Introduction

The microfinance sector has experienced rapid growth and development in recent decades (Armendáriz and Morduch, 2010; Hermes and Lensink, 2011). As a consequence, it has evolved towards a heterogenous environment (Chikweche et al., 2022), in which a wide range of institutions with different status and objectives provide a broad spectrum of financial and non-financial services to tackle the needs of socially and financially excluded people (Marconatto et al., 2016). For this reason, financial service providers (FSP) have developed a wide range of products and services to help the poor start productive activities, promote entrepreneurship, manage unexpected events, and smooth consumption, among other crucial issues for poverty reduction. Overall, FSP seeks to foster financial, social, and environmental development in a sustainable way by providing products and services for financial inclusion (Tanin et al., 2019; Fersi and Bougelbène, 2021). This heterogeneity can create some confusion for donors, policymakers, and practitioners, as it is not always easy to identify the different types of institutions operating in the sector, their objectives and characteristics, which can complicate the design of appropriate policies and strategies (Marconatto et al., 2016).

During its inception, microfinance primarily revolved around microcredit offerings in developing nations (Morduch, 1999). Nonetheless, as the sector progressed, there was a significant expansion in product diversity and complexity to cater to the diverse array of customer profiles and their corresponding requirements. In this context, microfinance has also gained increasing significance in enhancing financial inclusion in developed countries (Song et al., 2024; García-Pérez et al., 2017). Consequently, an increasing number of institutions and programs, whether public or private, are integrating microfinance mechanisms into their social, economic, and environmental development initiatives (Ferilli et al., 2024). In this context, microfinance is used today in a multitude of areas with very different objectives, yet consistently serves as a tool to drive positive social transformation. Its utilization spans initiatives concerning gender equality (Cruz Rambaud et al., 2022; Bapolisi et al., 2024), minority integration (Cruz Rambaud et al., 2022), digitization (Johri et al., 2024), mobile banking (Osabohien et al., 2024), youth empowerment (Rokhim et al., 2023), or entrepreneurship promotion (Coronel-Pangol et al., 2023), among other related issues.

In earlier years, microfinance was deemed a socially responsible activity. However, findings that showed that some institutions were moving away from their social mission in order to meet their financial targets suggested that the so-called mission drift phenomenon posed a risk for many FSPs seeking to achieve a set of social and financial aims: the double bottom line (Lopatta et al., 2017). In parallel, the extent to which microfinance is able to foster financial inclusion and improve well-being among the poor became a central point of debate (Lebovics et al., 2016; Bédécarrats et al., 2012). This issue increased pressure for evidence-based interventions in the microfinance sector (Authors, 2020). Stakeholders then began to struggle with a crucial challenge: while evaluation methods from the traditional banking sector were useful for assessing microfinance financial performance, there was a gap regarding practical methods to evaluate social performance and, as a result, data on social outcomes was scarce or simply absent (Spaggiari, 2016). This problem led different stakeholders to collaborate on developing tailored evaluation mechanisms to appraise the effectiveness of microfinance in generating the expected social change. As a result, several evaluation techniques have been developed and refined in recent years to provide social performance assessment with a similar level of consistency and acceptance as that of financial performance (D’Espallier and Goedecke, 2019).

This is reflected in the wide range of quantitative and qualitative methodologies devised to evaluate microfinance’s social, economic, and environmental performance. This topic has rapidly gained attention in recent years (Akter et al., 2020), but the literature provides little guidance to practitioners and policymakers, especially regarding the usefulness of existing quantitative and qualitative research methods to assess different performance dimensions. This circumstance is especially relevant for those actors who do not have a deep knowledge of the sector, given that the diversity of institutions and evaluation methods sometimes also leads to the use of terms with very different meanings, which may contribute to generating even more confusion.

Against this background, this study examines the theory and practice of microfinance performance evaluation in an attempt to answer the following research questions: What are the existing approaches for the evaluation of microfinance performance? What are the differences between them? To address these questions, we have undertaken a comprehensive review of the existing approaches for the evaluation of the financial and social performance of microfinance, providing a systematic and comprehensive classification of microfinance performance evaluation methods.

