Responsible Inclusive Finance
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Responsible Inclusive Finance 17th Microcredit Summit 2014 Summit
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Responsible Inclusive Finance
- 1. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE From Intent to Action: Resources to Pursue Responsible Inclusive Finance
- 2. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Quiz: True or False?
- 3. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE True or False? The Universal Standards for Social Performance Management (USSPM) do not include the Client Protection Principles.
- 4. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE True or False? MFTransparency’s tool draws a line where interest rates should be.
- 5. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE True or False? Joining the Truelift Community of Practice signifies commitment to positive and enduring change for people living in poverty.
- 6. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE * Producing a common data collection tool and data exchange platform to streamline data reporting for MFIs * Conducting industry mapping of TA providers and training resources to identify gaps in technical assistance for MFIs * Working with funders to support responsible inclusive finance infrastructure * Conducting joint workshops and trainings on responsible inclusive finance for multiple stakeholder audiences Responsible Inclusive Finance Working Group Collaborating to streamline efforts, avoid duplication and reduce confusion of the various resources and tools related to responsible inclusive finance.
- 7. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance is the provision of financial services in a way that targets excluded people, protects the interests of clients, and protects the mission and sustainability of the institution. Responsible Inclusive Finance
- 8. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance CLIENT PROTECTION SOCIAL PERFORMANCE MANAGEMENT • Helps prevent clients from harm • Assures transparent, respectful, and prudent financial services to all clients • Ensures institutional focus on client well-being • Measures progress against social goals • Balances financial and social objectives • Includes client protection Applicable to institutions with a double-bottom line Applicable to all financial institutions
- 9. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance CLIENT PROTECTION SOCIAL PERFORMANCE Social Performance Task Force Truelift Smart Campaign MFTransparency
- 10. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance CLIENT PROTECTION SOCIAL PERFORMANCE Social Performance Task Force Truelift Smart Campaign MFTransparency MISSION: To embed a set of client protection principles deep within the fabric of the microfinance industry RELATION TO RIF: Provides access to resources and tools to improve client protection FIRST STEP: Review the Client Protection Principles and complete a self- assessment
- 11. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance CLIENT PROTECTION SOCIAL PERFORMANCE Social Performance Task Force Truelift Smart Campaign MFTransparency MISSION: To address the lack of transparency in MF product pricing RELATION TO RIF: Improving product pricing transparency will boost client protection FIRST STEP: Use MFTransparency’s Calculating Transparent Pricing Tool to evaluate true prices of products
- 12. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance CLIENT PROTECTION SOCIAL PERFORMANCE Social Performance Task Force Truelift Smart Campaign MFTransparency MISSION: To engage with MF actors to develop and disseminate practices for social performance management RELATION TO RIF: Created the Universal Standards for Social Performance Management, which provides a framework for social performance management FIRST STEP: Analyze current practices against the Universal Standards for Social Performance Management
- 13. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Responsible Inclusive Finance CLIENT PROTECTION SOCIAL PERFORMANCE Social Performance Task Force Truelift Smart Campaign MFTransparency MISSION: To renew focus on the pro-poor objective of MF RELATION TO RIF: Provides roadmap through Universal Standards for Social Performance Management for MFIs focused on reducing poverty or that have poor clients FIRST STEP: Sign up, join the community of practice, complete a self-assessment
- 14. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Learn Assess Plan Implement Demonstrate RIF Pathway: From Intent to Action SOCIAL PERFORMANCE CLIENT PROTECTION POVERTY FOCUS
- 15. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE True or False? The Universal Standards for Social Performance Management (USSPM) are standards for social outcomes all financial institutions should achieve.
