1. Microfinance Social Investor Roundtable
Jordan, June 5, 2012

2. Agenda
Trends in Investment and Updates on RF Initiatives (MIX, Smart, SPTF, GIIN,PIIF; Results MFI survey)
From Consensus to Actions and Accountability
Lunch
Balanced Returns
Role of Investors in Client Centric Financial Inclusion

3. Trends in microfinance investment
Findings from CGAP analysis of 10 largest MIVs
Growth rate on the rise (7.2% ; 4.1% )
Decreasing returns (over last 4 years – stable 2010/11)
Increase in equity funds,- investments and local currency funding (e.g. MFX 3x 2010 volume)
More focus on underserved markets (SSA, rural)
Diversification in impact investment (ag, SME)
Credit risk still concern in some markets
More attention for SP and OI in particular

4. Updates from RF initiatives
MIX
Smart Campaign
Social Performance Task Force
GIIN
UNPRI/PIIF

5. Responsible investment initiatives in microfinance
- Retail providers -
Level of engagement
Client protection
(‘do no harm’)
Social commitment
(‘do good’)
Smart Campaign (Smart)
Paris Appeal
Public endorsement
MFT
Smart toolkits
SPTF Universal Standards for SPM
MIX
Tools for Implementation and Self Assessment
MFT
Measuring progress and reporting - externally
Smart Certification
MIX SP Certificate of Data Quality
Seal of Excellence
Latin American Certifications
Certification
Microfinance Institutional Rating
Social ratings
Audit / rating
Social audits
in development

6. Responsible investment initiatives in microfinance
- Direct investors / MIVs -
Level of engagement
Client protection
(‘do no harm’)
Social commitment
(‘do good’)
Principles for Investors
in Inclusive Finance
Smart Campaign (Smart)
Paris Appeal
Public endorsement
MFT
Smart toolkits
Tools for Implementation and Self Assessment
IRIS
Luminis *
Measuring progress and reporting - externally
Symbiotics (MIV Disclosure Guidelines)*
Certification
LuxFlag *
Audit
CERISE Social Audit*
Assessment
/ rating
Social ratings (inc. GIIRS, M-CRIL, Luminis) *
* for funds (MIVs) only

7. Responsible investment initiatives in microfinance
- Indirect investors -
Level of engagement
Client protection
(‘do no harm’)
Social commitment
(‘do good’)
Principles for Investors
in Inclusive Finance
Smart Campaign
Paris Appeal
Public endorsement
Tools for Implementation and Self Assessment
Measuring progress and reporting - externally

8. Agenda
Trends in Investment and Updates on RF Initiatives (MIX, Smart, SPTF, GIIN,PIIF; Results MFI survey)
From Consensus to Actions and Accountability
Lunch
Balanced Returns
Role of Investors in Client Centric Financial Inclusion

9. Four action groups of the SPTF Social Investor Working Group
Reasonable covenants – Dina Pons (Incofin)
Harmonization of due diligence on social performance questions - Christophe Bochatay (Triple Jump)
AvOID (over-indebtedness) – Lisa Sherk (Blue Orchard) and Rocio Cavazos (Deutsche Bank)
Implementation of the Principles for Investor in Inclusive Finance – Emilie Goodall (UNPRI/PIIF) and Antonique Koning (CGAP)

10. Reasonable Covenants Purpose/ objectives
Define reasonable financial and social covenants for debt partnerships.
Reasonable covenants, are covenants which ensure that our MFI partners will adopt a “responsible financing” behaviour which will not harm their end clients.
Define common language regarding Borrowers’ and Lenders’ attitudes in case of breach of covenant.

11. Reasonable Covenants Achieve ments
Position paper has been drafted. It includes
7 financial covenants in :
Financing Structure
Profitability and Efficiency
Portfolio Quality
Liquidity
2 social representations/undertakings
Client Protection Principles
Mix Market Social Reporting
Common legal language on:
Borrower’s behaviour in case of breach
Lenders’ behaviour in case of breach
Please refer to our position paper

12. Reasonable Covenants Challenges Next steps
Difference of perception: legally binding decisions vs. principles to endorse
Strategy to promote those covenants within the microfinance investment community.
Discussion within each MIV Risk and Credit Departments to ensure alignment.
Next steps
Presentation of the position paper to the broader microfinance investment community (today)
Individual discussion of each MIV/DFI representative with his/her own management (ongoing)
By the end of Q3 2012: Formal endorsement by MIVs CEO?
By the end of 2012: Coordination of regional investment managers of MIVs to ensure implementation

13. Harmonization of due diligence on social performance questions
Purpose
Harmonize tools to assess social performance management during due diligence in order to:
Promote a common understanding of SPM
Ease reporting for MFIs
Improve our own practice
Possibly share and compare results

14. Harmonization of due diligence on social performance questions
Achieve-ments
Created a list of 10 core common indicators
Addressing most core issues of SPM
Giving an overview of an MFI’s SPM practice
Focused on consensual elements
Designed for scoring, based on IO assessment
Aligned with other initiatives (IRIS, MIX, Universal Standards)
5 investors adopted the indicators: Cordaid, Incofin, Oikocredit, SNS, Triple Jump
Vision & mission
Monitoring results
Staff appraisal and incentives
Prevention of over-indebtedness
Transparency
Client feedback
Product range and quality
Non-financial products and services
Women representation
Environment

15. Harmonization of due diligence on social performance questions
Challenges
Easier to agree on content than on format: we all look at the same issues and similar indicators but we integrate results differently
Needed flexibility to modify individual approach threatens long term commitment to the indicators
Similar sector wide initiatives are being developed simultaneously
Steps towards Implemen-tation
Share the list of core common indicators with the larger group of social investors
Evaluate the benefits of using the core indicators among current participants
Decide on future of working group:
Is further harmonization still a priority?
Should the working group refocus on sharing of DD practices?

