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


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

CERISE

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


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?

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.


Social Responsibility/ Social Performance:

A continuum for “Responsible Finance”


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


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

What is Social Performance?

SOCIAL PERFORMANCE TASK FORCE


Intent Internal

systems/activities

Outputs Outcomes Impact

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

no Harm” / SR to client => Ethical behavior =>

“Do good” / Social

Performance

Client protection against

harmful practices

• Prevent over-indebtedness

• Transparent pricing

• Loyal and fair treatment of

clients

Standards of behavior

• Responsability to the

community and environment

• Decent conditions for staff

• Contribute to strong &

transparent sector

Contributo to socio-

economic development

• Outreach to

poor/excluded

• High quality services

• Benefits to clients

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

.


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



Social & financial performance: trade-off?

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

AUDIT

CERISE SPI

Social Audit QAT

Triodos/GRI

FMO E&S Risk Audit

SOCIAL RATING

M-CRIL

MicroFinanza

Planet Rating

MicroRate

CLIENT

PROFILING

CGAP/Ford/

Grameen PPI

USAID/IRIS PAT

[---------------PROCESS-----------------------] [----------------RESULTS-----------------------]

IMPACT

ANALYSIS

SEEP/AIMS tools

MicroSave

Combination Quanti

- Quali

Results

Mostly

Internal

Use

External

Use

Social performance assessment tools

SPM

Consumer protection

Price Transparency

Intent Internal

systems/activities


Tools and Principles


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 Audit

Example of internal assessment: Social

Performance Indicators Tool

SPI 3.1: questionnaire and companion guide for internal or external audit

Simple, can be a one day process

4 dimensions: targeting and outreach, products and services, benefits to clients and social responsibility

Widely used, permits peer analysis. Currently data from > 250 SPI audit in CERISE’s database (Dec. 09)

0%

20%

40%

60%

80%

100%

Targeting the poor

and excluded ***

Adaptation

of services**

Benefits for clients***

Social

responsibility*

Social performance measurement tools

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 Rating

The Rating Initiative

• Managed by ADA. Launched in Sept 2008 with support fromLuxembourg Cooperation, Swiss Cooperation, MIL, Oxfam Novib, SPTF, BlueOrchard and ResponsAbility

Objectives

• Promote a viable microfinance rating market by co-fundingfinancial and social ratings

• Supply transparent information for MFIs, funders and stakeholders

• Provide information on microfinance rating market

www.ratinginitiative.org


http://www.ratinginitiative.org/

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


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.


Client Profiling:Poverty Assessment Tools


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.

Impact Analysis

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

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

Current initiatives




Social Performance Standards Framework

Outreach

Q11- Geographic outreach

Q12- Women outreach

Q13- Clients outreach by

lending methodology

Q1–Mission &

Social Goals

Q2- Governance

Q3–Range of Products and

Services

(financial & non-financial)

Q4–Training of staff on

social performance

Q5–Include SP in staff

performance appraisal and

incentives

Q6–Market research on

clients

Q7–Measuring client

retention

Q14–Poverty assessment

Q8– Social responsibility to

clients

Q9-Cost of services to clients

Q10–Social responsibility to

staff

Q15 – Social responsibility to

the community

Q16–Social responsibility to

the environment

IntentStrategies &

Systems

Policies &

Compliance

Achievement of social

goals

[---------------------------- PROCESS---------------------------- - - -- ] [-------------------------------- RESULTS -----------------------------]

Outputs and outcomes

Q17-Products

Q18–Employment (Family &

Hired in credit supported ents.)

Q19–Children in School

(girls/boys)

Q20–Poor and very poor clients

Q21–Clients remaining in

poverty

Q22–Clients out of poverty

Intent Internal

systems/activities


Ind

ica

tors

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)

Discussion

Current initiatives

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?

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.

Current initiatives

But how to operationalize it?

4. Social Performance Management

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

What is it?

SPA vs. SPM: two different things!


SPA

a measure of how well an institution uses its

systems and operations to generate positive social benefits

SPM

the use of this measure to make decisions

SPM into practiceSocial Performance Management

• 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.

1. Setting clear social objectives and strategy

2. Monitoring progress in meeting these

objectives

3. Using social performance information to

make decisions


Three main components

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.

kiva cerise spi feb2010 intro sp(day1)

Economy & Finance