Message from Laura Foose, Director, Social Performance Task Force (SPTF) Introduction to the SPTF Universal Standards for SPM 1

September 2012 Update following the CEO Roundtable at the Dead Sea, Jordan, June 5, 2012

Contents Message from Laura Foose, Director, Social Performance Task Force (SPTF) i Introduction to the SPTF Universal Standards for SPM 1 Case Studies Standard Category 1: Define and Monitor Social Goals 5 Manuela Ramos, Peru Development & Employment Fund (DEF), Jordan PRISMA, Peru Grameen Koota, India Juhudi Kilimo, Kenya MicroLoan Foundation Malawi, Malawi Network of Financial Cooperatives of Burkina (RCPB), Burkina Faso Standard Category 2: Ensure Board, Management, and Employee Commitment to Social Goals 20 Tamweelcom, Jordan Evangelical Social Action Forum (ESAF), India CAURIE Microfinance, Senegal Horizonti, Macedonia Al Majmoua, Lebanon Mibanco, Peru Ujjivan Financial Services Pvt. Ltd, India Standard Category 3: Treat Clients Responsibly 34 AccessBank, Azerbaijan Fonkoze Financial Services, Haiti Standard Category 4: Design Products, Services, Delivery Models and Channels that Meet Clients Needs and Preferences 42 Alalay sa Kaunlaran, Inc. (ASKI), Philippines Sarvodaya Economic Enterprise Development Services (SEEDS), Sri Lanka Genesis Empresarial, Guatemala Institute for Financial Management and Research (IFMR), India Banco Solidario, Ecuador Contactar, Colombia

AMK, Cambodia MI-BOSPO, Bosnia and Herzegovina Enda Inter-Arabe (Enda), Tunisia Pro Mujer, Inc., Latin America FINCA Peru, Peru Vision Fund Credo, Georgia Ahon Sa Hirap Inc. (ASHI), Philippines Standard Category 5: Treat Employees Responsibly 64 Contactar, Colombia Fondo de Desarrollo Local (FDL), Nicaragua FINCA Peru, Peru Standard Category 6: Balance Financial and Social Performance 72 Alexandria Business Association (ABA), Egypt AMK, Cambodia Contactar, Colombia VisionFund Cambodia, Cambodia Ahon Sa Hirap Inc. (ASHI), Philippines Annex 1 - Additional Good Practices 82 Annex 2 - CEO Roundtable Summary Notes 87 Learning / Resources 101 About the SPTF 105 Keep Us Updated on Your Experience of Implementing the USSPM 107

Message from Laura Foose Introduction to the Universal Standards of Social Performance Management in Practice At the CEO Roundtable meeting in Jordan we distributed a Briefing Book draft. This introduced the Universal Standards for Social Performance Management (the Standards), accompanied by short case studies that describe varied approaches that institutions are taking to implement the USSPM. Since the annual meeting, the SPTF Secretariat has revised the briefing book into this document (USSPM in Practice). We contacted a few CEOs who expressed a desire in updating their case studies and incorporated new and more detailed examples of their practices. The cases that have been updated are the following: Al Majmoua (Lebanon), AMK (Cambodia), Ahon Sa Hirap Inc. (ASHI, Philippines), Contactar (Colombia), Enda Inter-Arabe (Tunisia), Finca Peru (Peru), Juhudi Kilimo (Kenya), Mibanco (Peru), Pro Mujer, Inc (Latin America), MicroLoan Foundation (Malawi), Network of Financial Cooperatives of Burkina (RCPB), Burkina Faso, Ujjivan s Financial Services Pvt. Ltd (India), VisionFund Cambodia (Cambodia), VisionFund Credo (Georgia). We ve also been using the case studies as input in the development of a seven-part webinar series Implementing the Universal Standards for Social Performance Management that will be launched on September 19 th in English and in October in Spanish and will go into 2013. Included in Annex 2 of this document you will find the meeting notes from the CEO Roundtable and a list of all meeting participants. In order to maintain the confidentiality of the discussions, the summary notes maintain a generic tone hence not attributing any comments to any person in particular. If you would like to see the full notes from the session, you can do so by visiting our website. Please note that this is a living document that we will keep updating. At this point, it is unlikely that any microfinance institution is implementing all six areas of these Standards. We are continuously working on keeping this document updated with new examples from MFIs. We encourage you to contact us to share your updates and learnings so that we can incorporate and share them with others. Our hope is that through this document, the webinar series, and conversations with your colleagues you can learn and exchange more. Best wishes, Laura Foose Director Social Performance Task Force

1 Introduction to the SPTF Universal Standards for Social Performance Management What are the Universal Standards for Social Performance Management? Developed through broad industry consultation, the SPTF Universal Standards for Social Performance Management ( the Standards ) are a set of management standards that apply to all microfinance institutions pursing a double bottom line. Meeting the standards signifies that an institution has strong social performance management (SPM) practices. To achieve this, institutions must: 1. Define and Monitor Social Goals; 2. Ensure Board, Management, and Employee Commitment to Social Performance; 3. Treat Clients Responsibly; 4. Design Products, Services, Delivery Models and Channels That Meet Clients Needs and Preferences; 5. Treat Employees Responsibly; and 6. Balance Financial and Social Performance Why these six categories? The SPTF started with the assumption that, to achieve a double bottom line, an institution must: Set a strategy. The institution must know who it is targeting, what its goals are, and how its products and services help to achieve those goals. The institution must also understand how it will balance its pursuit of financial returns and social performance. Agreeing on this and committing to it up front keeps the institution true to its purpose as it operates and evolves. Build employee buy-in. Employees must understand the institution s strategy and how their own work contributes to achieving both social and financial goals. It is also important that employees are treated well, so they are inspired and motivated at work. Put the client first. The institution must protect and benefit the client in every aspect of its work from the goals it sets, to how it interacts with clients and trains employees, to the products and services it offers. Client focus must be part of the institution's culture and embedded in its daily operations. Together, the six categories of standards set out actionable management practices related to setting strategy, building employee buy-in, and putting the client first, at all levels and in all departments of the institution.

2 Why should an MFI seek to meet the Standards? The ultimate aim of the Standards is to benefit clients. A double bottom line institution seeks not only financial sustainability, but also to achieve one or more social goals. Though each institution will have its own unique social goals, all double bottom line institutions should share the broader purpose of increasing financial inclusion and creating benefits for clients. Standards has put in place the building blocks of a client-focused institution, and is in a good position to achieve their social goals. Why were the Standards created? Task Force members asked the SPTF to establish clear standards for strong SPM. This document creates a standard of achievement for all institutions striving for strong SPM. The Standards establish strong rather than excellent practice, in an effort to make them relevant for all double bottom line institutions. The Standards also respond to an industry concern that institutions have lost focus on their clients. Most institutions claim to improve client welfare, but for the last two decades many institutions have focused more on financial sustainability than on the needs of clients. Many of these institutions are driven by financial outcomes because they only manage financial performance. Institutions with a social purpose must also manage their social performance. By defining and promoting strong SPM, these Standards contribute to refocusing institutions on the client. Finally, the Standards also respond to member demand for guidance on how to strengthen SPM. Institutions can use the practices in this document to assess their own performance and learn what more they must do to achieve strong management practices. Why do the Standards address management practices rather than social outcomes? The Standards focus on management rather than explicit client outcomes (e.g., increase in client s ability to cope with financial emergencies) for two reasons: Experience shows that if an institution devotes attention to balancing financial and social management practices by bringing client needs, outcomes, and preferences to the forefront, then better social outcomes will likely follow. Sufficient data and experience exist to define strong SPM practices, but similar data do not yet exist to define standards for client-level outcomes. Currently, the Standards require institutions to have clear goals for client outcomes, to respond to clients needs, and to measure and track progress toward client -outcome

3 goals. In the future, the industry can build upon these Standards to create benchmarks and standards for client outcomes. How should the Standards be used? To whom do the Standards apply? For all stakeholders who claim a double bottom line, the Standards establish a global, shared understanding of strong social performance management a first for the microfinance industry. Institutions should use the Standards to: Self-regulate their social performance management practices, and Guide their strategies for achieving stronger social performance management. The Standards are also relevant to the work of other stakeholders in the microfinance industry: Investors and donors can use the Standards to understand an institution s SPM practices relative to universally accepted standards. This may help investors and donors to direct their funds toward institutions with strong SPM, and to identify SPM capacity building needs among investees. Social raters and social auditors already use many of the individual standards in their assessments, but they may begin to assess compliance with the entire set of Standards as part of the rating and auditing processes. Networks and associations can use the Standards as a tool to assess the SPM practices of partner institutions and make critical decisions about capacity building, partnership agreements, and funding. Is compliance mandatory? No. The SPTF will not require compliance with the Standards as a condition of membership and the document itself is not a reporting or rating tool. Currently, the SPTF does not offer a grade/certification but this may be available in the future via social raters and auditors, several of whom are already aligning their products with the Standards. Are these Standards realistic? Many institutions do not currently meet the Standards, and the SPTF expects that most institutions will implement the essential practices gradually. However, it is vital that institutions know what they are working toward. In addition, the experiences of the institutions that are most advanced in social performance management demonstrate that the practices [contained in the Standards document] are not only realistic but also critical to the pursuit of social goals.