- 16. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Learn Assess Plan Implement Demonstrate SOCIAL PERFORMANCE • Universal Standards for Social Performance Management • Principles for Investors in Inclusive Finance CLIENT PROTECTION POVERTY FOCUS • Smart Campaign Client Protection Principles • MFTransparency 10 Steps for Pricing Transparency • Truelift Pro-Poor Principles • Progress out of Poverty Index (PPI) RIF: From Intent to Action Who should be involved? Board members, management, field officers
- 17. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Learn Assess Plan Implement Demonstrate RIF: From Intent to Action SOCIAL PERFORMANCE CLIENT PROTECTION POVERTY FOCUS • SPI-4 Audit Tool • MIX Market regional reports, cross-market analysis and social performance analysis • Smart Getting Started Questionnaire • Smart Assessments • MFT Calculating Transparent Pricing Tool v2.2 • Truelift Self-Assessment • PPI Standards of Use Assess Who should be involved? Board members, management
- 18. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Learn Assess Plan Implement Demonstrate RIF: From Intent to Action • Develop an action plan – create priorities This includes: • Defining mission, target clients and social goals • Incorporating plan into board agenda • Incorporating SPM plan into overall business plan • Collaborate with regional and national networks for training and peer-learning • Connect with technical assistance providers ALL TRACKS Plan Who should be involved? Board members, management
- 19. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Learn Assess Plan Implement Demonstrate RIF: From Intent to Action SOCIAL PERFORMANCE CLIENT PROTECTION POVERTY FOCUS • Universal Standards Implementation Series • SPTF Resource Center – case studies, templates • Report data to MIX • Smart tools • Report pricing through MFT Data Collection Tool • Truelift Community of Practice • PPI Resources and Case Studies Implement Who should be involved? Board members, management, field officers
- 20. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE True or False? Every financial institution should be certified in client protection.
- 21. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE True or False? PPI users may change or replace an indicator on the scorecard to make the survey more relevant and accurate for a particular geographical region.
- 22. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Learn Assess Plan Implement Demonstrate RIF: From Intent to Action SOCIAL PERFORMANCE CLIENT PROTECTION POVERTY FOCUS • Social ratings • Microfinance Institutional Rating • MIX Star MFI Recognition • Smart Campaign Client Protection Certification • Smart Assessment • MFTransparency Seal of Transparency • Truelift Milestones (Aspirant, Emerging, Achiever, Leader) • PPI Certification Demonstrate Who should be involved? Board members, management
- 23. #17MCSum mit 17TH MICROCREDIT SUMMIT GENERATION NEXT: INNOVATIONS IN MICROFINANCE Q&A
Editor's Notes
- Over the last few years, the financial crisis and harmful practices by some financial institutions have led to important initiatives that have emerged to help the microfinance sector focus more on the client. As you know, over the years, as interest in and commitment to SPM has grown, the number of initiatives has grown. However, this has created some confusion. The different major initiatives have always communicated with and supported each other, but it has become clear that we need an even stronger strategy for alignment in order to reduce that confusion, make sure we avoid duplication of efforts, and facilitate the sharing of information in the most effective way.
- FALSE About one third of the Universal Standards for Social Performance Management are taken directly from the Client Protection Principles. This is just one example of initiatives aiming to streamline and coordinate efforts in responsible inclusive finance.
- FALSE. MFTransparency reveals the true prices of loan products, creating transparency for customers and practitioners. It does not indicate where interest rates should be. MFT presents information on products and their prices in a clear and consistent fashion, so that all microfinance stakeholders can work with full understanding of the true prices paid by clients.
- TRUE. Truelift aims to renew focus on the pro-poor objective of microfinance, and to improve practice through a community of learning and sharing. For organizations that have a poverty-focused social mission – such as those with poor clients or focused on reducing poverty – Truelift provides a roadmap to navigate through the responsible inclusive finance initiatives. The Community of Practice is a place for all those who demonstrate serious intent to reach and help the poor to learn and grow together by sharing good practices, effective tools and resources in an effort to manifest our vision for the future of pro-poor microfinance.
- This year, we have made great strides toward such coordination. The seven responsible inclusive finance initiatives (CERISE, MFT, MIX, PIIF, Smart Campaign, SPTF, and Truelift) created the “Responsible Inclusive Finance Working Group.” This group convenes the leaders from each of these initiatives to explore how best to advance responsible finance practices within the microfinance sector. We’ve held five meetings so far in 2013, and have made solid progress on our objectives during these discussions. All of these initiatives are interested in having a return back to client-centric practice. In the absence of being regulated, these initiatives are being proactive about responsible inclusive finance. During this presentation, we hope to clarify what it means to improve practice in responsible inclusive finance and how MFIs can achieve that.
- To start, let’s clearly define what we mean by responsible inclusive finance.
