Social Performance Indicators Blog

BlueOrchard’s Initiatives in Social Performance

Guest Post by: Sarah Leshner
Senior Investment Analyst, BlueOrchard

BlueOrchard has, since inception, consistently used widely understood and accepted tools and benchmarks for analyzing the financial and operational performance of the MFIs in our portfolios.  In January 2009, the CEOs of BlueOrchard Finance and BlueOrchard Investments jointly proclaimed the firm’s ambition “to improve our capacity to collect quantitative and qualitative data on the social performance of our lending activities.” We are proud that in the past year we have indeed begun developing similarly rigorous systems and tools to assess, monitor, and articulate the social performance of our investments.

The mission statements of MFIs that BlueOrchard works with typically include a core objective to provide financial products to low-income clients that will help them grow their businesses, thereby improving the quality of life for themselves and their families. They often include as well the specific objectives of empowering excluded segments of the population and contributing to the socio-economic development of the community. BlueOrchard recognizes that in the context of MFIs’ tremendous growth around the world over the last several years, and the associated need for increased efficiency, scale, and profit, it has become ever more critical to ensure that institutions remain true to their mission, tailor products to meet their clients’ needs, and lend responsibly by fully disclosing all costs and properly assessing appropriate debt levels for their clients. This is at the heart of an MFI’s social performance.

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.”

Innovating Microinsurance

Guest Post by: Craig Churchill - Head of the Microinsurance Innovation Facility, International Labour Organization (ILO)

 
MiBanco, Peru, and the insurance company it now owns, Protecta.

Craig Churchill is the head of the ILO's Microinsurance Innovation Facility, launched in 2008 with a grant from the Bill & Melinda Gates Foundation to promote better insurance products for more low-income households. In this post, he evaluates the pros and cons of implementing microinsurance policies, and offers specific guidelines that MFIs can follow to increase their leverage and negotiating power.

Many microfinance institutions (MFIs) are looking beyond credit to see what other financial services they can offer their clients, and in those discussions insurance invariably is raised as a possible option. But should an MFI get involved in offering insurance?

When microfinance institutions are interested in insurance, their primary motivation is often to reduce their credit risk in the event that borrowers or their family members experience death, illness or other losses. If insurance can help protect the households in such circumstances, it will indirectly safeguard the MFI’s portfolio.

Another significant motivation behind the interest in insurance is to improve the welfare of their clients. MFIs typically have dual missions to alleviate poverty or promote economic development while generating a profit (or covering their costs). The social mission of improving the welfare of poor households can be enhanced through the protection provided by insurance.

There are also a number of legitimately commercial reasons why MFIs might be interested in providing insurance, such as enhancing retention, improving product profitability, diversifying their income streams and reaching out to new markets.

Worse than a War Zone: Sogesol Assesses the Damage in Haiti

Guest post by: Melissa Lumpkin, ACCION International

 

Melissa Lumpkin is a member of ACCION’s Africa & Haiti Global Programs team.  Based in Washington DC, she is the project manager and board representative for ACCION’s partner in Haiti, Sogesol.  She can be reached at mlumpkin@accion.org.

Anyone who has experience living, traveling or working in Haiti will tell you that life for most Haitians is tough – and this on a good day.  The impact of last week’s earthquake has been catastrophic and the country will face immense challenges in rebuilding.

For the past decade, ACCION has worked with Sogesol, the microfinance arm of Haiti’s largest bank, to bring microfinance services and hope for a better future to Haiti’s self-employed poor. Over the past week, we’ve remained in close communication with the President and Directeur Général of Sogesol. The DG confirmed that she, along with several staff and ACCION’s resident advisor, were at the Sogesol headquarters in Petion-Ville when the earthquake hit. Fortunately, they were able to get out of the building and safely home. Yet, a disaster of this magnitude leaves no one untouched – all have lost many close friends and witnessed widespread destruction. Our own resident advisor wrote, “Melissa, the conditions here in Haiti are unimaginable. Please… whatever ACCION can do to help.  It is worse than a war zone.”   

MFIs Respond to Disaster: Fonkoze in Haiti

Posted by: Leah Nedderman

Leah Nedderman is a microfinance consultant based in Washington, DC and former Director of Social Performance Management for Fonkoze.  She can be reached at Lnedderm@gmail.com.

As a former Fonkoze employee and resident of Port-au-Prince, I have a sense for the catastrophe that has occurred, and the challenges that lie ahead for Fonkoze and other institutions who serve the poor of Haiti. 

This afternoon, I spoke with Fonkoze employee Natalie Domond, where she called from a friend’s home in Port-au-Prince. She and the other Fonkoze staff safely exited the central office in Port-au-Prince on Tuesday. Outside, dust and screams filled the air. She recounted gruesome scenes at every turn.

Institutions like Fonkoze, who exist to provide services to the poor, will require support now more than ever.  Just fifteen months ago, Haiti was hit by several powerful tropical storms and a hurricane. Fonkoze responded by mobilizing leaders in forty communities throughout the country to assess the damage, account for members, and generate information for relief agencies. Almost immediately, Fonkoze was able to offer new financial products to affected families so that they could get their micro-businesses up and running again, re-stock their goods, and begin recovering their livelihoods. I am confident their response to the current crisis will be just as resolute.

The name Fonkoze stands for “Shoulder to Shoulder Foundation” in Haitian Creole. It reflects the commitment of the institution and its staff to standing in solidarity with the Haitian poor. This commitment comes from loan officers who work with rural women to establish small businesses in a despondent economy, in the dogged determination of literacy trainers who travel sweaty miles to hold classes for illiterate members, and in the steely resolve of the members who toil year after year to provide food and schooling for their children.

