PATRICK CROMPTON, FINCA INTERNATIONAL; GARY WOLLER, WOLLER & ASSOCIATES; RANI DESHPANDE, CGAP

1. CLIENT-RESPONSIVE MICROFINANCE: SOCIAL PERFORMANCE MANAGEMENT AND IMPROVING SAVINGS SERVICES FOR THE POOR PATRICK CROMPTON, FINCA INTERNATIONAL; GARY WOLLER, WOLLER & ASSOCIATES; RANI DESHPANDE, CGAP MICROENTERPRISE DEVELOPMENT IN A GLOBALIZING WORLD: A USAID LEARNING CONFERENCE JUNE 16, 2006

2. Managing the Social Performance of Microfinance Institutions

3. WHAT IS SOCIAL PERFORMANCE? • The effective translation of an institution's social mission into practice (actions, corrective measures, outcomes). • The social goals and objectives of an MFI may include: • Serving increasing number of poor and excluded people sustainably - expanding and deepening outreach to poorer people • Improving the quality and appropriateness of financial services available to the target clients

4. WHAT IS SOCIAL PERFORMANCE? • The social goals and objectives of an MFI may include: 3. Creating benefits for the clients of microfinance, their families and communities relating to social capital and social links, assets, reduction in vulnerability, income, access to services, and fulfilment of basic needs. 4. Improving the social responsibility of the MFI towards its employees, its clients and the community it serves.

5. WHAT IS SOCIAL PERFORMANCE MANAGEMENT (SPM)? • The process of collecting and using social performance information to manage and improve the performance of an MFI in relation to its social objectives.

6. WHY MANAGE SOCIAL PERFORMANCE? • MFIs have an ethical responsibility to account for their social performance in a reasonably transparent manner. • Integral to maintaining the social mission of microfinance. • Helps MFIs create a more client-centered organization with products and services that are more demand-driven.

7. WHY MANAGE SOCIAL PERFORMANCE? • Facilitates better financial performance • Allows MFI managers to measure and manage the tradeoffs between financial and social performance. • Permits social performance benchmarking • Allows socially-oriented MFIs to demonstrate their “blended returns” to donors and investors

8. WHAT IS SOCIAL PERFORMANCE ASSESSMENT (SPA)? • The process by which the MFI measures its social performance relative to its social mission and objectives and to those of key stakeholders. Measurement may focus at any of the steps in the social impact causal chain.

9. SOCIAL PERFORMANCE CAUSAL CHAIN Outputs Internal Processes Inputs Outcomes Impacts

10. APPROACHES TO SPA • Two broad levels of performance • Social metrics • Inputs • Outputs • Outcomes • Impacts • Internal processes: Operational processes within the MFI that transform inputs into outputs, outcomes, and impacts.

11. APPROACHES TO SPA • Two generic approaches • Indicator-based approach: Uses quantitative or categorical indicators to measure different dimensions of social performance. • Audit-based approach: Uses social auditing to assess social performance. • Social auditing is a means of assessing the social effects and ethical behavior of an organization in relation to its aims and those of its stakeholders. The purpose of social auditing is to • Validate the social accounts and indicators self-reported by the MFI and • Assess internal processes and render judgment as to their soundness (e.g., the extent to which they are likely to align behavior and performance with social mission).

12. TYPOLOGY OF APPROACHES TO SPA

13. SOCIAL RATING • An independent assessment of an organization’s social performance using a standardized rating scale. The social rating process and rating scale are similar to those used for financial rating.