The article makes several contributions to the literature on microfinance evaluation. To the best of our knowledge, this is the first article that presents all the existing methods to comprehensively and systematically evaluate microfinance’s financial, social, and environmental performance. In addition, the study includes a theoretical framework to help practitioners, policymakers, investors, and other stakeholders understand existing evaluation methods, compare them, and identify the most suitable approaches to meet their specific needs. Specifically, this framework enables the identification of the appropriate evaluation method to be employed based on the type of performance being assessed, and most importantly, how such information is to be communicated to the market.

The article continues as follows: sections “Standard-based approaches for the evaluation of financial and social performance” and “Customized approaches to evaluate financial and social performance” review the existing methods for the evaluation of microfinance financial and social performance, first the standard-based and then the customized approaches. This is followed by a presentation of a comprehensive theoretical framework to guide microfinance performance evaluation. Finally, the last section presents the main conclusions and suggests further lines of research.

Standard-based approaches for the evaluation of financial and social performance

This section focuses on the forms of evaluation that are based on the review of internal institutional characteristics. First, those that assess and certify the FSP organization and procedures, and then those that seek to prove their compliance with a set of globally accepted standards.

Microfinance assessment and certification

Microfinance assessment is an evaluation approach based on the assumption that the study of the internal organization and procedures of an FSP, cross-checked against a set of commonly accepted standards, can be used as a proxy for the institution’s social and financial performance, and therefore reliably judges its trustworthiness (Smart Campaign, 2014). Microfinance certification, a complementary stage to assessment, is designed to identify the achievement of certain levels of performance (according to the accepted standards), benchmarking results, and best practices. While this appraisal could be performed by the FSP themselves with the support of an outside expert or via third parties, certification always requires an independent evaluation from a recognized firm or institution.

There are three main sets of standards used to measure FSP performance: Universal Standards for Social and Environmental Performance Management (Universal Standards, or USPM), Client Protection Standards (CPS), and Social Outcome Indicators (SOI). The USPM is a set of widely used standards designed to help institutions put clients at the center of their activity. In its current version, it includes seven dimensions: social strategy, committed leadership, client-centered products and services, client protection, responsible human resource development, responsible growth and returns, and environmental performance management (SPTF, 2021). These standards have been promoted by the Social Performance Task Force (SPTF) (SPTF, 2016). The CPS is a subset of 7 categories from the USPM, representing the ‘minimum standards that clients should expect to receive when doing business with a financial service provider’ (Smart Campaign, 2016). For its part, the SOI consists of a list of harmonized indicators to help stakeholders foster strong outcome management in four key categories: business and entrepreneurship; economic poverty, assets, and housing; resilience and vulnerability; and health (SPTF, 2022a).

The microfinance sector is currently involved in a digitalization process that has been accelerated by the COVID-19 pandemic (Pal et al., 2022), but this process is still encountering some challenges (Chiappetta Jabbour et al., 2020). For this reason, a proposal for a draft set of Standards for Responsible Digital Financial Services (DFS) was recently published (SPTF, 2022b). It is on issues such as agent management, algorithm bias, cybersecurity, and data privacy, among other topics relevant to digital microfinance.

These services are offered by four principal firms: MicroFinanza Rating (MFR), MicroRate (MR), M-CRIL, and Inclusion [Social Ratings] (ISR). Together, they offer a diverse set of assessment, certification, and rating elements—often under different commercial names—and are explained in detail below.

Social audits

A social audit is commonly done using social audit tools (SAT) to analyze institutional performance regarding a set of uniform standards. An evaluation that uses these tools can provide comprehensive insights into the strengths and weaknesses of a Microfinance Institution (MFI), helping to improve an organization’s overall performance (Wardle, 2017). The Social Performance Indicators (SPI), the most popular SAT in the microfinance sector, was created by a working group led by CERISE. The SPI consists of a spreadsheet designed to help FSPs assess their activity and intentions in relation to the USPM and CPS. The fourth version of the SPI tool (SPI4) is available at no cost on the CERISE website, as is its online version (SPI Online). Both can be applied either by the FSP themselves in a self-assessment or in collaboration with trained and certified consultants or specialized rating agencies, as accompanying assessments (CERISE 2022b).

