a survey of 405 mfis reporting to mix in 2009-2010 · tools and guides to help mfis integrate spm...

A survey of 405 MFIs reporting to MIX in 2009-2010

Written by: Micol Pistelli, Social Performance Manager, MIX

Anton Simanowitz, Member of the Imp-Act Consortium Steering Committee Veronika Thiel, External Consultant

State of Practice in Social Performance Reporting and

Management

Microfinance Information Exchange

MicroBanking Bulletin July 2011


Acknowledgments .............................................................................................................................. 4

Executive Summary ............................................................................................................................ 5

Chapter 1: Assessing Social Performance 1.1 Introduction .................................................................................................................................. 7 1.2 Methodology ................................................................................................................................. 7

Chapter 2: Trends in Social Performance Management 2.1 Overview of MIX/SPTF reporting framework ........................................................................................... 8 2.2 Profile of MFIs reporting social performance data .................................................................................... 8 2.3 Findings from the Imp-Act survey .......................................................................................................11

Chapter 3: Mission Achievement 3.1 Mission clarity ..............................................................................................................................11 3.2 Governance and organizational structure .............................................................................................14 3.3 Translating social mission into measurable outcomes ...............................................................................16

Chapter 4: Strategies and Systems Alignment 4.1 Strategic alignment ........................................................................................................................21 4.2 Information systems .......................................................................................................................22

Chapter 5: Policies and Compliance 5.1 Client protection ..........................................................................................................................23 5.2 Responsibility to staff ....................................................................................................................24

Chapter 6: Uptake and Drivers of SPM Integration .....................................................................................29

Chapter 7: Looking Ahead ...................................................................................................................31

Glossary of Terms ..............................................................................................................................33

Table of Contents


A special thank you to MIX staff: Michael Krell for data collection, calculation and editing support; Fabiola Heredia for data collection in Latin America and calculation; Scott Gaul for review of the report; Arielle Gart for copy-editing and layout; and Devang Sheth for proofing the final report. Thanks to Ewa Bankowska (Microfinance Centre), Jack Burga (Catholic Relief Services-MISION project), Micol Guarneri (Microfinanza Rating), Emmanuelle Javoy (Planet Rating), Cécile Lapenu (Cérise), Christian Loupeda (Imp-Act Consortium), Dina Pons (Planet Rating), Therese Rico (Microfinance Council of the Philippines), Nancy Samy (Sanabel) and Frances Sinha (Micro-Credit Ratings International Ltd). We would also like to extend a special thank you to the 405 ‗pioneer‘ MFIs that have reported their social performance information to MIX in the years 2009-2010.

Acknowledgements


Microfinance industry stakeholders increasingly recognize that the social benefits of microfinance cannot be taken for granted. As the boundary between microfinance and traditional finance continues to erode, remaining true to microfinance’s mission can be more challenging than ever. High levels of competition – both for clients and for funding – the pressure of commercialization and the related pressure to grow as quickly as possible all serve to distract microfinance institutions (MFIs) from what should be their top concern: making life better for their clients. MFIs need to take deliberate actions in designing and delivering appropriate services and in protecting their clients from harm. To achieve their development goals and to remain accountable towards their clients and community, MFIs need to effectively manage both financial and social performance (SP). The recognition that managing financial performance alone is not enough to achieve MFIs’ missions has led, over the past 10 years, to the creation of a variety of initiatives seeking to promote the concept of social performance management (SPM). These initiatives have sought acceptance for SPM primarily through research and the creation of tools and guides to help MFIs integrate SPM into their operations or establish industry best practices. This report assesses the various aspects of social performance management as reported to the Microfinance Information Exchange (MIX) by 405 microfinance institutions from 73 countries in 2009 and 2010. It provides a framework for analyzing the current state of social performance practice across regions, based on the social performance indicators selected by the Social Performance Task Force (SPTF), and highlights current challenges in data collection and reporting. Apart from the data collected by MIX, this report draws on two additional sources of information: an SPM learning program conducted by the Imp-Act Consortium and a survey of rating agencies, technical assistance providers and microfinance networks. The report is organized as follows:

Chapter 1 gives an introduction to the concept of SPM and to the methodology used in the report to assess the social performance of MFIs;

Chapter 2 offers a general overview of the SPM framework, indicators and industry trends, and highlights areas with the strongest and weakest performance;

Chapter 3 analyzes MFIs disclosures regarding their mission, board buy-in, and achievement of development goals;

Chapter 4 highlights trends in strategies and systems alignment through indicators such as product diversity, market research and integration of SP information into an MFI’s MIS;

Chapter 5 reviews the state of practice regarding implementation of policies and procedures on consumer protection and social responsibility towards staff, the community and the environment;

Chapter 6 identifies levels and drivers of SPM uptake;

Chapter 7 presents conclusions and recommendations on how to further support the mainstreaming of SPM across the industry.

Main findings of the report: - SPM Drivers: MFIs that operate in the most competitive and/or mature markets, have received some form of training on SPM, have strong support from local microfinance networks or receive funds from investors who base investment decisions on social performance information tend to be most active in monitoring and reporting on social performance. - SP and MFIs’ legal form: The industry no longer percieves SPM as a separate area of investigation, relevant mainly to the non-profit world, but rather as an integral part of any MFI’s operations. Reporting figures confirm this: the proportion of banks reporting social performance data in addition to financial data is as high as that of NGOs. - Governance: SPM implementation benefits from a governance structure that includes a board committee trained on social performance and responsible for reviewing and monitoring social performance information. Nevertheless, only a few MFIs reported having a board trained on social performance which regularly reviews social indicators. - Consumer protection: MFIs increasingly recognize the importance of consumer protection policies but these still need to be expanded and improved, especially given the high levels of over-indebtedness observed in certain sub-regions. Only 15 percent of MFIs reported having all six of Smart Campaign’s Client Protection Principles in place.

Executive Summary


- Target market outreach: Measurement of poverty outreach is limited to a few MFIs and data on this outreach is difficult to benchmark because of the variety of tools available and the different poverty lines used. Many MFIs cite generating employment and supporting business creation as development goals, but these types of outcomes are not commonly tracked. Management information systems (MIS) rarely capture data of this kind. - Social responsibility to staff: There is a rising recognition among MFIs that investments in human resources, staff training and incentives are key to ensuring high levels of staff and client retention. However, MFIs are struggling to find the right balance of financial and social performance-oriented rewards for staff. - Gender mainstreaming: Gender-oriented goals are generally prominent among MFIs: women represent a relatively high proportion – usually the majority - of clients across regions and half of MFIs offer non–financial services specifically designed to target the needs of women. The tendency to prioritize gender development goals is not reflected in the human resource structure of MFIs, however. Although the vast majority of human resource policies promote equal opportunities, women are a significant minority within MFI boards and management.


1.1 Introduction

Social performance monitoring and management encompass the entire set of processes implemented by a microfinance institution (MFI) to generate positive outcomes for its clients and for the communities it serves. They include analysis of the development goals of institutions, the systems and procedures MFIs have in place, and the effectiveness of these at monitoring progress towards organizational objectives. The development of these procedures has only just begun in microfinance, yet almost all industry stakeholders agree on the importance and necessity of social performance information and management. The most prominent manifestation of the growing industry consensus has been the Social Performance Task Force (SPTF), an international group comprised of investors, donors, MFIs, microfinance networks, research agencies, and other stakeholders united in the goal of defining, measuring, and improving the social performance of MFIs. The SPTF has created both a framework of analysis and a set of standardized indicators to assess MFIs‘ social performance. In 2009, the Microfinance Information Exchange (MIX) started collecting data from MFIs on these social performance indicators and, in less than two years, has received 4051 social performance reports from institutions of all sizes, types and maturity levels. This report assesses the various aspects of social performance management (SPM) as reported by MFIs to MIX. It offers a framework with which to analyze the state of social performance practice in the industry, lists some observed best practices, highlights challenges in data tracking, and offers a series of recommendations on how to improve data collection and reporting. The report also draws on two additional sources of information: an SPM learning program conducted by Imp-Act Consortium and a qualitative survey of rating agencies, supporting agencies and MFI networks, also facilitated by Imp-Act Consortium. Similar to the case for financial and operational performance assessment, MFIs stand to gain from including social performance monitoring and management in their operations for a variety of reasons. Mainstreaming social performance into operations can help an MFI:

Design and implement systems to enhance its social responsibility to clients. At a minimum, MFIs should ensure they do no harm. Microfinance has great potential to help clients, but it has the potential to hurt them as well, especially through over-indebtedness.

1 As of December 31, 2010

Track, understand and report on whether it is achieving its social objectives. MFIs that collect data on social performance indicators are more effective at reaching their target market, delivering appropriate services, and creating positive changes in clients‘ lives.

Align governance and business processes to achieve both social and financial objectives. All aspects of an MFI‘s operations affect whether it achieves its social goals, including marketing, recruitment, staff training, incentives, organizational culture and board composition.

Ensure that decision-making considers both social and financial outcomes. Awareness of the social and financial consequences of decisions leads to better overall performance management.

Source: Social Performance Principles, Social Performance Taskforce

1.2 Methodology

This report offers an overview of the state of practice of those MFIs that have started to track and report social performance information. Information reported by MFIs has been reviewed by MIX through a process of consistency checking and, whenever possible, external validation through social ratings.

MIX collects and analyzes financial performance data from MFIs across the world and, in 2009; it initiated the first global social reporting initiative in the microfinance sector. Since then, over 400 MFIs have reported social performance information to MIX during the two years of data collection. MFI reporting followed a common framework of analysis which groups indicators under four categories:

Intent

Strategies and systems

Policies and compliance

Achievement of social goals

MFIs‘ social performance data was analyzed by grouping indicators into processes and results, and looking at MFIs‘ ability to establish SPM policies and procedures to achieve the development goals they reported as their explicit institutional objectives.