14. Social Performance Management and Assessment Initiatives

15. Imp-Act Consortium • Imp-Act supports microfinance institutions (MFIs) in developing their own social performance management (SPM) systems. • The following organizations are its principal members: • Freedom from Hunger; EDA Rural Systems; IDEAS; Microfinance Centre; CARD/Microfinance Council

16. IMP-ACT CONSORTIUM-GOALS • To build capacity for SPM training and support • To build demand for and equip a large number of MFIs globally to effectively manage their social performance • To document evidence and learning to advance and promote good practice in SPM

17. IMP-ACT CONSORTIUM-ACTIVITIES • Develop and offer training workshops, technical advice, and mentoring to a range of organizations and individuals (training of trainers) that have a long-term commitment to promoting an approach that builds sustainable management at an MFI level • Promote and develop commitment to SPM among industry stakeholders • Train MFIs in the framework, system design, and use of SPM • Provide follow-up support for design and integration of SPM systems • Facilitate lateral learning and reflection among MFIs • Synthesize, document, and disseminate good practice in SPM internationally • Document further evidence for cost-effectiveness and benefits of SPM • Develop a common framework for external reporting • Promote SPM within the broader microfinance industry

18. USAID SPA TOOL • The USAID tool combines simple outcome-based and social auditing approaches • Social Performance Scorecard (7 dimensions of outreach: breadth, depth, cost, length, scope, worth, community) • Audit of 5 key internal processes • Mission statement and management leadership • Hiring and training • Incentive system • Monitoring system • Strategic planning

19. USAID SPA TOOL • Two markets • Social rating • Internal assessment • Pilot test of Social Rating in Albania, Bolivia and Mali (?) • Pilot tests of Internal Assessment being planned

20. SOCIAL RATING TOOLS • Organizations currently developing social rating • PlanetRating • Microfinanza • M-CRIL

21. SOCIAL PERFORMANCE INDICATORS INITIATIVE (SPII) • The SPII is a joint venture of CERISE, CGAP, and the Argidius Foundation. The SPII measures social performance along four dimensions: • Outreach to the poor and excluded. • Adaptation of products and services to target clients. This dimension assesses the organizational processes by which MFIs attempt to learn about and satisfy clients’ needs. • Improving social and political capital. This dimension measures the degree of organizational transparency and the extent to which MFIs give voice to clients within the organization and beyond (e.g., community, local government, national government, etc.). • Social responsibility. This dimension measures whether and the extent to which MFIs adapt organizational policies, practices, and culture to their socio-economic and cultural contexts; have an adequate human resource policy; offer credit guarantees adapted to local conditions; and promote balanced relationships between staff and clients.

22. CGAP-FORD PROJECT • Working with 33 MFIs to collect and identify set of indicators falling under one of five Millennium Development Goals • Eradication of extreme poverty • Universal education • Gender equality and female empowerment • Reduced child mortality • Improved maternal health • Complemented with validation work to identify small set of industry-level indicators with broad-cross cultural relevance • Create poverty scorecards based on results focusing on indicators identified by participants and which change as a result of program participation

23. GLOBAL REPORTING INITIATIVE • The GRI is an international initiative to develop social performance indicators for private sector organizations, although it has significant relevance for social enterprises operating in the NGO sector. The mission of the Global Reporting Initiative (GRI) is two-fold: • to help create an environment in which business, government, and interest groups collaborate to promote sustainable development through transparent and accurate reporting of their social performance; and • to make reporting of social performance as routine, comparable, and transparent as financial reporting by utilizing a multi-stakeholder process to develop, disseminate, and report social performance indicators.

24. MFIS USING THE GRI • Acleda Bank, Cambodia • K-Rep Bank, Kenya • Centenary Rural Development Bank, Uganda • FIE, Bolivia, • Banco Solidario, Ecuador • FINDESA, Nicaragua • To further support the MFIs in producing the in-depth reports, GRI is collaborating with Triodos Bank. Triodos provides financing to these six MFIs through its Hivos-Triodos and Triodos-Doen funds.

25. ACCOUNTABILITY 1000 • AA1000 is a global social auditing initiative launched by the Institute of Social and Ethical Accountability to address the need for organizations to integrate stakeholder engagement processes into their day-to-day activities. • AA1000’s approach to social auditing is to emphasize process standards as opposed to performance standards, meaning that it specifies the processes that an organization should follow to account for its performance rather than certain performance levels that the organization should achieve. Through engagement with stakeholders, AA1000 seeks to link an organization's values to the development of performance targets, thereby linking social and ethical issues to the organization's strategic management.

