Kiva Cerise Spi Feb2010 Intro Sp(Day1)

Making Finance Responsible: assessing social performance of Microfinance Institutions (MFIs) Workshop Kiva – Cerise Feb 1-4, 2009

Introductions & Expectations

Introductions & Expectations CERISE  Microfinance knowledge exchange network focused on disseminating good practices  Core members: five French organizations specialized in microfinance  Partners: MFIs, networks, donors, researchers, and investors in Africa, Latin America and Asia  Working areas: impact and social performance, governance, rural and agricultural finance. www.cerise-microfinance.org

Introductions & Expectations CERISE and Social Performance  Actively promoting social performance in the MF sector since 2001  Created Social Performance Indicators tool (SPI) to assess performance of MFI partners  Since 2008, broadening focus to include investors – SPI Investor under development

Introductions & Expectations ProsperA network  PROmotion of Social PERformance – an Alliance initiated by CERISE and its partners  Over 50 members (June 09)  Networks from Africa, Asia and Latin America  MFIs  TA providers from Europe  Social investors www.cerise-microfinance.org

Programme of the workshop  Monday  AM: Introduction to Social Performance  PM : Introduction to SPI tool  Tuesday  AM: working groups – using SPI  PM: methodology of external audit  Wednesday  AM: Examples of application – Pilot by Kiva  PM: Data capture, data analysis  Thursday  AM: Reporting, communication, other tools  PM: Process for Kiva

INTRODUCTION TO SOCIAL PERFORMANCE

Overview 1. Why talk about Social Performance? 2. How to measure Social Performance? 3. Who’s doing what? 4. How to operationalize Social Performance? Objective Familiarize participants with the concept of social performance, its assessment, existing initiatives and and Social Performance Management

1. Why talk about Social Performance?

Why Social Performance? Trends in MF  MF has always been about the double bottom line…  …but a changing context makes it even more important for MFIs to manage and justify their social performance:  Unprecedented growth and increasing competition  Commercialization  Entrance of commercial banks  Private investment boom  Increasing skepticism of media, governments  Financial crisis Social performance cannot be taken for granted

Why social performance? Discussion What qualifies as “social” for microfinance?

Why social performance? What qualifies as “social”?  Outreach based on poverty or vulnerability criteria  Expanding access to financial services and economic opportunities  Reaching women  Promoting equity / equal access to services  Promoting the Millenium Development Goals  Promoting access to health services, education, water, etc.  Showing social responsibility to clients, staff and the environment.  Etc.

Why social performance? Social Responsibility/ Social Performance: A continuum for “Responsible Finance”

Why social performance? How to be socially responsible?  MFIs are socially responsible when:  They are transparent and accountable;  They have a clear mission & strong governance structure;  They provide a range of well-adapted financial services;  They do not create negative effects on employees, clients. Do no harm

Why social performance? What is Social Performance?  The effective translation of an institution’s mission into practice in line with accepted social values that relate to:  Reaching target market  Delivering high-quality and appropriate financial services  Responding to the needs of clients, their families, and communities  Ensuring responsibility toward its employees, its clients, the community it serves, and the environment Intent Internal Outputs Outcomes Impact systems/activities SOCIAL PERFORMANCE TASK FORCE

Why social performance? A continuum SR/SP: Responsible Finance Responsible finance involves taking into account not only financial but social, environmental and ethical criteria when making investment decisions. Minimum standards/ “Do “Do good” / Social no Harm” / SR to client => Ethical behavior => Performance Client protection against Standards of behavior Contributo to socio- harmful practices economic development • Responsability to the • Outreach to • Prevent over-indebtedness community and environment poor/excluded • Transparent pricing • Decent conditions for staff • High quality services • Loyal and fair treatment of • Contribute to strong & • Benefits to clients clients transparent sector

Why social performance? Why. is it important to assess social performance?  So MFIs can be held accountable to their social mandates  Because transparency is essential for the sector’s credibility  Improved MFI social performance = greater social impact  Some studies suggest that social performance can be positively correlated with financial performance

Why social performance? Social & financial performance: a mutually beneficial relationship  Good social performance can positively impact operational and financial performance  Wider outreach = less competition, diversified risks  Responsibility, satisfaction and trust = clients loyalty, better repayment  Appropriate services = better returns for clients = better repayment  Client involvement in MFI = lower operational costs and greater opportunities for innovation  Decent work conditions = loyal and committed staff

Why social performance? Social & financial performance: trade-off?

Why social performance? Discussion What would be the advantages to including a systematic approach on social performance in Kiva? What would be the disadvantages of including a systematic approach on social performance in Kiva? What would be needed?

