Social & environmental performance for microfinance

The triple bottom line Financial performance Social performance Environmental performance

overview 1.What is social performance management? 2.Social Performance Management: why should we care? 3.Tools to manage social performance 4.Managing environmental, health & safety performance

Transparency fair pricing Overindebtedness Poverty lending Staff satisfaction Client satisfaction Women empowerment Client focused microfinance Financial inclusionIntegrity Suggestion box Portfolio quality Ethical collection practices Codes of conduct Low interest rates Multiple loansData privacy Social performance? Safe working conditions

Small business The entrepreneur & the household The poor? The MFI Health, safety & environmental impacts

Social performance management Why are we doing microfinance in the first place? What do we as MFIs want to achieve? Access to financial services? Poverty alleviation? Economic growth catalyst? Social change catalyst?

Social performance management Social Performance Management is about: 1.Setting your objectives (what do you want to achieve?) 2.Offering adequate services in an efficient way 3.Measuring your results 4.Adapting your products and processes to improve performance

Social performance management

SMART campaign Preventing overindebtedness Transparency & Responsible Pricing Appropriate Collections Practices Ethical Staff Behavior Complaints Handling and Resolution Privacy of client data

Microfinance Transparency How much interest do you really charge? And do you tell your clients?

What’s your policy on: –Avoidance of over-indebtedness –Transparent and fair pricing –Appropriate collections practices –Equal treatment of staff / staff development –Environmental management –.... (Choose 2)

Social performance management 2. Offering adequate services Why is client satisfaction important? Many clients think MFIs don’t meet their needs! Satisfied clients will retain and attract new clients (word of mouth) it is 10 times cheaper retaining a client than attracting one a retained client is likely to improve livelihood

Social performance management 2. Offering adequate services 5 Ps: product, price, place, promotion & people  adjust to target group! Not all clients are the same! women may have different needs than men Listen to clients feedback drop out rates exit interviews

How will your MFI ensure that it will continuously meet your clients needs?

Social performance management 3. Measuring results

Social performance management Acleda bank (Cambodia) annual client survey: “how has your income situation developed?” income situation reduced: 2005: %, 2006: 0.5%, 2007: 3.4% further investigation for more specific info as to the underlying causes in 2008

Reliance Gambia

NDFS Shepherd India

Social performance management What can you measure & report? (some suggestions) profile of clients (do you actually serve your target group?) gender, location, economic position, etc. client satisfaction & turnover change in poverty status / business growth improvement in leadership skills staff profile, satisfaction & turnover

Mixmarket Social indicators

Who should be reading your annual report? clients donors / investors government management / board..... What information do they require?

What information does your MFI report on? How would you measure and collect the data?

Lessons learned with social performance measurement Translate social vision in clear social goals Start with few indicators, expand as you go A lot of data is already measured throughout the process Do not report only for investors  use information internally. Social performance management

a) Publish what you preach! SPM: why should we care?

b) Improve the governance of your organisation SPM: why should we care? 8 management board Field staff management board Field staff

IFC’s mission is to promote sustainable private sector development in developing countries, helping to reduce poverty and improve people’s lives. IFC believes that sound economic growth, grounded in sustainable private investment, is crucial to poverty reduction. Through its Environmental and Social Review Procedure, IFC reviews the business of its FI clients to identify activities where the FI could be exposed to social and environmental risk as a result of its investments. c) Investors and donors are interested in non-financial impact of MFIs SPM: why should we care?

d) Social performance drives financial performance SPM: why should we care? Social dimensionFinancial performance Client satisfactionEfficiency increased Preventing multiple loansLower PAR Staff satisfactionIncreased efficiency Transparent interest ratesSatisfaction & lower PAR Implemented SP policyLower finance costs

What benefits would social performance management bring to your MFI?

Tools for SPM I want to…tool Know the social performance of my MFI (diagnostic) SP scorecards Externally verify my social performance MF social ratings Know if I reach my target group or if my clients improve their living standards PPI or other poverty benchmarks report on my social performanceReporting guidelines

1.Social scorecards: SPI & QAT SPI reviews: Policy Systems Performance (standard indicators Tools for SPM

1.Social scorecards: SPI & QAT QAT reviews: Objectives set Strategy for meeting objectives Monitoring systems Information quality Information analysis & use Tools for SPM

2. Social ratings A rating is an externally assessment of the social performance of an MFI Social results Systems implemented Major rating agencies: Planet rating, microfinanzas, MicroRate, mCril Tools for SPM

3. Poverty scorecards A poverty scorecards assesses: Poverty status of clients (very poor, poor, not so poor, non-poor) Improvements in poverty level Tools for SPM

PPI: estimates the likelihood that an individual falls below the national poverty line Tools for SPM

4. Social performance reporting a) GRI guidelines Tools for SPM

Which of these tools would be useful for your MFI?

Environmental management Would your MFI support this type of business activity?

Should you be concerned with your clients health & safety? And what about the waste water? Environmental management

Can MFIs reduce harmful pesticide use by their clients? Environmental management

What role can MFIs play in supporting renewable (e.g. solar) energy? Environmental management

What environmental, health & safety issues may be relevant for your clients? What does your MFI do to manage these? What costs & benefits does this involve?

Environmental management You may think….But let’s also consider this First earn some money, then we will consider environmental, health & safety issues Improving clients’ lives can also include a clear environment and safe working conditions MFI clients don’t pollute, big oil companies do One micro-entrepreneur may have limited impact, but what about 50000? Strict rules will drive my clients to the competitors Helping clients improve may be an added value MFIs can’t afford thisAn MFI may be eligible for lower interest rates from investors

Managing EHS risks Exclusion list Fact sheets Loan application sheet Loan contract Contract clauses Mon itoring specs Reports to investors Loan appraisal sheet Reporting formats Application Appraisal Contracting & Disbursement Recovery & monitoring Reporting MIS info

Environmental management

MFIs offer special loans to convert vehicle from petroleum to compressed natural gas. Natural gas produces fewer harmful gasses and reduces the CO2 emission with 15%. Also, the fuel efficiency of the cars rises. costs: US$ 800.Since petrol prices rose significantly, payback times were short and taxi drivers increased their earnings. Environmental management

Wrap up What Triple bottom line is notWhat TBL is Short term profitLong term value creation Only for NGOsRelevant for all MFIs that consider themselves professional Considering poverty as “money only” Include decent work and direct environment Shifting responsibilities to othersTaking responsibility for clients wellbeing Imposing western standardsHelp MFIs to improve their business and that of their clients Finished product or blueprintWork in progress and adaptable to the context