INTRODUCTION TO SOCIAL PERFORMANCE Yaw Gyamfi Ghana Microfinance Institutions Network (GHAMFIN)

OVERVIEW 1. Introductions & Expectations 2. Why talk about Social Performance? 3. How to measure Social Performance? 4. Who’s doing what? 5. Consumer Protection 5. Conclusion Objective Familiarize participants with the concept of social performance, its assessment, existing initiatives and Social Performance Management

W HY DO WE TALK ABOUT S OCIAL P ERFORMANCE ?

What do Microfinance Companies promise their Clients ? 4

C OMMONLY A CCEPTED S OCIAL G OALS Serving increasing numbers of poorer & excluded people Improving financial services through assessment of clients’ needs Increasing clients’ social capital, assets, income, and access to services Reducing clients’ vulnerability Improving social responsibility of the MFI 5

L IVING UP TO THE PROMISE ? 6 In Bangladesh, FRANCE 24 reporters find that far from alleviating poverty, microcredit has been plunging people deeper into debt. Making money out of poor people? Some banks are charging interest rates of 100 per cent or more from their customers Government to write to Central Bank citing the questionable recovery methods by MFIs What is Wrong With Microfinance? MFIs accused of forcibly enrolling poor women in the rural areas. Some District Collectors' reports cite intimidation, manhandling of women Public uproar over 20 suicides in two months has forced the Andhra Pradesh government to act to regulate micro-finance institutions

T RENDS IN MF MF has always been about the double bottom line… to manage justify …but a changing context makes it even more important for MFIs to manage and justify their social performance: ◦ Important growth and increasing competition ◦ Commercialisation ◦ Entrance of commercial banks (are moving down market) ◦ Private investment boom ◦ Increasing skepticism of media, governments ◦ Financial crisis Social performance cannot be taken for granted

W HAT DOES “ SOCIAL ” MEAN IN MICROFINANCE ? Why social performance?

C OMMONLY A CCEPTED S OCIAL V ALUES Serving increasing numbers of poorer and more excluded people sustainably Improving the quality & appropriateness of financial services through assessment of clients’ needs Increasing clients’ social capital, assets, income, and access to services Reducing clients’ vulnerability Improving social responsibility of the MFI toward clients, employees, and communities

H OW TO BE SOCIALLY RESPONSIBLE

H OW 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, communities Do no harm Why social performance?

12 S OCIAL P ERFORMANCE P ATHWAY OperationsStrategy Information use Results Reaching target clients Meeting target clients’ needs Change in target clients’ lives - Establishing social mission and objectives - Deciding on the range of products and services MicroFinance Campany will offer - With a good MIS - Well-designed products and services - Well- trained human resources

W HAT IS S OCIAL P ERFORMANCE ? The effective translation of an institution’s mission into practice in line with accepted social values that relate to : ◦ Reaching target market: Outreach to the target market; serving poor and excluded people sustainably: expanding and deepening outreach to poorer people ◦ Delivering high-quality and appropriate financial services by improving the appropriateness quality of financial services available to target clients through the systematic assessment of their specific needs; ◦ Responding to the needs of clients, their families, and communities ◦ Ensuring responsibility toward its employees, its clients, the community it serves, and the environment: the way in which the organization does business in relation to norms and expectations of its staff and the community

Intent & Design Internal Systems/ Activities Outputs Outcomes D IMENSIONS OF S OCIAL P ERFORMANCE Impact

Social Responsibility/ Social Performance: A continuum for “Responsible Finance ”

A CONTINUUM SR/SP: R ESPONSIBLE F INANCE Responsible finance implies 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 work conditions for staff Contribute to strong & transparent sector Contribution to socio- economic development Outreach to poor/excluded High quality services Financial and social benefits to clients

Social & financial performance

The horse and the rider

Which of the two decide? Can the horse reach the right destination by itself? Can the rider reach his destination all alone, on time? Which can symbolizes SP and which can indicates FP?