4 How do the Standards Incorporate the Smart Campaign s Client Protection Principles? The Smart Campaign s standards for client protection certification are incorporated throughout the Standards document. The certification standards are clearly labeled - they appear in grey highlight, as demonstrated here, for easy identification. Client protection forms the foundation for SPM an institution s first concern when managing its social performance is to do no harm to clients. The remaining Standards build off of this foundation and go a step further, focusing on how to do good by creating benefits for clients. How is the Standards document organized? The document has six sections. There are 3-5 standards per section. Each standard has corresponding essential practices and additional good practices, defined as follows: Essential Practices: Practices the institution must implement to achieve strong social performance management with regard to the standard. Additional Good Practices: Practices that are generally recommended but are not essential (as defined above), and may not be applicable to institutions in all contexts. Standards and essential practices are in the main document. Additional good practices are in the annex. Each standard has a unique number-letter identifier (e.g., 1A, 1B, 2A). Each practice has a unique number-letter-number identifier (e.g., 1a.1, 1b.3).

5 Standard Category 1 Define and Monitor Social Goals Standard 1a The institution has a strategy to achieve its social goals. Essential Practices 1a.1 Social mission: the institution s social purpose, which serves the broader purposes of increasing access to financial services for vulnerable or excluded target groups and creating benefits for these clients. 1a.2 Target clients: the specific characteristics of its target clients (e.g., demographic, socio-economic, business activity, etc.) and how serving these client groups supports the social mission. 1a.3 Social goals: the specific clientlevel outputs (e.g., agricultural loans to rural farmers) and outcomes the institution expects to achieve (e.g., increased assets for farmers). 1a.4 Social indicators: the indicators it will use to measure its progress toward achieving each of its social goals (e.g., reported assets of farmers at months 1 and 18). 1a.5 Social targets: the measurable targets for client-level outputs (e.g., 70% of all new loans are made to rural farmers) and outcomes (e.g., 80% of these farmers report increased assets after 18 months). 1a.6 How to achieve goals: The products, services, delivery models and channels (detailed in Section 4) the institution will use to achieve these outputs and outcomes.

6 Standard 1b The institution collects, reports, and ensures the accuracy of client-level data that are specific to the institution s social goals. Essential Practices 1b.1 The institution collects data using at least one indicator for each of its social goals (defined in 1a). 1b.2 The institution identifies the following: who collects the data; where the data are stored; who analyzes the data; who verifies the accuracy of the data, and how the data are reported and to whom. 1b.3 The institution s internal system for managing data (e.g., MIS) has the capacity to disaggregate client data by gender and other key client characteristics. 1b.4 The institution ensures the quality of the data it collects by: 1) validating the data collected and entered into the system, and 2) training employees on data collection tools and data entry. 1b.5 If the institution states poverty reduction as one of its social goals, it monitors the poverty levels of its clients using a poverty assessment tool (e.g., per capita household expenditure, food security survey, Participatory Wealth Ranking, Progress out of Poverty Index, gender audit tools, etc.) 1b.6 The institution discloses social performance data, including the MIX Social Performance Indicators 1, in a public format (e.g., the institution s annual report, reporting to MIX Market, reporting to a national/regional association). 1 http://www.themix.org/social-performance/indicators

7 Case Study: Manuela Ramos, Peru Founded in 1980, Manuela Ramos is a nonprofit organization based in Peru. It focuses on helping women improve their economic independence and ensure their rights. One of its main programs is called CrediMUJER. CrediMUJER aims to improve the quality of life of women of limited resources in rural and peri-urban areas. It does this by strengthening their autonomy and decision-making through access to credit, the promoting savings, and the improving personal and business management skills. The organization s main financial product is a group loan. Manuela Ramos uses several tools/indicators to measure its social development and to gather information of its clients needs and preferences. These include: Key gender indicators: The six key indicators currently used are: Percentage of women who receive credit for the first time (of the newly incorporated clients) Percentage of women who perceive to have increased their income level Percentage of women who share domestic work with their partners and children Percentage of women who perceive domestic violence to not be a private matter Degree to which women feel they have control over decisions affecting their li ves Percentage of clients who perceive to be able to express their opinions Socio-economic surveys: These are conducted annually in order to obtain information for the key gender indicators. Results are delivered to regional teams, who in certain occasions share them with the communal banks. Annual client satisfaction surveys Gender learning tools: These include key topics on gender and GALS (Gender Action Learning System) tools. The gender identity diamond enables women to better understand that the difficulties they face are due to the patriarchal gender in place, that this can be changed, and that they hold the key to this change by recognizing themselves as having equal rights to men and demanding equal opportunities. Another tool used, called the way of life, simplifies strategic planning. It enables women to visualize their future, identify opportunities and threats from their past, and to set the steps needed to reach their goals. These tools have been adapted to work with communal banks and workgroups to provide diagnostic studies. These studies are then used to design action plans, as well as to monitor them. Focus groups and interviews to select clients: These activities are conducted as a complement to the socio-economic surveys.

8 PPI Surveys: These are conducted with new clients. Client exit surveys: These are gathered on a monthly basis and classified according to client seniority. Key financial indicators: These include portfolio, payment arrears, and average loan. The information gathered through the above tools enables Manuela Ramos to design products and services that meet the most pressing needs of its clients. New products and services are usually tested through pilots. Through these, for example, the organization has introduced social fairs, where women in communal banks receive services that help them grow or improve the operations and manage their businesses. Case Study: Development & Employment Fund (DEF), Jordan DEF of Jordan focuses on job creation. With branches in all twelve regional governates, or muhafathat, of Jordan, DEF monitors the effectiveness of its wide-ranging financial and nonfinancial services through the work of its internal audit team. Whether auditing social or financial performance, the team has the same mandate: to verify that operations are in accordance with the law, to check whether DEF has achieved the targets set out in its strategic plans, to provide DEF s senior management with data for evaluation and accountability, and to protect the institution by preventing mistakes. DEF uses a single database to store both social and financial information, including data collected by the internal audit team. Field visits to clients businesses (or projects ) are key to the audit team s work. The team selects a representative sample of client projects to review in person, and conducts field visits between 6 to 12 months after the client receives a loan. The main area of financial inquiry is the viability of the business: is there too much competition for the client s business in the area when she chose to open it? Does the client have enough funding to develop the business successfully? How many jobs have been created? Regarding social performance, the team seeks to answer two key questions: does the client feel that things are going well, or does she express need for more support? Does the client need training in one or more skills in order to run his/her business more successfully? The internal audit team also uses the field visit to assess how committed the cl ient is to the business. If the team determines that the client is serious, it will then advocate for the client as the need arises. For example, in certain cases the audit team has approved

9 a waiver of DEF s typical guarantee requirement for good clients who were having trouble getting a guarantee for a loan. The internal audit team also audits the DEF s training function. Management determines the annual budget for the free client training. Based on this, the training department drafts a strategic plan that specifies the number of courses DEF will offer during the year and targets for number of people to be trained. The strategic plan also incorporates the results from DEF studies on what types of trainings, in which regions, best match client needs, as well as findings from the internal audit team s field visits to client projects that support clients need. The audit team also is involved with quality control of trainings. Under DEF policy, the training department visits each training two or three times, and conducts client satisfaction surveys at the end of each one, while the audit team selects a representative sample of training sites to visit, and client satisfaction surveys to review. The audit team also verifies the quality of the training programs r un by outside institutions to which DEF refers its clients, as well as overseeing payment of trainers and negotiates the contracts for the next round of training. These checks ensure the quality of training provided, the relevance of the training to clien t need, and a match of value to cost. Case Study: PRISMA, Peru PRISMA was founded in 1986 and has been conducting microfinance activities in Peru since 1994. PRISMA S mission is to provide financial and non-financial products to limited opportunity populations with a goal of sustainable social and economic development. Its products include loans, education and training, and microinsurance. PRISMA employs various social performance strategies that are directed to both internal and external clients. It studies client satisfaction rates, measures the internal organizational labor climate, and uses PPI to ensure that it is successfully reaching its target population of poor and very poor clients comprised mainly of women in rural areas. The organization has been collecting PPI data annually for four years. It surveys a statistically significant number of both total clients and new clients. The main advantage is that this sampling method decreases the amount of time it takes to receive results from one year to an average of two-four months. This allows PRISMA to track data and quickly implement changes in new client cohorts. The main drawback

