontrast,otherMFIshaveoptedforaslowergrowthstrategy:puttinggreateremphasisoncurrentdepthofoutreachandimpact.Suchdecisionsreflectvariationintimehorizonsand,moreimportantly,path-dependentjudgmentsabouthowcurrentperformanceislikelytoaffectfuturesocialperformanceopportunities.
Figure1providesagraphicalframeworktoaidthinkingaboutsuchstrategic“win-win”optionsandtrade-offsbetweenfinancialandsocialperformance.ThepreferencesoftheMFI,oritsmission,arerepresentedbyasetofindifferencecurves(C1,
C2,andC3).Thetoppreferenceisatthetoprightcornerofthebox,sincethisisthepointatwhichbothsocialandfinancialperformanceareattheirhighest.Conversely,thelowestprefer-enceisatthebottomleftcorner.Theindifferencecurveseachrepresentasetofpointswhosecurrentsocialandfinancialperformancesareequallyattractive.Movementupwardandto
theright,ortoahigherindifferencecurve,thusrepresentsamovetoapreferredlevelofoverallperformance.
Fromanygiveninitiallevelofactualperformance(pt),anMFIislimitedinhowitcanchangeitspositionwithinthenexttimeperiod.LinePPt+1reflectsthisroomtomaneuverandisdeterminedbythescopeforpolicychange,operationalreforms,investments,innovationsandgrowth.Changepossibilitiesoveroneperiodareillustratedbythefivearrows:
1. Thehorizontalarrowrepresentsagrowth-firststrategy,subjecttotherulethatcurrentsocialperformanceshouldnotgetanyworse.
2. Theverticalarrowrepresentsacurrent clients-firststrategy,subjecttotherulethatfinancialperformanceshouldnotgetanyworse.
3. Thearrowpointingupwardandtotherightrepresentsaninter-mediatestrategy.AssumingtheMFIissuccessfulinreachingthePPt+1
line,thenthisstrategyisoptimal;inthecaseshown,itispt+1*.
4. Thearrowmovingupandtotheleftrepresentsatrade-offstrategyofimprovedcurrentsocialperfor-manceattheexpenseoffinancialperformance.
5. Thedownwardslopingarrowalsorepresentsatrade-offstrat-egy—thistimetoenhancefinancialperformancebyreducingcurrentsocialperformance.
Inadditiontoillustratingstrategicoptions,thediagramclarifiestherealityofmissiondrift:anunplannedorhid-denchangeinpreferencesandresultingbehaviors.Missiondriftis,attheheart,aresponsetopastperformance—lessrationalthanaconsciouschangeinpreferencesbutmorethanignorantofactualperformanceoutcomes.
Asanexample,assumethatanMFItakesactionsintendedtotakeitfrompointpttopt+1*,butactu-allyendsupatpt+1#.Thisinitselfisbetterdescribedasmissionfailure
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perspectives
thanmissiondrift.FromthisnewstartingpointitisunlikelytheMFIwouldcontinuetoaimforpt+1*inthesecondperiod—pt+1*mightevenfallcompletelyoutsideanyrealisticassessmentofwhatispossible.Insuchasituation,choosinganewtargetoutcomeforthenextperiodwithoutachangeinunderlyingpref-erencesisbetterdescribedaspragma-tismthanmissiondrift.
Attheoppositeextreme,anMFIcouldredefineitspreferencesinordertoprovidearetrospectiverationalizationoftheactualperfor-manceoutcome.Inthisexample,theMFIcouldexpressastrongerpreferenceforfinancialperfor-manceoversocialperformance(i.e.,makingtheindifferencecurvessteeperuntilpt+1#becomestheopti-maltargetratherthanpt+1*).Thisisclosertotheideaofmissiondrift,butitwouldalsobeacaseofself-servingopportunismandisbetterregardedasaspecialcase.
Ageneraldefinitionofmission driftisthatthestepstakentoachieveagivenperformanceoutcomedirectlyinducechangesinpreferences.Managersusecurrentperformancetoresettheirdesiresandpreferencesforwhatispossibleinthefuture;theychangetheshapeandslopeoftheindifferencecurvestoreflectwhattheyseeasthenewreality.