S OCIAL & 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

C OMPLEMENTARITY SP/F P FP is a mean to acheive social mission and objectives; Good SP can strengthen FP Social Performance Financial Performance

S OCIAL P ERFORMANCE M ANAGEMENT

W HAT IS IT ? The systematic assessment of social performance and systematic use of this information to improve practices. Each MFI’s approach to SPM depends on its needs and capacities. Social Performance Management

A CHIEVE Y OUR M ISSION T HROUGH P ERFORMANCE M ANAGEMENT Mission Performance Management Social Performance Financial Performance Social Performance Management

M ANAGING FOR S OCIAL R ESULTS Define expected performance Measure progress toward expeted performance Use performance results to improve products & services Social Performance Management

A SSESSING S OCIAL P ERFORMANCE Process Results Audit Tools: CERISE SPI Tool Quality Audit Tool MicroSave SPM Audit Global Reporting Initiative (GRI) Intent & Design Internal Systems/ Activities OutputsOutcomes Rating Tools: M-CRIL MicroFinanza Rating MicroRate Planet Rating Client Data Tools: Progress Out of Poverty Index (PPI) Poverty Assessment Tool (PAT) Client measurement tools (e.g., satisfaction, dropout, food security, focus groups) Impact Econometric studies

S OCIAL P ERFORMANCE S TANDARDS R EPORTING Process Indicators Results Indicators Mission & social goals Governance for social performance Range and products & services Staff training on social performance Staff incentives for social performance Assessing client poverty, retention, and satisfaction Market research Social responsibility policies and practices toward: Staff, Clients, Community, Environment Transparency in pricing Geographic outreach Gender outreach Poverty outreach & change in poverty status Employment generated Clients’ children in school

T HREE MAIN COMPONENTS 1. Setting clear social objectives and strategy 2. Monitoring progress in meeting these objectives 3. Using social performance information to make decisions Social Performance Management Data collection and use of information is at the heart of SPM: FORMALIZATION Data collection and use of information is at the heart of SPM: FORMALIZATION

R ESPONSIBLE F INANCE VS. S OCIAL P ERFORMANCE Regulators & Policymakers Investors & MIVs Networks, Associations, & Support Orgs Retail Providers (MFIs) Donors Do No HarmAct Ethically (Corporate Citizenship) Commit to Positive Change for Clients R ESPONSIBLE F INANCE S OCIAL P ERFORMANCE O VERLAP

Intent & Design Internal Systems/ Activities OutputsOutcomes D IMENSIONS OF S OCIAL P ERFORMANCE INTENT AND DESIGN What is the mission of the institution? Does it have clear social objectives? INTERNAL SYSTEMS & ACTIVITIES What activities will the institution undertake to achieve its social mission? Are systems designed and in place to achieve those objectives? OUTPUTS Does the institution serve poor and very poor people? Are the products designed to meet their needs? OUTCOMES Have clients experienced social and economic improvements? Impact IMPACT Can change in client welfare be attributed to institutional activities?

H OW TO G ET S TARTED Join the Social Performance Task Force: Assess and demonstrate your current performance by completing the SPTF/MIX Market Social Performance Standards ReportSocial Performance Standards Report Review the Companion Guide to the ReportCompanion Guide Find out more: ww.sptf.infoww.sptf.info

D ISCUSSION Why social performance? What would be the advantages to including a systematic approach on social performance in your institution? What would be the disadvantages of including a systematic approach on social performance in [your institution]? What would be needed?

SPA VS. SPM: TWO DIFFERENT THINGS ! Social Performance Management SPA a measure of how well an institution uses its systems and operations to generate positive social benefits 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

S OCIAL P ERFORMANCE A SSESSMENT T OOLS ?

W HY 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.

AUDIT CERISE SPI Social Audit QAT Triodos/GRI SOCIAL RATING M-CRIL MicroFinanza Planet Rating MicroRate CLIENT PROFILING PPI PAT [ PROCESS ] [ RESULTS ] IMPACT ANALYSIS SEEP/AIMS tools MicroSave Combination Quanti - Quali Mostly Internal Use External Use Social performance assessment tools SPM Consumer protection Price Transparency Intent Internal systems/activities OutputsOutcomes Impact Tools and Principles

Social performance assessment tools Clients Protection tools

MFT RANSPARENCY 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. Clients Protection Tools

[ PROCESS ] [ RESULTS ] Social performance assessment tools AUDIT CERISE SPI Social Audit QAT Triodos/GRI SOCIAL RATING M-CRIL MicroFinanza Planet Rating MicroRate CLIENT PROFILING PPI PAT IMPACT ANALYSIS SEEP/AIMS tools MicroSave Combination Quanti - Quali Mostly Internal Use External Use SPM Consumer protection Price Transparency Intent Internal systems/activities OutputsOutcomes Impact Tools and Principles

Social performance assessment tools Social Audit/Social Rating?