In addition to the MIX dataset, the report makes use of information from the following two sources of qualitative data: o A survey of rating agencies, support organizations

and microfinance networks active in supporting SPM across the globe

o Findings from a practitioner learning program on SPM implemented by the Imp-Act Consortium

Chapter 1: Assessing Social Performance


Survey of rating agencies, support organizations and networks: To gain a more in-depth understanding of the practices behind the numbers, a survey was created by Imp-Act Consortium to look at all areas of MFI operations. This survey provides the views of stakeholders who have trained MFIs on SPM or assessed their performance through a field assessment. Survey respondents were the staffs of rating agencies and national or international microfinance networks/umbrella bodies that are actively engaged in the promotion of microfinance and SPM practices. The specific organizations in question were: 2 rating agencies – M-Cril and Planet Rating; 2 supporting agencies – Cerise and the CRS-Mision project; and 3 microfinance networks - Microfinance Centre (MFC), Microfinance Council of the Philippines (MCPI) and Sanabel. The Imp-Act Consortium SPM learning program: The SPM learning program was a two year initiative of the Imp-Act Consortium in which seven MFIs signed up to help gather evidence of effective SPM and to help understand the value it adds to an organization. The MFIs in the program committed to implementing SPM and reporting regularly on their progress. The participants were:

AMK (Cambodia)

CRECER (Bolivia)

FONKOZE (Haiti)

NWTF (Philippines)

PRIZMA (Bosnia)

Pro Mujer (Bolivia)

SEF (South Africa)

2.1 Overview of MIX/SPTF reporting framework Common standard indicators can help an MFI define who it wants to reach (outreach), how best to serve its target clients (methodology) and which benefits it wants to create (change). Such indicators have been developed by the SPTF and collected by MIX since 2009 in order to assess: (a) how an MFI is aligning its systems with its mission and (b) how an MFI uses social performance information to reach its social goals. Social performance is not just about results — it is also about the process of achieving results through strategy and operations: an MFI needs appropriate policies and procedures to achieve its development objectives. At the same time, the insitution‘s social results can be used to improve overall institutional performance, creating a virtuous circle of institutional improvement (Figure 1).

Source: Social Performance Task Force

The MIX/SPTF indicators do not, however, aim to assess impact, which implies a causal relationship between the participation of a client in a microfinance program and change in the life of a client. These sorts of causal claims are best assessed through randomized controlled trial studies. MIX/SPTF social performance indicators, on the other hand, are designed to help MFIs in the monitoring and assessment of their operations and in the fulfillment of their development goals, leaving aside the question of attribution. Source: Social Performance ask Force

2.2 Profile of MFIs reporting social performance data Key findings:

o Strong relationships exist between MFIs‘ ability to collect and report social performance data and the level of market maturity/competition, staff training on social performance and investors‘ demand for social performance data.

o Latin America is the most active region reporting SP data: half of the MFIs from this region currently report both financial and social performance information to MIX.

o Banks are as active as NGOs and NBFIs in

reporting social performance information.

Figure 1: Social Performance Pathway

Figure 2: The Social Performance Framework

Chapter 2: Trends in Social Performance Management


As of December 2010, MIX has received reports from 405 MFIs located in 73 countries. Latin America is most active in social performance reporting, with 172 MFIs submitting their information to MIX. It is also the region best represented in terms of ‗double-bottom line‘ reporting: 51 percent of MFIs reporting financial data to MIX Market in 2009-2010 also reported social data.

Regional disparities are correlated to the level of competition/maturity of local markets, the ability of MFIs to capture qualitative information and the role of local networks and supporting agencies in providing social performance training to MFIs. On a country level, the MFIs most active in reporting social performance across regions were located in the following countries:

Countries of operations Number of MFIs reporting Number of borrowers

Ecuador

27

464,893

India

25

13,224,032

Peru

23

1,265,659

Azerbaijan

18

405,090

Philippines

16

1,262,684

Pakistan

15

923,011

Indonesia

14

260,678

Colombia

13

453,131

Socially responsible investors that solicit social performance information from the MFIs to which they provide funds also play an important role. Half of MFIs reporting social performance data receive funds from socially responsible investors. The role played by such drivers in SPM integration will be further analyzed in the Chapter 6 of this report.

Source: MIX Market, FY 2008-2009

Figure 3: Social Data as Percentage of Financial Data Reported by MFIs to MIX Market


In absolute terms, non-bank financial intermediaries (NBFIs) and non-governmental organizations (NGOs) report the most information, but banks have the highest proportion of social reporting in relation to financial reporting. This contradicts the belief that SPM is relevant only to non–profit organizations. In line with financial data reporting, most MFIs that report social performance data have been operating for over eight years (Figure 5).

Age

% of MFIs

submitting social data

% of MFIs

submitting financial data

1-4 years (new) 17% 15%

5-7 years (young) 13% 19%

8+ years (mature) 71% 66%


MFIs reporting on social performance have a market coverage of about 44 million borrowers. The majority of these MFIs (58 percent) have more than 10,000 borrowers but, segmenting reporting between small, medium and large MFIs, the smaller ones have the highest rate of reporting on both financial and social performance.

Number of borrowers

% of MFIs

submitting social data

% of MFIs

submitting financial data

<10000 (small) 42% 49%

10000-30000 (medium)

22% 23%

30000+ (large) 36% 28%


Figure 4: Social Performance Data Reporting: Geographic Outreach and MF Typology

Figure 6: MFIs Size and Data Reporting to MIX

Source: MIX Market, Social Performance Data, FY 2008-2009

Figure 5: MFIs’ Age and Data Reporting


2.3 Findings from the Imp-Act survey

Key findings:

o Most progress in SPM has occurred in the measurement of client retention rates, staff appraisal and staff incentives, while the weakest areas are monitoring client poverty levels and market research.

o When social performance is included in the agendas of the board and management, MFIs show better ability to track outreach indicators and align SPM policies with their mission.

o Staff training on SPM is progressing and is

instrumental to the definition of an SP workplan.

According to the principles of SPM, an MFI needs to look at each area of its operations to assess whether and to what extent its systems and policies are aligned with its mission, goals and targets. But how many MFIs are doing so? How difficult is such assessment? The general trends described here are based on the statements of survey respondents, and will be analyzed in greater detail in the following sections using MIX data and examples from the MFI partners of the Imp-Act learning program. Imp-Act’s survey asked respondents to assess in which areas of SPM they have observed the most progress and emergence of common practices. Respondents were also asked to indicate the strength of the trends upon which they commented: weak, medium or strong. The results were quite varied and can be grouped into three trend groups:

Medium/ Strong progress

In measurement of client retention and staff appraisal and incentives

Medium progress

In staff training on SPM, social responsibility to clients and to staff

Weak progress/no clear trend

In monitoring advancement of clients out of poverty and market research on clients

When asked about common best practices that have a strong influence on the likelihood and success of SPM implementation, the respondents were nearly unanimous in their answer: where there is strong buy-in at the board and management levels, SPM can thrive.

Besides the role of governance and management, respondents identified two additional areas of best practice:

Management information systems (MIS) that allow robust data tracking and support a wide variety of decision-making.

A supportive external environment, e.g. from donors or investors or through the existence of supporting organizations and tools to help MFIs with SPM implementation.

It must be stressed that the above best practices are not necessarily common practice, but have simply been identified as facilitating uptake and implementation of SPM. These drivers will be discussed in detail in Chapter 6. Respondents identified the main barrier to SPM uptake and implementation as a lack of understanding and buy-in from top management and boards of directors, followed by a lack of capacity (staff dedicated to SPM) and operational challenges (e.g. integration of social indicators into the MIS).

3.1 Mission clarity Key findings:

o MFIs do revisit their mission, but they only alter it after they have a clearer idea about who to target and how to achieve their goals.

o The process and speed of mission adaptation improves as an MFI gains experience implementing SPM.

One of the principles of SPM states that an MFI attempting to manage its social performance should translate its mission and values into clear, measurable objectives that capture intended social benefits. MFIs that are clear about their social goals and objectives are better able to create deliberate strategies to achieve them. MFIs should ask themselves: ―Is it clear from my vision and mission statements what my organization aims to achieve?‖

Chapter 3: Mission Achievement


Development goals

Banks (33)

Cooperatives

(42)

NBFIs (157)

NGOs (160)

Rural Banks (13)

Total (405)

Poverty reduction 79% 90% 84% 93% 46% 86%

Employment generation 85% 81% 81% 82% 38% 80%

Development of start- up enterprises

58% 67% 57% 48% 77% 55%

Growth of existing business

97% 79% 93% 78% 85% 86%

Rural clients outreach 67% 86% 78% 79% 38% 77%

Financial inclusion 73% 52% 64% 46% 46% 56%

Women empowerment 61% 48% 52% 76% 15% 60%

Adult education improvement

36% 36% 22% 39% 31% 31%

Health improvement 27% 38% 27% 49% 15% 37%

Youth opportunities 36% 31% 20% 24% 8% 23%

Children schooling 27% 31% 23% 38% 38% 31%

Water and sanitation 18% 14% 11% 19% 8% 15%

Housing 45% 40% 35% 32% 23% 35%


Development goals

LAC (172)

Asia (96)

ECA (79)

Africa (34)

MENA (24)

Poverty reduction 79% 90% 84% 93% 46%

Employment generation 85% 81% 81% 82% 38%

Development of start- up enterprises

58% 67% 57% 48% 77%

Growth of existing business 97% 79% 93% 78% 85%

Rural clients outreach 67% 86% 78% 79% 38%

Financial inclusion 73% 52% 64% 46% 46%

Women empowerment 61% 48% 52% 76% 15%

Adult education improvement 36% 36% 22% 39% 31%

Health improvement 27% 38% 27% 49% 15%

Youth opportunities 36% 31% 20% 24% 8%

Children schooling 27% 31% 23% 38% 38%

Water and sanitation 18% 14% 11% 19% 8%

Housing 45% 40% 35% 32% 23%


Figure 8: Development Goals by Region

Figure 7: Development Goals by MFI Legal Form


Clarity on intent is a crucial starting point for developing strategies and policies to achieve social goals. Analysis of data reported to MIX and from the Imp-Act survey show that MFIs usually have a broad set of development goals that are not explicitly mentioned in their mission statements, which tend to be more general and to vary according to the MFI‘s type and location.

Overall, the most common development goals are poverty reduction, business growth and employment creation (Figure 7). However goals tend to vary according to legal form: financial inclusion, for example, scores the highest among banks and NBFIs, perhaps due to their ability to provide a wider range of financial services than other institutional types.

Goals also vary according to region (Figure 8). In Latin America (LAC) and Africa, the top development goal reported by MFIs is poverty reduction, while in Eastern Europe & Central Asia (ECA) and in Asia, the focus is more on growth of existing businesses.

