Posted by: Taea Calcut
A SEF client at work
Interview with:
Anton Simanowitz, Chief Development Officer at the Small Enterprise Foundation (SEF) and Director of the Imp-Act Consortium at the Institute of Development Studies
The Small Enterprise Foundation (SEF) was established in 1992 in Limpopo, South Africa's most impoverished province, with the goal of "working towards the eradication of poverty by creating a supportive environment where credit and savings services foster sustainable income generation, job creation, and social empowerment." In this interview with MIX, Anton Simanowitz, Chief Development Officer at SEF, discusses some of the ways in which social performance measurement and management remains closely integrated with SEF's operations in order to fulfill its goal.
MIX: Clients for SEF’s Tshomisano Credit Program are chosen after a three-day process of participatory wealth ranking in the village to target the bottom 40%. Could you describe this process in greater detail and explain how it relates to SEF’s mission?
Mr. Simanowitz: SEF was set up as a poverty alleviation program. To achieve this end, we selected one of the poorest areas in the country as our operational area. We also designed a credit methodology that offered small loans through group-based lending, following the theory that small loans and high transaction costs (e.g., the time spent to enter the program and attend meetings) would deter all but the very poorest from joining.
However, an evaluation in 1995 concluded that only 30-40% of people reached by SEF lived below the poverty line. This was in part a result of the participation of better-off clients who joined the small-loan program due to a need for credit and anticipating larger future loans, and who either actively pushed out people who had different priorities or created an environment where the poor left through self-selection, perceiving the program to be for “someone else.”
Our response to the evaluation’s results was two-pronged. First, though continuing to base its loan delivery systems on the Grameen model, SEF began offering smaller loans and providing greater support to clients through the facilitation of group-based or individual problem-analysis and business planning. Second, in recognition of the evaluation’s implication that reliance on self-targeting through the design of loan products was not the most effective way of reaching the poorest people, SEF began explicitly and systematically targeting clients and measuring performance in poverty outreach through participatory wealth ranking (PWR).
PWR, a cost-effective and reliable methodology used over the past 12 years to rank hundreds of thousands of people, draws upon the experience of two decades of participatory appraisals conducted by academic researchers and development workers who have successfully used it to generate insight into the dynamics of poverty and collect detailed community information. PWR lets communities define what constitutes poverty and relative well-being and then classify households according to relative levels of poverty. Using PWR, SEF can determine an appropriate cut-off line, which is currently set to include the bottom 40 percent of people in the communities where SEF operates, or approximately the bottom-half of those living below the poverty line.
At SEF, the PWR is a 4-step process:
(1) Mapping the Village: First, a community meeting is called. Community members are asked to draw a map of their village (or a section of their village if it is large) and carefully identify all households, shops, and community centers. Mapping is usually done on the ground so that it can easily be corrected. Once mapping is complete and everyone agrees to it, the map is transferred on paper for permanent record and the names of households are recorded on cards.
(2) Wealth Ranking: Community members are then divided into three to five reference groups. Each reference group meets separately and ranks all the households into different groups of differing levels of well-being that they define. The wealthiest pile is numbered one, while the poorest pile receives the highest number. Households in each of the groups are then scored according to the formula: (100 / Number of Groups) x Group Number. For example, the poorest group may be numbered 6 and the wealthiest numbered 1. Hence the poorest group would have a score of: (100/6) x 6 = 100; the wealthiest group would have a score of: (100/6) x 1 = 16.67. The poorest group always has a score of 100.
(3) Triangulation of Results: To ensure that biases are reduced, if not eliminated, scores of all reference groups are averaged. For example, if a household receives a score of 100 from two reference groups and 75 from a third reference group, it would receive an average score of 92.
(4) Determining Cut-Off Scores and Selecting Clients: Once all households are ranked, with the poorest household receiving the highest score, SEF zonal managers select a cut-off point to determine MFI membership eligibility based on a table of indicators representing different poverty levels compiled from experience with many previous rankings. The poorer the community, the lower the cut-off score to ensure that more households will be eligible for membership. Those excluded by the cut-off point can have discussions with MFI staff if they feel that they have been wrongly excluded.
