Social environmental performance for microfinance Triodos Facet Consultancy

Social & environmental performance for microfinance

Triodos Facet • Consultancy firm promoting sustainable banking and SME development in developing countries & emerging economies • Part of the Triodos Group, innovator of sustainable banking • Headquarters: Zeist, The Netherlands • Representative offices in Africa, Latin America, Eastern Europe, Asia • 30 professional staff consultants

overview 1. 2. 3. 4. What is social performance management? Social Performance Management: why should we care? Tools to manage social performance Managing environmental, health & safety performance

When is a microfinance institution successful?

The triple bottom line Financial performance Environmental performance Social performance

The triple bottom line Do financial services improve the living conditions of this client?

The triple bottom line Can an MFI play an active role in overfishing and support the longterm continuity of their clients’ business?

The triple bottom line Can you help entrepreneurs with improving safety in the business?

Social performance? Portfolio quality Staff satisfaction Client focused microfinance Transparency Safe working conditions fair pricing Low interest rates Ethical collection practices Overindebtedness Data privacy Multiple loans Client satisfaction Women empowerment Integrity Poverty lending Financial inclusion Codes of conduct Suggestion box

The MFI The poor? The entrepreneur & the household Small business Health, safety & environmental impacts

Social performance management Why are we doing microfinance in the first place? What do we as MFIs want to achieve? • Access to financial services? • Poverty alleviation? • Economic growth catalyst? • Social change catalyst?

Social performance management Social Performance Management is about: 1. Setting your objectives (what do you want to achieve? ) 2. Measuring your results 3. Adapting your products and processes to improve performance

Social performance management

Social performance management 1. Setting your objectives “What is the mission of your MFI? ”

Social performance management 1. Setting your objectives Do you have a policy on: – Avoidance of over-indebtedness – Transparent pricing – Appropriate collections practices – Equal treatment of staff / staff development – Environmental management –. .

Social performance management 2. Measuring results

Social performance management Acleda bank (Cambodia) annual client survey: “how has your income situation developed? ” • income situation reduced: • 2005: 1. 1 -2. 3%, 2006: 0. 5%, 2007: 3. 4% • further investigation for more specific info as to the underlying causes in 2008

Social performance management The experience of SHEPHERD (india)

Social performance management Lessons learned with social performance measurement • • Translate social vision in clear social goals Start with few indicators, expand as you go A lot of data is already measured throughout the process Do not report only for investors use information internally.

Social performance management “What data does your MFI measure & report? ”

Social performance management What can you measure & report? (some suggestions) • profile of clients (do you actually serve your target group? ) • gender, location, economic position, etc. ) • client satisfaction & turnover • change in poverty status / business growth • improvement in leadership skills • staff profile, satisfaction & turnover

SPM: why should we care? a) Publish what you preach!

SPM: why should we care? b) Investors and donors are interested in non-financial impact of MFIs IFC’s mission is to promote sustainable private sector development in developing countries, helping to reduce poverty and improve people’s lives. IFC believes that sound economic growth, grounded in sustainable private investment, is crucial to poverty reduction. Through its Environmental and Social Review Procedure, IFC reviews the business of its FI clients to identify activities where the FI could be exposed to social and environmental risk as a result of its investments.

SPM: why should we care? c) Social performance drives financial performance Social dimension Financial performance Client satisfaction Efficiency increased Preventing multiple loans Lower PAR Staff satisfaction Increased efficiency Transparent interest rates Satisfaction & lower PAR Implemented SP policy Lower finance costs

SPM: why should we care? “What benefits would social performance management bring your MFI? ”

Tools for SPM I want to… tool Know the social performance of my MFI (diagnostic) SP scorecards Externally verify my social performance MF social ratings Know if my clients improve their living standards PPI or other poverty benchmarks report on my social performance Reporting guidelines

Tools for SPM 1. Social scorecards: SPI & QAT SPI reviews: • Policy • Systems • Performance (standard indicators

Tools for SPM 1. Social scorecards: SPI & QAT reviews: • • • Objectives set Strategy for meeting objectives Monitoring systems Information quality Information analysis & use

Tools for SPM 2. Social ratings A rating is an externally assessment of the social performance of an MFI • Social results • Systems implemented Major rating agencies: Planet rating, microfinanzas, Micro. Rate, m. Cril

Tools for SPM

Tools for SPM 3. Poverty scorecards A poverty scorecards assesses: • Poverty status of clients (very poor, not so poor, non-poor) • Improvements in poverty level

Tools for SPM PPI: estimates the likelihood that an individual falls below the national poverty line

Tools for SPM

Tools for SPM 4. Social performance reporting a) GRI guidelines

Environmental management Would your MFI support this type of business activity?

Environmental management Should you be concerned with your clients health & safety? And what about the waste water?

Environmental management Can MFIs reduce harmful pesticide use by their clients?

Environmental management What role can MFIs play in supporting renewable (e. g. solar) energy?

Environmental management What environmental, health & safety issues are relevant for your clients? What does your MFI do to manage the environmental, health & safety impact of its clients? What costs & benefits does it bring?

Environmental management You may think…. But let’s also consider this First earn some money, then we will consider environmental, health & safety issues Improving clients’ lives can also include a clear environment and safe working conditions MFI clients don’t pollute, big oil companies do One micro-entrepreneur may have limited impact, but what about 50000? Strict rules will drive my clients to the Helping clients improve may be an competitors added value MFIs can’t afford this An MFI may be eligible for lower interest rates from investors

Managing EHS risks Loan application sheet Reports to investors Reporting Application Reporting. Exclusion formats list Monitoring Recovery & specs monitoring MIS info Fact sheets Contract clauses Contracting & Disbursement Loan contract Appraisal Loan appraisal sheet

Environmental management

Environmental management

Environmental management • MFIs offer special loans to convert vehicle from petroleum to compressed natural gas. • Natural gas produces fewer harmful gasses and reduces the CO 2 emission with 15%. Also, the fuel efficiency of the cars rises. • costs: US$ 800. Since petrol prices rose significantly, payback times were short and taxi drivers increased their earnings.

Wrap up What Triple bottom line is not What TBL is Short term profit Long term value creation Only for NGOs Relevant for all MFIs that consider themselves professional Considering poverty as “money only” Include decent work and direct environment Shifting responsibilities to others Taking responsibility for clients wellbeing Imposing western standards Help MFIs to improve their business and that of their clients Finished product or blueprint Work in progress and adaptable to the context

Thank you! Alberic Pater a. pater@triodosfacet. nl www. triodosfacet. nl