Inamythicalworldofperfectinformation,thedirectorsofanMFIwouldsetperformancegoals,themanagerswouldmakedecisionstoachievethem,employeeswouldsystematicallymonitoroutcomes,andeveryonewouldlearn.Unfortunately,leadersofMFIsarehandicappedbythelackoftimelyandreliableevidenceaboutperformance.Missiondriftoccurswhentheirgoalsandpreferencesforthefuturesubcon-sciouslychangeinresponsetoactual
performanceoutcomesratherthanbeingafixedpointagainstwhichper-formancecanbeguidedandassessed.
APPL ICAT ION
Sinceanimportantkeytoavoidmis-siondriftisanaccurateassessmentofperformance,thissectionblendstheframeworkpresentedabovewithourresearchexperiencewithnonprofitMFIsthroughtheImp-Actprogram.WefollowthisdiscussionwithotherlessonswehavelearnedregardingorganizationalleadershipamongsuccessfulMFIs.
Revising Social Performance AssessmentThreebroadpointsofconsensusemergedfromourresearchastowhatanysystemofsocialperfor-manceassessmentshouldinclude.First,MFIswithanexplicitpovertymissionshouldroutinelymoni-torbreadthanddepthofoutreach.Althoughitwasnotpossibletoagreeonastandardsetofindicatorsforthis,therewasmethodologicalconvergencebetweenmanyMFIsandtheirsponsorstoadoptacom-binationofproxypovertyindicators.
Leadersinthefielduseasimplebuttransparentscorecardcalibratedagainstnationalhouseholdsurveydataandpovertyestimates.
Second,MFIsshouldroutinelymonitorclientexitandturnover.Ifclientschoosenottoleaveandarenothoodwinkedorcoercedintousingservices,thenthisisausefulindica-tionthattheimpactoftheservicesislesslikelytobenegative.Itfollowsthatoutreachdatashould,attheveryleast,besupplementedbystatisticsonexit,includingroutinereportsonwhyclientsleave—particularlythosewhoonlyrecentlyjoinedandwhoseunderstandingofthetermsofservicecouldhavebeeninadequate.
Third,MFIsshouldinvestincapacitytoassessprogresstowardsocialgoalsbygivingvoicetoloyalclientstoo,throughappropri-atemarketandimpactresearch.Questionnaire-basedsurveys,semi-structuredinterviewsofkeyinfor-mants,andfocusgroups—allwiththeprioritytotest,update,andaugmentexistingorganizationalknowledgeofclients’experiencesratherthantoproviderigorousproof
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targetedandnon-poverty-targetedservicesalongsideeachother.Thisenablesittovarythebalancebetweensocialandfinancialperformancegoalsthroughstrategicreallocationofresourcesbetweenthem.
Second,anevenmorepowerful,yetindirect,targetingmechanismisproductdesign.MostMFIsbeganbyreplicatingproductspioneeredbyothers—solidarityloansofGrameenBankorvillagebankingservicesontheFINCAmodel,forexample.However,mosthavebecomemoreflexible,havediversifiedtheirservices,andoftenhavesimplifiedproducttermsandconditions.Thesechangesexertapowerfulinfluencenotonlyonprofitabilitybutalsoonthekindsofclientsattractedandtheextenttowhichclientsbenefit.
Third,internalorganizationalchanges(e.g.,front-linestaffrecruit-ment,training,andperformanceincentivesystems)arecritical.PerformancecontractsthatseektoalignfinancialrewardsofstafftothoseoftheMFIhavebecomestandardpractice,butbettersocialperformanceassessment(particularlyofstaff-andbranch-wiseexitrates)createsopportunitiesforaligningstaffincentivestosocialgoalsaswell.Socialperformancemanagementcansignificantlyimprovestaffmotivation,retention,andproductivity.
Fourth,anMFI’sroomtomaneu-verdependsupontheiroperatingenvironment—particularlytheextentofunrealizeddemand,opportunitiesforinnovation,theextentofregula-tion,andaccesstodifferentformsoffinance.WhileindividualMFIshavelittleinfluenceoverthesechanges,therangeandqualityoftheexternalrelationshipstheyforgewithothercommercialandnon-commercialorganizationsisacriticaldeterminantoftheirsocialperformance.Inmany
ofimpact—canaccomplishsuchpurposes.