2. Social Performance Assessment Tools

Social performance assessment tools Tools and Principles Results Impact Intent Internal Outputs Outcomes systems/activities SPM [---------------PROCESS-----------------------] [----------------RESULTS-----------------------] Consumer protection AUDIT Price Transparency CERISE SPI Mostly Social Audit QAT Internal Triodos/GRI CLIENT IMPACT Use FMO E&S Risk Audit PROFILING ANALYSIS CGAP/Ford/ SEEP/AIMS tools SOCIAL RATING Grameen PPI MicroSave M-CRIL USAID/IRIS PAT Combination Quanti External MicroFinanza - Quali Use Planet Rating MicroRate

Social performance assessment tools Social Audit  Internal evaluation of MFI’s capacity to put social mission into practice  Participatory or centralized approach  Costs: low (often uses internal human resources, 1-3 day process)  Most common audit tools:  Social Performance Indicators (SPI)  Quality Audit Tool (QAT)  See SEEP Social Performance Map (Chapter 6)

Social performance measurement tools Example of internal assessment: Social Performance Indicators Tool Targeting the poor and excluded ***  SPI 3.1: questionnaire and companion 100% 80% guide for internal or external audit 60%  Simple, can be a one day process 40% 20%  4 dimensions: targeting and Social 0% Adaptation outreach, products and services,responsibility* of services** benefits to clients and social responsibility  Widely used, permits peer analysis. Benefits for clients*** Currently data from > 250 SPI audit in CERISE’s database (Dec. 09)

Social performance assessment tools Social Rating  External evaluation of MFI capacity to put social mission into practice  Standard approach: uses info available at MFI level, relatively low-cost (USD 5-8K + financial rating, most of the time)  Approach that includes client survey: client profiles, satisfaction studies (USD 10-15K + fin. Rating most of the time)  Rating agencies:  M-CRIL, Microfinanza Rating, MicroRate, Planet Rating

Social performance assessment tools The Rating Initiative • Managed by ADA. Launched in Sept 2008 with support from Luxembourg Cooperation, Swiss Cooperation, MIL, Oxfam Novib, SPTF, BlueOrchard and ResponsAbility Objectives • Promote a viable microfinance rating market by co-funding financial and social ratings • Supply transparent information for MFIs, funders and stakeholders • Provide information on microfinance rating market www.ratinginitiative.org

Social performance assessment tools Outputs versus Outcomes Social audit and social rating DO measure: Intent Internal Systems & Activities Outputs (portfolio only or portfolio and surveys on client) Social audit and social rating DO NOT measure: Outcomes Impact HOWEVER,  Audits and ratings can provide baseline data for future analysis of outcomes. They can also validate results of poverty/ impact assessments

Social performance assessment tools Client Profiling: Poverty Assessment Tools  Internal or external tools to estimate client poverty level  Simple, non-financial indicators statistically derived from national household surveys; defined by country; may need to be updated  PA Tools  PPI (Progress out of Poverty Indicator, Grameen Foundation): focus on practicality; less indicators, easier intake.  PAT (Poverty Assessment Tool, IRIS-USAID): focus on accuracy, US gvt definition of poverty; more indicators.

Social performance assessment tools Impact Analysis  Impact methodologies vary enormously (USD 10K-200K)  Much debate over how to conduct a simple, reliable and operational impact analysis…  Verifies at client level the effect of the actions of the MFIs  Impact Tools for/from the practitionners  Learning from Clients (SEEP, AIMS): combination of quanti and quali indicators; free toolkit on Microfinance Gateway.  MicroSave: Market research for microfinance toolkit.

Social performance assessment tools Conclusion on SPA tools  Whole new facet of microfinance assessment that is the basis for a number of international initiatives striving for responsible finance

3. Who’s doing what? Current initiatives to develop standards and promote principles: Social Performance Standards Consumer Protection Principles MF Transparency SPM Principles

Current initiatives The SPTF Social Performance Standards (SPS)  Standardized set of social performance indicators defined with investors, donors, practitioners, networks, technical experts.  Based on common framework of SPTF:  Mission, objectives, strategies & systems  Social responsibility to clients, staff, community, environment  Results: outreach, appropriate services, changes  22 indicators : 13 « simples » (Part I of SPS) + 9 more complex, mainly on results (Part II of SPS)

