microfinance as social business_jurgen hammer

Microcredit Summit CampaignMerida, Mexico – Sept 4th, 2014

WORKSHOP Group 3

Microfinance as Social Business

Jurgen HAMMER CIO and Head of Social Performance Management

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MICROFINANCE AND SOCIAL BUSINESS

1 Grameen Credit Agricole Foundation - GCAMF Who are we ?

2 Social Business - Concept and Application

3 Case Study Chamroeun (Cambodia)

4 Case Study ACAD (Palestine)

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1. Grameen Credit Agricole - Mission

Complementary services

Financial Instruments

Objectives

Investment approach

Mission Contribute to poverty alleviation

Microfinance

Access to financial services

Mainly loans and guarantees

Technical Assistance

Social Business

Access to essential goods and services

Equity and debt

Support and Coaching

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1. GCAMF – Activities and Portfolio ( 30 June 14)

4

Total outstanding microfinance portfolio: € 26,5 million (1)

35 partner MFIs (1) in 19 countries, mainly sub-Saharan Africa and South and South-East Asia

Partner MFIs have 2,2 million active customers of which: o 84% are women o 84% live in rural areaso 25% live in sub-Saharan

Africao Average loan amount € 372

The Foundation is a shareholder in 11 Social Businesses located in 8 countries with a portfolio of € 4 million.

(1) Chamroen and ACAD are accounted for in the SB portfolio

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1. GCAMF Social Business Portfolio ( Q1 – 2014 )

5 Grameen Crédit Agricole Microfinance Foundation – April, 8 2014

42%

3%

50%

5% Financial services

Health

Agri-food

Other

41%

45%

5%9%

Sub-saharian Africa

South & South-East Asia

Europe

MENA

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1. Investment Policy Social Business

FINANCIAL INSTRUMENTS

EQUITY50%

DEBT50%

SECTORS

ESSENTIAL GOODS and SERVICES

- Focus on agriculture and agro industries

- Other sectors: energy, waste management, housing, healthcare,

culture, communication

FINANCIAL INFRASTRUCTURES- Microfinance institutions- Financial services: micro insurance, mobile banking,

remittances

GEOGRAPHY

DEVELOPPING COUNTRIES

- Sub-Saharan Africa, - MENA

- South and South East Asia

> 75%

DEVELOPED COUNTRIES

< 25%

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2. Concept and Application

At the crossroad of entrepreneurship and philanthropy

Social Business is based on business and market mindset to develop projects, innovate and create products and services

Social Business initiatives are aimed at providing affordable solutions to nutrition, drinkable water, health, sanitation, housing, finance (…) for the poor

Social Business requires long term vision, patient capital and a spirit of partnership

In Social Business, traditional financial instruments are used to serve social causes

Objective

Financial Profit maximisation

InstrumentsDebt / Equity

Objective

Financial sustainability+

Social Return

InstrumentsDebt / Equity

Objective

Social Return only

InstrumentsGrants

Social Business is an infinite source of systemic innovation

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NATIONAL BANK OF CAMBODIA

19 NBC BranchesMFIs

09 Foreign Branch Banks

6 Privately owned

13 Locally incorporated 37 Licensed

Money ChangerLicensed 65

Registered 1,377

33 Registered (NGOs) 4 Representative Offices

1 State owned

32 Commercial Banks 7 Specialized Banks

7 Deposits

10 Subsidiary

Banks

Financial Sector in Cambodia

Source: NBC - Q1 Report 2013

3. Case Study Cambodia – Chamroeun

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Started 2006 by Entrepreneurs du Monde as NGO program

Focus on serving the very poor in Phnom Penh, by providing adapted loans, savings, and microinsurance services.

2009, as regulation requirement, transformed to a private liability company and obtained certificate of registration as Credit Operator from National Bank of Cambodia.

2011, achieved all the requirements to become a Licensed Microfinance Institution granted by the National Bank of Cambodia in August 2011.

3. Case Study Cambodia - Chamroeun

Chamroeun Background

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“A leading Cambodian social microfinance institution working to achieve positive and lasting changes in the livelihoods of economically active poor families in a socially responsible manner”

“To improve the livelihoods, skills, and self-confidence of poor families in Cambodia by providing them a wide range of responsible microfinance and complementary socio-economic services”

VISION

MISSION

Integrity, quality of services, transparency, fair practices, confidentiality, and non-discrimination

CORE VALUES


Vision, Mission & Core Values

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Primary objective = a strong positive impact on the living conditions of the poor households in Cambodia, particularly micro entrepreneurs.