In addition to the SPI4, CERISE has collaborated with several stakeholders to develop several socially oriented assessment tools, such as ALigning INvestors due diligence and reporting with the Universal Standards (ALINUS), the Social Business Scorecard (SBS), SBS Light (a subset of SBS indicators), the MetODD-SDG, and the Impact-Driven Investor Assessment (IDIA). As shown in Table 1.

Table 1 CERISE social audit tools.
Full size table

Client protection

Client protection is a particularly important part of the field of social performance and, therefore, merits a detailed explanation. The Smart Campaign, an active organization in social performance from 2009 to 2020, developed the Getting Started Questionnaire (GSQ), which allowed institutions to gain recognition through the Client Protection Certification (CPC). The tools and resources of the Smart Campaign were transferred to CERISE and the SPTF (CFF, 2021), which enhanced the GSQ to create a new tool, the Client Protection Self-Assessment Tool (CP SAT), and adapted the CPC to design a new certification method, the Client Protection Pathway (CPP) (SPTF, 2022c).

The CPP is a roadmap designed to help FSP implement the Client Protection Standards, based on a three-step process. The first step (Entry) refers to the commitment to implement client protection. It involves registering on the SPTF website, which creates a public profile for each FSP that shows the corresponding level of achievement as regards client protection. The second step (Progress) focuses on assessing and improving practices. Finally, the third step (Advanced) asks for evidence of progress and achievements. These three steps correspond to three levels defined by a set of eligibility criteria for certifying different levels of achievement, which can be calculated using the Excel CP SAT spreadsheet, based on the CPS. CERISE-SPTF has approved three institutions to certify client protection: MFR, M-CRIL, and ISR. In addition to these methods, a commitment to implement client protection can also be demonstrated via the SPI4, SPI Online, or ALINUS audit tools or by using a social rating, an approach explained in the following subsection. Disclosure documents are accepted if they are less than three years old, while certifications are valid for up to four years (SPTF, 2022c).

Poverty scorecards

Poverty reduction is one of the main goals for financial service providers seeking to increase financial inclusion. The most reliable sources of poverty information are government-run large-scale representative household surveys (Berhane and Gardebroek, 2011), but these datasets, when available, are not always useful for estimating the poverty rates of directly targeted populations, apart from some other practical limitations (Christiaensen et al., 2011).

One popular instrument to overcome these problems is the Poverty Scorecards (PS), a simple and concise tool that, once calibrated for a certain country or region, can provide a quick proxy indicator of poverty based on a few quick answers from an individual or household. PS surveys can be designed to systematically assess microfinance performance by measuring poverty levels among the FSP’s clients. Examples of popular PS include the Poverty Probability Index (PPI) (IPA, 2022), the Simple Poverty Scorecard (SPS) (Schreiner, 2014), and the Multidimensional Poverty Assessment Tool (MPAT) (IFAD, 2014).

Loan portfolio audits

Loan portfolio audits are an evaluation method that exposes the risks inherent in a FSP’s loan portfolio, and design procedures to manage them. This evaluation approach, offered by MFR, M-CRIL, and MR, assesses compliance with national regulation and international standards, proves operational and credit quality accuracy, demonstrates consistency with internal practices and policies, and enhances portfolio administration systems (Microfinanza Rating, 2022d). Its final and overall goal is to identify possible underestimates in the figures for the portfolio at risk reported by an FSP (MicroRate, 2022c).

Truelift pro-poor seal of excellence

The Truelift Pro-Poor Seal of Excellence is a certification approach based on three principles: (1) purposeful outreach to people living in conditions of poverty; (2) services designed to meet the needs of people living in conditions of poverty; and (3) tracking the progress of people living in conditions of poverty. In turn, each of these principles is divided into four categories: (a) intent and strategy; (b) measurement, data quality, and analysis; (c) results achieved; and (d) use of findings. Assessing the degree to which these principles are implemented makes it possible to identify and recognize different levels of performance or milestones: Starting Commitment, Aspirant, Emerging Practitioner, Achiever, and Leader. Only those MFIs that satisfy all 30 indicators are eligible for the Truelift Certificate (Smart Campaign, 2016). These indicators have been included in the SPI4, and currently only MFR and M-CRIL grant specific Truelift certifications (Truelift, 2022).