MIX: SEF features a dynamic Research and Development Department that participates not only in the PWR process but also in other social performance-related activities. Can you highlight some current activities undertaken by the department and also describe the degree to which its work is integrated into SEF’s business processes as a whole?
Mr. Simanowitz: Our Research and Development (R&D) Department goes well beyond traditional R&D to support the strategic development of most departmental functions, improve organizational efficiency and effectiveness, strengthen quality monitoring and improvement processes, improve operational policies and procedures, conduct client monitoring and research, and design, pilot, and implement products. The department also plays a reflective role for the organization. This process has been formalized into regular department monthly reports to operations and senior management, the findings of which are used to adjust product service and delivery.
The high level of integration of R&D Department into operational and organizational processes and its authority to influence decisions is key to SEF’s ability to achieve an effective balance between social and financial performance management.
Two current activities of the department are:
(1) Improving the quality of methodology implementation: SEF’s focus on quality highlights the importance we place on social aspects of the methodology for promoting client success. SEF is currently engaged in carefully defining the key elements and strengthening the management of its methodology. We have defined ten key operational areas (KOAs) covering both social and financial aspects for field staff, described the processes for each in detail, and improved our management and internal audit systems. These KOAs include: PWR, motivation for the poorest to join SEF, business evaluation, end of loan group progress meetings, loan utilization checks, vulnerable client visits, facilitating problem-solving, group formation and training, and center solidarity.
(2) Developing a tool to identify and support SEF’s most vulnerable clients: SEF’s Vulnerable Client tool focuses staff attention on clients who need the most support, therefore enhancing the efficiency of the staff’s work. Providing support to vulnerable clients also makes them more likely to succeed, thereby reducing exit, arrears, and problems that are time-consuming or cause conflict in center meetings.
To identify vulnerable clients, SEF reviews existing data in its MIS to find individuals with weak businesses, poor savings, poor attendance, or who have been in arrears. SEF has reliably used these indicators for many years to identify potential problems among its clients. The vulnerable client is visited by a Development Facilitator (DF), who monitors progress and facilitates problem-solving.
While the Vulnerable Client tool is still in development, it could be a good example of a win-win synergy in social and financial performance management: it will allow DFs to focus their attention on clients needing the greatest support, reducing the amount of time necessary with the majority of clients. This should lead to an overall reduction in expected workloads, the improved success of the most vulnerable clients, and the proper enforcement of performance standards.
MIX: Client retention appears to be a concern for SEF. What steps have you taken to investigate dropout causes and promote retention?
Mr. Simanowitz: Client exit is an important performance indicator for SEF as it reflects client success and has a significant impact on financial performance. SEF conducts in-depth exit studies on an ad-hoc basis, as we have found that routine exit monitoring tends to produce similar results and often does not get to the necessary depth of understanding. While clients report a wide range of reasons for exit, the root of most reasons is one of two issues:
(1) Financial problems experienced by clients, which largely result from clients’ mismanaging their businesses (ex., failing to invest loan funds, overbuying stock, using profits for consumption) or external shocks (ex., death, illness, robbery, natural disaster) that incapacitate the client or necessitate spending business funds.
(2) The impact of other clients’ problems on others in the group or center. A recent study showed that 44% of SEF clients left due to group and center conflicts.
While an exit rate of around 10 percent can be attributed to factors beyond SEF’s control, SEF has considerable influence over other problems experienced by clients. For example, in looking at exit data disaggregated by field agent we see a huge variation (between 7% and 40%) between agents as well as agents’ ability to change their performance over time. Exit is thus a key performance indicator at all levels of the organization and strictly managed SEF, using Best Practice guidelines and staff training guides with field staff and managers to inform them of effective strategies to support clients and create the success that leads to client retention.
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For more information about SEF, visit www.sef.co.za or review social performance data reported to MIX at http://www.mixmarket.org/mfi/sef-zaf/files.
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