Over 85% of clients/beneficiaries are women such as small market stallholders, ambulant vendors and other small scale activities.


Targeted Population

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Chamroeun is a social business which seeks to maximize social impact for its clients rather than financial return for its shareholders:

Bylaws of the institution specifically state there is no dividend distribution

Profits are fully re-invested in the organization to the benefits of the micro entrepreneurs

Interest rates charged to clients have progressively been decreased each year since 2010 to reduce the cost of services


Chamroeun = A Social Business MFI

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Social-driven governance: All of Chamroeun’s shareholders and Board of Directors members are social-

oriented; Social Performance Management Committee set up at Board of Directors level to

protect the institution’s social mission while ensuring its financial sustainability. Committee tasks and responsibilities :

Supervision of effective translation of the institution’s social mission into practices

Assure strong focus on promoting best practices and monitoring social performance by using recognized tools, clear targets, and metrics

Full review on Chamroeun using the drafted Universal Standards for Social Performance Management developed by the SPTF

Active involvement in revision of the vision and mission and the social performance tools used within Chamroeun.



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Enable environment for vulnerable and poorest of the poor to access to financial services:

Very small and flexible loan terms and conditions

Average loan size 125 USD (about 14% of GNI per capita), for business start-up or expansion

40 offices nationwide to serve partners (transportation costs and timing)

Products are tailored to fit with business needs and characteristics

Latest: pilot the micro insurance services



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Wide range of non-financial services: Trainings to partners/clients and non-partners, free of charge

o financial literacy and business trainingo social trainingo skill trainingo social and business counseling with free of charge;

Using unified approach: socio-economic officers are in each branch to offer such non-financial services;

Environmental protection: In process to initiating financing initiatives toward renewable and clean

energy Awareness on usefulness on renewable and clean energies is in

development process



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Profit sharing back to the partner through Chamroeun Foundation:

Board of Directors and management established the Chamroeun Foundation Association (CFA)

CFA implements charity activities - scholarship to partner’s children, supporting other NGOs who are working with the same population and responding to disasters.

Clear policy to share back the profit from microfinance activities through the Foundation.



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Active involvement with with social-driven initiatives:

o Endorsement SmartCampaign;o Reporting to MIX Market;o Updating of pricing structure with MFTransparency;o Member of Cambodia Microfinance Association and of Banking

with the Poor Network (BWTP);

Social performance measurement:o Annual assessment using Cerise’s SPI since 2007;o Perform the Poverty Assessment Tools (PAT);o Both financial and social rating in 2011 + mandatory updates

every 2 years;o Started self evaluation against Universal Standards for Social

Performance Management (USSPM) initiated by Social Performance Task Force (SPTF) and put in follow-up agenda of Board SPM Committee;

o In process of certification on client protection.



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Competitive benefits with stimulating and respectful working environment:

Equal job opportunities with competitive benefit package

People with disability and women strongly encouraged

Profit sharing to staffs

Sound capacity building and career development programs

Regular reflection on satisfaction through staff satisfaction surveys, client satisfaction surveys and annual workshop

The code of conduct + code of ethics



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Comparison to peers*

* data obtained from Cerise July 15th, 2013

SPI Benchmark


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Key features

• 1988: ACAD NGO started its lending activities. • 2013: transformation into a for-profit Limited Liability Company (ACAD

for Finance & Development)• Shareholding structure:

• Gross Loan Portfolio (as of June, 2014): USD 4,7 mln.• Over 3,000 active borrowers, 70% women, 60% located in rural areas.• 40% of portfolio finances agriculture.

Entity USD (1,000) % of capital

ACAD (NGO) 3,000 56,5%

EIB 1,000 18,8%

SIDI 535 10%

GCAMF 500 9,4%

Triple Jump 300 5,6%

4. Case Study Palestine - ACAD

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Social Business Charter: Structure & Methodology

Principles (between 5 to 7) Based on Prof. Yunus‘ Seven Principles of Social Businesses Defining fundamental Social Business characteristics of the Microfinance

Institution

Commitments (1 to 3 per Principle) Translation of the principles into concrete, measurable engagements Consensual definition between GCAMF and the partner MFI

Indicators Precise indicators to be measured and analyzed on a regular basis Indicators from a standardized and widely used datasets (USSPM & Mix

Market, IRIS etc) to allow for benchmarking.