Code of conduct

A commitment to implementing best practices in an organization can be also demonstrated by a Code of Conduct (CoC) assessment (SPTF, 2022c). Though it may have different structures, a CoC is a process that consists of three general stages: development, implementation, and compliance. It must be structured around clearly defined topics and developed through a consultative process in which all relevant stakeholders participate (SEEP Network and MasterCard Foundation 2015). Therefore, the scope of application and recognition of the CoC is diverse. One particular case is the specific CoC designed to assess the performance of FSP in the European Union: the European Code of Good Conduct for Microcredit Provision (ECGCMP). The ECGCMP is based on a set of standards corresponding to management, governance, risk management, reporting, and consumer and investor relations (European Commission, 2021). MFR certifies the ECGCMP in the European Union, while M-CRIL has been recognized by the Small Industries Development Bank of India (SIDBI) to perform Code of Conduct assessments of FSP in India.

Outcomes management

Outcomes Management is a multi-step institutional procedure of collection, analysis, and use of outcome information, based on a feedback loop to help stakeholders enhance social change. It consists of 10 essential steps divided into four stages: Stage 1 (Planning) includes (1) defining social change goals; (2) selecting indicators to capture social change; (3) selecting the evaluation method to measure social change; and (4) taking budget and human resource decisions to make the evaluation. Stage 2 (Data Collection) includes (5) putting systems in place to collect and capture data; and (6) putting systems in place to check data quality. Stage 3 (Analysis and Reporting of Findings) includes (7) data analysis; and (8) reporting and disseminating the results. Finally, stage 4 (Action) concentrates on (9) using outcomes data; and (10) reviewing the process (Sinha, 2017b).

Additional assessment and certification services

In addition to the services described above, some firms offer additional services designed to meet the specific needs of some stakeholders. MFR and M-CRIL provide evaluation products designed to assess digital services, such as the GSMA Mobile Money Certification (GMMC) in the case of the former and several products for digital credit providers in the case of the latter. MFR, M-CRIL, and ISR also offer due diligence services and country studies, which can be tailored to meet the FSP’s needs.

Microfinance rating

The goal of microfinance rating is to evaluate performance by determining whether the MFI meets certain established standards included in a rating scale, providing information about the achieved performance level using a specific grade (The Rating Initiative, 2012). MFR, MR, M-CRIL, and ISR offer rating products, in addition to the assessment and certification services described above.

Institutional rating

Microfinance institutional rating is an assessment method that provides an outside evaluation of the long-term institutional viability and creditworthiness of an FSP. It relies on a comprehensive analysis of a set of key categories related to internal processes, risk management, and performance. MFR, MR, and M-CRIL offer an ‘institutional rating’, while ISR offers a ‘financial sustainability rating’ with a focus on financial performance. MR and M-CRIL also provide a rating outlook, which shows the expected evolution of the rating in the upcoming months. As shown in Table 2.

Table 2 Institutional rating scales.
Full size table

Social rating

The social rating evaluates the degree of success of MFIs in translating their social missions into practice, focusing on up to six crucial areas for social performance: country context, social performance management, social responsibility and client protection, depth of outreach, quality of services, and outcomes. Its aim is to provide useful information to help stakeholders comprehend policies and practices implemented by MFIs, hence identifying possibilities for improvement and the further enhancement of social performance (Clark and Sinha, 2013). All four evaluation firms offer specific products to assess this dimension of microfinance performance. As shown in Table 3.

Table 3 Social rating scales.
Full size table

Credit rating

Credit rating provides an external judgment on the FSP’s ability to manage credit risks and on its short-term creditworthiness. As a credit rating is required for a supervised (or ‘licensed’) FSP to be allowed to receive deposits from the public, rating firms need recognition by national supervisory authorities to offer this service in any given country. Only two microfinance evaluation firms offer credit ratings: MicroFinanza Rating, recognized by the Superintendence of Banks and the Superintendence of Solidarity-Based Economy in Ecuador, as well as the Supervisory Authority of the Financial System in Bolivia, and MicroRate, recognized by the Superintendence of Banking and Insurance in Peru. As shown in Table 4.