However, when it comes to spelling out institutional goals and target markets in MFI mission statements, we find that while institutions reporting social information assert poverty alleviation as a top development goal, the overwhelming majority of mission statements speak of providing access to financial services rather than of fighting poverty:

26 percent of MFIs use the words ―poor client‖ and/or ―poverty‖ in their mission statement

9 percent of MFIs mention growth of existing business or employment generation in their mission statement.

Considering the mission statements of all MFIs registered on MIX Market, we find similar results regarding poverty reduction: of the 1,577 mission statements analyzed, 459 unique organizations (29 percent) express a goal related to poverty alleviation in their mission statement (Figure 9). There are many possible reasons why poverty reduction might not be spelled out in mission statements: it might not be an explicit goal of the institution, thus an MFI would avoid claiming to target the poor; the goal of poverty reduction might entail a broad conceptualization of poverty, referring to low-income clients as well as those below a certain poverty line; an MFI might not be able to demonstrate measurable outcomes in terms of targeting the poor; and, finally, some MFIs might avoid use of the word poor for cultural reasons. According to the Imp-Act survey respondents, MFIs do tend to revisit their mission statement once they have gained enough information about their clients. Often, after conducting a social audit or a rating, MFIs first

seek to obtain more information on their clients, develop indicators to monitor progress towards goals, improve their MIS and other operational systems and, only then, revisit the wording of their mission statement.

Key Word or Phrase # of Mission Statements Using Phrase

Alleviate poverty 40

Combat / fight poverty 50

Eliminate / eradicate poverty

17

Reduce poverty 66

“Poorest" or "very poor" or "extreme poor"

42

Other related words 39

Improve clients lives 214

Improve financial position

118


Capturing client outreach information is a challenge for most MFIs, even those who clearly spell out their development goals in their mission statements. For example, less than half of MFIs mentioning employment creation in their mission statement can actually report the number of jobs created by their financed enterprises throughout the year, and only one out of six mentioning poverty reduction can report client poverty data. As the experience of MFIs participating in the Imp-Act Consortium‘s learning program on SPM demonstrates, goals and targeting definitions are not a one-off process, but rather a continuously evolving area in need of adaptation to different operating environments. The process and speed of adaptation improves with experience. In other words, the longer MFIs have been working within an SPM framework, the clearer they will be regarding how to define targets and goals. Because of the iterative nature of goal and target definition, none of the learning program participants can be said to have fully accomplished it, although their reasons vary:

ProMujer Bolivia (PMB) experienced a shift in its market environment. Originally targeting mostly illiterate women in rural areas, it subsequently found that the majority of its clients were no

Figure 9: Key words/phrases in mission statements

related to poverty development goals

(sample of 1,577 mission statements)


longer in that target group. Investigation revealed that this was not a result of mission drift, but rather due to demographic shifts resulting from changes in the economy: Bolivia has undergone a period of economic growth in recent years, which has increased literacy and income levels throughout the general population. PMB's clients are now mostly literate women who already have a business. This does not mean it has reduced the depth of its outreach, but that there has been an alteration internal to the target group PMB originally sought to reach.

More dramatic and volatile experiences in Haiti (natural disasters and economic contraction) have made it difficult for Fonkoze to define detailed targets for measuring the progress of its clients out of poverty. It has thus, out of necessity, focused instead on operational targets (e.g. client retention) rather than on outreach.

Prizma is struggling with goal and target definition because of data availability problems: it is currently developing a poverty score card that would enable it to measure the poverty level of clients at entry and their progress through the program. However, existing data is too old to be of use, and gathering new data is time-consuming and costly.

Lack of baseline information is also a problem for NWTF‘s efforts to track the progress of its clients out of poverty, but the organization has recently introduced the Grameen Foundation‘s Progress out of Poverty Index (PPI)TM to attain better data on its existing clients. By the end of 2008, the organization sought to have 90%

of its new clients below a PPI score of 34, which translates to a 75% likelihood that such clients are below the national poverty line. Besides this, however, the MFI has not set quantitative outreach targets due to the absence of baseline information.

AMK is seeking to implement targets for client exit but past experience shows the necessity of gathering data before setting such targets. Currently it is monitoring client exit but, as more and more information becomes available, AMK plans to introduce a ‗red-flag‘ system to highlight problematic levels of exit. The question remains (as it does for all MFIs) where to set those flags (what levels of client exit are acceptable) and how to remain responsive to client demand for various financial services.

3.2 Governance and organizational structure Key findings:

o 21 percent of MFIs have a standing social performance committee that regularly reviews social performance data. Results on board buy-in and involvement in SPM are mixed but clearly on the increase.

o SPM implementation benefits from a

management structure that consolidates SPM activity in a central person or department.

o SPM integration also benefits from a structure

that includes all staff in the management process and involves lower levels of management in decision-making.

Figure 10:

Governance Indicators

Banks (33)

Cooperatives (42)

NBFIs (157)

NGOs (160)

Rural Banks (13)

Total (405)

MFIs with a standing social performance committee that

regularly reviews social performance issues

21% 19% 22% 21% 23% 21%

MFIs that organize staff and client visits to help board members

understand how operations are achieving the mission

48% 24% 47% 46% 62% 45%

MFIs that ensure that social performance issues are identified

as components of the MFI’s strategic and business plans

73% 76% 76% 81% 46% 77%


Governance Indicators


As SPM plays an increasingly important role among socially-oriented MFIs, board involvement in SPM monitoring is becoming more and more common. Looking at how board members are committed to, and involved in, reviewing social performance information, we find that the majority of MFIs reporting social data to MIX (77 percent) ensure that social performance issues are identified as components of the MFI‘s strategic and business plans. In terms of more in-depth commitment, 45 percent of MFIs reported organizing staff and client visits for board members, while just 21 percent of MFIs reported having a standing social performance committee that regularly reviews social performance issues and 28 percent reported having board members trained on social performance management. The question thus becomes how best to secure board and management buy-in. Recognizing the importance of this issue, some networks, such as MFC, MCPI and CRS-MISION, invite key members of MFIs to workshops and seminars where they present the concept of SPM and provide a business case for implementing it. In addition, a wide range of initiatives exists to help MFIs. Institutions can report interest rates to MFTransparency and promote the Client Protection Principles by endorsing the Smart Campaign and receiving a certification of compliance. Imp-Act Consortium offers strategy workshops aimed at equipping MFIs to define steps to develop their social performance management system. Finally, Grameen Foundation‘s PPI and USAID‘s PAT – two simple and accurate means of measuring poverty incidence – are available in over 30 countries with benchmarks for local conditions and international poverty lines. Three case studies provide insights into mechanisms for achieving active board engagement in SPM. AMK, SEF and Prizma have opted to introduce a committee structure that formalizes the board‘s responsibility for monitoring social performance and provides strategic guidance to management.

AMK reports that its social performance committee has been instrumental in prioritizing areas in which to focus to address gaps in its SPM strategy and to simplify processes and formats. A social performance reporting tool keeps the committee and the board informed, facilitating the flow of information and highlighting issues of concern. AMK also benefits from a board that balances development and banking experience, allowing a blend of social and financial considerations.

SEF has recruited a specialist on social performance management to advise the board and further strengthen its interest in this area.

Prizma has managed to make the switch from person- to system-driven integration of SPM into its board. Two long-standing board members who were closely involved in the design of its social mission and goals left, weakening board and top management expertise. The recruitment of new board members was time consuming, as was ensuring their SPM buy-in. However, the existence of mechanisms such as the social performance committee and integration of SPM into the organization‘s operations ensured that the reduced board contribution to the pursuit of a double bottom-line was only temporary.

In order to disseminate SPM across all institutional departments, MFIs need to create a management structure that gives staff implementing SPM the authority and standing to bring the SPM perspective to all areas of management and operations. This is one of the few areas in which a clear common practice is emerging: the near unanimous opinion of survey respondents was that an organization needs to have a dedicated SPM team or person that has oversight of the mainstreaming process and whose work is integrated with all other departments. This person or team must have the authority to request changes to the workings of other areas in order to achieve the desired change. Technical expertise is also needed to support the integration of a social performance focus into organizational systems. The Imp-Act studies also confirm the value of integrating a focus on SPM into all levels of an organization: those that have an independent department have achieved slower progress in mainstreaming SPM than those opting for the integrated approach. The benefits of the integrated approach are clear: in order to understand SPM‘s role, staff needs to have a good understanding of SPM, feel that it is an organizational priority and have the proper incentives to report and give feedback on issues related to it. In the case of AMK, NWTF and SEF, cross-organizational integration of SPM has helped increase the role of SPM in these institutions, prevented the marginalization of research outcomes by bringing them to greater prominence and professionalized departments to improve the quality of SPM-related work there. In all instances, these MFIs have benefited from an integrated approach through clearer operating structures and greater focus on organizational objectives. Another trend observed by survey respondents as well as in the global learning program was a decentralization of organizational structures, with greater participation of lower management levels in the SPM process. Staff involvement is especially important in relation to policy and strategy design and enforcement: field staff are those best acquainted with the clients of an institution


and thus most aware of certain problems. Hence, in many cases, they are best positioned to make suggestions on how to address such challenges.

3.3 Translating Social Mission into Measurable Outcomes

Key findings:

o More competitive markets offer a variety of financial products and services, and demonstrate stronger alignment towards certain target clientele (such as women or rural populations) but weaker alignment towards other potential target clientele, such as poor or vulnerable populations.

o Despite the fact that poverty alleviation is a

Figure 11: Development goals and outcomes tracking2

2 ‘Tracking outcomes‘ refers to the ability of the MFI to reporting related to the development goals. For ‗poverty reduction,‘ it refers to the ability of the MFIs to report the number of clients who are above a stated poverty line after 3 years in the program.

stated development goal for most MFIs, poverty data is not consistently tracked and individuals living below the poverty line represent only a small percentage of new clients.

o Outcome data associated with goals such as employment creation and business growth are not commonly tracked, and financial inclusion is still limited to areas with multiple microfinance institutions (MFIs).

While social performance management is on the rise globally, reporting on tangible results related to an MFI‘s mission is more challenging: very few MFIs can actually state whether their goals are being met. An emblematic example is that of poverty reduction. This was defined as a goal by 84 percent of MFIs but, when it came to reporting client progress out of poverty, only 10 percent of MFIs could provide this information. .

