Towards a Seal of Excellence in Global Microfinance


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The Seal of Excellence for Poverty Outreach and Transformation in Microfinance is a global initiative currently under development that will recognize those institutions doing the most to help families lift themselves out of poverty. The Seal has been under development the past 19 months with input from a broad range of stakeholders and will continue in 2012.
This PowerPoint illustrates how the Seal fits in with current initiatives and how it has developed over time.

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  • NOT DRAWN TO SCALE…..Mention different actorsRegulators & PolicymakersDonorsInvestors & MIVsNetworks, Associations, & Support Orgs Retail Providers (MFIs)This graph maps social performance. Notice that responsible finance forms a major part of social performance.Social Performance incorporates the elements of Responsible Finance, particularly at the retail level, but implies a greater level of responsibility to commit to positive change for clients. While responsible finance aims to create an enabling environment for clients to use microfinance effectively, social performance makes an express investment in positive change.This institutional commitment involves: 1) Investment in systems for double/triple bottom line management (which is aligning business processes to achieve both social and financial objectives. All aspects on an MFI’s operations affect whether it achieves its social goals, including staff training, incentives, Board composition, client feedback mechanisms and using this information to improve performance;2) Commit to measure and report client outcomes—for greater transparency in the industry; 3) Development of financial and non-financial services based on an assessment of client lifecycle needs and vulnerability of clients.
  • The starting point for the design of a seal of excellence in microfinance is to ask how can we start to think of ‘top performers’ in a different way. Not in terms of the number of borrowers and the return on assets of a MFI, but in terms of responsible finance, inclusion and effectiveness. Being a top performer in microfinance, means top performance in the ‘double bottom line’ – balancing financial and social goals. Both financial sustainability and social values are relevant and important. The SEAL has decided to focus their efforts on developing a SEAL for MFIs that are doing a particularly good job at poverty outreach and transformation. So they focused their effort on this aspect of social performance. But in order to get there, you have to pass the first two levels.How do you get there?Each level may be seen as a necessary step to the next level. Thus the SPTF standards include client protection. This seal of excellence will be for poverty outreach and transformation, with the universal standards for social performance and client protection a pre-requisite. A “double bottom line” seal, must also refer to financial sustainability. In other words, a seal of excellence in poverty outreach and transformation requires responsible and ethical practices at all levels of the institution, as well as a financially sustainable (or close to sustainable) bottom line.
  • Towards a Seal of Excellence in Global Microfinance