4. Case Study Palestine - ACAD

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Principle 1: The Social Business aims at contributing to the overcoming of poverty and vulnerability through a business based approach.

Principle 2: The Social Business’ objective is to provide solutions to one or more problems that threaten people and society.

Principle 3: The Social Business protects its clients.

4. Case Study Palestine - ACADSocial Business Charter - Principles

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Principle 4: The Social Business aims at being profitable, to ensure its economic and financial sustainability. Its objective is not profit maximization. The intention is that profits shall be re-invested by the business in ACAD-Finance in order to maximize the social impact.

Principle 5: The Social Business contributes to a better environment.

Principle 6: The Social Business works for employee empowerment, pays market wages and offers above standard working conditions.

Principle 7: The Social Business sets up relevant indicators to monitor these commitments and the social impact on stakeholders.

4. Case Study Palestine - ACADSocial Business Charter - Principles

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• Principle 1: The Social Business aims at contributing to the overcoming of poverty and vulnerability through a business based approach.

• Commitment 1: ACAD-Finance has a clear focus on serving vulnerable clients in Palestine.

• Commitment 2: ACAD-Finance allocates a significant part of its resources to serve rural clients and small-holder farmers by facilitating their access to finance and – through ACAD NGO or other partner organizations - capacity building services.

• Commitment 3: ACAD-Finance is committed to the promotion of Palestinian women’s empowerment through special financial services designed to meet their needs.

4. Case Study Palestine - ACADSocial Business Charter - Commitments

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• Principle 4: The Social Business aims at being profitable, to ensure its economic and financial sustainability. Its objective is not profit maximization. The intention is that, provided this is consistent with ACAD Finance’s dividend policy, profits shall be re-invested by the business in ACAD-Finance in order to maximize the social impact.

• Commitment 9: The balance between distribution and retention of profits is subject to ACAD-Finance’s dividend policy which is agreed with the Shareholders further to the mechanism set out in the Shareholders’ Agreement. Whilst ACAD-Finance will wish to retain profits in the company in order to ensure its development and sustainability and to grow the company and thus to foster its social mission, it is also accepted that Shareholders have expectations of a return on their capital.

• Commitment 10: It is noted that in order to reflect the spirit of Principle 4, investors have voluntarily committed to reinvesting the amount of any distributions that they receive from ACAD-Finance into social business projects with the purpose of maximizing social impact.

• Commitment 11: Bonuses and any profit-sharing schemes for the executive directors and managers of ACAD-Finance are granted equitably based on financial and social performances.

4. Case Study Palestine - ACADSocial Business Charter - Commitments

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Jurgen HAMMER

CIO and Head of Social Performance Management

[email protected]

Tel: + 33 1 57 72 02 47

www.grameen-credit-agricole.org

CONTACT

mailto:[email protected]

http://www.grameen-credit-agricole.org/

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APPENDICES

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Principle 1: The Social Business aims at contributing to the overcoming of poverty and vulnerability through a business based approach.

ACAD-Finance Company is a regulated social finance company based in Palestine that provides sustainable and efficient financial services to women and poor families, mainly in rural areas, to contribute to poverty alleviation and economic development in Palestine.

Principle 2: The Social Business’ objective is to provide solutions to one or more problems that threaten people and society.

ACAD-Finance provides support to agriculture development. By supporting the increase of better quality agricultural production and market outlet (through business development support from ACAD) it contributes to improved food security for Palestinian communities.

Principle 3: The Social Business protects its clients.

ACAD-Finance adheres to the sector’s standards on client protection: it endorses the SMART Campaign’s Client Protection Principles (“CPPs”) and puts in place key procedures to ensure its compliance with them. CPPs will be an integral part of a set of social performance indicators that ACAD-Finance designs and defines, together with its shareholders, to monitor its action.