Table 4 Credit rating scales.
Full size table

Microfinance investment vehicles rating

Many FSPs depend on other sources for funding, e.g., borrowing from pooled investment parties that take the form of Microfinance Investment Vehicles (MIV), which include a wide range of investment instruments. They connect the goals of impact investors with FSP funding needs (Dorfleitner et al., 2017). To assess their ability to fulfill the needs of both investors and FSP, a MIV rating evaluates the MIV’s capacity to manage impact funds, their performance, and the generated social value, providing reliable information related to the MIV’s risk and social and financial performance (Microfinanza Rating, 2022e). This kind of rating follows the MIV disclosure guidelines approved by the Consultative Group to Assist the Poor (CGAP) (CGAP, 2010) and the Principles for Responsible Investment (PRI) (PRI, 2019). MFR and M-CRIL offer MIV ratings, but only MFR provides a detailed and updated disclosure of its evaluation methodology. As shown in Table 5.

Table 5 MFR’s MIV rating scale.
Full size table

Additional rating services

In addition to the four key rating services explained above, some rating agencies offer specific products or services designed to meet the needs of particular stakeholders. MFR provides the Islamic Finance Rating and the Social Performance Roadmap. MFR also offers an Institutional Diagnostic. ISR also offers a specific social enterprise rating and a product with an environmental focus (ESG Rating), while M-CRIL provides corporate social responsibility support. M-CRIL also offers several quantitative, qualitative, and mixed-method services for market research and impact evaluation. Finally, MFR, M-CRIL, and ISR present several institutional diagnostic services, as well as tailored training and capacity-building products. Table 6 summarizes compliance-based approaches.

Table 6 Compliance-based approaches offered by MicroFinanza, MicroRate, M-CRIL, and inclusion.
Full size table

As regards the relevance of each evaluation method, only Microfinanza, MicroRate, and ISR present a complete list of the evaluations undertaken to date on their websites. As shown in Fig. 1, the most popular evaluation is institutional rating (602 evaluations), followed by social rating (480), client protection (186), credit rating (141), and institutional diagnostic (112). Regarding the number of evaluations undertaken by each rating company, Microfinanza Rating has performed 1205 evaluations, followed by MicroRate (442), and ISR (45).

Fig. 1
figure 1

Relevance of the different standard-based evaluations.

Full size image

Customized approaches to evaluate financial and social performance

Case studies and process evaluation

Microfinance evaluation research is dominated by quantitative studies, which either focus on measuring changes experienced by the beneficiaries of microfinance or by assessing FSP performance. However, microfinance services are not provided in a vacuum, and it is crucial to analyze the context in which microfinance institutions operate to fully comprehend the potential social, economic, and environmental effects. In contrast, qualitative research can be used to complement or replace quantitative methodologies, with the overall purpose of providing information regarding the historical, cultural, social, political, and religious context, as well as contributing to understanding how staff-client relationships evolve and determine microfinance performance (Shahjahan Chowdhury et al., 2020). Qualitative research relies on case studies and ethnographic fieldwork methodologies, applying interviews, observation, and focus group discussions to assess grounded theory and perform thematic analyses of specific contexts where the outcomes of the intervention may not be clear or precise or are simply difficult to measure from a quantitative perspective (Yin, 2012). Process evaluation can be understood in many different ways by diverse stakeholders, but the core of this complementary approach is that it helps researchers, managers, and practitioners understand the positive, negative, significant, insignificant, or unexpected results of an intervention (Dixon and Bamberger, 2022).