External evaluation of MFI capacity to put social mission into practice Microfinance rating is part of an MFI’s transparency sequence. It is the external opinion or picture of an MFI Its systematic diagnosis of an MFI to reveal among other things you capacity to manage funds especially donor funds Its relatively quick approach to tell the investors/donors who you are and what you can do. 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

Social performance assessment tools Internal evaluation of MFI’s capacity to put social mission into practice ; social audit can be done by an external reviewer 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

Social Performance Management (SPM) issues are of the highest importance and attention these days in the microfinance industry. Many different initiatives and programs have been taking place recently across the globe in response to the need of scaling up SPM. Now, it is up to the sector actors to use these assessment tools and promote social performance, in order to improve microfinance impact on clients. Conclusion

W HERE T O G O F OR F URTHER I NFORMATION ? Social Performance Resource Center ◦ Management training, Technical Assistance, Tools, Rating, audit and other forms of assessment Social Performance Task Force ◦ SPTF meeting minutes since 2005, SPS, blog on SP, tool reviews CERISE’s website ◦ SPI tool, Governance tool, Learn more about ProsperA, Case studies SEEP social performance Map: European Microfinance Platform (eMFP ) European Dialogue on the role of the Social Investors, MF Award 2008

Financial Inclusion & Consumer Education Financial Inclusion seeks to: Increase financial outreach to under-served and un-served populations Improve access at a reasonable cost to these populations to a range of financial services and products Consumer Protection Efforts and Financial Literacy Initiatives help bring new customers to the market

C ONSUMER P ROTECTION ? Consumer protection involves the implementation of measures that: prevent irregularities or transactions which have negative impact on consumers; empower consumers to exercise informed choices and select value- for-money goods and services; provide fair access to basic goods and services; and open avenues to address consumer interests and concerns

A PPROACHES TO C LIENT P ROTECTION The approaches to responsible finance in Ghana are through: A. National Consumer Education Statutory Regulation (lets look at this today) Self Regulations (Code of Conduct) 51

Statutory Regulation Law to comply with Prescriptive Statutory monitoring body Invokes penalty 52

Borrowers and Lenders Act 2008 (Act 773) Preamble; A legal framework for credit to improve the standards of disclosure of information by borrowers and lenders, to prohibit certain credit practices, to promote a consistent enforcement framework related to credit, and other related matters 53

The provisions of this law include: 1. Supervisory and Enforcement Role of Bank of Ghana The powers of the Bank of Ghana, as the regulator, in handling complaints and enforcing its decisions to ensure effective and fair protection of the client’s rights 2. Borrower Rights Right to Apply for Credit Protection against Discrimination Protection of borrower Credit Rights Confidentiality of Borrower’s data 54

3. Disclosure of Information Pre-agreement Disclosure  Principal amount  The proposed disbursement schedule  Interest rate stated as Annual Percentage Rate  Other credit costs  Proposed repayment schedule  The basis of any cost that may be assessed if the borrower defaults Marketing Information 55

4. Repayment and Recovery of Debt Borrower’s and Guarantor’s Obligations 5. Enforcement of Borrower’s Obligation Default in Payment Remedies of Lender on Default  Sue the borrower  Realise the security  Use Intermediaries (Elders, Chiefs, Senior Clan Members etc 56

Self Regulation (Non-statutory regulation) Bad practices create negative systemic effects such as;  Lack of trust  Loss of the sympathies of the general public  Key opinion leaders siding with defaulters  Attraction of unwanted and restrictive regulations 57

Association or institution regulates itself by establishing and enforcing standards of practice Set as Code of Conduct for members or staff (how they should act) Set a Code of Ethics (how we should act) Rooted in the Values of the organization Members or staff adhere to for their common good Infractions are handled internally Expelled members can continue infringements 58

C LIENT P ROTECTION P RINCIPLES : A N I NTRODUCTION TO THE S MART C AMPAIGN T HIS PRESENTATION IS MADE POSSIBLE BY THE S MART C AMPAIGN WWW. SMARTCAMPAIGN. ORG

T HE S MART C AMPAIGN … …represents a global, industry-wide effort: 2,000+ endorsers from over 100 countries …has an international steering committee …collaborates with the Social Performance Task Force (SPTF), MIX Market Social Reporting, MF Rating Agencies, MFTransparency, and many others …is housed at the Center for Financial Inclusion at ACCION International

C LIENT PROTECTION : 3 PILLARS Financial education and capability Regulation for client protection and supervision Standards and codes of conduct for the industry RESPONSIBLE FINANCE