10 of the sampling method is that some cohorts can be too small and therefore create data distortions. Since 2008, PRISMA has surveyed over 3,500 clients. The information collected has enabled the organization to better explain the needs of its target clients. This has resulted in a higher level of involvement from the Board, staff members and external agencies. Higher commitment and involvement from the Board of Directors: The PPI affords the Board of Directors a better understanding of its client base demographics. The Board receives performance, client, product and portfolio information that enables them to conduct informed and timely decisions. Utilizing PPI has also eased PRISMA s annual impact assessment process. Communication with staff and external agencies: 47 per cent of PRISMA s clients live in remote rural areas, which are costly to reach. PPI allows staff a nd external agencies to better understand target client poverty levels, and gives them the ability to provide appropriate and fair products and services to improve the quality of life of their clients. Quality control of information: Researchers conduct surveys during client home visits. They bring the prior years surveys for reference, note changes that have occurred, and investigate the reasons behind each change. To increase data quality, the survey information is subsequently keyed into the database by a randomly assigned staff member. The data is then used to create graphs focusing on key data points that are analyzed and reported to management. Case Study: Grameen Koota, India Grameen Financial Services Pvt. Ltd. (Grameen Koota) is a non-banking financial institution which aims for the social and financial upliftment of the rural poor and low income households, particularly women, by providing them with financial and non - financial services. Financial services include loans, savings, pensions, remi ttances and microinsurance. Non-financial services include financial literacy, socio-economic development workshops, vocational training, children s education, and awarenessraising on indoor air pollution, water & sanitation, health care etc. Grameen Koota operates in the southern states of India, Karnataka, Maharastra, Tamil Nadu, with 165 branches and 1200 staff reaching out to nearly 400,000 women from poor and lowincome families. One of the principal tools that Grameen Koota uses to track and manage its social performance is the PPI. Grameen Koota has been collecting PPI data for three years for

11 all borrowers upon joining and for repeat loans. When combined with demographic data, the PPI allows it to do a number of useful things: Targeting: New regulation in India stipulates who microfinance institutions should be targeting. In urban areas, microfinance clients should be from households with less than Rs. 120,000 of annual household income, whereas in rural areas, the threshold is Rs. 50,000 annual household income. Grameen Koota has devised its own means of correlating the PPI to the national regulations, so that its targeting is on track. By linking poverty data with other household data, such as education level of the family, number of children, occupation, etc., they have also gained a deeper insight into the lives of clients it is reaching. It realized that by looking at the PPI data, (which includes an indicator on the fuel that the household uses to cook) it was able to look across the universe of their clients to identify areas where clients were already using biomass fuel. This in turn helped it to target the product to those clients that could use it. Product development: Grameen Koota is also using PPI data to help tweak its products to different types of clients, especially in terms of different occupations. For example, it noticed that one type of client has a higher need for festival spending. In order to prevent clients from liquidating their business or household assets to cov er this expense, it decided to design and launch a festival loan product. Grameen Koota has also been able to use PPI to understand what kinds of clients tend to drop out the most. It sees that clients between $1 and $2 per day tend to stay in the program, whereas poorer and better off clients drop out. Knowing this, it is addressing ways to better serve these segments through adapting its products and services. Case Study: Juhudi Kilimo, Kenya UPDATED POST JORDAN Juhudi Kilimo began in 2004 as an initiative within K-Rep Development Agency (KDA), an NGO that serves as the development arm of K-Rep Group to perform research and product development for the microfinance sector. In 2009, Juhudi became an independent for-profit social enterprise. KDA developed Juhudi to address a major gap in the microfinance sector in Kenya. Microfinance institutions in Kenya mainly serve small businesses in urban areas and offer loans for working capital. Juhudi combines several innovative approaches to create a loan product that specifically serves the needs of smallholder farmers, who make up the majority of Kenya s workforce. Juhudi finances income-producing, productive assets, such as high-yield dairy cows and greenhouses, for farmers in remote, rural communities. By improving the productivity of these farmers in the very

12 rural parts of Kenya, Juhudi addresses social issues of both poverty and food security for the nation. Juhudi worked collaboratively across the organization to define their mission to provide market driven, wealth-creating financial services that empower smallholder farmers and enterprises to create sustainable agri-businesses and improve their livelihoods. Defining social impact goals for clients, communities, and employees Juhudi is guided and informed by the USSPM and the Smart Campaign to integrate social performance into its operations and best serve its clients, the communities in which it works, and its employees. Clients: Juhudi s clearly defined social performance goals are centered on helping smallholder farmers build sustainable agribusiness and improve their livelihoods. Targeting Smallholder Farmers and Rural Enterprises: Juhudi operates excl usively in rural areas. Its products and services are shaped solely to the needs of smallholder farmers and rural enterprises. Improving Livelihoods: At its core, Juhudi s model is to finance productive assets that generate sustainable income for smallholder farmers. Juhudi has developed loans for assets that rapidly return sufficient income to cover repayments and the costs of the agribusinesses. An optional grace period allows for some agribusinesses to develop prior to principal repayments. Once the loan term is complete, the asset can then generate substantial household income. Building Sustainable Agribusinesses: Juhudi maximizes the benefit of asset financing to ensure sustainable agribusinesses through capacity building and several client protection practices. o Capacity Building: Juhudi begins its relationship with both new and existing farmer groups by providing six weeks of training. Following the six-week training, Juhudi links clients to extension services with targeted training on new assets. o Client Protection: Through a variety of well-developed practices, Juhudi works to prevent over-indebtedness and loan default so that its services help build agribusinesses and never put households at risk, including: transparent pricing information, variable loan terms, pre-loan business assessments, a group co-guarantee, 15% loan deposits, life and asset insurance, and financed collateral in the form of the agricultural asset.

13 Communities: The agribusinesses Juhudi finances operate within small communities that make up the majority of the Kenyan landscape. To sustainably build agribusiness, Juhudi is committed to working positively within each community. Far beyond that, Juhudi seeks to establish local engines of income generation that generate employment, economic growth, and demand for inputs. Supporting and Collaborating with Rural Communities: Juhudi s field offices are established in partnership with local leaders. Juhudi s loan groups are enhanced by facilitated relationships with local businesses, government ministries, and development organizations. The assets that Juhudi finances further enable clients to provide employment to members of the community. Advancing Food Security: Most of the assets that Juhudi finances produce not only an income for clients but supplemental food for their families and communities. Employees: Microfinance is a business whose success is completely dependent on people. Juhudi is committed to supporting the employees that make its social impact possible. Providing a Positive Work Environment: Juhudi has clearly documented policies to create a positive work environment for employees, from long-term contracts and market-valued salaries, to training, health benefits, and equal opportunity policies. Fairly Evaluating and Compensating Staff: Juhudi conducts formal performance evaluations and provides financial incentives based on both financial and social performance targets. Monitoring social goals with mobile technology Juhudi is continuously developing systems to safeguard and measure social impact as it grows, including self-reported evaluations and commitments to the USSPM and the Smart Campaign. Juhudi also leverages mobile technology to continuously collect a wide range of rich data while reducing burdens on clients and field staff. Juhudi collects social and financial data about clients using two different mobile tools. Loan officers use a mobile form application to complete business assessments while visiting clients on the farm and Juhudi communicates directly with clients via SMS (text messaging). Both of these tools were rolled out less than a year ago and are already improving field staff s effectiveness and management s options for analyzing the data. Juhudi began by providing all field staff with low-cost Android smartphones. The application was based on a software package called Open Data Kit and is easy to customize, easy to use, and quick to learn. With each new loan, loan officers use a simple mobile form to measure a client s poverty levels with the Kenya -specific PPI, along with additional metrics related to income, household materials and assets,

