Social Performance Indicators Blog

Hand in Hand: Financial and Social Performance

Guest Post by: Cécile Koller
Head of Research, responsAbility Social Investments AG

 

The 2009 Microfinance Banana Skins Report identified credit risk as the number one threat to the microfinance market, while only one year earlier credit risk ranked tenth on the list. What does this change in perceived risk have to do with social performance? The seemingly purely financial risk is putting microfinance’s core mission at stake, which is to lift people out of poverty by providing access to financial services. Credit risk thus is of equal importance for an MFI’s financial as well as social performance.

 

Photo credit: responsAbility Social Investments AG 

The sharply increased awareness for credit risk is due to real effects of the economic crisis on MFIs. However, the crisis only uncovered what has already been inherent in the market: a growing risk of over-indebtedness. Thus implicitly, the results of the report call upon the social responsibility of both funders and MFIs by stating that the increase in credit risk is a “self-inflicted risk, caused both by the sharp growth in microfinance lending in recent years due to rising competition, and poor management of credit risk such as inadequate credit assessment (and) multiple borrowing.”

MicroVest: Focusing on Financial Inclusion

Posted by: Katherine Oglietti

Interview with: Michael A. Edberg

Director of Investments, MicroVest Capital Management

 

MicroVest is a capital-mobilizing intermediary that facilitates the flow of private capital to microfinance institutions across the globe. It lends at market rates with the belief that a commercial approach to investment encourages MFIs to become more efficient and ultimately provide a better service to clients. MicroVest assesses an MFI’s social performance during its due diligence process before investments are made, such as client outreach and providing financial services designed to reach the poorest of the poor. It recently began a focus on how an MFI protects against client and systemic over-indebtedness. In the following interview, Michael Edberg explains the relationship between social performance and socially responsible investment.

MIX: Does social performance reporting influence MicroVest's choice to invest in a given MFI? If so, in what way?

Mr. Edberg: Social performance reporting does not directly influence MicroVest's choice of investments.  However, we do target our investments to financial institutions that provide financial services to the bottom of the pyramid for productive purposes.  We do not look favorably upon intuitions that claim to do micro lending, but in fact are low touch, high cost consumer lenders.  Our assessment of an institution’s focus and lending practices occurs as part of the due diligence process and is not necessarily driven by specific metrics reported by the MFI, but by our assessment of how market focus and lending practices are reflected at all levels within the institution (from senior management to the branch loan officer).

Interests and Roles of Investors in Social Performance Measurement and Management

Posted by: Taea Calcut

Site of one of BlueOrchard’s Social Performance Due Diligence pilot tests
Photo © BlueOrchard, Bosnia and Herzegovina 

As microfinance extends its reach worldwide, it increasingly attracts the attention of "socially responsible" investors. But how important really are social performance indicators such as client protection and outreach to the poor respective to financial returns in the eyes of investors?

Over the coming weeks, the Social Performance Indicators Blog will focus on the interest and role of investors in social performance measurement and management. Using guest posts by microfinance investment vehicles such as MicroVest, ResponsAbility, and BlueOrchard, we will explore issues such as what social performance indicators are of interest to investors, what roles those indicators play in investors’ due-diligence processes, and the extent to which MFIs’ social performance reporting influences investment decisions. We will also consult microfinance institutions to gain investee perspectives on investors' expectations for social performance. Given the growing influence of investors in microfinance, we expect these issues and others will fuel lively debates – be sure to stay tuned and join the discussion!

Not Just Credit: Savings and Insurance Products through CRECER, Bolivia

Posted by: Katherine Oglietti

 A CRECER client in her restaurant

Interview with: Fabiola Céspedes Quiroga
Research Coordinator, CRECER, Bolivia

CRECER began in 1990, following a new management philosophy developed by Freedom from Hunger called Crédito con Educación (Credit with Education). Currently, CRECER facilitates financial services and products integrated with development services to 102,212 clients, of which 90% are women, 64% have only completed primary education, and 38% live in rural areas. As a non-regulated NGO, government policies prevent CRECER from accepting deposits or offering insurance products.  However, the organization has taken creative measures in order to facilitate these services to their clients. While commercial banks such as Parabank in Azerbaijan are downscaling in order to adapt their financial services to microfinance clients, NGOs such as CRECER are searching for ways to increase their institutional capacity in order to offer more financial services to their clients. In this interview, CRECER speaks about the various financial products it offers.

Downscaling Commercial Banks Can Offer High Quality Products to Microfinance Clients

Posted by: Katherine Oglietti

Information for this MFI profile was provided through an interview with Tofig Gasimov, Director of International Relations at Parabank, Azerbaijan; MIX Market; and the Parabank website.

Parabank is one of the oldest commercial banks in Azerbaijan; it was formed in 1991. Though it has been successful as a commercial bank, it is currently scaling down in order to also reach a low-income population that, according to the bank’s social mission, still faces difficulties in accessing financing. It initiated its microfinance component in 2004 with a venture in unsecured loans for cattle breeding in rural villages. The bank now supports businesses in any scale, from micro to large enterprises, and it has made a shift from lending not only to individuals but also through solidarity groups. While Parabank viewed this shift as a risk, the portfolio at risk over 30 days on its microcredit portfolio is actually a percentage point lower than its regular portfolio.