Today, Natalie remarked that this incredible event is a defining moment for the international community. She believes that with assistance, Fonkoze will recover, and will be a leader in the recuperation of the country. 

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You can help Fonkoze by making a donation to the Fonkoze USA “Earthquake Relief and Rehabilitation Fund” today. To follow Fonkoze earthquake news and updates click here.

Social Responsibility to the Community: Improving Workplace Safety in Egypt

Posted by: Richard Carothers, PPIC-Work project and President of Partners in Technology Exchange Ltd.

Even items in a small family-owned restaurant can cause significant injuries, especially to young workers

In a previous post, “Defining Social Responsibility to the Community: Occupational Safety and Health,” guest contributor Dr. Richard Rinehart outlined some of the ways in which hazards might present themselves in businesses supported by microloans. In this post, guest contributor Richard Carothers explores an example of how an MFI can assist in improving workplace safety.

The PPIC-Work project, working with the Egyptian Association for Community Initiatives and Development (EACID), has begun to develop a pragmatic approach for improving workplace safety that can be incorporated into routine visits by loan officers. Dual purpose loans provide the basic support for the business as well as additional funds to cover the costs of improving workplace safety.

Defining Social Responsibility to the Community: Occupational Safety and Health

Posted by: Dr. Richard Rinehart, Certified Industrial Hygienist

Policies and activities that demonstrate microfinance institutions' social responsibility to the community can take many forms. In this guest post, Dr. Richard Rinehart -- a Certified Industrial Hygienist based in Egypt who has worked for the US National Institute for Occupational Safety and Health, the International Labor Organization, and the International Finance Corporation among other organizations -- presents examples of occupational safety and health threats commonly faced by microentrepreneurs in the developing world. What role, he asks, might the microfinance industry play in mitigating the negative impact of these risks on clients and the community at large?

Consider the following scenarios:

(1) A microfinance institution (MFI) client who owns a small grocery shop used a loan to buy a locally made coconut grinder that consists of a powerful electric motor with a mango-size bit that spins very fast. The machine efficiently removes coconut meat from half-shells. Her daughter, who used the machine daily, badly cut her hand because it slipped off a coconut shell and there were no safety guards to protect her from the fast moving part.

From Access to Empowerment: Gender Performance in Microfinance

Posted by: Janiece Greene, Director, Women’s Market, Women's World Banking and Rebecca Ruf, Associate, Capital Markets Group, Women's World Banking

A Women's World Banking client at her shop

Microfinance is best known around the world as a powerful mechanism for low-income women entrepreneurs to lift themselves and their families out of poverty. When women earn, everyone benefits—women focus on improving the lives of their children and families; women repay their loans; women tend to be more loyal customers and to take on greater financial responsibilities of the household. As a result of these dynamics, a majority of MFIs have women as their primary customer base and use “outreach to women” (i.e., percentage of women borrowers) as a proxy for the level of poverty alleviation. However, this indicator only tells part of the story. How well are these women being served? Is simply providing women with access to financial products and services enough to help microfinance organizations meet their double bottom line objectives?

PPI Shows Fonkoze that Clients Are Moving Out of Poverty

Posted by Preeti Wali, Communications Associate, Grameen Foundation

A few weeks ago, we introduced the Progress out of Poverty Index™ as a way for microfinance institutions to monitor whether they are helping their clients move out of poverty. We conducted an interview with Grameen Foundation and Prisma Peru, who discussed how they are implementing the PPI™. Here, Preeti Wali describes how they are using the PPI™ in Fonkoze in Haiti and adjusting strategies to better serve the poor.

Haiti is the poorest country in the Western Hemisphere. For Fonkoze, the largest microfinance institution (MFI) in Haiti, the mission was clear: target the poor and ultra-poor, mainly women in rural areas, and provide services to meet their special needs. In 2006, Fonkoze—working with Grameen Foundation--introduced the Progress out of Poverty Index™ (PPI™) assessment tool to measure the poverty level of its clients and to track their progress.

“When Grameen Foundation approached me about forming a partnership, the prospect of developing a PPI for Haiti was one of the most exciting elements,” says Fonkoze Director Anne Hastings.  “We want numbers behind the promises we make to the poor.”

Just two years later, the results are positive: data collected in 2008 showed that Fonkoze was meeting its goal to target the poorest, and that its programs were showing results.  Clients who had been with Fonkoze for at least two years saw movement out of poverty; seven percent moved above the $1 a day poverty line from 2006 to 2008, and nine percent moved above the $2 a day line. This movement occurred despite Haiti’s extreme poverty, which was compounded by the devastation of three hurricanes and a tropical storm that threatened or destroyed the livelihoods of approximately 14,000 Fonkoze clients.  

First We Measure…and Then What? Poverty Assessment Application

Posted by: Jessica Elisberg, Marketing Communications Associate, Microfinance Information eXchange (MIX)

At the SEEP Network Annual Conference earlier this month in Washington, DC, a group of practitioners gathered for a full day to discuss their experiences with using various measurement tools to inform and improve their microfinance programs. This session focused on client assessment, as opposed to impact analysis, and the importance of moving beyond measurement to using data for decision-making with the goal of ultimately improving MFI’s service to clients.

Practitioners identified a number of measurement tools that are being used by development organizations, including the FINCA Client Assessment Tool (FCAT), Progress Out of Poverty Index™ (PPI™), Poverty Assessment Tool (PAT), participatory wealth rankings, food security surveys, and market surveys. These tools are being used to varying degrees to better target programs and to inform product and service development by microfinance organizations, but a number of key questions were posed in the day’s discussions that speak to the broader challenges of effectively integrating data collection and program design to achieve social and poverty outreach objectives.