14 education, and employment. Since very little training is required for learning to use the tool, more time is spent teaching field staff how to interact with clients, minimizing clients concerns and building trust. Through this process, the Juhudi management team builds a baseline measurement to monitor the complete picture of economic progress over loan cycles. Because clients are in very remote areas and farm visits occur only once per loan cycle, Juhudi also sends free SMS surveys from an internally developed web platform called mswali. The SMS surveys allow clients to self-report additional household and business information, give client feedback, complete exit interviews, and receive educational and marketing alerts. Incoming messages are then viewed, analyzed, and responded to in real-time. This communication is sent directly from the head office, bypassing field staff, and has fostered more open communication and detailed feedback. Through both of these tools, Juhudi has automatically created a data warehouse of client information, easily calculates PPI scores and correlated poverty levels, reports on social performance, and views secure data from any of its nine offices. This cumulatively allows Juhudi to monitor its progress toward social goals and respond to its clients needs. Case Study: MicroLoan Foundation, Malawi UPDATED POST JORDAN Founded in 2002, MicroLoan aims to significantly reduce poverty in Malawi and Zambia by providing women with small loans, training, ongoing mentoring support by staff, supportive group structures, and facilitated access to savings. Defining and monitoring social goals: Achieving institutional change In 2009, MicroLoan began carrying out critical self-evaluation and actively learning from industry SPM best-practice in its objective to meet its social mission more effectively through fully integrated SPM. Through this process, it discovered a disconnect between the stated goal of reaching the poorest women and the limitations of its outreach. This case study focuses on the process MicroLoan has undergone in Malawi to improve its outreach to poorer women and effect institutional change to achieve its social goals and better meet the needs of its clients. Management awareness and buy-in: The first challenge in effecting change was for management to recognize the extent of the problem and agree to invest in a solution. Management buy-in was achieved at its first workshop. Analysis of new data indicated that organizational financial inclusion could be improved and management could identify barriers to inclusion and commit to tangible solutions. To accomplish this,

15 MicroLoan recruited an SPM Champion, SPM Officer and a data input staff member and embedded these roles within operations. Management was clear that it would need better client profiles and agreed to collect client poverty data. This new client poverty data would also form a baseline as a comparative to data to be collected from ongoing and exiting clients, to demonstrate poverty change over time. It was decided that data would be collected using the PPI. PPI is in phase one of roll-out and has been operationalized in seven of MicroLoan s 21branches, all based in the country s Central Region. MicroLoan is preparing to implement the PPI at branches in the Southern Region, which will bring the total to 15 branches. MicroLoan is focused and methodical with its roll-out to ensure quality in its execution and a strong foundation. The next step for organizational change was to integrate client poverty assessment into operations, enabling the organization to better meet its social mission and improve outreach to previously unreached clients. This step involved integratin g staff training, management quality spot checks, internal audit spot checks, the development of MIS systems, and analysis and reporting mechanisms. The second step towards institutional change was changing staff attitudes and organizational culture through staff workshops, integrating poverty outreach into reporting and accountability structures, and improving staff incentives. Thirdly, a new product for the poorest clients was developed to reduce the barriers to inclusion. Phase One Operationalize client poverty assessments: The following key elements have been integrated into operations: Staff training: Classroom and field training is provided to all loan staff, integrating PPI data collection into their day-to-day activities. This training has been highly successful. As staff spread the word about what they learn, more staff is eager to receive the training. Operations management quality spot checks: To ensure quality of data, spot checks are carried out by Branch and Regional Managers. These results are systematically reported as part of standardized reporting procedures to management. Therefore, by ensuring that checks are done by Branch and Regional Managers as part of their existing group visits, highlighted problems can be dealt with directly by Branch Managers, as they find them. If they re not resolved at the Branch level, the issue is passed to the Regional Manager and SPM Officer. Internal audit quality and compliance checks: The internal audit team s role involves spot checking PPI as part of their group visits and asking one compliance and one quality control question per client. The audit team has access to the original PPI data and is able to highlight problem areas in their reports to senior management, which are copied to the SPM Officer. An internal audit manager manages the

16 functionality of audits. Though internal audit s role in ensuring quality is important, it was agreed that spot checks must be built into management systems. SPM Officer role: The SPM Officer ensures that spot checks and reporting are taking place and that information systems are operating effectively. Information systems have been developed and integrated into operations and include: o Computerized Management Information System (MIS): MicroLoan s MIS will proceduralize the collection of PPI, spot checks, and sampling data. During the piloting research phase and before full integration into MicroLoan s MIS, a separate database was created to iron out data input glitches and finalize which data required collection. The new data input staff member, who is in charge of entering all PPI data, has received training in PPI data entry, trouble-shooting, and resolving queries. o Analysis and reporting: Now poverty data is available on new clients for management to monitor MicroLoan s outreach, ongoing clients to determine poverty status change, and exiting clients to ensure the poorest do not drop out. To ensure that this information is used effectively, a system is being developed whereby data will be analyzed and presented to management by the SPM Officer as part of formal quarterly reports. These analyses will be addressed during management meetings and will pinpoint areas of success, as well as problem aspects. It will be expressed in general terms (outreach, poverty change, the poorest dropping out) or with regards to specific products, branches or loan staff. Ensuring that PPI data feeds back effectively into management decision-making is a crucial part of the operationalization of the client poverty assessment process. Though formal reporting will take place quarterly, to not overburden the SPM Officer and the management team, informal reporting and updates will, in the interim, continue be integrated into all monthly operations and management meetings, to ensure the issue does not slip off the agenda. Phase Two Change staff attitudes: MicroLoan brought in a proven outside consultant to work directly with managers and staff to educate and motivate them to e mbrace its enlivened mission. The consultant held two sessions in Malawi to teach attendees how to implement these changes the best way and to listen to them about the challenges they encounter. The sessions were very professionally executed and inspirin g to the attendees. The feedback has been extraordinary. Phase Three Introduce new products for the poorest clients: MicroLoan created a new product called Chiyambi, meaning beginning. Its objective is to identify and overcome specific barriers that hinder the poorest from accessing MicroLoan s services. Encouraging a formal mentoring relationship is a key component in Chiyambi s success.

17 Individuals are being energized by the work that their $5-$7 loans provide. They are repaying these loans and successfully handling larger loans. Case Study: Network of Financial Cooperatives of Burkina (RCPB), Burkina Faso UPDATED POST JORDAN The Network of Financial Cooperatives of Burkina (in French, le Réseau des Caisses Populaires du Burkina, or RCPB) was created through an awareness program for pre-cooperative groups, headed by the Desjardins International Development Society (SDID) in 1972 in the Bougouriba province. A positive response from group members led to the opening of three cooperatives in the same year: the Diebougou, Dissin and Koper cooperatives. Today, the network covers 44 provinces out of Burkina s 45. It is Burkina s largest microfinance institution, constituting over 70% of the market. RCPB s mission is to contribute to the improvement of the living conditions of populations through the mobilization of local savings, the development of cooperative companies for reliable and profitable savings and credit, the promotion of affordable and appropriate financial services, and finally through democratic administration and management, according to cooperative rules and principles. RCPB is already implementing some of the essential practices presented in the Universal Standards for Social Performance Management, including those related to the standard Define and Monitor Social Goals. Further details are below: 1. Establishment of social performance indicators: In partnership with CERISE, the Financial Institutions Confederation (CIF), of which RCPB is a member, established a dashboard based on indicators to monitor and evaluate social performance, including indicators for targeting clients and measuring benefits for members. Targeting: o Rural-urban distribution (cooperatives, members, loans) o Gender distribution (members, loans) o Number of specific segments (youth-disabled) o Appropriate credit products (small, without guarantees ) for most vulnerable segments Benefits for members: o Effective interest rate (level, evolution) o Dividend amounts (individual, collective dividends) o Staff training

18 o Training of elected members (participation, number of sessions, satisfaction) o Participation (number of Board Meetings, General Meetings, percentage of attendance) 2. Evaluation: Using the above-mentioned indicators and the SPI tool from CERISE, RCPB conducted an evaluation of its social performance and identified actions to integrate SPM into how it monitors its overall performance. This evaluation also identified a few areas for improvement: Targeting: The evaluation exposed limitations in RCPB s mechanism for targeting the poor and excluded. It also revealed that the institution had weak coverage of poor areas, as well as areas without access to financial products and services. Additionally, RCP learned that less than 5% of its credit unions are located in area s where there are no other Systèmes Financiers Décentralisés (SFD) or bank branches. Social goals (includes benefits for members and social responsibility): A number of shortcomings were detected in human resources, career management, and communications between the Board and employees. Further, the study revealed a low level of access for network members to important network documents (e.g., statutes and rules of procedures). 3. Improvement plan: To address the areas for improvement mentioned above, the institution undertook the entire SPM implementation process proposed by MISION Africa. This process consists of several steps. The first two are establishing social aims and goals and identifying process and result indicators related to social goals. Table 1: RCPB s social aims and goals SOCIAL AIMS Reach target clients (WHO?): Burkina s working population Change in target clients lives (positive changes) Contribute to the improvement of living conditions SOCIAL GOALS - Over the 2011 2013 period, increase RCPB members by 15% per year, while maintaining the following proportions in the membership: 40% women and 10% youths - In 2013, provide appropriate financial services to 15% of the estimated active national population - Bring institution services closer to members by widening the network s range to all provinces in Burkina - Over the 2011 2013 period, increase the income of at least 30% of the most vulnerable members (destitute) by at least 10% per year - Over the business plan period, improve the access of communities with cooperatives to certain basic service projects by reinvesting at

19 least 50% of collective dividends annually in social charities - Improve the savings collection rate of 15% each year To monitor progress on its implementation of SPM, RCPB defined several indicators for its social goals, in consultation with the network IT technicians. The team then created indicator sheets that presented how each indicator would be calculated and collected. Some examples are below 1 : Table 2: RCPB s social goals and indicators SOCIAL GOALS Over the 2011 2013 period, raise RCPB members by 15% per year, while maintaining the following proportions in the membership: 40% women and 10% youths. 2 Bring services closer to members by expanding network s range to all provinces in Burkina Over the 2011 2013 period, raise the income of at least 30% of the most vulnerable members (destitute) by at least 10% per year INDICATORS % of women members in the entire network % of youth members in the entire network Amount of new points of sale opened in the least covered regions Evolution of the most vulnerable clients income level Evolution of the poverty level of the Network s poorest members 1 The list of indicators is not exhaustive. We just picked a few as examples. 2 Youths according to the INSD definition (15 to 29 years old).

