Social Performance Indicators Blog

Adapting to a Changing Environment: Fonkoze, Non-financial Services, and the Earthquake in Haiti

Posted by: Katherine Oglietti and Mike Krell

 

Fonkoze’s literacy program in action

Interview with:
Myriam Narcisse, Director, Literacy and Education Program, Fonkoze

Microfinance institutions (MFIs) are often faced with the need to adapt to conditions beyond their control. To ensure both their own survival and the wellbeing of their clients, MFIs must sometimes alter the services they provide in response to the unexpected. Perhaps nowhere was this more the case than in Haiti after the earthquake in January. We caught up with Myriam Narcisse of Fonkoze to talk about how her institution has adapted to the situation there. We also discussed the way Fonkoze has tailored its literacy program to meet the unique needs of its clients.

MIX: In what ways have the needs of your clients changed following the earthquake that devastated Haitians this January?  Which of these needs can MFIs feasibly assist their clients in reaching?

Ms. Narcisse: The recent earthquake has changed the needs of our clients in significant ways. Microfinance institutions can assist with some of these needs but not all of them. One obvious way in which clients’ needs have changed results from an increased sense of vulnerability to weather-related dangers. Training clients in disaster risk reduction—how to identify and address a family’s or business’ vulnerability to weather—is one important way that MFIs can help. Another is through catastrophe insurance. Just as Fonkoze introduced micro life insurance when death proved a major de-capitalizing factor for our clients, a new insurance product will help mitigate the consequences of disasters on clients’ paths out of poverty.

Another way in which MFIs can help is by aiding clients in adjusting to the changed market conditions post-quake. They can also work to increase clients’ awareness of the importance of safe construction methods and regular maintenance. We also see right now as a crucial moment to increase youth entrepreneurship and believe it would be fruitful for MFIs to investigate how they can lend a hand in this matter. Finally, MFIs can help meet the need for increased health education.

Some needs, however, MFIs are not well-placed to meet. These include: an appropriate disaster warning system, increased access to schools, decentralized state structures, and increased access to basic services such as potable water, sanitation, and health.

Non-Financial Services: The Experience of Initiative Development Ghana

Posted by: Katherine Oglietti and Mike Krell

An ID-Ghana client and her wares

Interview with:
Godknows Kporha, Social Mission Manager, Initiative Development Ghana

In response to the rapidly growing population in Ghana’s capital city, fed by a large influx of migrants from rural villages, Initiative Development Ghana (ID-Ghana) caters its financial and non-financial services to deprived areas in Accra. Its approach is to target the poorest urban neighborhoods to build a more inclusive economy. It offers a combination of not only credit but also savings, insurance, and trainings to its "partners" (i.e., clients) with the contention that microcredit is a relevant but incomplete method to effectively respond to the global problem of poverty.

MIX: In ID-Ghana’s Social Performance Report, you report offering adult education training among other non-financial services. Which learning areas do these training sessions cover? How many of your clients participate in these trainings? Have you conducted any assessment as to whether clients have incorporated the skills they learned into their daily lives?

Mr. Kporha: Our trainings fall under two main headings:  business and social.  In our business trainings, we cover topics such as costing and pricing, customer care, business opportunity identification, record keeping, and credit management. Social topics include personal hygiene, national health insurance, domestic violence, and malaria prevention and management. These trainings have been integrated into the methodology for our new group loan product, Onipa Nua, and are compulsory for partners.

We closely monitor training attendance. In March 2010, 3,249 people received training from ID-Ghana, out of a total of 3,991 active borrowers. And while we have not yet performed an impact assessment of this new training regime, anecdotal evidence suggests that these trainings are having a positive outcome on our partners. We feel that these trainings have equipped partners with much-needed skills and knowledge regarding the effective management of loans, among other things, and that this is reflected in greatly increased loan repayment rates.

A Holistic Approach to Gender Equality: Financial and Nonfinancial Services at SABR, Uzbekistan

Posted by: Katherine Oglietti

SABR clients engaged in a training session

Interview with:
Madina Rakhimova, Executive Director and Saodat Akhmedova, Deputy Director, Socio Economic Development Centre (SABR), Uzbekistan

Socio-Economic Development Centre (SABR), based in Samarkand City, Uzbekistan, is an NGO founded in 1996 to support women survivors of domestic violence and their children. SABR seeks to “work with and for women and children in difficult socio-economic situations, providing support, encouragement, and the opportunity for an independent life in a safe environment.” SABR added a microfinance component to its operations in 2001, and officially became a microfinance institution (MFI) in 2006. The MFI aims to improve the socio-economic conditions of the most vulnerable layers of the population by strengthening their abilities to lead independent lives in a secure environment.

MIX: What led to the decision to include a microfinance component into your programming?