As a commercial bank, Parabank is able to offer a wide range of financial services to its clients in both rural and urban areas such as fixed term and checking accounts, educational loans, and insurance products; the social performance report indicates that it is able to offer more products than its peers. Clients have access to vehicle and real estate insurance through several different insurance companies in Azerbaijan. Last year, Parabank included Credit Life Insurance in their programming in order to protect the unsecured group loans (which are only 3% of the loan portfolio). This covers the full amount of the loan in cases where the client is unable to repay the loan due to serious health conditions or death. Though initiated for the purpose of reducing the risk of overindebtedness for its low-income microloan clients, Credit Life Insurance will soon be applied to all types of loans. Here we see an increased focus on client protection that occurred simultaneously with a shift towards microfinance.

Announcement: PPI™ Initiative in Africa

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The Grameen Foundation made an announcement today that it will begin an initiative with three MFIs in Sub-Saharan Africa to use the PPI™ (Progress out of Poverty Index™) to assess client poverty levels, better target poor clients, and track how they are moving out of poverty. The initiative, the first of its kind in Africa, is being facilitated by the PPI™ Users Collaborative in Africa (PUCA), a new, multi-stakeholder group that unites five charter partners—Oikocredit, Catholic Relief Services, Terrafina Microfinance, Planet Rating and Grameen Foundation—with the national microfinance networks APIM/Mali and  APSFD Senegal. As Sub-Saharan Africa is the poorest region in the world, it is particularly important for MFIs of that region to measure whether and how MFIs are able to contribute to poverty alleviation, improving their strategies accordingly.

More information on this initiative is available on the Progress out of Poverty Blog and the Grameen Foundation webpage.

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Innovation Meets Financial Education: Swadhaar in India

Posted by: Katherine Oglietti

Interview with: Preeti Telang, General Manager – Programmes and Operations, Swadhaar FinAccess

Swadhaar FinAccess (SFA), which currently operates in Mumbai, India, was founded in 2005 with the objective of providing the urban poor increased access to financial services, bridging the gap with the formal banking sector. In  2008, the promoters of Swadhaar FinAccess transferred the existing microcredit portfolio of SFA to its newly created Non-Banking Financial Company, Swadhaar FinServe Private Ltd. (SFPL). SFA, the nonprofit entity, focuses on a financial education and savings program, facilitating savings accounts to its clients through Citibank. We spoke with Preeti Telang of FinAccess, who offered her insight as to the importance of combining financial education with the facilitation of savings products.

MIX: What are the major obstacles preventing women who live in urban informal dwellings from being able to save?

Preeti Telang: There are three major obstacles that prevent Indian women from saving:

1) Lack of knowledge about savings. I strongly believe that our female clients would like to save. It is not that they do not want to save; it is that they do not know how to save.  They find it very difficult to set aside money from their limited incomes and put it into savings. Savings essentially becomes the last thing on their agenda, as it is for most of us, so they have to learn that savings should be a high priority.

Support Haiti through Microfinance

Posted by: Katherine Oglietti

Following the earthquake in Haiti, we featured guest posts from Sogesol and Fonkoze affiliates because we were able to make rapid contact with them, yet these MFIs are not the only ones who need support. It is necessary to emphasize that each of the microfinance institutions in Haiti and their clients have suffered greatly as a result of this catastrophe, and each will have much rebuilding to do. They have born losses of staff members and damages to their institutions. They are struggling to overcome these heavy blows to their organizations while redoubling their efforts to provide desperately needed loans and financial services to their clients. 

Photos by Leigh Carter, Fonkoze USA

As the rubble is cleared and the dust settles, microfinance will become an essential component of the rebuilding process, helping microentrepreneurs get back on their feet. MFIs have the capacity to offer loans for rebuilding homes and businesses; the ability to offer such financing will be contingent upon a large increase in funding. Please consider channeling your support for Haiti’s continual and sustainable development through one or more of these microfinance institutions who have been working to support Haitian microentrepreneurs and families for many years. 

MIX Market has information on six microfinance institutions from Haiti. Please find below the information that we could find on each of these organizations, as well as how to contribute to their funds for relief efforts.

Announcement: Social Performance Task Force Annual Meeting

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Social Performance Task Force Annual Meeting

June 28, 2010 – July 2, 2010
Bern, Switzerland

Sponsored by the Swiss Agency for Development and Cooperation, Liechtenstein Development Service, CGAP, and the Ford Foundation

For more information, please see the attached invitation letter, city guide, and hotel reservation form.

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MFIs’ Financial Products and Services: An Overview of SP Report Data

Posted by: Taea Calcut

As mentioned in an earlier post, MFIs exist first and foremost to provide financial products and services to populations underserved or excluded by formal financial institutions. So, what have MFIs identified as the most important products and services to meet their clients’ needs?

Graph 1: Percentage of MFIs Offering Financial Products/Services (n = 166)

 

Using data from a sample of 166 MFIs that submitted social performance reports to MIX, we find that 100% of MFIs offer credit products to their clients, yet less than half currently offer additional products or services (Graph 1).  Of those MFIs that do offer additional products and services, insurance emerges as the most popular product type.