20 Standard Category 2 Ensure Board, Management, and Employee Commitment to Social Goals Standard 2a Members of the Board of Directors are committed to the institution s social mission. Essential Practices 2a.1 The institution provides Board members with an orientation on the social mission and goals, and the Board s responsibilities related to the social performance management of the institution, and confirms that each member agrees. 2a.2 The institution requires Board members to adhere to the institution s code of ethics (see Essential Practice 2b.5).

21 Standard 2b Members of the Board of Directors hold the institution accountable to its social mission and social goals. Essential Practices 2b.1 The Board reviews social performance data, including: mission compliance, performance results, human resource policy, social performance related risks (e.g., reputational risk, client exit), client protection practices, growth, and profit allocation. 2b.2 Based on its review of the above information, the Board provides direction for, and oversight of the institution s strategy (detailed in 1a), taking into account both social and financial goals (e.g., how growth targets will affect profitability and service quality for target clients). 2b.3 The Board incorporates social performance management criteria (e.g., achievement of outreach targets, client retention) into its performance evaluation of the CEO/Director. 2b.4 The Board prevents institutional mission drift during changes in ownership structure and/or legal form (e.g., transformation). 2b.5 A written code of business ethics spells out organizational values and the standards of professional conduct expected of all employees. The code of ethics has been reviewed and approved by the Board. (Client Protection Principle 5)

22 Standard 2c Senior management sets, and oversees implementation of, the institution s strategy for achieving its social goals. Essential Practices 2c.1. Senior management integrates the institution s social performance goals into business planning, making strategic and operational decisions (e.g., new products or delivery mechanisms, growth targets) based on both their social and financial performance implications. 2c.2 Senior management analyzes social performance data, including data on client-level outcomes (see section 1), to compare the institution s actual performance against its stated social targets. 2c.4 The CEO/Director holds senior managers accountable for making progress toward the institution s social goals (e.g., reaching target clients, successful implementation of client protection practices). 2c.5 Senior managers and the Board are aware of and regularly monitor risk of client over indebtedness. (Client Protection Principle 2). 2c.3 Senior managers consider and take action to avoid social performance related risks (e.g., reputation risk, mission drift).

23 Standard 2d Employees are recruited, evaluated, and recognized based on both social and financial performance criteria. Essential Practices 2d.1. Employee job candidates are screened for their commitment to the institution s social goals, and their ability to carry out social performance related job responsibilities, when applicable. 2d.2 The institution evaluates employees on how they perform both the social performance and financial performance responsibilities related to their position. 2d.3 Standards of professional conduct are expected of all employees, and especially acceptable and unacceptable debt collection practices are clearly spelled out in a code of ethics, book of employee rules, or debt collection manual. (Client Protection Principle 5) 2d.5 Employee productivity targets and incentive systems value portfolio quality at least as highly as other factors, such as disbursement or customer growth. Growth is rewarded only if portfolio quality is high. (Client Protection Principle 5) 2d.6 Managers and supervisors review ethical behavior, professional conduct, and the quality of interaction with customers as part of employee performance evaluations. The institution s incentive system does not put loan officers in a conflict of interest with the clients at the time of collection, and rewards ethical behavior. (Client Protection Principle 5) 2d.4 Employees are recruited and trained in line with the code of ethics. Collections staff receives training in acceptable debt collections practices and loan recovery procedures. In-house and third party collections staff are expected to follow the same practices. (Client Protection Principle 5)

24 Case Study: Tamweelcom, Jordan Established in 1999, Tamweelcom s mission is to provide a wide range of financial and nonfinancial services to micro and small-sized enterprises and entrench sustainable values of creativity and development. To enhance clients businesses, it adopts best practices and international standards by encouraging and raising the efficiency of a qualified staff that believes in its mission. In 2008, Tamweelcom revised its vision and mission in order to embed a social dimension into its guiding principles. It also integrated social performance into its strategic planning process. Based on a common understanding of what it wanted to achieve, Tamweelcom s starting point for understanding and improving SPM practice was to undergo a social rating in 2009. Through this, it was able to identify its strengths and weaknesses and formulate a clear plan to address them. For example, one of the key issues highlighted by the 2009 rating was a critical lack of client feedback and complaint mechanisms. In response, Tamweelcom launched a Freephone number for client complaints and suggestions. It also expanded the remit of the customer care and research department to include client satisfaction research. Every other month, the team conducts surveys (either in person or over the phone) to get feedback on existing products or collect information around clients needs for new products. Based on the feedback, Tamweelcom has made a number of important decisions to improve its social performance. For example, when client feedback revealed that staff was too concerned with selling loans to focus on servicing loans, Tamweelcom took steps to instil its staff with a customer service ethic. In practice, this meant rolling out staff training and adapting the assessment and rewards structures that surrounded loan officers, in order to build capacity and emphasize customer service. In the process, management also looked to their front desk staff, which provided another important human face to Tamweelcom. To emphasize their role in the customer care process, their job title was changed from admin assistan t to customer service officer. Management then instituted strict, and declining, thresholds in terms of the target number of complaints they receive. Since then, management has noticed a positive shift in staff attitudes and practices. Importantly, staff turnover has gradually reduced (from nearly 20 per cent in 2010, to 12 per cent in 2011). Moreover, an increasing number of calls to the Freephone number from clients are to praise Tamweelcom for their good work or provide good feedback about the products and services they offer.

25 Case Study: Evangelical Social Action Forum (ESAF), India ESAF was established in 1992 to respond to the social and economic needs of India s poor through micro-enterprise programs. It strives to facilitate a sustainable holistic transformation of the poor and the marginalized, in order to develop a just and fair society. ESAF does this by providing financial services along with livelihood development services, micro - insurance, healthcare, education, housing and training for skill development. ESAF has a history of listening to clients concerns and creating new products based on this knowledge. Its current successes stem from social performance monitoring methodologies that integrate client feedback at all staff and management levels from field staff to Board members. Its Board has a double bottom line focus and includes client representation from Self Help Group (SHG) members. The PPI provides information on client outreach and the profile of members associated with ESAF, which is incorporated into the SPM report for the Board. A summary report on client feedback, client grievances, and SPM reports are presented to the Board based on the social targets set for poverty outreach, transparency, change and future course of action. The Board meets at least once every quarter. Meeting agendas reflect ESAF s concern for balancing the double bottom line, including compliance with new regulations and Codes of Conduct. Client feedback, gathered at the group level, is routinely collected around product design and new product ideas. This feedback is discussed at branch off ice quarterly meetings and monthly staff meetings. At the branch office meetings, the Branch Manager and a client-elected Chairperson participate and produce meeting reports that are consolidated at the federation level. The feedback is given to the SPM team and their report is passed to management. Client exit studies are also conducted. Based on management s understanding of the enterprise segment, ESAF developed a 50,000 rupee micro-enterprise loan that supports more experienced clients. ESAF Board members are socially focused and have been involved in microfinance for many years. It has 10 members, including two women, who are from academia, financial institutions, business, the development sector and experts in specific areas like health, education and other development initiatives. They provide valuable input to mold, redefine, plan, set objectives and formulate strategy, keeping the vision of the organization at the forefront of all programs and activities. In this way, ESAF strives to maintain a social focus and orientation through its initiatives and emphasis on creating impact rather than mere implementation of programs.

