Pursuing Financial and Social Goals:

Initial findings on trade-offs and synergies.

Adrian Gonzalez, MIX – SPTF Meetings, Bern, June 30th 2009

Expected trade-offs and synergies

Regression Analysis for each FP Controls: age, loan size as % of GNIPC, MFI size, deposit mobilization, lending methodology,

% urban borrowers.

 

Targeting V. Poor or PoorQ. 1

Non-Financial Services

Q. 3c

SP trainingQ. 4-5

Client Retention

Q. 7

Social Resp. to clients

(CPP principles) Q. 8

Social Resp. to StaffQ. 10a-b

-Borrowers per staff(Productivity) - -- - ++ - +

-Portfolio at Risk over 30 Days

-Write-off Ratio(Portfolio Quality)

- - - -- -- -

Operating Expense % GLP

(Efficiency)+ ++ + -- + +

Cost per Borrower as % of GNIPC (Efficiency)

+ ++ + -- + +Green: Synergies Red: Trade-offs    

Summary of Actual Results

 

Targeting V. Poor or PoorQ. 1

Non-Financial Services

Q. 3c

SP trainingQ. 4-5

Client Retention

Q. 7

Social Resp. to clients

(CPP principles) Q. 8

Social Resp. to StaffQ. 10a-b

-Borrowers per staff(Productivity)     + +   +

-Portfolio at Risk over 30 Days

-Write-off Ratio(Portfolio Quality)

   -

  -*  

         Operating Expense 

% GLP(Efficiency)

+   +     +Cost per Borrower 

as % of GNIPC (Efficiency)

+   + -   +

Green: Synergies Red: Trade-offs Yellow Inconclusive, larger sample, more details needed

Takeaways:

Several expected trade-offs and synergies between SP and FP can be confirmed: Efficiency trade-offs for targeting the poorest, SP training and social

responsibility (SR) to staff Productivity synergies for SP training and SR to staff Productivity and efficiency synergies for client retention

Investments in human capital (SP training and SR) go hand-in-hand with higher staff productivity and better portfolio quality, but lower efficiency

SP training and HR policies have stronger synergies and weaker tradeoffs with FP

Serving the poor/very poor comes at a cost in terms of efficiency, but not of risk or productivity even after considering differences in loan sizes

Implications

For MFIs Improving client retention improves financial performance Process discipline and staff support pay off

For funders You cannot ignore MFI investments in staff training, incentives

and human resource policies, whether you are socially or financially driven

For critics of high interest rates/high costs Exclusive targeting of very poor/poor borrowers increases the

average cost of loans to the borrowers For SPTF / Researchers

Need to control for SP-factors known to influence FP, in order to better understand differences in FP

Need to refine questions that have ambiguous attribution (e.g. SP training versus general training effects)

Productivity:Borrowers per Staff

Human resource policies: clear salary scale based upon market salaries, medical insurance for all staff, pension contribution, practices and procedures which ensure safety of the staff, equal pay for men and women with equivalent skill levels, staff participation in decisions that affect them, anti discrimination policies, and anti harassment policy

Portfolio quality:Portfolio at Risk over 30 Days as % of Loan Portfolio

Policies safeguarding data: written policy and procedures regarding treatment of client personal data in place, internal audit reviews security of locations and electronic systems where client data is stored, the IT system is secure and password protected, staff explains to clients how their data will be used, client consents is require prior to sharing data outside the institution, client say review and correct their information, clients are instructed on how to safeguard access codes and PIN numbers.

Efficiency:Operating Expense % Loan Portfolio

1/ Similar effect for “loan officer incentives related with SP”.

Efficiency:Cost per Borrower % GNIPC

Additional Resources:

“Microfinance Synergies and Trade-offs” (2010), MIX data Brief No. 6, forthcoming. http://www.themix.org/publications/search/results/taxonomy%3A17

agonzalez@themix.org for preliminary draft. http://www.spblog.org/

For updated on research and preliminary results “MIX Research Agenda: Linkages between Social Performance and

Financial Performance” http://www.spblog.org/2010/03/mix-research-agenda-linkages-

between-social-performance-and-financial-performance.html