Qualitative impact protocol (QuIP)

It is an evaluation method to appraise causal devices and infer causality links in program evaluations based on contribution analysis. The QuIP collects evidence of a project’s results and effects through narrative causal statements gathered directly from intended project beneficiaries. In this context, beneficiaries reflect on the main changes in their lives and are encouraged to reveal what they recognize to be the primary drivers of these developments, and to whom or what they attribute them (Copestake et al., 2019). However, since a control group is not used to check the attribution of change, it is questionable whether this method can truly be considered as belonging to the impact evaluation category.

Financial diaries

One of the most important challenges faced by the poorest households results from their low level of income, combined with uncertainty about when such income can be expected, including a lack of ability or skills to budget or manage money. Financial Diaries consists of a series of monthly interviews for some period, usually a year, to help households understand how they use money and find ways to improve their budget (Collins et al., 2009). Applications of this methodology suggest that the poor may benefit from initiatives and public policies to address their income uncertainty, hence increasing their economic stability (Biosca et al., 2020; McHugh et al., 2019).

Efficiency studies

The evolution of the microfinance industry has helped advance management practices. In recent times, many FSPs have transformed towards improved commercialization, seeking to reduce their dependency on external subsidies and aiming to achieve financial self-sufficiency (D’Espallier et al., 2017). Studies on the efficiency of microfinance are increasingly crucial, in that they provide information about the use of resources to enhance the overall mission of microfinance. This type of research is largely supported by two main estimation methodologies: Stochastic Frontier Approach, a parametric technique to estimate efficiency boundaries applying econometric inference, and Data Envelopment Analysis, a nonparametric method to construct efficiency frontiers applying mathematical optimization (Fall et al., 2018).

Impact evaluation: quasi-experimental and experimental methods

Despite the potential benefits of microfinance to expand financial inclusion and help the poor (Morduch, 1999; Karlan and Appel, 2012), some programs, products, or services that might seem promising may not actually generate the expected results effectively (Karlan and Appel, 2016; Roodman, 2011). Therefore, it is crucial to understand whether and how microfinance fulfills expectations in order to accurately identify the mechanisms by which beneficiaries respond to intervention (Banerjee and Duflo, 2012). In this regard, impact evaluation aims to identify and quantify the extent to which changes in client well-being are attributable to a specific microfinance program, product, or service.

Two major research methods address this issue: experimental and quasi-experimental. In experimental settings, program allocation is based on a random distribution of potential beneficiaries who are divided into a treatment group (who experience the intervention) and a control group (who are not affected by the intervention and form the counterfactual) (Glennerster and Takavarasha, 2013). This type of evaluation has become very popular in the field of Development Economics, and microfinance. The Jameel Abdul Latif-Poverty Action Lab (J-PAL), Innovations for Poverty Action (IPA), and the International Initiative or Impact Evaluation (3ie) are all examples of actors using this methodology. MFR has developed an impact assessment methodology to apply a similar framework (Microfinanza Rating, 2022b).

Nevertheless, it may not be always possible or desirable to use it for different technical, economic, ethical, and political reasons (Bédécarrats et al., 2019). When the valuation setting is not purely experimental, some quasi-experimental techniques have been applied to try to mimic randomization effects, including matching methods, regression discontinuity analysis, instrumental variables, control function methods, and quantile regressions (Glewwe and Todd, 2022).

Microfinance performance evaluation and the theory of change

Having examined the existing methods for the evaluation of microfinance, the next step involves identifying the usefulness and applicability of each approach to meet different stakeholders’ needs and objectives. To achieve this, we applied a two-pronged framework defined by the theory of change (TOC) and the nature of the framework of reference used to analyze the success of the intervention (Authors, 2021). A TOC describes the causal process that leads from intentions to an ultimate objective and can be expressed both graphically and as a narrative. It is structured into five stages that describe a causal process to generate a positive social, economic, or environmental change, which in the case of the microfinance sector, are as follows:

  1. i.

    Inputs include both intent (the specific goals that FSP wants to achieve, including their social mission) and design (internal organization, structure, and practices).

  2. ii.

    Activities refer to how products and services will be managed to meet clients’ needs.

  3. iii.

    Outputs represent the direct results or expected consequences of activities.

  4. iv.

    Outcomes indicate unexpected or uncontrolled changes that are plausibly associated with microfinance.

  5. v.