- Responsible Inclusive Finance focuses on improving two broad areas: social performance management and client protection. Client protection ensures that MFIs are protecting clients from harm through practices such as transparent pricing. Social performance management makes an organization’s social mission a reality. Every financial institution should engage in client protection, no matter if they have a double-bottom line. If an MFI is a double-bottom line institution, it should work on social performance management, which encompasses client protection.
- We understood there was a lot of confusion in the market about all the different terms and resources that are out there regarding responsible inclusive finance. While practitioners have expressed interest in improving practice related to responsible inclusive finance, many of them have expressed confusion at how to do that. We wanted to use this time to help clear up some of that confusion. We are approaching this this presentation from the perspective of a financial institution. If a financial institution is interested in responsible inclusive finance, what are the initiatives that are available to learn more? Again, when you hear responsible inclusive finance, it focuses on improving two broad areas: social performance management and client protection. The first half of that -- client protection -- applies to ALL financial institutions and helps ensure that no harm comes to clients. Within this category, there are two main initiatives for financial institutions: Smart Campaign and MFTransparency. The other half of responsible inclusive finance – social performance management – applies to those institutions with a double-bottom line, and it helps make their social mission a reality. The two main initiatives under this side are the Social Performance Task Force and Truelift. All of these initiatives develop norms and standards around social performance and client protection. Later, we’ll be talking about tools and other resources that complement these initiatives .
- Now, we’ll tell you a quick three things to know for each of these four initiatives, focusing on its mission, relation to responsible inclusive finance and the first step MFIs can take to become involved with them. SMART CAMPAIGN MAIN MISSION: To embed a set of client protection principles deep within the fabric of the microfinance industry. Client protection must be a focus for all MFIs. There’s a thinking that MFIs are much further ahead than they actually are in client protection, which is something that has come up in most of our work in assessments that we do. RELATION TO SP: Protecting clients is a pillar of social performance. HOW TO GET INVOLVED: Educate yourself on the framework through the website, through workshops and through webinars. The website is meant to be the main way of communicating with our various audiences. Next, complete the self-assessment.
- MFTRANSPARENCY MAIN MISSION: MFTransparency was founded to promote the welfare of microentrepreneurs as a poverty alleviation practice through addressing the lack of transparency of microfinance product pricing. RELATION TO SP: MFIs can improve social performance through MF product pricing transparency. By becoming more transparent in your prices, you’re really conforming to client protection principles and to the social performance framework. It’s one of the crucial pieces to client protection. And, it’s an activity that will probably become mandatory in the future. So by providing it voluntarily now, you can show that you’re putting themselves ahead of others when it comes to social performance and client protection. HOW TO GET INVOLVED: Visit the website and check to see if MFT is present in the country. Even if MFT is not present, you can complete a self-assessment with the calculator. MFIs also should educate themselves with the Truth-in-Lending Table – trend data that can show MFIs where they stand compared to countries in their region.
- SOCIAL PERFORMANCE TASK FORCE MISSION: The goal of the Social Performance Task Force is to engage with various stakeholders in microfinance -- such as MFIs, investors, raters and networks – to develop and disseminate practices for social performance management. RELATION TO SP: SPTF created the Universal Standards for Social Performance Management, which is a comprehensive manual of good practices to help clarify and standardize social performance. It was written by and for people in the field. These standards can help institutions identify their strengths and weaknesses and this analysis can help investors and institutions to determine what areas to prioritize over the course of their investment. You can reinforce in your interactions with institutions that these practices make good business sense. FIRST STEP: Institutions should analyze their current practices against the Universal Standards for Social Performance Management.
- TRUELIFT MAIN MISSION: Truelift aims to renew focus on the pro-poor objective of microfinance, and to improve practice through a community of learning and sharing. RELATION TO SP: Truelift is building a roadmap for a particular application of social performance. For those that are focused on poverty social mission – such as those with poor clients or focused on reducing poverty – Truelift provides a roadmap to navigate through the initiatives. HOW TO GET INVOLVED: Sign up and join the community of practice, and then complete the self-assessment to see how we think about pro-poor microfinance.
