Social & environmental performance for microfinance

The triple bottom lineFinancial

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 performance4. Managing environmental, health & safety performance

Transparency

fair pricingOverindebtedness Poverty lending

Staff satisfaction

Client satisfactionWomen empowerment

Client focused microfinance

Financial inclusionIntegritySuggestion box

Portfolio quality

Ethical collection practices

Codes of conduct

Low interest ratesMultiple 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 way3. Measuring your results4. 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: 1.1-2.3%, 2006: 0.5%, 2007: 3.4%• further investigation for more specific info as to the underlying

causes in 2008

Reliance

Gambia

NDFS ShepherdIndia

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

MixmarketSocial 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?

8management

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 dimension Financial performanceClient satisfaction Efficiency increased

Preventing multiple loans Lower PAR

Staff satisfaction Increased efficiency

Transparent interest rates Satisfaction & lower PAR

Implemented SP policy Lower finance costs

What benefits would social performance management bring to your MFI?

Tools for SPM

I want to… toolKnow 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 performance Reporting 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

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

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 managementYou 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 this An MFI may be eligible for lower interest rates from investors

Managing EHS risks

Exclusionlist

Factsheets

Loanapplication

sheet

Loancontract

Contractclauses

Monitoringspecs

Reports to investors

Loanappraisal

sheet

Reportingformats

Application

Appraisal

Contracting & Disbursement

Recovery &monitoring

Reporting

MISinfo

Environmental management

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 upWhat Triple bottom line is not What TBL is

Short term profit Long term value creation

Only for NGOs Relevant for all MFIs that consider themselves professional

Considering poverty as “money only”

Include decent work and direct environment

Shifting responsibilities to others Taking responsibility for clients wellbeing

Imposing western standards Help MFIs to improve their business and that of their clients

Finished product or blueprint Work in progress and adaptable to the context