Figure 11: Development Goals and Outcomes Tracking2


Figure 12: Poverty Targeting



Figure 14: Number of MFIs who3

3 About half of the MFIs reported using more than one poverty tool but only 19 of

them could provide poverty data.

Microfinance is often characterized as an important tool for reducing poverty levels and MFIs whose mission is to reduce poverty should be able to track this outcome. However, even though poverty reduction is a goal for 86 percent of MFIs,

only 33 percent consistently track client poverty levels.

Poverty is a very complex area of analysis, especially if an MFI wants to adopt a multidimensional approach to assessing the well-being of its clients by looking at education or health besides economic factors. Designing easy-to-use metrics to assess changes in clients‘ lives can represent a big challenge as well as a large cost. In terms of institutional types, NGOs show a higher focus on poor and very poor clients (Figure 12), a deeper poverty outreach and are the most active in tracking poverty figures (Figure 13).

Figure 13: Poverty Outreach

Poverty figures Banks (33)

Cooperatives (42)

NBFIs (157)

NGOs (160)

Rural Banks (13)

Total (405)

Number of MFIs reporting poverty data of clients below national

poverty line 5 5 30 38 3 81

Median clients below national poverty line

10% 36% 15% 37% 5% 23%

Median clients below bottom 50% of national poverty line

8% 34% 4% 16% - 11%

Number of MFIs reporting poverty data of clients below $1 US

3 0 19 20 0 42

Median clients below $1 US 27% - 18% 39% - 25%

Number of MFIs reporting poverty data of clients below $2 US

6 0 22 20 0 48

Median clients below $2 US 20% - 52% 56% - 29%

Source: MIX Market, FY 2008-2009, Social Performance Data

Figure 14: Number of MFIs who Reported Using Poverty Tools3


As Figure 14 shows, the most commonly-reported type of poverty data is household income and/or expenditures. 14 percent of MFIs reported using the PPI tool but only 8 percent of them (mostly based in Peru, India and the Philippines)

actually reported PPI data to MIX.


Two MFI partners of Imp-Act have shared information on the implementation of their poverty tools:

Prizma: 13 percent of Prizma‘s entering clients were below the Bosnian poverty line in 2008. In Bosnia, the population below the national poverty line was estimated at 14 percent in 2007 (World Bank). Prizma uses its own poverty scorecard to ascertain client poverty levels. This scorecard is a composite measure of household poverty based on some of the strongest and most robust non–income proxy indicators for poverty in Bosnia and Herzegovina. The Prizma scorecard contains 7 non-exposure indicators. The first three -education level, residence, and household size – reflect poverty risk categories. If the household head has only primary education or lower, if the household lives in a rural area of the country, or if the household has six or more members, the likelihood that the household falls below the national poverty line increases significantly. The second four indicators – household assets, transport assets, meat consumption and sweets consumption – measure changes in household poverty status while contributing to the poverty risk profile of each new or renewing applicant‘s household. Dynamic indicators such as these enable Prizma to measure changes in client poverty status, or well–being, over time4.

4 To learn more about Prizma‘s scorecard see Foro Nantik Lum, Monograph 13,‗Managing

Social Performance Through Integrated Approach – Prizma case study‘. 5Rural outreach refers to settled places outside towns and cities, such as villages and hamlets, where most livelihoods are farm-based. Semi-urban areas are defined by the MIX SPS Report as residential areas on the outskirts of a city or town with a strong presence of non-farming activities.

AMK estimates that 56 percent of its entering clients were below the national poverty line in 2009. This estimation was based on a sample of new group loan clients. AMK compared food consumption per capita (of new group clients) with the Cambodian (rural) Food Poverty Line (updated for inflation). In Cambodia, the percent of the population below the national poverty line was estimated to be 30. From a regional perspective, Asian MFIs reported the most figures for clients below the national poverty line at entry, although data in this region, as in the others, is still very limited. Rural outreach5 is a goal for over three-quarters of the MFIs who reported but only 38 percent of all clients served by these MFIs live in rural areas. In several countries, the sector has grown quite fast, contributing significantly to the improvement of their rural population‘s access to financial services. Nevertheless, some countries score better than others in meeting rural populations‘ demand for financial services. Figure 16 represents some of the countries with half or more of the population living in rural areas and the percentage of clients served by MFIs in each of these countries. The disparity in rural outreach might be due to several factors: some MFIs also reported having ‗semi-urban clients‘, which blurs the distinction between urban and rural areas; the difference in geographical allocation of funds; and the ease of access to remote areas.

PPI Results Snapshots in 2009

India: Results for the 7 MFIs applying the PPI show that 74 percent of clients are below the $2 a day poverty line, 17 percent are below the extreme national poverty line and 12 percent are below the $1 a day poverty line. According to the World Bank, in 2005 the total Indian population falling below the international poverty line of $1 a day was estimated to be 42 percent.

Philippines: Of the 4 MFIs that applied the PPI, 72 percent of clients are below the national poverty line. In the Philippines, the population below the national poverty line was estimated to be 27 percent in 2009 (World Bank). One MFI that applied the PPI is NWTF. Results estimate 68 percent of NTWF‘s entering clients to have been below the national poverty line in 2009 and 47 percent to have moved above the national poverty line after 3 years in the program.

Peru: 8 MFIs in Peru applied the PPI. Results show 33 percent of clients below the national poverty line and 26 percent below the national extreme poverty line. Peru‘s population census in 2007 (INEI) estimates that 39 percent of the population in Peru lives below the national poverty line and 14 percent lives below the national extreme poverty line.


http://data.worldbank.org/country/bosnia-and-herzegovina

http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:21880725~pagePK:141137~piPK:141127~theSitePK:295584,00.html

http://data.worldbank.org/country/philippines


population and market coverage5

6 MFIs samples size: India (21), Philippines (12), Indonesia (10), Pakistan (10),

Cambodia (5), Tajikistan (7), BIH (7), Guatemala (5), Kyrgyzstan (5). Data on population is from CIA Factbook (2008-2010).

Figure 15: Poverty Outreach by Region

Poverty figures LAC (172) Asia (96) ECA (79) Africa (34) MENA (24)

Number of MFIs reporting poverty data on clients

below national poverty line 31 23 15 6 3

Median clients below national poverty line 31% 39% 8% 16% 17%


below $2 US poverty line 15 12 9 6 4

Median clients below $2 US poverty line 37% 78% 9% 76% 21%


below $1 US poverty line 12 14 6 8 5

Median clients below $1 US poverty line 16% 40% 2% 53% 15%


Figure 16: Rural Population and Market Coverage6

Source: MIX Market, Social Performance Data, FY 2008-2009. Data represent medians


Outreach to rural areas, however, is not synonymous with market penetration. Current data on market penetration show that, while access to microcredit services has grown at nearly 25 percent per year for the last few years (while slowing down in 2008 and in 2009 due to the financial crisis), many potential borrowers remain underserved. Although over half of MFIs reported financial inclusion as a development goal, much work remains to foster growth levels that favor outreach to new, unbanked populations (extensive growth). On another note, women‘s empowerment goals are prominent among MFIs worldwide and women represent 66 percent of reporting MFIs‘ total clients. As the data collected from over 1,000 MFIs reporting to MIX in 2009

show, gender disparity varies by region (Figure 18).These female clients are mainly served through group lending in Asia and MENA, while in ECA and LAC, individual lending prevails. 68 MFIs using both individual and group lending methods reported that 19 percent of female clients had graduated from group lending methodology to individual lending. Finally, 60 percent of MFIs have established women‘s empowerment/gender equality as a development goal and almost all of them offer some form of women‘s empowerment services such as business training for women, leadership training, women‘s rights education or counseling for female victims of violence.

Figure 17: Microcredit Market Penetration by Region in 2008

Source: How many MFIs and borrowers exist? Data represent total borrowers served by known MFIs relative to total poor population

Source: MIX Market, FY2009. Data represent medians from a sample of 1,019 MFIs

Figure 18: Percentage of Women Borrowers Served by Region

http://www.themix.org/publications/microbanking-bulletin/2008/12/how-many-mfis-and-borrowers-exist-updated-dec-2008


4.1 Strategic alignment Key findings: o Institutions are designing their strategies more

deliberately and aligning them more closely with social targets and goals.

o Financial product diversity is increasing, indicating greater efforts to understand clients' needs.

o The added value of these products is currently

unclear, however, as not enough market research data is available regarding client satisfaction with these products.

o Half of MFIs reporting social data also offer some

type of non-financial service.

After defining goals and targets, the next logical step is to align institutional strategies and systems in such a way as to achieve these. To do this, it is important that strategies be clearly defined and explicit in their intent, and that the right systems be created to pursue these strategies and to ensure their intended outcomes. Data shows that MFIs are diversifying their product offering, especially financial products such as savings, insurance and remittances. There also appears to be a trend towards increasing the number of non-financial services offered, at least among MFIs reporting social performance information to MIX.

In terms of financial services, MFIs offer a wide variety of loan products, the most popular of which are microenterprise loans, housing loans, consumption loans and loans for agriculture. Beyond credit, 40 percent of MFIs offer savings and, in addition, 19 percent mobilize savings through partnerships with other financial institutions. The majority of MFIs reporting social data (74 percent) offer some form of insurance, mainly compulsory credit life insurance. Money transfer services are offered by 30 percent of MFIs. The majority of MFIs also reported using market research to identify clients' needs. Market research can help an MFI refine existing products and develop new ones in such a way as to better meet clients' needs. This, in turn, helps retain existing clients, reach new ones and reduce drop-out. While the majority of MFIs reported using some form of market research, little data is available regarding the use of this research to improve MFIs‘ products and services. At least half of MFIs espouse the belief that they better pursue their mission by providing non-financial services complementing their core business and enabling clients to make better use of the financial products and services available. The vast majority of institutions offering non-financial services provide some sort of business service, and more than half provide adult education services and women‘s empowerment services (Figure 19).

Market research type

Percentage of MFIs conducting research

New product development 66%

Client satisfaction assessment (interviews,

surveys, focus groups, etc.) 63%

Interviews with exiting clients

54%

Figure 19: Non-Financial Services Offered


Chapter 4: Strategies and Systems Alignment


In addition to market research, an institution can assess client satisfaction by tracking its client retention rate. Retention rates can provide an MFI with important information when supplemented with exit interviews

designed to identify the causes of client dropout.

