It is a given that the success or failure of a business revolves to some extent around its capture and use of valuable, actionable data. Business intelligence is a data analysis process that aims to provide the necessary information for business owners to use to make informed, profit-driving decisions.
Microfinance institutions (MFIs), however, need to measure success in a somewhat different way than does a typical business. Why is this the case? Simply put, MFIs have a different focus than do other businesses. There are two primary objectives of MFIs. First and foremost, microfinance’s intended purpose is to finance poor communities to help them sustain living, build better houses, acquire basic education and fight against poverty. The second objective is the efficient use of funds and the financial sustainability of the microfinance institution itself.
Therefore, business intelligence for microfinance must include a way to measure both economic and social impact. Because in real-world situations, sometimes these two objectives clash, MFIs may be put in the position of having to make certain trade-offs to accomplish their larger goals. It is in these decisions made on a continual basis that adequate business intelligence measures pay off for both MFIs and the clients they serve.
Studies have shown that there is a positive correlation between overall financial performance with non-financial performance and overall performance for MFIs. In other words, it is likely that an MFI that performs well financially will also perform well in terms of social impact on its client communities. This is understandable, as MFIs which do not perform well financially simply cannot sustain their operations for the time required to make a true impact on the communities they serve.
There are five key categories used to measure the overall performance of an MFI:
Just as every business must measure economic success, MFIs must capture traditional financial data to see the overall big picture of their financial position. An example of this type of data may be something as simple as the number of loans outstanding or the economic sustainability of the overall loan portfolio.
Metrics captured in the customer category seek to shed light on how the MFI interfaces with its customers. Figures such as total loans to date, or number of active customers would fall into this category.
3. Internal business processes
This category addresses internal operations and the day-to-day details of the MFI across all branches and levels. Data collected in this category gives a more precise picture of how business processes work to achieve strategic goals. Examples of metrics to measure might be something like the ratio of customers per loan adviser or the operational cost per customer.
4. Learning and growth
Metrics in this category measure the improvement, sustainability, and adaptation within an MFI. Information about new markets, growth in existing markets, and new products to meet the needs of the client base would be included in this set of metrics.
5. Social impact
Perhaps the most important information of all to achieve the main objective of MFIs is measurement of the social impact of the efforts of the MFI within its target client base. Capturing information about the lives of clients and how the products and programs offered by the MFI are impacting those lives is key. To that end, business intelligence tools which contain a component to score the poverty level of clients and track that level over time provide insight into the impact of social initiatives implemented by MFIs.
Armed with metrics in these five categories, an MFI can capture the data necessary to align business processes and product offerings to most effectively meet strategic objectives financially and socially. And that can only be a good thing.