1. Social Finance VII National Conference Microfinance in Russia: New Technologies of Success Workshop on Assessing the Effectiveness of Public and Private Microfinance Support Programs 21 November 2008 Severine Deboos Social Finance www.ilo.org/socialfinance

2. Social Finance Efficiency: a core criteria for decisions on support to MF I- Why public support for MFIs? II- Performance of MFIs: financial and social III. Comparability of performance III- A third performance dimension: efficiency IV- The specific context in Europe and the CIS

3. Social Finance What is the case for public support to MF? Overall amount estimated between 800 million USD and 1 billion per year (CGAP, 2005) MFIs expected to be self financing, so why public support? Public support: why, when, how, for how long, on which conditions?

4. Social Finance Performance in microfinance: between profitability and social impact ILO study of 45 MFIs worldwide: -MFIs inefficient both in terms of social and financial performance -MFIs good as social performers -MFIs good as financial performers -MFIs performing well socially and financially

5. Social Finance Performance: two dimensions

6. Social Finance A closer look at financial performance: OSS and FSS 12 < 100 OSS: neither operationally nor financially sustainable 17 > operationally sustainable, but not financially sustainable 16 both operationally and financially sustainable

7. Social Finance A larger sample: 1308 MFIs from the MIX 590 MFIs have OSS > 100

8. Social Finance A typical financial performance path

9. Social Finance Implications for public policy So… -Financial sustainability does not necessarily mean reduction of poverty -Good financial performance can cover up inefficiencies (situation of monopolist MFIs)

10. Social Finance Improvements in performance in terms of more efficiency

11. Social Finance Efficiency in MF Given multiplicity of goal combinations in microfinance efficiency is best measured relative to a similar institution closest to the efficiency frontier – the “best of the class” The level of efficiency can be established on the basis of input and output variables For an MFIs’ performance to be qualified as more or less efficient, there is a need for information on a batch of comparable MFIs Efficiency best assessed between MFIs of the same country Some determinants of efficiency can be influenced by managers, other not They should be held accountable only for endogenous drivers.

12. Social Finance Efficiency does not guarantee profitability Institution% operat. costs./portfolio (efficiency) % (RoA) (profitability) DAI sample49.46.6 BancoSol, Andes, FIE 14.56—0.7 Finamerica, WWBs19.97.8 Adopem23.210.3 Calpia, Enlace42.7—7.4 Compartamos59.412.1 Confia, finde23.25.3 Visión21.1—3.2 CMACs21.53.2 Fucac11.90.3 Moyenne excl. Brésil 23.13.4 Note: n.a. = not applicable; ROA = return on assets. Source: MicroRate website. Ratios are for June 2001.

13. Social Finance General public support measures geared to enhance efficiency Apex funds Regulation Monetary and financial market policies Fiscal treatment of MFIs Capacity building

14. Social Finance Public policy measures addressed at individual MFIs Start-up support Operating support Soft loans Capacity building

15. Social Finance Smart and not so smart subsidies cf: J. Morduch The debate on subsidies: from anti- position formulated in the CGAP Pink Book to a softened position Smart subsidies: subsidies are neither inherently useful not inherently flawed interventions designed to maximize social benefits while minimizing distortions and mistargeting Factors for evaluating: financial and social opportunity costs and risk potential to « crowd in » other donor support Smart subsidies are transparent, rule-bound and time- limited

16. Social Finance Subsidies for more efficiency: conditionalities Link operating support to measurable improvements in efficiency in relation to a best in class Agree beforehand on efficiency drivers that can be influenced by management Contractualize the grant Make it longer term, but with a definite sunset date Discontinuation if failure to comply transparency

17. Social Finance Europe and the CIS Contextual factors: Access to funding: limitations on savings collection and shifting away of donors’ support Competition: commercial banks entering the market of small entrepreneurs’ loans Legal constraints Within this context – which public support to foster efficiency of MF?

18. Social Finance The debate is open! Thank you for your attention Severine Deboos www.ilo.org/socialfinance