Overall, retention rates appear to have been stable from 2008 to 2009 (between 77 and 80 percent at the median), although there have been significant declines in countries with slower economic growth or where the industry as a whole is experiencing problems. This is the case in Nicaragua, for example, where the Movimiento de No Pago has negatively impacted client retention. While tracking client retention is a good way for individual MFIs to assess client satisfaction, this ratio needs to be contextualized as external factors can play

a very large role in determining retention rates.

Client retention rates6

Source: MIX Market, Social Performance Data, FY 2009. Data represent medians7

4.2 Information Systems Key findings: o Management information systems (MISs) are

changing slowly due to the complexity of integrating social indicators into existing systems, as well as due to funding issues. Progress on MIS integration remains weak as well because many MFIs are still in the process of developing their social goals and targets.

A crucial element of mainstreaming SPM is adapting an existing MIS to integrate social performance information. Such integration, in turn, greatly facilitates the ability of MFIs to track their progress against social goals and targets.

7 The countries listed here are among those ranking highest in the ‗Global microscope on the microfinance business environment 2009‘, which ranked countries according to (1) the institutional and regulatory framework, (2) the general investment climate, and (3) the level of institutional development. This graph considers only countries with the highest number of reports submitted to MIX (12 or more).

Unsurprisingly perhaps, progress here has been relatively slow. In light of the challenges this area presents to MFIs, however, the results are encouraging. According to Planet Rating, 15 percent of the organizations they have assessed on social performance (over 60) have already developed MISs that enable them to track specific indicators, and 37 percent are in the process of doing so. The challenges of information system design become clear when looking at the experience of the Imp-Act Consortium learning partners: even these organizations, which have invested comparatively large amounts of time and resources in SPM, are still toiling to find systems that deliver appropriate and high quality information.

Both NWTF and Pro Mujer Bolivia (PMB) initially struggled to decide what information to collect. In the case of PMB, too many of the indicators selected were irrelevant for social performance assessment, resulting in a potentially wasteful use of resources. As a consequence, PMB has had to take a step back and evaluate its entire data collection and analysis system. NWTF proceeded along a similar path. Both NWTF and PMB now make use of a poverty scorecard (the PPI) to aid with information collection, although PMB has yet to integrate this tool across the organization after its pilot phase. One advantage of using the PPI to collect information is that, while it is not an MIS as such, it can help organizations decide what information is important to collect and prevent the overly broad approach that PMB and NWTF risked implementing. These two MFIs are now rationalizing their data collection with the help of the PPI. NWTF has already mainstreamed PPI across most of its data collection systems, and PMB is beginning to do so after piloting the tool‘s use in its institution. PMB has decided that it will not rely solely on the PPI indicators to pursue its social goals, however – the final shape of its system is still evolving, but will likely include a mix of various approaches to data collection.

To improve communication, Fonkoze has introduced social impact monitors (SIMs) into its operations. These SIMs operate in each branch and function as independent judges of SPM integration. Their aim is to feed their observations directly back into operations as well as influence staff understanding and culture in the field. Fonkoze has faced challenges in ensuring that the synthesized information from SIMs is used effectively at the head office and that the department is not producing reports that no one reads or upon which no one acts.

Figure 20: Client Retention Rates7


5.1 Client Protection

Key findings:

o MFIs increasingly recognize consumer protection as an important focus area.

o Nevertheless, only 15 percent reported applying all six Smart Campaign principles.

o Regional disparities exist regarding consumer

protection and consumer financial education.

A key principle of SPM is that MFIs should have systems in place to ensure that they do not harm their clients. Bearing this in mind, Imp-Act‘s survey asked respondents their views on whether MFIs are relying on informal policies or ‗deliberate‘ written policies, and whether they are aware of, and take active steps to enforce, the do-no-harm principle. According to respondents, while MFIs still rely on unwritten rules to a certain extent, written manuals and explicit guidance are becoming more widespread, revealing a trend towards more deliberate approaches to social responsibility policy. This section reviews the degree to which MFIs are implementing client protection policies and the areas in which common practice is emerging, especially in relation to the Smart Campaign‘s principles for client protection.

The Smart Campaign focuses on the following policy areas:

Avoidance of over-indebtedness

Transparent and responsible pricing

Appropriate collection practices

Ethical staff behavior

Mechanisms for redress of grievances

Privacy of client data

All of the issues above seek to ensure that MFIs obey the principle of ―do no harm,‖ i.e. that there are no unintended negative consequences from their operations. The Smart Campaign seeks to ensure this overarching goal through the clear definition of practices crucial to protecting clients. The Campaign does not expect MFIs to have full-fledged client protection policies in place immediately, focusing its energy instead on building issue awareness and designing effective policy frameworks.

While only 15 percent of MFIs reported having all six of the Smart Campaign principles in place, progress differs significantly across region. Most MFIs reporting social data to MIX claim to evaluate borrower repayment capacity through a loan approval process and to fully disclose prices, terms and conditions of financial products to clients prior to sale. While one must remember that MIX‘s information is self-reported, in the past year consumer protection and consumer financial education have been among the most commonly undertaken financial regulatory reforms8: the negative effects of the international financial crisis on MFIs and clients in many countries have prompted policy makers to promote reforms prioritizing the avoidance of over-indebtedness and the support of ethical finance.

8 Financial Access 2010. The State of Financial Inclusion Through the Crisis. CGAP/World Bank, 2010.

Chapter 5: Policies and Compliance


Figure 21: Consumer Protection Principles

Across Regions


Avoidance of over-indebtedness: According to the Imp-Act survey, MFIs are becoming more and more conscious about problems related to clients‘ repayment capacity and risk of over-indebtedness. When combined with low or fluctuating incomes, high priced loans, and/or poorly matched payment schedules and collection practices, multiple borrowing can quickly lead to affordability and repayment problems. These problems, in turn, can push clients deeper into poverty as well as causing problems for MFIs. Many institutions are now pursuing a single loan source policy, i.e. clients may only have one loan source (the MFI). Planet Rating has observed that some MFIs are currently seeking ways to better assess loan affordability but, as of yet, no universal tools or best practice have emerged. One clear barrier to implementing consumer protection policies is the lack of data on client credit history: credit bureaus often do not exist in the areas where MFIs operate and MFIs must instead rely on information provided by the client or his or her associates. Needless to say, both of these methods are prone to inaccuracies. When MFIs do have access to credit bureaus, the use of credit history information as part of portfolio risk analysis can be an effective way of mitigating the risk of over-indebtedness. In some countries in Eastern Europe and Central Asia, MFIs have started exchanging information about their clients - either directly between organizations or through an independent third party – to avoid multiple-lending. Regulatory reforms can play an important role in preventing over-indebtedness - as can the implementation of consumer protection policies, consumer financial education and the establishment of credit registries with mandatory reporting requirements - and several countries from multiple regions are already undertaking such steps9.

Transparent and responsible pricing: 69 percent of MFIs reporting social data to MIX assert that the prices, terms and conditions of their financial products are fully disclosed to the client prior to sale. These prices, terms, and conditions include interest charges, insurance premiums, minimum balances, fees, penalties, linked products, third-party fees, and whether any of these can change over time. Furthermore, the regulatory environment of some countries reinforces transparent pricing, as it can require disclosure of APRs and EIRs. Regulation can even influence organizations that are not regulated via competitive pressure. According to Planet Rating, in

9 Financial Access 2010. The State of Financial Inclusions Through the Crisis-

CGAP/World Bank, 2010

countries where there are a large number of MFIs required to disclose their prices, non-regulated MFIs tend to adopt the practice as well, both because of competitive pressures and because it is emerging as an industry standard. As price disclosure and transparency do not guarantee that clients understand the concepts behind APRs and the like, there are also efforts to increase clients‘ financial literacy. 38 percent of MFIs reporting social information offer financial education to their clients.

Other principles:

Fewer MFIs (43 percent) reported having acceptable and unacceptable debt collection practices clearly spelled out in a code of ethics, staff rules or debt collection manual. According to the survey respondents, MFIs are increasingly developing instructions for field staff on how to deal with arrears and enforce payment in an appropriate manner, such as through discussions aimed at detecting problems early and establishing the cause of late payments. Where these policies are well designed, they can work to ameliorate the repayment problems of individual clients and help deal with existing levels of portfolio-at-risk (PAR).

Regarding the rest of the Client Protection Principles: 47 percent of MFIs reported tellng clients how their information will be used and indicated that no external use is made of such data without client consent; 44 percent reported that their institution‘s corporate culture and human resource system value and reward high standards of ethical behavior; and, finally, 42 percent reported that a mechanism to handle clients‘ complaints was in place, had dedicated staff resources, and was actively used.

5.2 Responsibility to Staff

Key findings:

o The majority of MFIs offer staff training on SPM, but there is relatively low board and management involvement in these trainings.

o Operating systems are in the process of realignment, with SPM increasingly integrated into staff incentive structures. However, questions remain regarding implementation and monitoring of compliance.

o Overall, MFIs show progressive human resource

policies.

o Staff employment scores low on gender equality.

Staff training is a key component of SPM and can have a positive effect on MFI efficiency levels as well, especially when accompanied by progressive human resource policies and staff incentive schemes. Here


there has indeed been progress: 75 percent of MFIs reporting social performance data had conducted staff training on areas related to social performance. These areas include: mission orientation, development goals, over-indebtedness prevention and communication with clients about prices. Social performance training is more widespread among management (63 percent reported such training) and half of MFIs also train loan officers on social performance-related issues. However only 28 percent of MFIs reported training board members on SPM. This suggests that MFIs are increasingly receiving and delivering training on social performance issues but that boards in general remain passive towards such training.

An MFI can also use training as an opportunity to capture staff feedback, enabling it to make the changes necessary to align its management systems with its social mission. Happier staff and staff retention go hand-in-hand and this has positive effects for client retention as well. When a staff member leaves to work for another MFI, he or she often brings his or her clients along, increasing the loss for the MFI: for example, in Latin America, for each staff member who leaves an MFI, roughly 150 clients do not have their credits renewed10. MFIs tend to reward staff on the basis of portfolio quality and the ability to attract new clients, but linking indicators of high client retention, such as ‗quality of interaction with staff‘ and ‗quality of social data,‘ to staff incentives is not as common (see Figure 22). This despite evidence showing that MFIs with more proactive staff incentive schemes exhibit higher staff productivity and better portfolio quality11.