26 Case Study: CAURIE Microfinance, Senegal CAURIE-MF is the outcome of 20 years of dynamic and fruitful partnership between Senegal's Catholic Relief Services (CRS) through its Microfinance Program Village Stalls and its strategic partner, the Church of Senegal, through Caritas. Its mission is to contribute sustainably to the social and economic promotion of poor micro-entrepreneurs, especially women, by providing them with appropriate financial products and services. The implementation of SPM within CAURIE-MF is guided by the wish to pay close attention to customers' requests and expectations, so as to improve their satisfaction on the one hand, and keep track of their poverty level on the other hand. Actions undertaken in the context of implementing SPM Staff training: So as to communicate efficiently on the importance and obligation for staff understanding and buy in, training sessions were organized in branches. All staff took part, including drivers. This method allowed drivers to understand why loan officers make extra trips to visit customers. They now understand why loan officers have extra responsibilities and conduct surveys to understand the poverty level of customers and their progress year after year. These sessions served as framework to give a clear definition of the roles and responsibilities of each agent in the process. CAURIE-MF's directors and all of the board managers took part in the various SPM training sessions. Appointing responsible actors: The CEO appointed an SPM manager in charge of the entire process. He also appointed staff who will enter PPI data for each field office. They are responsible for entering data in the MIS. Pilot test: In March 2010, CAURIE-MF finalized its PPI pilot phase. The entire process of the pilot phase lasted from the end of January until March 2010. A sample of 583 customers was studied (out of a population of 21,024). The surveys were conducted using CAURIE-MF's representative sample of three of its five service points. The summary of the results revealed that 45.41 % of surveyed clients were below the national poverty threshold. Strategic workshop: in February 2010, CAURIE-MF's directors invited management staff, field agents, and certain board members to a strategic workshop. The aim was to review the old institutional mission and check if it contained explicit social goals, so as to extract the social goals within the mission, analyze if there are implicit social goals linked to targeting, satisfaction and overrunning, and define social indicators. Review of targeting tool: the tool used by CAURIE-MF to carry out to the group selection has been reviewed. This review allows the selection of the most vulnerable

27 towns: with this tool, the least poor towns obtain a low rating, and the poorest towns obtain a higher rating. Implementing the SPM system: the SPM module is integrated into the Perfect software with: a single log-in to avoid duplicates, the possibility to take into account several surveys per person over different periods, several poverty thresholds, different versions of the PPI (evolution over time), raw data exports, the capacity to store poverty probabilities, and the possibility to correct data entry errors. Implementing the PPI: in 2011 CAURIE-MF decided to carry out the PPI by using a scaled sampling approach. At the onset of the implementation in October 2011, the PPI was applied to 10% of new active clients by branch. All surveys are conducted yearly in the fourth quarter (between October 1st and December 31st). Each cohort of surveyed clients will be updated yearly (probably every two credit cycles, depending on the product) over a five-year period. Case Study: Horizonti, Macedonia Horizonti s mission is to provide sustained and continuous access to financial services to the low-income and economically active population in Macedonia, primarily women entrepreneurs and representatives of socially-excluded and marginalized groups. Its aim is to support and develop their small businesses, create new jobs and improve their quality of life. It provides micro-enterprise loans and financial literacy and gender issue education. Its first branch office was opened in 2000 and it now has eight branch offices throughout the country. Since its inception, Horizonti s Board composition and orientation have ensured a strong commitment to the institution s social mission. Board members represent a mixture of financial and social backgrounds. In addition, fifty percent of Board members are female, which is critical in the context of their exclusive outre ach to women clients. Importantly, Horizonti s Board members serve on a voluntary basis incentivized solely by their conviction for what Horizonti is doing and how it is achieving its mission. It placed the social component as the leading emphasis and includes a commercial representative to promote financial vitality. In 2011, Horizonti trained its Board on social performance management. The workshop started with a discussion on how Horizonti targets those groups that other MFIs don t reach, such as the poor and marginalized, and how Horizonti s services stand to create positive changes for clients. The content of the workshop was divided in two parts. The first part was an introduction to SPM conducted by the CEO, and its importance for socially-oriented MFIs. The second part was a presentation of SP goals and objectives

28 as defined by senior management, and tools and selected indicators for measuring progress towards objectives. To highlight the importance of SPM, the CEO recounted how early on, Horizonti s donors decided to financially support them mainly because of their strong social focus on targeting women clients and representing marginalized groups. The positive impact was recognized through direct interviews with clients. In fact, one of its greatest achievements is maintaining 30% Roma clients, an extremely marginalized group. Hearing about these achievements energized the Board and deepened their commitment which is critical to ensuring buy-in and quality input despite not paying them for their time. Another important outcome of this training was that the Board clearly understood the need to improve their social performance monitoring systems. Until that point, decisions to balance social and financial performance were made intuitively and based on subjective information. The CEO developed a SPM plan and discussed it with the Board at the training workshop. Members saw that developing a quality system for internal social performance reporting would allow them to make informed decisions at all levels of the organization. Since then, the approved SPM plan was put into place and Horizonti has begun collecting data. This year, it expects to have a solid foundation of quality data to evaluate the extent to which it s achieving its social goals. Importantly, it will use the first report to adjust its social performance targets and benchmarks, to ensure that they are realistic. SP reports will be reviewed by the Board members at the regular board meetings so that members are kept updated on the SP achievements and can contribute to this process. In addition, Horizonti will annually organize client s visits for board members so that it can better understand the profile of clients it serves and the impact on their businesses/lives. Case Study: Al Majmoua, Lebanon UPDATED POST JORDAN Established in 1994, Al Majmoua s mission is to create a financial intermediary for Lebanese micro-entrepreneurs to facilitate social change and increase welfare. It provides group and individual loans, financial education and business management trainings, personal development and economic empowerment to female clients. Over the past year, Al Majmoua has launched a number of initiatives to integrate its clients voice into all levels of the organization, ensuring Al Majmoua s commitment to its social goals. Ensuring commitment to its social goals: Soliciting and responding to client feedback

29 Al Majmoua conducted client focus group sessions centered on the clients business needs and the changes they would like to see in our products offering. The participants indicated that the essential loan conditions are primarily speedy disbursement, reasonable guarantees and loan seasonality. Al Majmoua launched the client protection key messages initiative by explaining to the clients the SMART campaign principles. Al Majmoua created a hotline as a client feedback and grievance mechanism. Al Majmoua enhanced its database by integrating social performance questions into its formal application. Its intention is to build up historical data so Al Majmoua can determine if it is serving the targeted segments properly. It collects information on social economic data, education levels, assets owned, children s schooling, and expenditures. The information is analyzed by the R&D Department and share d on a regular basis with the senior management and the Board of Directors. This process facilitates setting the operational strategy for targeting the poor and ensuring that Al Majmoua is adhering to its social mission and vision. Ensuring commitment to its social goals: Building staff capacity Al Majmoua invested considerably over the past two years in staff recruitment and staff capacity building. It realized it is essential to recruit employees who are committed to the institution s social goals and to provide them with adequate training. In the past, Al Majmoua relied solely on field training as new recruits would shadow an existing loan officer in the field to learn about the job. However, management realized that the quality of each person s training depended on who they were with in the field and slight differences in technique were apparent. In 2011, it implemented an induction program that provides all staff with 10 days of training in the office, before going out into the field. Classes include sessions about the mission and the vision, gender and social awareness sessions, Al Majmoua code of conduct and ethics, how to talk and listen to clients, appropriate follow-up with a delinquent client, etc. Once in the field, staff receives mentoring and at least once a year, everyone, at every level, attends a refresher course. These sessions allow information to be readily shared, friendships to grow stronger and Al Majmoua s culture to be therefore strengthened.

30 Case Study: Mibanco, Peru UPDATED POST JORDAN Mibanco is a private Peruvian bank committed to the development of small and micro-businesses. Founded in 1998, Mibanco follows a strategy of targeting markets where demand for micro-credit is highest and supply weakest. The institution offers lending and savings products and applies both individual and solidarity group lending methodologies. In September of 2010, Mibanco launched a specialized department called "Social Assets Management". This department currently has six dedicated employees and works jointly with the business divisions of the bank to ensure commitment to social goals and accomplishment of mission. The main activities of the Social Assets Management team include: Development of materials and programs related to social performance management, including a scorecard used for quarterly reports, the PPI, and an eco - efficiency program to ensure responsible use of energy and water within the bank. Provision of non-financial services, such as training, legal advice, and business consulting services to its clients. o Training: Mibanco spends $1M annually in training programs such as: Dime rural for clients in rural areas, and Strengthening Women s Entrepreneurship in Peru under which the Salta program to provide business training to women with no access to higher education and the 10,000 Women program to provide training to women with higher education who own small businesses are carried out, in partnership with the Interamerican Development Bank, Australian Cooperation Agency, GrupoACP, Thunderbird University and Goldman Sachs. o Legal services: The institution helps clients obtain IDs and paperwork needed to obtain loans to open and/or growth their businesses. o Consulting services: Mibanco established a program called Miconsultor through which senior students majoring in Business, Accounting, and Finance provide free advice to the bank s clients. Promotion of social performance, responsible funding, and networking at national and international conferences and forums. Mibanco is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the area of ensuring Board, management, and employee commitment to social goals. The following are some specific examples: Board of Directors & Senior Management: Members of the Board of Directors have reviewed and adhere to Mibanco s Code of Ethics.