- As we mentioned earlier, the goal of the Responsible Inclusive Finance Working Group is to provide clarity to MFIs on how to improve practice in responsible Inclusive finance. So, we will take the view of an MFI for this presentation. If you’re an MFI, what are the resources available to you, and how can you go from Intending to improve responsible inclusive practice to actually doing so? First, it is important to note that there are several lenses through which to approach this. The Client Protection track ensures no harm comes to clients. This track applies to all financial institutions and includes pricing transparency. Organizations should choose the social performance track if they want to improve their overall social performance. This includes institutions with a double-bottom line. Following this track will also include client protection and pricing transparency. For organizations that have a social mission focused on poverty or have many clients living in poverty, there are resources that apply a poverty lens to the client protection track or the social performance track.
- FALSE The Universal Standards are a set of management standards that apply to all institutions pursuing a double bottom line. These are standards for how an institution manages its social performance, not standards for the performance outcomes the institution should achieve. The Standards specify how an institution should act on their stated social goals, but not what those social goals. What these Standards do specify about social goals is that: (i) Goals should be clearly defined and have measureable targets; (ii) MFIs should monitor their progress toward their social goals and use this information to improve their operations; and (iii) Employees, managers, and the Board should be accountable for achieving the institution’s goals. This is based on the assumption that improved clarity, transparency and accountability on performance helps to improve it, just as we argued years ago for more transparency on financial performance. NO, Standards do not apply to all financial institutions irrespective of their mission but especially to those that have a double-bottom line. Client protection applies to all financial institutions. We are defining a double bottom line institution as one which: (i) Seeks not only financial sustainability, but also to achieve one or more social goals. (ii) A double bottom line institution works toward increasing financial inclusion and creating benefits for clients, beginning with reducing client vulnerability. (iii) And finally a DBL institution ensures that clients are not harmed. In other words, they protect clients. A double bottom line institution seeks to achieve one or more social goals, but the Standards do not dictate which social goals and institution should have. While we expect all financial institutions - including those that have a single bottom line and especially those that serve low income clients - to meet certain minimum standards on client protection, double bottom line providers are expected to go beyond that.
- As you start to approach responsible inclusive finance, it is important to take time to learn about various initiatives and issues. This is the time to understand your mission as an MFI and to determine what is right for you. These are resources to help you do that. Please note that, on your handout, there are links to help you access all of these resources. On the client protection track, the Client Protection Principles are the minimum standards that clients should expect to receive when doing business with a microfinance institution. They include appropriate product design and delivery, prevention of over-indebtedness, transparency and responsible pricing. Given that responsible pricing and transparency are core principles of client protection, financial institutions can also use MFTransparency’s 10 Steps for Pricing Transparency to get started in understanding transparent pricing. The Universal Standards for Social Performance Management bring together good practices throughout the industry into one comprehensive manual, helping to clarify and standardize social performance management. The Universal Standards are a resource for financial service providers seeking to achieve social goals. They do not dictate what an institution’s goals should be, but help identify the best way to achieve them. Many financial service providers are already putting these standards into practice, which shows that the standards are realistic, practical and came from practitioners. In the learning process, it it also important to learn what investors are looking at in terms of social performance. By signing the Principles for Investors in Inclusive Finance, investors commit to several measures, including expanding the range of financial services available to low-income people, integrating client protection into all their policies and practices and treating their investees fairly. For a poverty focus, the Truelift learning guide allows financial institutions with a poverty focus or with poor clients to learn more about the Pro-Poor Principles, which include purposeful outreach to people living in conditions of poverty, services that meet the needs of poor clients and tracking progress of poor clients. AFinally, the Progress out of Poverty Index helps an organization measure clients’ poverty by answering having them answer 10 questions about a household’s characteristics and asset ownership. By collecting such data, organizations can better identify clients who are most likely to be poor or vulnerable to poverty and can integrate that data into their strategy.