Current initiatives MIX Agenda on Social Performance  Create a common reporting format for SP indicators  Collect data on SPS from MFIs and make them publicly available via MIX Market Phase 1: Definition of SP indicators (since 2006) with SPTF Phase 2: MFIs report SP data to MIX – final pilot (10- 12/2008) Phase 3: Start publication on MIX Market (03/2009) Phase 4: Implementation of a new Web Platform with database for SP indicators (end 2009) http://www.themix.org/standards/sp-reports

Social Performance Standards Framework Intent Internal Outputs Outcomes Impact systems/activities [---------------------------- PROCESS---------------------------- - - -- ] [-------------------------------- RESULTS -----------------------------] Strategies & Policies & Achievement of social Intent Systems Compliance goals Q1–Mission & Q3–Range of Products and Outreach Q8– Social responsibility to Social Goals Services Q11- Geographic outreach clients Q2- Governance (financial & non-financial) Q12- Women outreach Q9-Cost of services to clients Q4–Training of staff on Q13- Clients outreach by Q10–Social responsibility to social performance lending methodology staff Q5–Include SP in staff Q15 – Social responsibility to Indicators performance appraisal and Outputs and outcomes the community incentives Q17-Products Q16–Social responsibility to Q6–Market research on Q18–Employment (Family & the environment clients Hired in credit supported ents.) Q7–Measuring client Q19–Children in School retention (girls/boys) Q14–Poverty assessment Q20–Poor and very poor clients Q21–Clients remaining in poverty Q22–Clients out of poverty MFIs that want to update their profile on MIX Market with the social performance standards are expected to be able to report information on the 13 indicators contained in Part I of the report (indicators highlighted in red)

Current initiatives Discussion Have you already heard about the SPS? Have your institution or partners already reported on their SPS to the MIX Market? (Part I only or Part I+II?) What do you think about the SPS in terms of usability, usefulness of results, potential as a management tool? What do you expect from this kind of initiative?

Current initiatives Consumer Protection Principles – Smart Campaign  A campaign encourages MFIs to develop and implement standards for the appropriate treatment of loan income clients based on six principles.  CGAP has published "Implementing the Client Protection Principles: A Technical Guide for Investors” (Oct 2009)  www.centerforfinancialinclusion.org

Current initiatives Client Protection Principles 1. Avoidance of over-indebtedness 2. Transparent pricing 3. Appropriate collections practices 4. Ethical staff behavior 5. Mechanisms for redress of grievances 6. Privacy of client data

Current initiatives Discussion Has Kiva already signed on? What does it mean to endorse the campaign? Do you agree with the principles? How do you think the principles can be implemented in concrete terms?

Current initiatives MFTransparency  Global initiative for fair and transparent pricing  Based on the observations that 1. Interest rates vary significantly relative to loan size, making transparency difficult 2. Non-transparent pricing is common in MF 3. Non-transparent pricing can lead to inappropriately high profits from lending to the poor 4. Transparent pricing is essential to well-functioning markets, efficiency, healthy competition, and better prices.

Current initiatives MFTransparency  MFTransparency aims to create an “enabling environment” for transparent pricing.  Promote “truth-in-lending”, i.e., disclosure of key terms in lending contract and all costs  Publish APR-equivalent interest rates all-at-once, country-by-country  Educate the public on why interest rates vary by loan size

Current initiatives Conclusion on current initiatives  Growing consensus around the definition of social performance and how to assess it.  Social performance assessment is now possible, with different complementary tools. But how to operationalize it?

4. Social Performance Management

Social Performance Management What is it?  The systematic assessment of social performance and systematic use of this information to improve practices.  No widely accepted SPM system like those that exist for financial performance  Each MFI’s approach to SPM depends on its needs and capacities.

Social Performance Management SPA vs. SPM: two different things! SPA a measure of how well SPM an institution uses its the use of this measure systems and to make decisions operations to generate positive social benefits

Social Performance Management SPM into practice • Translate mission and values into clear, measurable objectives to capture intentional social benefits. • Design and implement systems for social responsibility, including client protection. • Track, understand and report progress on achieving social objectives. • Align business processes (marketing, human resources, governance) to achieve both social and financial objectives • Make decisions on the basis of both social and financial outcomes.

Social Performance Management Three main components 1. Setting clear social objectives and strategy 2. Monitoring progress in meeting these objectives 3. Using social performance information to make decisions Data collection and use of information is at the heart of SPM

Conclusion

Social performance has gone from being a marginal concept to a key aspect of microfinance performance, along side financial performance. It is now up to sector actors to use these assessment tools and promote social performance, in order to improve microfinance’s impact on clients.

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Kiva Cerise Spi Feb2010 Intro Sp(Day1)

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Kiva Cerise Spi Feb2010 Intro Sp(Day1) — Presentation Transcript