Presentation by Laura Foose, Alternative Credit Technologies, LLC November 9, 2005

1. Social Performance in Microfinance Presentation by Laura Foose, Alternative Credit Technologies, LLC November 9, 2005

2. Social Performance Task Force • Launched in March 2005 by CGAP, Argidius Foundation and the Ford Foundation • Membership: 52 organizations 20 NGOs 9 Donors 9 Networks/Associations 2 Social Investor networks 4 Microfinance Raters 7 Action Research Programs/Universities 3 Consulting groups • Subcommittee structure used to work on a common agenda developed by the task force

3. Objectives of Social Performance Task Force • Strengthen understanding of social performance and learn about relevant initiatives and tools • Promote social performance management at MFI level so as to ‘improve’ operations • Bring various stakeholders together to establish industry-wide standards for social performance reporting, auditing, and social rating • Exchange on current and planned work in social performance

4. What is Social Performance? • Social performance is the effective translation of an institution’s social mission into practice • (actions, corrective measures, outcomes). • la actuación social de un instituto como la traducción efectiva de su misión social (acciones, medidas correctivas, resultados)

5. Social Performance Management Questions • 1. What are your social performance goals? • 2. How do you monitor who uses & who is excluded from using your services? • 3. How do you monitor & assess the effects on current clients? • 4. How do you monitor & assess the reasons why some clients leave? • 5. How do you use information to improve your services & achieve social goals? • 6. How do you review & improve the quality of your systems and processes?

6. Benefits of Social Performance • Better management (balance financial/social objectives, base line info., performance tracking, early warning systems) • More client-responsive(appropriate services, more product choices, better customer service) • Improved outreach and services (portfolio segmentation, understand client use, innovations, verify impact of programmatic changes, track impacts on clients) • Improved financial performance (better client retention, growth, lower operational costs)

7. Manifesto de Task Force • Promover Resultados Sociales en Micro Finanzas • Hacia una línea base doble • “Las Micro Finanzas funcionan mejor cuando se mide - y se revela- sus resultados. • Información estandarizada y exacta sobre los resultados, tanto sobre los resultados financieros como los sociales, es indispensable.” (De “principios Claves” del CGAP aprobado por Los G-8). • Nosotros los subscritores, como líderes en el campo de micro finanzas: • 1) Definimos la actuación social de un instituto como la traducción efectiva de su misión social (acciones, medidas correctivas, resultados) • 2) Reconocemos que medir el resultado financiero no es suficiente para medir el impacto que tiene micro finanzas en la vida de la gente pobre. Una línea base doble define el éxito como buenos resultados financieros y sociales, y que a largo plazo estos se esfuerzan mutuamente. • 3) Reconocemos además el creciente interés por donantes, redes, practicantes, fundadores y otros “stakeholders” en la evaluación, la aplicación y el mejoramiento de nuevas herramientas para fortalecer el desempeño social, monitoreo y informaciones.

8. Manifesto con’t • 4) Apoyamos el desarrollo actual en el campo de monitoreo de resultados sociales, para organizaciones que tienen el mismo objetivo de promoción de la actuación social, pero cada uno con enfoques y perspectivas diferentes. • 5) Nos comprometemos a • convertirnos en pioneros para poner en práctica el monitoreo periódico, reportando y liderando los aspectos sociales de nuestras organizaciones y las organizaciones que apoyamos • Formular objetivos sociales claramente especificados por nuestro organización; • Diseñar, introducir y usar sistemas para manejar, examinar, monitorear y reportar sobre los resultados sociales dentro y fuera de nuestra organización; • Usar la información sobre los resultados sociales para mejorar el efectos social de nuestras operaciones • Estar abiertos a auditorias externas sobre los resultados sociales • Promover y intercambiar ideas e información sobre los resultados sociales

9. Work Plan of Task Force 2006 • Promote the spread and practice of Social Performance Management through training of practitioners • Establish industry social performance standards and a common reporting framework • Develop a common reporting site at the MIX to support reporting on social indicators and make double bottom line reporting a regular practice in the MF industry

10. Social performance pathway “Effective translation of mission into practice” Reaching Target Clients Service Design & Delivery Systems Mission Goals Change Objectives Meeting Client Needs Intent Design and inputs Outputs Outcomes Impact management/strategy Outreach/ Changes services Governance/ policies

11. Current Initiatives and Existing Tools

12. CERISE-Argidius SP Initiative: Objectives At the level of MFIs Reporting system for stakeholders (MFI Board, management, external financiers, member- clients) Information for MFI strategic decision making and improved SP management At industry level Greater transparency on social development achievements At national and international level To provide a base for comparison with other MFIs on the basis of widely accepted SP standards

13. Intention Design Principles Outcome Impact Process Action Output Economic & Social Performance Conceptual Framework The SPI approach: a self- assessment of principles, actions and corrective measures for internal use and external reporting.