ReturningtothetheoreticalframeworksummarizedbyFigure1,thesepracticallessonsamounttodefiningtheY-axis(socialper-formance)asthenumberofactiveusersadjustedforloyaltyandclientsatisfaction(asaproxyofservicequality)andpovertystatus(withgreaterweightgiventopooreroroth-erwisedisadvantagedclients).Socialperformanceisimprovedbyserv-ingmoreclients,byservingpoorer
clients,bybroadeningtherangeofservicestheyreceive,byservingthemforlongerperiods,andbyensuringthatservicesdonoharm.WhilethisdefinitionfallswellshortofcapturingallaspectsofanMFI’ssocialmission(e.g.,community-wideimpact),itdoesprovideabaselineforassessment.
Performance Possibilities Withoutdenyingthescopeformana-gerialwizardry,themajordetermi-nantsoffinancialperformancearewellunderstood:realisticpricingofproducts(particularlyinterestrates),strongcostcontrolandproductiv-ityenhancement,riskandliquid-itymanagement,portfolioqualitycontrol,andcontinualinnovationinresponsetocustomerrequirementsandmarketconditions.ThekeyquestionconcernshowmuchscopeMFIshavetosystematicallyimprovesocialperformancewhilehandlingthesefinancialpressures.OuranalysisofMFIsparticipatingintheImp-Actprogramhighlightedfourareas.
First,targetinghasacriticalbear-ingondepthofoutreach.Servinggeographicallydefinedpoorerareasdoesnotnecessarilymeanlowerprof-itsbecausesuchareasmayhavelim-itedcompetition,butitoftenresultsinsignificantlyincreaseddepthofoutreach.SomeMFIsdirectlytargetpoorerclientsbyusingapovertymeanstestinsteadoffocusingsolelyongeography.Thisismorecontrover-sial;deliberatelyexcludingbetter-offclientscanreduceopportunitiesforcross-subsidizationandgrowthandcanweakenanMFI’scompetitiveness.Butaswithgeographicaltargeting,suchtargetingcanalsohelpanMFItodevelopitscomparativeadvantageinaspecificmarketsegment.SmallEnterpriseFoundationinSouthAfricaisaparticularlyinterestingexamplebecauseitoperatespoverty-
Imp-act stands for “Improving the Impact
of Microfinance on Poverty: an action-
research Program” and was sponsored
by the Ford Foundation. It was launched
in 2000 to explore ways of improving
the measurement and management of
poverty reduction by MFIs. twenty-two
organizations successfully bid for support
to carry out their own action-research
over a three-year period, ending in april
2004. these comprised sixteen direct
providers of microfinance services, three
NGo promoters of user-controlled savings
and credit groups, and three MFI networks.
one premise of the program was that
debate over the social performance of
MFIs was dominated by external interests
(e.g., governments, donors, and research-
ers) at the expense of MFIs themselves.
Participants were therefore given freedom
to explore ways of improving their social
performance assessment systems to meet
their own needs rather than externally-
dictated ends. For more information, see
copestake, Greeley, Johnson, Kabeer, and
Simanowitz’s book, Money with a Mission,
Volume 1: Microfinance and Poverty
Reduction, published in 2005 by ItdG
Publications. or visit www.imp-act.org.
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countriesascissors-likecombinationofincreasedcompetitionandmorestringenttermsofaidhavereducedshort-termroomformaneuvering,forcingmoreradicalcost-savinginnovations.WhileMFIscompetewitheachother,theyalsocollaborateextensivelythroughbothinformalandformalnetworks.Theyseekflex-iblefinancialandtechnicalsupportfromdonorsandgovernmentsbutarealsowaryofbeingoverlycontrolledbythem.Strongfinancialperfor-manceandagoodunderstandingofthewiderfinancialsystemhaveopenedupopportunitiesforsometomobilizeequityandfinancedebttopermitfastergrowth.