    1. 1. Social Performance Client Protection Principles + Institutional Commitment Seal of Excellence for poverty • Invest in systems to outreach andDifferent Actors Smart Campaign manage double / triple transformation bottom line MFT • Measure client outcomes • Tailor services to client need and vulnerability Investor Principles for Inclusive Finance Responsible Finance Improve Clients’ (do no harm) Lives
    2. 2. Expectation for everySmart Campaign Client financial provider – do Protection Principles no harm Universal Standards for Social Expectation for double or triple bottom line Performance organizations Seal Expectation for an of organization with a Excel specific mission of lence poverty reduction and/ or transformation
    3. 3.  The initiatives are separate but complementary Our recommendations are NOT separate – we endorse each other MIX reporting incorporates the thinking among the Smart Campaign, MFTransparency, and the Social Performance Task Force We are all talking to each other!
    4. 4.  Six principles of client protection: 1. Appropriate product design 2. Transparency 3. Responsible pricing 4. Responsible treatment of clients 5. Effective complaints resolution 6. Privacy of client data Certification: The Smart Campaign is currently developing criteria and a process by which MFIs can be recognized for meeting client protection standards Timeline: Planned launch of the pilot phase of certifications in 2012
    5. 5.  Main areas of focus: 1. Transparent prices 2. Fair prices Calculation transparent prices tool: Excel-based tool allows users to input different loan terms and see how they affect Annual Percentage Rate (APR) and Effective Interest Rate (EIR), total cost of credit, cash flow and repayment schedule. Put simply, it clarifies how much the client is paying / the MFI is charging for a given loan. Timeline: MFT collects and publishes microfinance interest rate data for individual countries, 7 countries to date and 10 more pending.
    6. 6.  SPTF is developing universal standards in six areas: 1. Responsible Financial Performance 2. Governance and Staff Commitment to Social Goals 3. Products and Services that Meet Client Needs 4. Client Protection – Six Principles of Client Protection 5. Social Responsibility to Staff 6. Client Monitoring Overlap with Smart Campaign: While SPTF fully endorses the Smart Campaign’s client protection principles, the universal standards do not require the same level of performance as does Smart Campaign certification. Instead, the universal standards prescribe introductory steps in each of the six areas of CP. Timeline: Proposed standards presented for discussion at the annual meeting in Den Bosch in June 2011. Standards in areas where enough data already exist ready in 2012.
    7. 7.  Purpose: MIX collects and validates financial, operational, product, client, and social performance data from MFIs in all regions of the developing world, standardizing the data for comparability. News:  MIX, in collaboration with the SPTF, recently refined and released an updated set of social performance indicators. Data collection on these indicators will begin in March 2011.  MIX is developing a survey to pilot additional questions related to social performance. The survey should be completed by June 2011.  MIX has recently upgraded its website to make the financial and social profiles of individual institutions more accessible.
    8. 8.  Seal is an initiative currently under discussion:  Envisioned by Microcredit Summit as a separate initiative to promote excellence in poverty alleviation and transformation.  Builds on the Smart Campaign’s client protection principles and the Universal Standards work of the Social Performance Task Force  Discusses using systems for validation that have already been developed for rating social performance of microfinance institutions
    9. 9. Client Protection Principles and Universal Standards Align and Overlap; theSeal Applies to Both Sets of Standards Plus a Poverty Reduction Mission Smart Campaign Universal Certification on CPP Standards on SP Demonstrated Demonstrated : excellence in all six • Implementation of the client protection basic elements of every principles client protection principle • Social performance activities in six key areas Seal Awarded for excellence in poverty outreach and transformation
    10. 10.  Report your institution’s financial and social performance data to MIX Sign on to the Client Protection Principles and get your member organizations certified Sign on to the MFTransparency endorsement statement. Use the MFTransparency calculator to calculate and report your interest rates Conduct a social audit and/or Commission a social rating Provide input to the development of the Seal of Excellence Become a member of the Social Performance Task Force to learn more about the ongoing work of these initiatives and to participate in trainings and conferences that can advance your work in this area Attend the annual Social Performance Task Force meetings where we will continue these discussions. The 2011 meeting is June 19-23 in Den Bosch, the Netherlands Join, support, and strengthen current initiatives rather than creating another one
    11. 11. ISEAL:International Social and Environmental Accreditation andLabelling Alliance
    12. 12. • RESPONSIBLE ++ & DEPTH & EFFECTIVE • Linked or direct strategies to support client development (livelihood, health, children’s education)Gold • Evidence of access (at least 20% of clients) and value to clients • Significant and fair wage employment (SME lending) • Environmentally sustainable lending • RESPONSIBLE+ & DEPTH OF OUTREACH •Less developed areas, poor and excluded households at entry (Linked to country context, and use of PPI (at least = country average and monitored)Silver •Or SME lending for wage employment •Gender diversity • RESPONSIBLE MICROFINANCE : •Client protection principles + financial education for clients •Standards around governance (level and allocation of profits ; remuneration to CEO (vsBronze portfolio size and av. remuneration to average field staff) •Conditions of staff employment •SME lending – environmental standards
    13. 13. Governance/ Responsible financial guidelines1. Reasonable level of profitability: [guideline - RoA slightly above the bank sector, to allow for additional risk - may differ by country];if high, then clear rationale and evidence of allocation that benefits clients2. Reasonable annual growth rate [guidelines for portfolio growth could be as follows: < 50% for Tier 3 MFIs, 40% Tier 2, and 25% Tier 1]3. Remuneration to CEO is transparently reported and is not more than the equivalent level in the countrys private banking sector4. Remuneration to CEO in comparison with lowest paid field officer is not more than a ratio of x
    14. 14.  Outreach to less developed areas Outreach to poor households Client retention Gender equity - opportunities for women
    15. 15.  Non-financial services to support clients in their businesses or other improvements in quality of life Client ownership Evidence for contribution to poverty reduction
    16. 16.  A core group will likely drive the process: (Interim Steering Committee) should represent different potential interests for legitimacy Determine the need for the standards: how to complement existing standards, and avoid duplications or contradictions Know your stakeholders and communicate with them Have clearly defined objectives: Define objectives in concrete terms as the change you would like to see. Define procedures for the standards development process: stakeholder mapping, participation, and documented response Decide the end use of the standards: intended as voluntary guidance on good practice? To be widely applicable across the industry?