SABR: The results of socio-economic surveys in rural areas of Uzbekistan proved that the roots of gender inequality and violence against women are not found only in the gender stereotypes and traditions prevalent in a given society, but also in women’s economic dependence on their families or husbands. To address this problem, the priority of our programming became involving women from rural areas in entrepreneurial activities. The most appropriate means of supporting the startup of individual businesses is through microlending. At the time in 2001, microlending was the new and developing mechanism to support the low income layers of the population in Uzbekistan.

Rural Outreach through Credit Unions: ASC Union, Albania

Posted by: Katherine Oglietti

Interview with: Gentain Cane

Marketing, ASC Union, Albania

ASC Union is a voluntary union of individual Savings and Credit Associations (SCAs), which are village financial institutions that are created and managed by their members and administrated by its member-elected Board of Directors. Each member makes a minimum deposit into the SCA, which constitutes the majority of the financing for loans and represents over a quarter of loan portfolio funding at the Union level. ASC Union supports its SCAs financially and technically, with the aim of promoting productive activities in rural areas. It is the first microfinance provider in Albania, out of a total of 7 microfinance providers registered by MIX in the country. In the following interview, Gentain Cane of ASC Union describes how the union reaches rural clients at competitive interest rates while covering its costs. 

MIX: In the MIX Social Performance Report, ASC Union states that its social mission is "to provide financial services to the clients living mainly in rural areas and practically excluded from the conventional financial institutions." How does ASC Union use its market studies and client satisfaction surveys to design loan and savings products to meet the needs of its low-income clients in rural areas specifically?

Gentian Cane: The services offered and provided by ASC Union are primarily at the micro level. In contrast to commercial banks, microloans are offered to our clients at an interest rate approved by the ASC Board of Directors at the beginning of each year, (currently 11-16% depending on loan type) which is kept at a fixed rate throughout the year. ASC offers the most competitive interest in the rural areas where we work in order to both meet the social component of our mission as well as to mitigate the needs of low-income clients. 

Calvert Foundation: A Social Perspective for “Good Business”

Posted by: Katherine Oglietti

Interview with: Eliza M. Erikson

Portfolio Manager, Calvert Foundation

 

The Calvert Foundation is a nonprofit organization that, according to its website, uses “investment capital, rather than conventional philanthropy, to create a sustainable, scalable model that enables nonprofit organizations and social enterprises to address critical social problems.” The Calvert Foundation offers a Community Investment Note, where individuals have the option to target their investment in different nonprofit sectors. Investors choose a 0-3% interest rate on this managed bond, opting at times for a 0% financial return in order to maximize their investments’ social returns in areas such as affordable housing, microcredit, small business development, community facilities, and social innovations. In the following interview, Eliza Erikson, who manages the Calvert Foundation’s international microfinance portfolio, describes the link between strong social performance, healthy portfolio quality, and client satisfaction.

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

Ms. Erikson: I would not say that social performance reporting alone influences our choice to invest in a given MFI. From the outset, we want to be sure that the MFIs accessing our loan capital have a strong focus on delivering essential products and services that are affordable, accessible, and appropriate for lower-income clients living at the “Bottom of the Pyramid.”  That strong client orientation should not only be the foundation of an MFI’s social mission, but at the heart of its business model and financial performance. It keeps their clients coming back for more and attracts new clients, sometimes away from the competition. This strong focus on the lower-income client and their perspective is not necessarily “social” in nature. I would argue that it is good business, especially if you are in the microfinance business.

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).

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.

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.

Promoting Environmentally Sustainable Enterprises among Indigenous Populations: REFICOM-CDRO

Posted by: Katherine Oglietti

 
A CDRO client plants a tree as part of a reforestation project.
 

Interview with: Mirna Elizabeth Chaclán
Marketing and Social Performance, REFICOM-CDRO, Guatemala

CDRO was founded in 1981 by leaders of Mayan communities in Western Guatemala in order to promote integrated rural development in indigenous communities through an approach that respects Mayan Quiche traditions. CDRO works in conjunction with REFICOM (Red Financiera Comunitaria- The Community Financial Network). Due to its goal of assisting indigenous populations who are closely attached to the land, social responsibility to the environment is essential to CDRO’s programming. MIX interviewed Mirna Elizabeth Chaclán of REFICOM-CDRO, who gave us an overview of their written and informal policies on social responsibility to the environment.

REFICOM-CDRO created a written policy on environmental protection in 2008, promoting social responsibility to the environment among the enterprises it supports. Mirna explains: “We live in an important environmental zone, so we feel it is important to conserve the environment. We feel it is very important to establish an environmental policy to value the resources that we have, and secondly to have principles and norms that allow us to practice microfinance without affecting our environment.” The first way it works towards this goal is through classifying microenterprises according to their potential environmental impact in three tiers: high, medium, and low impact.