P RINCIPLES O F C LIENT P ROTECTION OLDNEW Avoidance of over-indebtednessAppropriate product design and delivery Transparent & Responsible pricingPrevention of over-indebtedness Appropriate collection practicesTransparency Ethical staff behaviorResponsible pricing Mechanism for redress of grievancesFair and respectful treatment of clients Privacy of client dataMechanisms for complaint resolution Privacy of client data 62

APPROPRIATE DESIGN AND DELIVERY Providers take adequate care to design products and delivery channels in such a way that they do not cause clients harm. Products and delivery channels are designed with client characteristics taken into account. Suitability Affordability No waivers of client rights Simplicity Suitable product delivery Minimum changes

PREVENTING OVER-INDEBTEDNESS CREDIT UNION Carefully establishes the borrower’s ability to afford the loan and repay it Takes adequate care that the non-credit financial products (such as insurance) extended to clients are appropriate to their needs and means Borrowers ARE ABLE TO HANDLE DEBT SERVICE REQUIREMENTS WITHOUT SACRIFICING THEIR BASIC QUALITY OF LIFE

TRANSPARENCY Transparently disclose, in a form understandable to clients: Pricing Terms Conditions (including interest charges, insurance premiums, all fees, etc.) TRANSPARENT PRICING IS A PRE-CONDITION TO RESPONSIBLE PRICING.

RESPONSIBLE PRICING Transparent pricing is a pre- condition to responsible pricing. Pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for the MFI

FAIR AND RESPECTFUL TREATMENT OF CLIENTS The financial institution creates a corporate culture that values high ethical standards among staff and ensures that safeguards are in place to prevent, detect, and correct corruption or member mistreatment. The institution treats members with dignity even when they fail to meet their contractual commitments. Debt collection practices are neither abusive nor coercive.

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PRIVACY OF CLIENT DATA Two components to protecting client data Privacy Clients know how the institution will use their information. Confidentiality policies govern the processes, use, and distribution of client data to third parties. The institution ensures that client data is correct before sharing it and gives clients the opportunity to correct it. The institution asks for clients’ permission before sharing their data with credit bureaus or using it in marketing materials. Security A rigorous system of checks prevents the unauthorized use of client data and protects access to accounts. The information technology system is secure, protected by passwords, and several levels of authorized access. The institution offers orientation sessions that show clients how to safeguard their PIN numbers and other sensitive information.

MECHANISMS FOR COMPLAINT RESOLUTION A financial institution measures up to this principle by having a mechanism for collecting, responding in a timely manner, and resolving problems for clients.

HOW DISSATISFIED CLIENTS AFFECT THE INSTITUTION Findings from the Field: A very satisfied client will talk about his/her experiences with 3-4 people, but a dissatisfied client will tell 8-9 people. When a dissatisfied client’s complaints are received, answered, and solved, there is a 90% chance that s/he will return to the institution. 90% of dissatisfied clients whose problems are not resolved will never return to do business with the institution again.

NO COMPLAINTS COMPLETELY SATISFIED CLIENTS If your institution does not receive concerns or complaints, be careful: Clients could be happy with your products and customer service, or Clients might not feel empowered to share their concerns and complaints or They might not know how to do so, or Clients might not feel like they can complain without this affecting their business relationship with the institution.

Now is a critical time to focus on client protection, for several reasons: Demands for accountability and transparency Microfinance crises in several countries Negative media attention regarding impact Public and governmental concern over high interest rates Rapid growth, rising competition, and new players WHY NOW?

1.Endorsement 2.Client protection training 3.Client protection self assessment 4.Client protection in-depth assessment 5.Pilots/ tools trainings 6.Certification 7.Reporting PUTTING PRINCIPLES INTO PRACTICE

EXAMPLE OF TECHNICAL TOOLS Conducting Client Protection Assessments: A Guide Client Protection and Ethics Codes: Examples for Getting Started How to Talk to a Bank: A Brochure for Consumers Investor/Donor Planning Guide for Implementing Client Protection Initiatives Educating clients about Client Protection: A Guide for Financial Service Providers Smart Savings: Client Protection in the Savings Process Best Practices in Collections Strategies Complaints Handling Manual (FONDESUCRO) Smart Note: Protecting Client Data at Fundación Delamujer

Join the Campaign and Endorse the Principles of Client Protection Have questions? Want more information? Contact the Smart Campaign