The incentive area showing least progress is that of collecting social data: only 15 percent of MFIs have staff incentives related to social data quality. However, this is due less to a lack of awareness, than to the challenges of developing goals, targets, and systems for collecting such data. Furthermore, collecting social data only

10 MIX Microfinance World: Microfinance Market Report for Latin America and the Caribbean, 2010. 11 MIX Data Brief 9. Microfinance Synergies and Trade-offs: Social vs. Financial Performance Outcomes in 2008.

makes sense if MFIs are in a position to process such data and most MFIs lack the MIS to support this.

Going back to the MFIs that participated in the Imp-Act learning program, we can see some useful examples regarding staff incentives:

A key feature of the system at AMK is to make allowances for staff working in areas with particular challenges– e.g. low population density, higher reliance on farm-based livelihoods, higher incidence of poverty and higher risk of drought and flooding. This ―area potential adjustment‖ incentivizes staff to continue recruiting clients in these areas, thereby helping AMK to fulfill its mission of reaching out to the poorest members of the population. A challenge here is that data on rural population density and other demographics is no longer up to date, making it problematic to assess how difficult certain areas actually are in terms of recruiting clients.

Prizma has introduced new social performance indicators into their staff incentive system. These indicators include outreach to women, low exit rates and the percentage of new clients below the national poverty line. The MFI also revised team bonuses to simplify comparisons and to engender competition between teams. Team performance is now presented in a league format similar to football league tables, which allows for clear and frequent comparisons.

NWTF has integrated staff behavior towards clients into their incentive system. In addition, regular, structured conversations between branch managers and loan officers aid in uncovering performance-related issues and allow for open discussions between different tiers of employees. This system is still relatively new, but initial assessments appear promising.


Figure 22: Staff Incentives


At Fonkoze, the organization's conviction that client retention is at the heart of its mission has made low client dropout a central part of its staff incentive system. The underlying rationale is that if a client leaves Fonkoze, the organization was unable to provide her with the services and products she required. Thus, from its perspective, helping clients stay in the program is the same as helping the organization become better at delivering appropriate services. Fonkoze‘s incentive scheme accordingly rewards loan officers for each client who moves to the next loan cycle. As progression in the loan cycle is not decided by the loan officer, but rather according to set criteria, incentivizing such progression is a good way to reward real results.

Well constructed, progressive human resource policies are crucial to ensuring that employees are treated fairly. At the same time, it is important to monitor employee satisfaction and to have a system in place to understand employees‘ needs and concerns. The SPTF/MIX indicators assess an MFI's policies regarding social responsibility to staff by looking at human resource policies, systems to monitor employee satisfaction and staff turnover rate as a measure of staff satisfaction. Staff rotation rates12

12

The countries listed here are among those ranking highest in the ‗Global microscope on the microfinance business environment 2009‘, which ranked countries according to (1) the institutional and regulatory framework, (2) the general investment climate, and (3) the level of institutional development. This graph considers only countries with the highest number of reports submitted to MIX (12 or more).

Overall, the median staff turnover rate in 2009 was 15 percent, with some higher figures registered in the most competitive markets of Latin America. As mentioned previously, when a staff member leaves to work for another MFI, he or she often brings his or her clients along as well, increasing the loss for the original MFI. Therefore, monitoring staff satisfaction levels and having appropriate incentive schemes and progressive human resource policies in place are critical not only to retaining staff but also to maintaining high levels of efficiency. 80 percent of MFIs reported monitoring staff satisfaction levels, and most have elements of responsible staff treatment written into their human resource policies. These MFIs mainly monitor staff expectations and/or satisfaction through regular staff appraisals and periodic surveys. In terms of human resources, most MFIs report having responsible policies towards staff: the vast majority of MFIs have policies that ensure staff safety, have a clear salary scale based upon market salaries and allow staff to participate in decisions that affect them. Half of the MFIs reporting also pay pension contributions.

Figure 23: Staff Rotation Rates 12

Source: MIX Market, Social Performance Data, FY 2008-2009. Data represent medians


5.3 Responsibility to the community and environment

Key findings:

o Policies on social responsibility towards the community are diverse and predominantly informal.

o MFIs show awareness of environmental hazards but environmental sustainability is not a priority for most.

Women are slightly underrepresented overall in MFI staff, with 42 percent composed of women. They are more sharply underrepresented at the management level (32 percent) and as loan officers (28 percent) - this despite the fact that most MFIs have explicit policies regarding equal opportunities and equal pay for men and women with equal skills (Figure 24). Like all socially responsible enterprises, MFIs must take into account the impact they are having on the communities in which they operate. Again, at a minimum, such responsibility should extend to ensuring the absence of any negative impact. An MFI can impact the community in which it operates not only through the provision of financial services to its clients, but also through the implementation of policies and actions aimed at supporting community development as a whole. Many MFIs regard their social responsibility to the community as deriving from the core services they provide, but a broader understanding of the role of the MFI in the community can reveal other opportunities to

create social value. This area of SPM has not yet received great attention, with most MFIs addressing it through informal policies (Figure 25). Nonetheless, 90 percent of MFIs report some form of policy towards the community.

Type of policy

% of MFIs

Written policy

28%

Informal policy

57%

Written policy under development

21%

No policy

10%


Figure 25: Policy Forms to Ensure Responsibility to

the Community


Figure 24: Gender and HR in MFIs


The following are some examples of policies on social responsibility towards the community from participants in the Imp-Act SPM learning program:

NWTF supports the local community in several ways: by running medical missions open to non-clients, by encouraging clients to obtain residence and business permits, and by supporting enterprise formation. NWTF also does not allow the financing of businesses perceived to have negative social value (e.g. gambling, tube winemaking).

AMK does not yet have a specific policy regarding community relations but supports local empowerment through the village bank structures it operates: it discourages village chiefs or their wives from being village bank presidents to avoid overconcentration of power. Other policies in relation to HIV/AIDS are currently under development.

Prizma has a designated annual budget for community support aligned with its general objectives. Within the budget, 15% is allocated to humanitarian activities, 15% to sports, 15% to culture and 55% to one big project within those areas.

The impact of microenterprises' activity on the environment can be significant. The limited use of environmentally-friendly technology, a lack of regulatory supervision, and the absence of supporting infrastructure and services in their country of operations can add up to serious environmental consequences. Environmental sustainability, however, is not yet a priority in microfinance and most MFIs have no environmental policy in place to mitigate the impacts of financed enterprises. Awareness of the environmental impacts of financed enterprises does exist, however, and 42 percent of MFIs submitting social data to MIX report raising such awareness among the MFIs they finance. Nonetheless, a great deal more work remains regarding social responsibility towards the environment, as only 16 percent of these MFIs have established clauses in their loan contracts to mitigate environmental risks, and a mere 11 percent have lending lines linked to alternative energy.

Most Common Efforts by MFIs in Terms of Social Responsibility Towards Community


Figure 26: Most Common Efforts by MFIs in Terms of Social Responsibility Towards Community


Key findings:

o Supportive donors, investors and regulatory frameworks are strongly linked to the ability of MFIs to implement a good SPM system and to monitor social performance data over time.

o Competition can be a driver for the development of progressive SPM policies such as those regarding staff and client retention.

o Regulation is important to enhancing

transparency of information and protecting customers.

o Socially responsible investors are increasingly demanding social performance metrics from the MFIs they finance.

o The availability of technical support in the form of training and auditing tools helps MFIs to assess their state of practice and set a strategic SPM work plan.

Previous chapters have highlighted areas in which common practices are emerging, some internal drivers (such as an SPM focus point and buy-in from top management and the board), as well as areas in which trends are still weak. In this chapter, we identify four external drivers that illuminate differing levels of SPM uptake in various markets and could help explain why some areas are progressing more quickly than others. These four drivers are:

Market position and competition

Regulatory environment

Investor support

Technical assistance. Market position and competition

Competitive pressures have emerged in some countries as important incentives for MFIs to expand the range of their services. Such pressure can also spur MFIs to focus more on ways to improve client and staff retention, in the hopes of distinguishing themselves from competitors.

Beyond microfinance: an integrated approach to client and community outreach in Latin America

In Latin America, several MFIs are demonstrating innovative approaches to meeting clients‘ needs through non-financial service provision.

MiBanco in Peru, has trained more than 100,000 microenterpreneurs in business planning and marketing, financed more than 15 projects on clean water and electricity, and allocates 1M USD a year towards free training for entrepreneurs involved in microenterprises and SMEs.

CDRO in Guatemala, has planted 5,000 trees in different communities. Its environmental education component also includes training community members on waste management and providing trash receptacles to participants.

Banco FIE in Bolivia, has implemented a program aimed at fighting child abuse by educating families, children and teachers. In addition, it runs a free legal assistance project and, by the end of 2008, it had attended to over 2,000 assistance requests.

Fundacion Paraguaya, has provided training to over 600 female clients on personal hygiene and nutrition, provided school children with good quality school materials at a low price relative to the market and supplied almost 30,000 people living in rural areas with internet services and computer training.

ProMujer in Bolivia and Nicaragua manage professionally staffed health clinics on-site. These clinics offer medical services ranging from PAP smears to breast exams, STD screenings and pre- and post-natal care for women. In Nicaragua, 686 out of 9,000 women given a PAP examination were found to have pre-malignant tumors that were subsequently treated.

Movimiento Manuela Ramos in Peru, another MFI focused on female clients, organizes Ferias de Asistencia Social to train women on important gender topics. These events focus on human rights and democracy, as well as offering health services and legal assistance. In 2009, Manuela Ramos organized 28 fairs and 26 workshops.

Banco Solidario in Ecuador partners with health providers to assist poor children and provides financial support for the creation of Escuelas de Informática y Ciudadanía in poor communities. In 2009, 215 people were certified by this program.