14. 4 Dimensions of Social Performance • Outreach to the poor and excluded • Adaptation of services and products to needs of target clients • Improvement of social and political capital of clients • Social responsibility of the institution Score of 25 points each

15. Dimension 1: Outreach to Poor and Excluded mission of the MFI geographic and socio-economic focus tools for targeting size of transaction collateral

16. Dimension 2: Adaptation of Services range of services quality of services non-financial services accessible to the clients participation of the clients in the design

17. Dimension 3: Social and Political Capital transparency of the financial transactions clients representatives for consultation, decision-making or control of the MFI empowerment : social cohesion, voice of the clients with the national or local government

18. Dimension 4: Social responsibility of institution human resource policy social responsibility towards the clients social responsibility towards the local community

19. Social Performance Management (SPM)  the systematic assessment of performance relative to social objectives and the use of information to improve practice • demonstrate program impact • improve program services Assessment with Action

20. Main components of Social Performance Management • Developing a social performance strategy • Monitoring and assessing social performance • Institutionalizing and using social performance information

21. Component 1: Developing SP Strategy • Clarify mission and social goals • Define clear and realistic performance objectives • Set measurable performance targets • Design program (operational plan)

22. Component 2: Monitoring and Assessing SP • SP systems – two approaches • routine monitoring • follow-on research • SP systems – design (key questions) • What information is needed? Who needs it? • How will information be collected? • From whom will data be collected? • How frequently will the information be collected? • Who will collect, collate, analyze and report information?

23. Component 3: Institutionalizing and • Using SP Information • Ensure effective use of information  feedback loop • Institutionalize SPM through management/board commitment and staff buy-in • Improve SPM system through periodic reviews

24. CGAP-Ford Social Indicators Project • Develop indicators to track MFI social performance through monitoring outreach to the very poor and changes in client well-being • Create common reporting format for MFIs across countries standardization • Report on social performance of MFIs on MIX Market 35 participating MFIs 16 Asia 6 Sub-Saharan Africa 1 Northern Africa 9 Latin America 3 Eastern Europe

25. Methodology Develop 2 sets of indicators • industry indicators: 5 to 6 globally applicable indicators on different dimensions that can provide cross-country comparisons • proxy indicators: simple context-specific indicators developed by each MFI Proxy indicators will be benchmarked to industry indicators so that MFI context-specific reports can be compared globally

26. Methodology (cont’d) Criteria for selecting the indicators Have reasonable reliability/validity Relevance across a variety of national contexts Cost-effective data collection How is the informationcollected? • Existing client information from application form • Simple low-cost small sample surveys

27. Initiatives in Social Rating Overview Frameworks Issues Indicators and methods Cost Sub-committee: M-CRIL, Planet Rating, Microfinanza, Accion With contribution from: Imp-Act

28. Rating and social performance SP definition: effective translation of social goals into practice Social Rating must reflect and make explicit the: • social goals and objectives in microfinance • systems within an MFI which are relevant to achieving those objectives • environmental factors which affect MFI activity, and • indicators of whether those objectives are [on the way to] being achieved.

29. Social Ratings so far: ‘pilots’ Excludes questionnaire tests which did not result in reports Stand-alone reports: • complement to the financial assessment of credit rating • a direct comparison of the ‘double bottom line’ • still some experimentation

30. Objectives To contribute to: • Investment decisions Ø  Transparency on social performance ØBenchmarking social performance across MFIs, and to ØEncourage MFIs to improve their social performance (specific recommendations possible) Task: ·To simplify and measure quite complex ideas ·Adapt to different contexts and organisational models ·Provide validity – reasonablelevels of rigour/precision ·Do so practically – at reasonable levels of time and cost

31. Different frameworks Cerise: social indicators project - dimensions of corporate social responsibility (CSR - clients, employees, community) + mF specific dimensions (depth of outreach and adaptation of services)[starting point for some rating agencies] Rating agencies/M-CRIL: the Imp-Act pathway and credit rating approach (focus on MFI and clients)

32. Working hypotheses in rating the risk profile and creditworthiness of an MFI depends critically on its financial performance, the social profile of an MFI depends critically on its outputs (depth of outreach and appropriate products), but both are also affected by its managerial capabilities and governance

33. Social performance pathway “Effective translation of mission into practice” Reaching Target Clients Service Design & Delivery Systems Mission Goals Change Objectives Meeting Client Needs Intent Outputs Impact Design and inputs Outreach/services management/strategy Governance/policies SOCIAL RATING

34. Social benchmarking? Generic social values (clear and agreed) – or specific to each MFI’s situation, model and stated objectives? E.g. not all MFIs target women, target the poor, apply group based model (social collateral), can legally offer savings products Considerable debate: try to balance both Generic is important to compare across the industry (countries, models); and has to make sense for specific MFI Reflected in selected dimensions and what is scored

35. The dimensions of a social rating Similarity in scope and content: • Social mission, systems, strategy • Outreach – depth and breadth • Appropriateness of financial services • Social responsibility to clients • “ to staff • “ to community Differences in grouping, and in scoring 1-3 are fundamental, can be scored (equal weights) 4 may be scored as part of 1 and 3 5-6 difficult to score; can be described

36. Parameters: social mission & systems Main • Mission: clarity, communication, commitment (board/mang’t) • Systems aligned with stated mission: approach to targeting; staff incentives; reporting/monitoring and use of information/findings (e.g. market segmentation, client data/feedback, dropout data/feedback) • Relationship with clients: transparency, ensuring awareness • Provision of or linkage with non-financial services – described

37. Indicators: Outreach • Operations in poorer areas (more remote, poorer within more developed areas, e.g. urban slums) • Clients who are poor - % and number • Hired employment in micro-credit supported enterprises • % clients not served by formal financial services • % clients not served by other MFIs • % clients from marginal groups/communities

38. Indicators: Financial services • Range of financial services (within regulatory guidelines) • Process of product development • Client awareness/understanding • Client satisfaction: products, EIR, timeliness, comparison with alternative sources • (if applicable) Effective group systems (regular attendance, updated passbooks, transparency of transactions) • Client exit – dropout rate • Poverty assessment of dropouts, reasons for exit