- Next, it is important to assess where your strengths and weaknesses are in the areas you are trying to improve. Several tools are available, for both third-party assessment or self-assessment. The Smart Getting Started Questionnaire helps microfinance institutions begin to investigate their client protection practices within their organizations. The questionnaire provides a framework for evaluating a microfinance institution’s practices principle by principle, focusing on the indicators that are most important for determining how effective the organization’s systems are for embodying the principles. Similarly, the MFT pricing tools helps MFIs assess their true interest rate prices. The SPI-4 tool is the main assessment tool for social performance. SPI-4, launched in January, will enable MFIs to produce reports on their performance of the Universal Standards for Social Performance Management, Smart Campaign Client Protection Principles and Truelift. This will help identify an institution’s strengths and weaknesses in these areas, helping it improve practice and ensure better impact on clients. Furthermore, CERISE also will use a data collection tool to gather data for social and financial indicators. Additionally, MFIs can access MIX regional reports to assess their social performance against their peers. Through Truelift, institutions can undergo a self-assessment or a third-party assessment to judge their performance against the Pro-Poor Principles. Finally, PPI users can apply the Standards of Use to assess their use of PPI data and identify areas for improvement.
- Planning is all about improving practice at your own pace. These tools help you understand where the gaps are. During the planning phase, it is important to prioritize what you want to address first. First, it is important to define your mission and target clients. Then, develop goals based on the strengths, weaknesses and gaps that have been identified. It is also important to incorporate these plans into your overall business plan, including the board agenda. There are some resources that can help you once you come up with your plan, such as the TA database that lists all the initiatives by region, explaining who can help you take the next step. It is important to remember that this process shows a significant effort for us to self-regulate. No one is telling MFIs they have to do this; organizations are drawn to it because they want to improve their practice.
- After focusing your plan, there are several tools and resources available to help implement that plan. The Smart Campaign provides a variety tools to help implement its Client Protection Principles. MFIs can also report pricing through the MFTransparency Data Collection Tool. The pricing calculator allowed you to assess your tools. This is allowing you to report your data to MFT. The Universal Standards Implementation Series is a free, online webinar series that will start in November. Each month, we will cover a different section of the standards, using concrete examples of MFIs who are implementing the standards. The SPTF Resource Center is an online center that houses case studies, templates and example scorecards to help MFIs implement social performance. As part of implementing their social performance plan, MFIs should its social data report data to MIX. For a poverty focus, MFIs should join the Truelift Community of Practice. The community is a place for those who demonstrate intent to reach and help the poor to learn and grow together by sharing good practices, effective tools and resources. Also for a poverty focus, PPI has resources and case studies on its website that help organizations address any weaknesses in their use of the PPI.
- FALSE. Financial institutions should get certified in client protection only if they are ready for it. Certification is achievable for most institutions with time and effort, but each institution will have its own timeline. The Getting Started Questionnaire tool is a great starting point to diagnose your institution’s state of practice. If an institution needs to upgrade its practices, it may wish to obtain a Smart Assessment from one of the accredited assessors, participate in a client protection trainings, or apply one of the Smart Campaign tools.
- FALSE. The questions, responses, and scores on the PPI scorecard and look-up table are derived from recent national household expenditure or income surveys and should not be changed. The PPI was calibrated using indicators that were found through statistical means to be the most powerful indicators of poverty within a country. While the relevance of a particular indicator may vary from region to region within a country, the overall predictive power of the PPI remains strong. Changing any component of the PPI will undermine its predictive power and result in poor data.
- While all the previous steps have been about improving, this last step is about proving. Proving progress in responsible inclusive finance will help boost credibility in the eyes of stakeholders, such as investors, networks and associations. Smart Campaign Client Protection certification is an independent, third party evaluation to publicly recognize financial institutions that meet adequate standards of care in how they treat clients. It enables financial institutions to demonstrate adherence to the Client Protection Principles. MFTransparency’s Seal of Transparency is awarded to microfinance providers who become transparent in their product pricing. The Seal can be used on institution’s marketing materials and website. Social ratings cover, in detail, social performance management, but they do not cover financial performance. A Microfinance Institutional Rating covers financial performance and risk-related social performance issues, such as client protection and mission. MIX STAR Recognition, which stands for Socially Transparent and Responsible, is a recognition that MFIs have a complete set of documented social performance information in alignment with the Universal Standards for Social Performance Management. The Truelift Milestones are, in increasing order, Aspirant, Emerging, Achiever and Leader. Each level is determined by the performance of an MFI’s pro-poor activities, as well as the strength of the evidence that validates that. PPI users who want to demonstrate their use of the tool have two options. The first, basic certification, indicates that the organization uses best practices for poverty measurement. The second, advanced certification, demonstrates that the organization has exceptionally integrated poverty data within its operations.