31 All Board members and employees must attend an annual online training about Mibanco s mission. The Board of Directors holds the bank accountable to its mission and social goals by frequently reviewing social performance data. Mibanco developed a scorecard to measure its progress toward mission accomplishment. When creating this scorecard, senior management obtained input from Board members, investors, and clients. The scorecard is published four times a year and has five dimensions including: financial inclusion, smart banking, human capital development, social and environmental management, and corporate governance. Furthermore, senior management s monthly reports to the Board include performance data related to training personnel on the mission, training clients on best practices, trans parency rating, and water and electricity consumption. The Board of Directors and senior management are taking steps to understand the needs of Mibanco s target clients better. Given that Board members tend to be removed from the field, they often are not fully aware of the clients social and economic realities. To bridge this gap, Mibanco is hiring experts to lead quarterly sessions at the institution s headquarters for the Board of Directors and senior management on social and environmental performance. For example, in August of 2012 Mibanco is holding a session with a renowned anthropologist regarding the role of microfinance for high-needs sectors. Mibanco sends high-level employees to conferences and forums about social performance, including the CEO, CFO, and the Social Assets Manager, providing them with opportunities both to share Mibanco s experiences and to build their knowledge of social performance. Employees: Mibanco recruits employees based on social performance criteria. This policy resulted from a lesson learned during a period of rapid growth, when the institution hired people who did not always have the strongest fit with MiBanco s mission. Now, the institution has concrete steps in place to screen candidates for their commitment to its social goals. For example, all job descriptions now incorporate social and environmental aspects. Additionally, all new hires attend an interactive session about the mission of the bank that includes case studies, in -person testimonials from clients and loan officers, and attendance from the Social Assets Management team. Candidates to become loan officers must attend a three-month preparation program, which includes training in social and environmental activities that are of importance to the bank.

32 On top of specific trainings for new hires, Mibanco is working on becoming a learning institution that offers frequent, regular training, available to all employees. The institution is already offering a web-based training as well as best practice sharing by the most experienced loan officers. Case Study: Ujjivan Financial Services Pvt. Ltd. (Ujjivan), India UPDATED POST JORDAN Ujjivan s mission is to provide financial services to India s urban and semi - urban poor to improve their lives. Its services include loans, insurance, savings facilitation, and financial literacy education. Ujjivan pursues a holistic approach to meet the diverse needs of clients and integrates many nonfinancial services into its microfinance products. Its nonfinancial services inclu de healthcare and education support, including interest-free loans, scholarships, vocational training and placement. Commitment to social goals: Supporting clients in times of crisis Ujjivan leadership and staff place an emphasis on helping clients when things go wrong for them. Both natural and manmade emergencies frequently affect India s poor. In this context, Ujjivan created an emergency fund where staff contributes and Ujjivan adds a matching contribution. When Ujjivan customers are affected by an emergency, this grant allows staff to quickly facilitate relief services for them. Staff is trained to make an assessment on whether a crisis is genuine and offer effective support. Also, an emergency loan is available for existing customers. In a crisis, a customer can immediately receive the loan, without completing the usual documentation. In a time of bereavement or extreme crisis, Ujjivan may offer to reschedule a loan or defer it for a month. Because supporting clients in times of crisis or difficulty requires both skilled and empathetic staff, Ujjivan provides soft skills training for handling the varied challenges staff face in the field. For example, when a customer refuses to repay a loan, Ujjivan staff is trained to ask specific questions to help understand the customers problem, determine if the need is genuine, and turn it into a constructive dialogue, instead of losing tempers. Ujjivan found it challenging to get accurate client feedback. Its customers would not fill out client satisfaction surveys or use the help line. If customers were unhappy, they d just walk away. When personally interviewed, they didn t want to criticize or complain, unless a loan didn t come in on time.

33 Ujjivan s solution was to place a customer care representative in each branch. The representative talks with customers regularly to determine any issues and perform exit interviews if a customer leaves. At least once a year, it holds a customer meeting with the group leader to get customers feedback on products and services and what their needs are. The feedback has been valuable. Ujjivan has a marketing team that works with the field staff to analyze market research and design a variety of loan products. Additionally, Ujjivan works with an independent foundation that provides innovative grant options. One product that s emerged from these relationships is a unique education loan. At the end of the loan, the foundation gives the earned interest back to the customer. To keep its customer connection strong, Ujjivan is initiating a new program for the management team to participate in a customer or staff connection on a regular basis. For example, a Board member may attend a customer or staff activity or meeting or a manager may spend a full day with a field staff member. All top management has to attend a customer center meeting 3-4 times per year. They plan to make these meetings fun and offer awards and recognition. Ujjivan leaders are confident that management, staff, and customers will strengthen their connection from this regular interaction.

34 Standard Category 3 Treat Clients Responsibly Standard 3a The institution determines that clients have the capacity to repay without becoming over-indebted and will participate in efforts to improve market level credit risk management. (Client Protection Principle 2 applies to all practices below) Essential Practices 3a.1 The institution s loan approval process requires evaluation of borrower repayment capacity and loan affordability. Loan approval does not rely solely on guarantees whether peer guarantees, co-signers or collateral as a substitute for good capacity analysis. 3a.2 The institution s credit approval policies give explicit guidance regarding borrower debt thresholds and acceptable levels of debt from other sources. 3a.3 When available, the institution checks a Credit Registry or Credit Bureau for borrower current debt levels and repayment history. When not available, the institution maintains and checks internal records and consults with competitors for this information. 3a.4 The institution s internal audit and/or internal controls department verifies employee compliance with the policies and systems to prevent the risk of client over-indebtedness.

35 Standard 3b The institution communicates clear, sufficient and timely information in a manner and language clients can understand so that clients can make informed decisions. (Client Protection Principle 3 applies to all practices below) Essential Practices 3b.1 Employees are trained to communicate effectively with all clients, so that clients can understand the terms of the contract, and their rights and obligations. Communication techniques address literacy limitations (e.g., reading contracts out loud, materials available in local languages: 3b.2 The institution follows truth-inlending laws and required annual percentage rate (APR) or effective interest rate (EIR) calculation formulae. In the absence of industry-wide requirements, the institution provides information that shows the total amount that the customer pays for the product. 3b.3 The institution fully discloses to the client the prices, terms, and conditions of all financial products prior to transaction, including: interest charges, insurance premiums, minimum balances, all fees, penalties, linked products, third party fees, and whether those can change over time. Information is provided that shows the total amount that the customer pays for the product. 3b.4 The institution uses multiple channels for disclosing clear and accurate information about the product, such as brochures, orientation sessions, meetings, posting information in the branch, websites, etc. 3b.5 The institution gives clients adequate time to review the terms and conditions of the product as well as an opportunity to ask questions and receive information prior to signing contracts. 3b.6 The institution regularly provides clients with clear and accurate information regarding their accounts (e.g., account statements, receipts, and balance inquiries.

36 Standard 3c The institution and its agents treat their clients fairly and respectfully, and without discrimination. The institution has safeguards to detect and correct corruption as well as aggressive or abusive treatment by their employees and agents, particularly during the loan sales and debt collection processes. (Client Protection Principle 5 applies to the practice below) Essential Practices 3c.1 In group lending, the institution provides clients with awareness-raising sessions about the concept of solidarity loans, the need to cover for coborrowers in case of late payment, and on the repayment capacity that is not to be exceeded.

37 Standard 3d The institution respects the privacy of individual client data in accordance with the laws and regulations of individual jurisdictions and only uses client data for purposes specified at the time the information is collected or as permitted by law, unless otherwise agreed with the client (Client Protection Principle 6 applies to all practices below) Essential Practices 3d.1 The institution has a written privacy policy that governs the gathering, processing, use, and distribution of client information. 3d.2 The institution trains employees on the policies and procedures for keeping client information secure and private. 3d.3 The institution has appropriate technology systems (e.g., secure databases) for ensuring that client data is secured. 3d.4 The institution informs clients how their information will be used internally and when applicable, when it will be shared externally (e.g., shared with a Credit Bureau). 3d.5 The institution gets client permission for any necessary distribution of client data.