AlthoughtheveryexistenceofMFIsmaybeasymptomofthemainstreamfinancialsystem’slimitedoutreach,thequalityofanMFI’srelationshipwithitneverthelessremainscriticaltoitsperformance.Meanwhile,donorsandspecialistintermediariesprovideMFIswithfinancialandtechnicalsupportthatcanhelpsoftenthetrade-offbetweengrowthanddepthandqualityofoutreach.ThemainchallengefacingMFIsistomakegooduseofsuchsupportwithoutbecomingoverlydependentonitorallowingittounderminetheirfinancialdisciplineandautonomy.Performancepos-sibilitiesorstrategicoptionsfacedbyMFIsmayhavenarrowedsomewhatduetoincreasedcompetitionandtoughertermsofdonorfunding,buttheyremainsubstantial.
Leadership ImplicationsOurImp-Actprogramresearchrevealedthatmissionandvisionstatementscoveredallaspectsofoutreach,butthattheirsignificancedependsonhowmuchweightMFIleadersandboardsactuallyattachtothemindecisionmaking.Tension
oftenexistsbetweenboardmem-bersandseniormanagers—thosewithstrongercommercialbusinessorbankingbackgroundsandthosewithstrongersocialorvolunteeringbackgrounds,respectively.
Thephenomenonofmissiondriftisalsomanifestintheseterms.Theappointmentofthosewithmorecommercialexperienceinaquestforimprovedfinancialperformancemaybeseenbyotherboardmembersasameanstoimprovelong-termsocialperformance,butleavesopenthequestionwhethertheywillbeabletoretaincontrol.InthecaseofMFIsaimingfortransformationintocom-mercialbanks,newboardmembersalsobringfinancialresponsibilitiestocommercialinvestorsandprivatefor-profitshareholders.Thesechangescanbecomeself-reinforcingifnew-comersalsoperpetuatefurtherthesimplisticunderstandingofthenatureofpoverty(i.e.,simplyalackofaccesstocredit).IntermsofFigure1,suchdrifttakestheformofacumulativeflatteningoftheindifferencecurves.
LargerMFIshavebeenabletoavoidsuchdangerbycombiningtheacquisitionoffinancialexpertisewithsustainedinvestmentinimprovingandupdatinginternalunderstandingofthenatureofpovertyatalllevelsoftheorganization.ThiscanbeharderforsmallerMFIsforwhomthebiggerdangermaybemoremissionlock-inthandrift—beingunabletocontrolorlimittheprocessofcommercializa-
ABOUTTHEAUTHOR
James Copestake teaches development economics at the university of
Bath, uk. he has researched and written about microfinance, develop-
ment strategy, and poverty in south asia, africa, and latin america for
twenty years. he has researched and supervised doctoral students in the
fields of agrarian change, microfinance, poverty, social protection, and aid
management.
a more detailed version of this paper is published in the october edition
of the WorldDevelopment journal.
tiononceithasstarted.Leadersalsohaveavestedinterestinlackoftrans-parencyaboutsocialperformancetotheextentthatuncertaintyandambiguitygivethemmoreroomtomaneuverinthestruggletoreconcilemultipleinternalandexternalexpec-tationsanddemands.
CONCLUS ION
Mission driftcanmostpreciselybedefinedasretrospectivechangesinstatedpreferencestofitunplannedperformanceoutcomes.ThisismorelikelywhenanMFI’sgoalsetting,performanceassessment,andman-agementsystemsareweak.EvidencefromImp-ActsuggeststhatmanyMFIsdohavestrongsocialandfinancialperformancepreferences,significantroomformaneuveringtomanagethem,andscopetobetterdoso.Improvedgoalsettingandstrategicplanning,routinemonitor-ingofthepovertystatusofclientsandex-clients,acapacityforfollow-upresearchintothereasonsbehindobservedchanges,andperiodicinternalandexternalreviewsoftheseactivitiesandsystemscanallbecarriedoutmorecost-effectivelyandsystematically.Thiscanhelpacceler-atethepaceofinnovationandgrowthinamorepoverty-andgender-awaremannerandhelpreducemissiondrift.Itcanalsohelptomoderatesomeofthemoreextravagantclaimscon-cerningthepotentialofmicrofinanceasadevelopmenttool.
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perspectives