*This information was extracted from MIX SPS Reports 2008-2009 and from social ratings of M-CRIL, Microfinanza and Planet Rating (2008-2010)

Chapter 6: Uptake and Drivers of SPM Integration


In Latin America, CRS-MISION identified competition as a driver for the development of policies and strategies related to staff and client retention, market research and risk level assessment in Peru, Ecuador, Bolivia and Nicaragua. CRS-MISION observed that the MFIs with which it worked attempted to attain a distinctive balance in these areas to achieve both financial and social outcomes. This balance, in turn, helped the MFIs to distinguish themselves from others. Achieving such a balance is the corner stone of the CRS-MISION program: demonstrating to MFIs that there is a business case for SPM and that mainstreaming SPM into their operations makes business sense. Currently CRS-MISION operates in 12 countries of Central and South America and is offering technical assistance to 104 MFIs. Regulatory environment

The regulatory environment has a significant influence on the existence of client protection practices and the enforcement of the do-no-harm principle but, at the same time, its influence as a driver of SPM uptake is limited to these two areas. Regulation can compel MFIs to disclose prices (as is the case in Cambodia and Kazakhstan, for example) and regulated MFIs are likely to be under closer scrutiny regarding client treatment and employment practices. Regulated MFIs generally have stricter reporting requirements as well, forcing them to improve reporting systems. In other words, regulation can force MFIs to become more experienced in using and adapting their monitoring systems, easing friction from introducing SPM into institutional operations. Since regulated MFIs are usually those MFIs that set the standards for other MFIs, there can be spillover effects even if the latter are not regulated. As Planet Rating has remarked, regulations requiring price transparency from regulated MFIs can become the standard for non-regulated MFIs in the same country. Investor support Investor adoption of social performance metrics in their due diligence procedures is another important factor in securing SPM uptake in MFIs (and especially buy-in from boards and senior management). In early 2011, a core group of 41 international investors signed a list of Principles for Investors in Inclusive Finance. These investors believe that specific principles will strengthen the movement towards responsible finance and the event marked the start of a campaign to increase the number of signatories in the coming year13.

13 To find out more visit the CGAP Investor Corner: http://www.unpri.org/piif/ 14 To find out more visit: http://sptf.info/group/socialinvestors 15 To find out more see: SPTF-110510-

InvestorWorkingGroupWebinarpresentation.ppt

Currently, the Social Investors Working Group14 of the SPTF is focusing on the following four work streams, and has created a sub-group to lead each15:

Work stream Purpose

Profiling microfinance investment

vehicles

Clarifying MIV intent, expectations on social

performance, and risk-return profile

Tool sharing and harmonization

Share tools on social performance screening, due

diligence templates, and reporting templates used to collect SP data from MFIs, in order to improve and align

them

Country level analysis of market over-indebtedness

Explore how investors can tackle over-indebtedness and

coordinate responses

Microfinance investment

vehicle ratings

Discuss a new framework for financial and social ratings of

MIVs

Several socially responsible investors are already actively involved in the SPTF and for some of them - Oikocredit, Incofin, Triple Jump and Blue Orchard – the majority of MFIs in their portfolio are already tracking and reporting social performance data to MIX.

Technical assistance

The countries with the best percentages of MFIs reporting social performance data to MIX are those where data collection is facilitated by local associations, such as Access in India, MCPI in the Philippines, AMFA in Azerbaijan, and RFR in Ecuador. These associations often facilitate local capacity building by offering training on SPM.

As several Imp-Act survey respondents highlighted, MFIs are frequently unsure about the tools available to support integrating SPM into their operations. To help with this process, a form of ‗hand-holding‘ is often required, either in the form of a person who is physically present in the organization to guide them through the individual steps of SPM implementation, a clear assessment of the organization‘s strengths and weaknesses, such as provided by the audit tools of MFC (the QAT) and Cerise (the SPI), or a social rating provided by specialist rating agencies and followed by external technical assistance.

CRS-MISION works with 40 MFIs in Latin America that are currently in the process of mainstreaming SPM into their operations. In order for these MFIs to maintain ownership of this process, CRS-MISION follows a clear sequence of operations to minimize the risk that an MFI will fail to fully understand what the process entails:

http://www.unpri.org/piif/


First, an MFI must accept the need to integrate social performance management into its operations;

Second, the MFI needs to conduct a self-evaluation in order to establish its status quo (i.e. whether its policies, goals and targets are socially-oriented, what impact its products have on its clients, and whether it tracks more than simply financial outcomes);

Once this second step is complete, an external social auditor then conducts an assessment of the organization.

These three steps are intended to ensure that the MFI understands the process and demonstrates commitment to implementing it, as well as to create the content and overall plan of the specific course of action the MFI will take. In a fourth step, CRS-MISION sends in a technical consultant to help the MFI prioritize and plan the processes and areas of operations in which it will begin integrating SPM, informed by the findings from the external audit. CRS-MISION‘s holistic approach to SPM guidance and implementation is an important new development: many forms of SPM support remain relatively fragmented. For example, an organization might run a workshop that

highlights the importance of SPM to top management (and thus ensures buy-in), but not provide follow-up support to help with the practical side of SPM implementation. This sort of piecemeal approach is often due to a lack of funding or capacity. Static guidance and tools abound but, unless they convey a proper sense of the whole picture to the MFIs seeking to use them, they may not be sufficient to help MFIs complete SPM implementation.

Social performance management and reporting are on the rise in the microfinance industry as a whole and the exercise of tracking such information is already impac-ting the daily existence of MFIs around the world. A large number of institutions are creating social performance positions or departments within their organizations and setting work plans based around the SPTF‘s social performance framework. As data shows, however, there is still much to be done in terms of expanding the tracking of outreach indicators, embedding social performance policies and practices into operations and backing up development objectives with outreach information tailored to the pursuit of those objectives.

INDICATOR CATEGORY

WHAT THE INDICATORS MEASURE

1. Mission and social goals The MFI's stated commitment to its social mission; its target market and development objectives

2. Governance Whether members of the Board of Directors have been trained in social performance management and the presence of a formal Board committee that monitors social performance

3. Range of products and services Financial and non-financial products and services offered by the MFI

4. Social responsibility to clients The number of Smart Campaign Client Protection Principles applied by the MFI

5. Transparency of cost of services to clients

How the MFI states its interest rates

6. Human resources and staff incentives The MFI's policy regarding social responsibility to staff; this includes: human resource policies in place, board and staff composition, staff turnover rate, and staff incentives linked to social performance goals

7. Social responsibility to the environment Whether the MFI has policies and initiatives in place to mitigate the environmental impact of financed enterprises

8. Poverty outreach Poverty levels of clients at entry and their movement out of poverty over time

9. Client outreach by lending methodology The type of lending methodology(-ies) employed by the MFI

10. Enterprises financed and employment creation

The number of enterprises financed by the MFI and employment opportunities created by the enterprises financed

11. Client retention rate The client retention rate of the MFI

Figure 27: Social Performance Indicators for 2011 MIX Data Collection

Chapter 7: Looking Ahead


Since 2005, the SPTF has focused on developing ways to measure social performance in microfinance. One of this initiative‘s achievements has been the creation of social performance indicators to assess how an MFI aligns its systems to its mission and how effectively it uses social performance information to reach its social goals.

MIX started collecting information on social performance in 2009 using a pilot set of social performance indicators, many of which have been analyzed in this report. Recently, the Social Performance Indicators Working Group of the SPTF has refined its indicators to increase their relevance to the industry and make them easier for MFIs to report. Incorporating feedback from MFIs, funders, and networks with two years of MIX data analysis, the new set of 11 core indicator categories will help simplify the social performance reporting process, encourage better industry analysis, and enable social performance benchmarking on a grander scale (Figure 27)16. In addition, the working group has selected a suite of brand new indicators to be included in a survey for MFIs reporting to MIX. These new indicators aim to capture data particularly relevant to consumer protection and human resources and will be collected by MIX through a pilot survey in 2011. As seen in this report, MFIs tend to value tracking social performance information most where a specific operational issue is concerned or where they see a clear linkage with financial performance, such as in the case of dropout rates, client protection principles and staff rotation. In other areas, the benefits of SPM are not yet as clear to MFIs or implementation is hindered by staff capacity, lack of resources or lack of understanding of what needs to be done. More research is needed to analyze synergies and trade-offs between financial and social performance in order to strengthen the case for mainstreaming SPM into MFIs‘ operations. MIX made a first cut into this topic in 201017 with the following results:

Investments in human capital (social performance training and social responsibility to staff) go hand-in-hand with higher staff productivity and better portfolio quality, but are also associated with lower efficiency;

Social performance training and human resource policies have stronger synergies and weaker tradeoffs with financial performance;

Serving the poor and very poor comes at a cost in terms of efficiency but not in terms of risk or

16 To know more visit: http://www.themix.org/social-performance/Indicators. 17 MIX data brief, #7. Microfinance Synergies and Trade-offs: Social versus Financial

Performance Outcomes in 2008.

productivity, even after considering differences in loan sizes.

The overarching objective of MIX‘s efforts in the field of microfinance standards, data, and analysis is to provide a comprehensive and exoteric view of MFI performance. In the pursuit of this goal, MIX‘s social performance analysis plan for 2011 includes: a deeper understanding of the incentives for, and landscape of, social performance reporting; more comprehensive analysis of the relationship between key financial and social performance indicators; and better insight into the relationship between key cost metrics, as well as best practices for measuring costs to clients. MIX will accomplish this in part using new, experimental social performance indicators designed in conjunction with the SPTF to inform evolving reporting standards. Turning to the institutions themselves, more investments in staff training, incentives and human resource policies generally are necessary to ensure that SPM is included on MFI agendas. Therefore investors, whether they are socially or financially driven, must be willing to help shoulder these costs, as the lack of such initiatives may hinder MFI sustainability and growth18. On the client side, the Smart Campaign‘s client protection principles are gaining prominence on MFI agendas but their implementation is in need of support via training and a validation process that certifies the veracity of these principles‘ application19. Finally, while poverty reduction is one of the top goals for MFIs across all regions, only a handful of MFIs currently measure client poverty levels. Furthermore, data that do exist are difficult to compare or analyze because of the variety of tools and poverty lines in use. More resources should be dedicated to helping MFIs assess the poverty levels of their entering clients, as this data can be used for market research in improving product design and better meeting clients‘ needs. At the same time, MFIs interested in poverty reduction require training on tools that can help understand whether movement out of poverty has occurred. The growing demand for social performance information from different industry stakeholders, the rising inclusion of these metrics in investors‘ and donors‘ due diligence procedures, and the increasing availability of training and assessment tools for MFIs interested in SPM indicate once and for all that a shift in the evaluation of MFI performance is taking place. All those who wish to see the social promise of microfinance through to its conclusion should welcome this shift.