26. ROBERTS ENTERPRISE DEVELOPMENT FUND (REDF) • Uses social return on investment (SROI) • SROI incorporates principles from return on investment (ROI) and cost-benefit analysis (CBE) to derive an estimate of net social benefit. Net social benefit is typically expressed as the dollar value of social benefits minus social costs or as a ratio of social benefits to social costs.

27. Increasing access to savings services:Country-Level Savings Assessments

28. Country-Level Savings Assessments What: A tool to help stakeholders support access to savings services for the poor Goals: • Identify obstacles and opportunities for promoting small-balance savings mobilization • Provide recommendations for program/ policy design

29. Study countries Benin Bosnia Mexico Philippines Uganda

30. Macro Level Legislation, Regulation, Supervision Meso Level Support Services & Infrastructure Micro Level Financial Service Providers Clients Structure of assessment Enabling? In place? Capacity? Demand?

31. Macro Level Legislation, Regulation, Supervision Meso Level Support Services & Infrastructure Micro Level Financial Service Providers Clients Main areas of assessment Clients • Explicit demand • Implicit demand • Preferences • Market size estimates

32. Common findings across countries Clients • Strong demand • Security & accessibility • Informal savings • Mistrust of institutions • Limited financial literacy Source: Bosnia Country-Level Savings Assessment

33. Macro Level Legislation, Regulation, Supervision Meso Level Support Services & Infrastructure Micro Level Financial Service Providers Clients Main areas of assessment Micro • Industry structure • Appropriateness of services • Attitudes • Capacity • Liquidity position

34. Micro Tension between security & accessibility Disbelief that poor people save Inappropriate services Excess liquidity High SECURITY Banks Target NBFIs Cooperatives Low Urban Rural PROXIMITY Common findings across countries Source: Uganda Country-Level Savings Assessment

35. Macro Level Legislation, Regulation, Supervision Meso Level Support Services & Infrastructure Micro Level Financial Service Providers Clients Main areas of assessment Meso • Wholesale funding • Liquidity management • Payment systems • Management support

36. Meso Crowding out by wholesale funds Incomplete financial infrastructure Uneven management support Common findings across countries

37. Macro Level Legislation, Regulation, Supervision Meso Level Support Services & Infrastructure Micro Level Financial Service Providers Clients Main areas of assessment Macro • Regulation & supervision • Government provision • National microfinance policies

38. Macro Inadequate supervision Restrictive regulations New laws slow outreach National policies don’t consider savings Common findings across countries

39. Suggested strategies Assessments result in suggested strategies • Promising avenues to explore • For multiple or particular stakeholders • To screen against stakeholders’ strategies, comparative advantages

40. Suggested strategies Examples from past assessments • Market research • Consumer education • Systems to signal institutional strength • Institutional partnerships • Innovative payment systems • Better supervision

41. For more information See the Savings Information Resource Center www.cgap.org/savings • Full reports from 5 countries • Maps • “Notes from the Field” • Press clippings • Comment boards

42. Building Financial Systems for the PoorThank you!

43. LEARNING CONFERENCE STRATEGIC QUESTIONS • How do we ensure our work meaningfully contributes to the lives of the poor? • How do we help link the poor into economic growth opportunities in this era of globalization? • What is the current and potential role of private sector investment? • How do we serve difficult-to-reach populations such as those affected by conflict, natural disaster, and HIV/AIDS? • How do we define “success”? How do we achieve it? What else needs to be done, and by whom? • How can we, as individuals and as organizations, leverage our comparative advantage and maximize opportunities through close partnerships and strategic alliances?  Patrick Crompton, pcrompton@villagebanking.org Gary Woller, wollerg@yahoo.com Rani Deshpande, gdeshpande@worldbank.org