    Finally, impact shows changes in well-being that can be attributed to microfinance, all other things excluded.

Although it may not always be explicit in all interventions it is possible to identify an underlying theory of change in every scenario (Jackson, 2013). Since the TOC symbolizes the coherent structure of the chronological steps necessary to achieve an expected change, it also represents a hierarchy of results: the first three steps represent measures of implementation, outcomes signal changes that go beyond outputs and finally, impact refers to effects that are a direct consequence of microfinance (Sinha, 2017a).

As explained in the previous section, the framework of reference used to make microfinance performance evaluations can be based either on commonly agreed standards (USPM, CPS, SOI, etc.) or on customized research settings, and evaluation approaches can be classified as standard-based or customized. Figure 2 shows a map of the existing practical methods for the evaluation of microfinance performance within the theoretical framework. The commercial names of the evaluation tools and examples of institutions and firms that do these evaluations are in parentheses. Names of institutions and firms are in italics.

Fig. 2
figure 2

Practical methods for the evaluation of microfinance performance.

Full size image

The framework of reference also provides non-exhaustive information for three important variables to be considered when selecting an evaluation strategy: cost, time, and the potential to generalize the results. Standard-based methods, in general, are more accessible in terms of implementation costs and duration, especially if they are applied by FSP themselves, possibly with the support of an expert, instead of by a third party. Moreover, since these methods rely on commonly agreed indicators, the results of the evaluations permit comparisons between institutions and benchmarking. In contrast, non-standard-based methods usually require a longer period for full implementation, mainly because of the need to assess changes at different points in time. There can also be important differences regarding implementation costs, depending on the number of clients or beneficiaries participating in the study, the size of the research team, the nature of the product or service subject to evaluation, and the time required to properly assess the performance of the intervention. Significantly, although non-standard-based methods are useful to evaluate specific contexts or projects, their outcomes can be hard to generalize, making it difficult to extrapolate the results to different settings.

Conclusion

In light of the heterogeneity and rapid evolution of the microfinance industry, it can be challenging for stakeholders to identify existing methods to assess microfinance performance, comprehend its characteristics, and decide what method is most suitable to help them achieve their financial and social objectives. In contrast, the theoretical framework presented in this study explains how each method addresses the different steps in the microfinance theory of change, making it possible to compare the different techniques and help stakeholders identify and decide what method best fits their needs. At the same time, it provides an estimation of the differences between methods in terms of implementation costs and time and the possibility of generalizing the results.

This article presents the first attempt to map practical methods for the evaluation of microfinance performance. To that end, the theoretical framework presents a comprehensive approach that can include all products and services, with the caveat that it was impossible to analyze the different categories and their corresponding methods in depth within the confines of this study. Neither has there been room to provide a detailed analysis of the differences between the various methods in each of the categories, which makes it difficult to offer a critical view of the techniques. Another limitation lies in the inability to accurately determine the precise cost of different methods and the time required for their implementation. This analysis would require a much more detailed assessment of each evaluation method, which would cause the article’s length to increase excessively. At the same time, information about the cost of each method is not available, making it impossible to accurately determine the cost of implementing the different techniques. Undoubtedly, these are two fundamental variables that can guide decision-making on which method to choose, depending on the needs of each actor and the available budget.

Our study adds to the body of knowledge on microfinance performance evaluation, helping to clarify the fuzzy thinking and complexity that can characterize the microfinance sector and existing evaluation methods. Further research in this area would benefit from richer data on the use of evaluation methods, especially if information regarding the results of the assessments and their implications is made available. In this regard, further evidence on the outcomes of microfinance can help analyze the relationship between the use of different evaluation methods and the positive or negative effects of various programs, products, and services. In this sense, being able to more precisely understand each evaluation method’s capacity to contribute to achieving the results expected by organizations would be highly useful in assisting different institutions in making decisions about the most suitable method for their needs. At the same time, the dynamism of the sector continues to increase the number of products and services, especially in the field of digitization. Undoubtedly, it is possible that new performance evaluation methods may emerge in the coming years, so it would be interesting to study their compatibility with the model presented in this article.