18 MicroBanking Bulletin, ‗Defining responsible financial performance: how to think about growth‘ 19 Smart Campaign is currently working on a certification process for the Client Protection Principles.

http://www.themix.org/social-performance/Indicators


Glossary of Terms

Active borrowers

The number of individuals who currently have an outstanding loan balance with the MFI or are primarily responsible for repaying any portion of the Gross Loan Portfolio. Individuals who have multiple loans with an MFI should be counted as a single borrower.

Client retention rate

Active borrowers at the end of the period / (active borrowers at begin + new borrowers).

Credit

1. Microcredit loans for microenterprises: loans whose purpose is to finance a microenterprise (5 or fewer employees); 2. SME loans: loans whose purpose is to finance small or medium enterprises (greater than 5 employees and less than 250); 3. Loans for agriculture: loans destined to activities linked to agriculture/livestock; 4. Line of credit: a pre-established loan authorization with a specified borrowing limit extended by a lending institution to an individual or business based on creditworthiness; 5. Consumer loans for education: loans destined to finance the education of any household member; 6. Housing loans: loans that finance home purchase or improvements; 7. Consumer loans for immediate household needs: loans mainly destined to finance consumption and other household needs.

Education services

1. Financial literacy: training which addresses topics related to financial planning, savings, investments, borrowings, budgets, interest rates, etc.; 2. Basic health/nutrition education: teaching sessions on topics such as breastfeeding, child health and nutrition, family planning, reproductive health, etc.; 3. Children and youth education: educational programs and strategies geared toward children and youth; 4. Occupational safety and health in the workspace education: training that aims to inform local entrepreneurs about how to ensure safer and healthy working conditions.

Enterprise services

1. Enterprise skills development: includes vocational training, technical and management skills courses to develop small-scale enterprises; 2. Business development services: includes information, training, business advice, consulting and marketing services, assistance with information and communications technology (ICT), technical assistance, and business links.

Enterprises

1. Microenterprises: enterprise having 5 or fewer employees; 2. Small enterprises: enterprise greater than 5 employees and less than 50; 3. Medium enterprises: enterprises greater than 50 employees and less than 250; 4. Large enterprises: enterprises greater than 250 employees. These numbers include both self-employed (client and family members) and non-family hired employees.

Financial services

1. Debit card: a bankcard used to make an electronic withdrawal from funds on deposit in a bank, as in purchasing goods or obtaining cash advances/Credit card: a bankcard that may be used repeatedly to borrow money or buy products and services on credit; 2. Cell phone cards: a card used to directly lend out money through mobile phones and that allows clients to store cash and repay their loans; 3. Savings facilitation services: the MFI enables its clients to have savings in other institutions; 4. Remittances services: money sent by expatriate migrant worker to their home country or other payments in cash, check or electronic transfer, also made domestically; 5. Payment by check: bill of exchange, or draft on a bank drawn against deposited funds to pay a specified sum of money.

Health services

1. Basic medical services: basic nursing, basic medical support and vaccination services; 2. Special medical services for women and children: services such as PAP smears to breast exams, STD screenings, pre- and post- natal care for pregnant women.

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Insurance

1. Credit life insurance: insurance issued to cover the life of a borrower for an outstanding loan. If the debtor dies prior to repayment of the debt, the policy will pay off the balance of the amount outstanding. 2. Life insurance: insurance that guarantees a specific sum of money to a designated beneficiary upon the death of the insured or to the insured if he or she lives beyond a certain age; 3. House insurance: property insurance that covers losses occurring to one's home, its contents, loss of its use, or loss of other personal possessions of the homeowner; 4. Agriculture insurance: coverage for crops in the event of loss or damage and coverage for domestic animals loss raised for home use or for profit, especially on a farm; 5. Health insurance: insurance against loss or bodily injury; 6. Workplace insurance: insurance that covers medical costs and lost wages for employees injured at work

Legal form

1. Bank: a licensed financial intermediary regulated by a state banking supervisory agency. It may provide any of a number of financial services, including: deposit taking, lending, payment services, and money transfers; 2. Non-bank financial institution: an institution that provides similar services to those of a Bank, but is licensed under a separate category. The separate license may be due to lower capital requirements, to limitations on financial service offerings, or to supervision under a different state agency. In some countries this corresponds to a special category created for microfinance institutions. 3. NGO: an organization registered as a non-profit for tax purposes or some other legal charter. Its financial services are usually more restricted, usually not including deposit taking. These institutions are typically not regulated by a banking supervisory agency. 4. Cooperative/credit union: a non-profit, member-based financial intermediary. It may offer a range of financial services, including lending and deposit taking, for the benefit of its members. While not regulated by a state banking supervisory agency, it may come under the supervision of regional or national cooperative council.

Mission statement A formal, written expression of an organization‘s mission that defines why it exists, and what it does for whom. It can also include a vision statement and/or values statement if relevant.

Poverty assessment tools 1. Progress Out of Poverty Index (PPI) CGAP-FORD, Grameen: the PPI is a composite of 10 easy-to-collect, non-financial indicators such as family size, the number of children (attending school), type of housing and assets, linked to a poverty likelihood score, according to different poverty lines. Each PPI is specific to its particular country characteristics as each is based on a recent national household survey that covers expenditure or income. 2. IRIS/USAID Poverty Assessment Tool (PAT): also based on recent national household surveys that cover expenditure or income, PAT is a country-specific questionnaire of 15-18 indicators that are benchmarked to different poverty lines. (Initially designed to report on the % of clients who are 'very poor' according to the legislative definition of 'extreme poverty' for the country in question‘) 3. Per capita household expenditure: sum of total household expenditure (for consumption or non-consumption) divided by the number of members living in the household; 4. Per capita household income: aggregate income from all household income from work, capital and government transfers, cash and in-kind - divided by the number of members living in the household); 5. Housing index: the Housing Index uses the structure of the house and sometimes the compound, the material used for building the house, the number of rooms, the presence of running water and bathroom facilities to differentiate between economic levels of households and identify those who are poor. 6. Participatory wealth ranking (PWR): PWR relies on criteria that communities themselves define to conduct assessments of who within their communities they deem to be poor and who are relatively better off. PWR lets communities themselves define what constitutes poverty and relative well being and lets communities then classify households according to relative levels of poverty. 7. Means Test: the means test uses a very simplified household survey to determine poverty levels of households. A small number of relatively easily verifiable and generally asset based indicators are used, including land ownership, livestock ownership, ownership of radio, television, etc. Other indicators that may be used are educational levels or social indicators. A composite score is then derived to rank households. 8. Food security index: a quantitative assessment of the availability, stability and access to food supplies in each country, as well as the nutritional outcomes that result from food insecurity; 9. Own Proxy Poverty Index: any other poverty indicator used by your institution.



Poverty levels

1. Very poor: Clients living below an absolute extreme poverty line. Common extreme poverty lines include (1) persons in the bottom 50% of those living below the poverty line established by the national government, or (2) persons living on less than US $1 per day (technically $1.08 per day per capita at 1993 Purchasing Power Parity - PPP) or on less than of US $1.25 per day at 2005 PPP. 2. Poor: Clients living below a poverty line. Common poverty lines include (1) persons living below the poverty line established by the national government, or (2) persons living on less than US $2 per day in daily per-capita expenditures at 1993 PPP. 3. Low income: Clients above the poverty line but below the national average income. For any update about poverty lines and PPP visit: http://www.povertytools.org/

Rural areas

Settled places outside towns and cities, such as villages, hamlets, where most livelihoods are farm based. Farm includes both crop and noncrop agriculture, livestock. fishing, etc.

Savings 1. Checking accounts: an account which allows the holder to write checks against deposited funds 2. Voluntary savings: deposits are voluntary; 3. Compulsory savings (cash collateral): savings are mandatory (and used as cash collateral); 4. Fixed term deposits: deposit that cannot be withdrawn before a date specified at the time of deposit; 5. Special purpose savings accounts: a deposit account for private individuals to accrue money for a special purpose and receive interest on the deposited amount.

Semi-urban areas

Residential areas on the outskirts of a city or town with strong presence of non-farm economy.

Staff

Personnel who carry out tasks related to microfinance activities. This should not include technical staff (e.g. I.T. department, accountants, administrative) and support staff (e.g. drivers, cleaners).

Staff turnover rate

Percentage of staff having left the MFI during the last reporting year, as calculated by: Number of departing full and part time employees over reporting period / Average number of full and part time employees over reporting period.

Urban areas

Areas constituting a city or town with higher density of population in comparison to the surrounding areas, where the majority of people do not dependent upon agriculture as main economic activity.

Women’s empowerment services

The MFI identifies constraints that women face in the society and seeks to enable women - through the provision of financial and non-financial services tailored to women's needs - to challenge and change gender inequalities in the household, market and community. The MFI carefully supervises female business activity to ensure that the female client effectively exercises the control over her loan and business activity and does not hand it over to her husband or another male in the household. Some of the non-financial services aiming at empowering women are: 1. Business training for women: specific training to promote women's entrepreneurship. Besides basic bookkeeping and business management skills it may include guidance in balancing family and work responsibilities, group dynamics and leadership (in the case of group loans). 2. Women leadership training: training aiming at increasing women's confidence to work productively, enhance their sense of self-empowerment related to control over their freedom of movement and decision-making; 3. Training on rights and responsibilities as leaders in participative models: develops the leadership capacity among group members to promote the rotation of leadership roles; 4. Women's rights education/gender issues (training for men and women): provides a forum for dialogue on social and political issues, such as, women‘s rights and issues concerning gender roles in the community and awareness to eliminate any form of violence and discrimination against women; 5. Counseling for women victims of violence: gives women victims of violence psychological and support and free legal advice.


Microfinance Information Exchange, Inc.

1901 Pennsylvania Avenue, NW Suite 307 Washington, DC 20006 USA

Tel: +1 202 747 6228 I Fax: +1 202 659 9095 www.themix.org I www.mixmarket.org

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