App1. Case Study Palestine - ACADSocial Business Charter - Principles

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Principle 4: The Social Business aims at being profitable, to ensure its economic and financial sustainability. Its objective is not profit maximization. The intention is that profits shall be re-invested by the business in ACAD-Finance in order to maximize the social impact.

ACAD-Finance’s financial and economic sustainability are key drivers, allowing ACAD-Finance to implement and maintain its social mission over time, therefore having a

sustainable impact on the areas where it operates. Driven by a business-based approach and operating in a competitive framework,

ACAD- Finance ensures its viability and development through relentless review and improvements of its products and services. ACAD-Finance’ strategy to achieve these social

and financial returns is aligned with its social mission.

Principle 5: The Social Business contributes to a better environment.

ACAD-Finance is committed to contributing in efforts that help ensure a healthy environment for current and future generations.


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Principle 6: The Social Business works for employee empowerment, pays market wages and offers above standard working conditions.

ACAD-Finance’s human resources policy reflects fair and non-discriminatory treatment of employees, with a particular focus on training, personnel and career development.

Principle 7: The Social Business sets up relevant indicators to monitor these commitments and the social impact on stakeholders.

ACAD-Finance contributes to the development of tools and indicators used for monitoring the achievement of its social commitments.


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• Principle 1: The Social Business aims at contributing to the overcoming of poverty and vulnerability through a business based approach.

• Principle 2: The Social Business’ objective is to provide solutions to one or more problems that threaten people and society.

• Commitment 1: ACAD-Finance has a clear focus on serving vulnerable clients in Palestine.

• Commitment 2: ACAD-Finance allocates a significant part of its resources to serve rural clients and small-holder farmers by facilitating their access to finance and – through ACAD NGO or other partner organizations - capacity building services.

• Commitment 3: ACAD-Finance is committed to the promotion of Palestinian women’s empowerment through special financial services designed to meet their needs.

• Commitment 4: In order to encourage the establishment of credit and savings schemes ACAD-Finance provides loans to agriculture cooperatives and farmers, and contributes to strengthening the value chain of agricultural products.

• Commitment 5: ACAD-Finance’s funding support to cooperatives is closely linked to the technical assistance and training provided by ACAD NGO to cooperatives and their members.

• Commitment 6: Subject to availability in the market, ACAD-Finance, as a microfinance institution, will actively commit to promote, micro insurance services adapted to the agricultural sector in Palestine and to engage with public and private stakeholders in order to improve their awareness of this product.

App2. Case Study Palestine - ACADSocial Business Charter - Commitments

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• Principle 4: The Social Business aims at being profitable, to ensure its economic and financial sustainability. Its objective is not profit maximization. The intention is that, provided this is consistent with ACAD Finance’s dividend policy, profits shall be re-invested by the business in ACAD-Finance in order to maximize the social impact.

• Commitment 9: The balance between distribution and retention of profits is subject to ACAD-Finance’s dividend policy which is agreed with the Shareholders further to the mechanism set out in the Shareholders’ Agreement. Whilst ACAD-Finance will wish to retain profits in the company in order to ensure its development and sustainability and to grow the company and thus to foster its social mission, it is also accepted that Shareholders have expectations of a return on their capital.

• Commitment 10: It is noted that in order to reflect the spirit of Principle 4, investors have voluntarily committed to reinvesting the amount of any distributions that they receive from ACAD-Finance into social business projects with the purpose of maximizing social impact.

• Commitment 11: Bonuses and any profit-sharing schemes for the executive directors and managers of ACAD-Finance are granted equitably based on financial and social performances.


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• Principle 7: The Social Business sets up relevant indicators to monitor these commitments and the social impact on stakeholders.

• Commitment 16: The Board of Directors of ACAD-Finance determines relevant indicators for each of the above commitments. To do so, ACAD-Finance, operating as a microfinance institution, may be supported by external specialists and development actors in the field of microfinance.

• Commitment 17: ACAD-Finance’s social impact will be assessed, at the latest, three years after the agreement on this Charter. This assessment shall be undertaken on a transparent and independent basis by a dedicated research professional or organization. Among the tools used by ACAD-Finance to monitor its social commitments, it may use a poverty measurement score card, such as the Progress out of Poverty Index (PPI) tool, in order to measure the poverty level of its clients.

• Commitment 18: ACAD-Finance commits to report relevant social performance indicators to the MIX market on an annual basis.


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