16. Overindebtedness Purpose/ Objectives Achieve- ments
Create a space for MIV interaction and knowledge sharing on OID. Identify areas where there is an interest for collective action, such as building consensus around OID definitions, measurement, indicators to monitor
The group’s existence is based on the premise that its members believe that there is a need for broad-based collective action on over-indebtedness by investors, that the problem cannot be tackled by any one actor alone but investors working together can have an impact
Achieve-
ments
Inventory of existing research and literature reviews on over-indebtedness
List of current investor actions from 9 MIVs with regard to over-indebtedness (in terms of markets and portfolio monitoring, country and MFI exposure limits, research, MFI selection criteria and monitoring, etc.).
Held 3 calls with broad based participation. Invited OID researcher Jessica Schicks to share insights on her OID research.

17. Overindebtedness Achieve- ments (cont.)
Listed group members’ “burning questions” and
discovered significant overlap in certain areas:
What is the definition of over-indebtedness?
What is an acceptable level of indebtedness?
What is the relationship between over-indebtedness
and multiple borrowing?
What are the drivers of over-indebtedness?
What can investors do to avoid contributing to
problems in a saturated market?
Drafted a “Code of Conduct” for investors with key actions that investors can take to reduce the risk of overindebtedness, including:
monitor market’s growth capacity
perform rigorous analysis of client over-indebtedness and MFI overlending risks
encourage the development and use of credit bureaus
Work with peers to raise awareness, improve measurement and take individual and collective action
Code of Conduct
Maintain reasonable estimates of each market’s growth capacity
Perform a rigorous analysis of client over-indebtedness and MFI overlending risks as part of our investment process when financing MFIs  
Use best efforts to ensure that the MFIs to which we lend adequately assess and monitor their clients’ repayment capacity
Have an open dialogue with MFI management and Board to ensure that they are aware of the risks and warning signs of over indebtedness
Encourage the development and use of credit bureaus
Work together with peers in the industry to raise awareness, improve measurement and take individual and collective action to address markets where there are concerns about rising risk of over-indebtedness

18. Overindebtedness Challenges Steps towards Implementation
It has proven difficult to agree on scope of collective action and, amongst all of the questions, to determine an appropriate role for a broad group of investors at the global level in dealing with an issue that is highly local
Defining the group’s role in a way that does not require unrealistic amounts of monitoring and analysis
How do we translate ideas into concrete actions and avoid being soley a public relations exercise? For the Code of Conduct, the feedback was unanimously supportive, but many were wary of having “another piece of paper to sign” and wanted to see how this could add value in a concrete way.
Steps towards Implementation
Respond to the question: Do we agree on the need for
international, broad-based investor collective action on
over-indebtedness?
If so, determine the best way to make the code of conduct meaningful and implementable. Incorporate in the PIIF? Elaborate examples of best practices? Conduct Peer Reviews? Require commitment to support of OID studies?

19. Implementation of PIIF
Purpose/
Objectives
The aim of the Principles for Investors in Inclusive Finance is the greater adoption of responsible investment in inclusive finance by indirect and direct investors (see
This action group’s purpose was to:
Share learning regarding implementation
Develop a reporting framework
Achieve
Ments
- Three action plans shared via signatory extranet
Case studies from nine direct investor signatories published via case study compendium, further case studies published via signatory-only intranet
- Pilot PIIF reporting framework for both direct and indirect signatories published in April 2012
- Considerable input received from signatories and other stakeholders – thank you!

20. Steps towards implementation
Challenges
How to embed these approaches within organisations – behaviour change
Encouragement needed by asset owners (heterogeneous group)
Status of different codes, principles, standards
Next steps
Reporting framework now open, collecting data for signatories June to August Voluntary this year; encouraging as many to take part as possible.
Call for action plans
Asset owner interviews
Two parallel tracks, building on strategic priorities consultation earlier this year: i) first steps (guidance being developed), ii) deepening understanding in specific areas
Recruitment and outreach, which involves signatories’ support (peer to peer, investor to investee and vice versa)

21. Agenda
Trends in Investment and Updates on RF Initiatives (MIX, Smart, SPTF, GIIN,PIIF; Results MFI survey)
From Consensus to Actions and Accountability
Lunch
Balanced Returns
Role of Investors in Client Centric Financial Inclusion

22. Standards on Balanced Returns
For information: relationship between client protection and financial performance, research update
For discussion: exploring the Universal Standards for SPM, Section 6: Balance Financial and Social Performance
Linking to PIIF Principle 6: Balanced Returns

23. Universal Standards, Section 6
6.a. Growth rates are sustainable and appropriate for market conditions, allowing for high service quality.
6.b. The institution’s financing structure is appropriate to a double bottom line institution in its mix of sources, terms, and desired returns.
6.c. Pursuit of profits does not undermine the long- term sustainability of the institution or client well- being.
6.d. The institution offers compensation to senior managers that is appropriate to a double bottom line institution.

24. PIIF Principle 6: Balanced returns
We will strive for a balanced long-term social and financial risk-adjusted return that recognizes the interests of clients, retail providers, and our investors.
Possible actions:
Exercise voting rights when available.
When investing in equity, develop an engagement capability with investees to achieve a reasonable and fair alignment between the social impact and the financial return requirements of shareholders; i.e. focusing on long-term rather than short-term returns.

25. PIIF reporting framework questions

26. PIIF reporting framework questions