38 Standard 3e The institution has timely and responsive mechanisms for complaints and problem resolution for their clients and uses these mechanisms both to resolve individual problems and to improve products and services (Client Protection Principle 7 applies to all practices below) Essential Practices 3e.1 The institution has an effective mechanism to handle client complaints. 3e.2 The institution has a policy that client complaints must be taken seriously, fully investigated, and resolved in a timely manner without bias. 3e.4 Employees are trained to inform customers of the opportunity to make a complaint as well as how to handle complaints and refer them to the appropriate person for investigation and resolution. 3e.3 The institution informs clients of their right to complain and how to submit a complaint to the appropriate person.

39 Case Study: AccessBank (AB) Azerbaijan The corporate mission of AB is to be a leading provider of financial services to privately owned Micro and Small Enterprises (MSE) and low- and middleincome households in Azerbaijan. AB offers its clients financial services, including loans, current account, savings facilities and payment and money transfer. AB is Azerbaijan s leading MSE lender, with 30% market share of the microfinance market. However, AB s number one priority is portfolio quality and its current PAR > 30 days rate is 0.83% across the whole portfolio. It uses several indicators to determine portfolio quality and its impact on customers, being vigilant to help them avoid over indebtedness. AB performs a full business analysis for every new loan application. Even for clients with long-perfect credit histories, a loan officer will make a full assessment of the business and its repayment capacity. In the case of microloans, the cash flow of the business is reviewed on a weekly or monthly basis for the previous 1-3 months (depending on data availability), while for larger loans the cash flow is reviewed over a one-year period. The bank analyzes the business being financed as well as total family income and expenditures to determine if: 1) the business is profitable, 2) the business is generating sufficient cash to make the loan repayments, and 3) the loan will have a positive impact on the client. If the client s business is growing as a result of the bank s financing and the loans are getting repaid, a new loan is likely to be issued. If the bank does not see improvement in the form of increased business profit or net family income, the bank determines that the business is not evolving and the bank s loans are not having a positive impact on the client. In this case, it typically declines new loans. AB s experience has shown that if the bank s loan did not facilitate a positive impact, it is only a matter of time before the client will be struggling to repay the loan. On this basis, AB management does not believe that keeping clients permanent ly in debt is a positive goal and disapproves of using the drop-out rate as a measure of success. Even in the case of successful clients, the bank believes this measure is inappropriate. Successful clients may lift themselves out of debt or it may not necessarily be the right time for them to invest and take on new debt at the moment they finish paying off their previous loan. If an existing client is having difficulty repaying the loan, AB first tries to understand the cause. If it is a force majeure or temporary issue, such as family health, a bad harvest, or a fire burning down the business, the bank will review the long -term prospects and repayment capacity to see if the business can be viable. If so, AB will restructure the loan accordingly. The bank constantly reviews the performance of its portfolio and the evolution of the economy to adjust its lending practices accordingly. For example, if it sees that very small farmsteads are not economically viable, it will

40 introduce or increase relevant minimum criteria for loan eligibility, such as number of cattle or sheep. In these ways, AB takes deliberate preventative steps to address over-indebtedness, rather than reactive steps. This approach is especially important in the Azeri context, where they are starting to see more and more clients with loans from multiple institutions. Case Study: Fonkoze Financial Services, Haiti Fonkoze is Haiti s largest microfinance institution and, indeed, one of the best-known MFIs worldwide for its innovative approaches to reaching the poorest and helping them take the first steps out of poverty. Its 46 branches provide services that include business development loans, micro-credit, micro-insurance, savings programs, and adult education and health programs. Fonkoze uses a multi-pronged approach to ensure its client voice is heard, including focus groups, client representation on the Board of Directors, and exit interviews. They also rolled out a new initiative last year, a free help line called Rele Anmwe, meaning a cry for help. Any Fonkoze member can call the line to ask a question, lodge a complaint, or express how they ve been mistreated in any way by the institution, an employee or another member. The call center is open from 7:00 am 9:00 pm, six days a week, with plans to extend those hours soon. To ensure that every member and employee knows about the center, Fonkoze is rolling out the initiative in phases. So far, over half of the branches are using the call center, and the call center now receives hundreds of calls every few weeks. Most calls are comments or simple information requests, but approximately 15-20 of these will be complaints that require investigation. When the center receives a client complaint, a call center representative determines which branch and center the caller is associated with and immediately asks a series of questions. The call center representative can access the client s file on a computer to answer basic questions about the person s account, such as whether a pay ment was disbursed or when it can be expected. Senior management meets biweekly to consider each serious complaint. These meetings include the CEO, the Director of Human Resources, the Head of Security, a Social Impact supervisor, two zonal managers, as well as two employees from the call center. Each complaint is discussed and, when necessary, assigned to one of the committee members to follow up and report back on actions taken. The complaint will

41 then either require additional follow up or be closed out. To formally close a complaint case, a call center employee must talk again with the person making the complaint and explain exactly what s been done in response. In terms of staff complaints, employees are encouraged initially to discuss complaints with their immediate supervisor or the HR representative. If they are unable to resolve the issue, they can then utilize Rele Anmwe. For example, one employee complaint involved a security agent who had been with Fonkoze for 12 years. It was his understanding that after 10 years with the organization he would receive three months abroad as a kind of sabbatical. After approaching his director several times, the issue had not been resolved. An investigation revealed that the employee was confused about the policy, and that the particular policy he was referencing had been changed years prior. Management learned that many employees did not have a clear understanding of the policy and subsequent changes. As a result of the complaint management was able to address the confusion. In addition to improving client satisfaction and gathering client insight, this process has helped to detect problem areas and ensure consistent implementation, and highlight branch-level issues. For example, a policy has been in place for five years that states if a client can t provide their full repayment, partial payments will be accepted. However, management learned through Rele Amnwe, that some credit agents were not following this protocol.

42 Standard Category 4 Design Products, Services, Delivery Models and Channels that Meet Clients Needs and Preferences Standard 4a The institution understands the needs and preferences of different types of clients. Essential Practices The institution regularly uses the data it collects (process described in Standard 1b) to: 4a.3 Monitor the client retention rate 2 and understand the reasons clients exit the institution. 4a.1 Understand how clients use products and services by client characteristic (e.g., men and women, income level, business type). 4a.2 Understand client satisfaction (e.g., overall experience and value, convenience of accessing services, suggestions for product improvements), by client characteristic. 2 The MIX social performance indicator for client retention uses the following formula to calculate client retention: Client retention rate = Active clients at the end of the period / (active clients at the beginning of the period + new clients during the period).

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44 Standard 4b The institution designs products, services, and delivery channels in such a way that they do not cause clients harm. 3 (Client Protection Principle 1 applies to all practices below) Essential Practices 4b.1 The institution offers multiple and/or flexible loan products to address different business and family needs. 4b.2 Loan repayment schedules correspond with the expected cash flows of borrowers. 4b.3 Loan size matches financial need and business type. 4b.4 Products are affordable to clients, meaning that clients will not have to make significant sacrifices to their standard of living or business affairs in order to pay for their financial products. Affordability considerations include: 1) the interest rate, fees, premiums, and all other charges; 2) the loan size (or insurance premium); 3) the periodic payment amount required. 4b.5 Product and service delivery is reliable, convenient for the client (e.g., service points close to the client s home or business), and reduce personal costs (e.g., travel) associated with accessing the product or service. 4b.6 Product terms and conditions are easy for clients to understand and compare. 4b.7 Changes to the product (cost, terms, conditions) are minimal/ infrequent. 4b.8 The institution does not ask clients to waive their rights (e.g., the right to sue the provider, receive information, cancel use of the product, maintain privacy). 4b.9 The institution has two credit policies in place: 1) a policy describing acceptable pledges of collateral, including not accepting collateral that will deprive borrowers of their basic survival capacity, and offering an explanation of the role of guarantors; the policy guarantees clients receive a fair price for any confiscated assets; and 2) a policy to actively work out solutions for rescheduling loans/ writing off on an exceptional basis for clients who have the willingness to repay but not the capacity to repay. Standard 4b Footnote 3 Standard 4b and the corresponding Essential Practices are taken from the Smart Campaign. Unlike the other client protection practices in this document, these Essential Practices are not yet part of the Smart Campaign s Client Protection Certification (with the exception of 4b.9) because the Smart Campaign is in the process of piloting the practices.

45 Standard 4c The institution s products, services, delivery models and channels are designed to benefit clients, in line with the institution s social goals. Essential Practices The institution uses its understanding of client needs and preferences to modify or design products and services, delivery models and channels that create benefits to clients, including: 4c.1 Reducing barriers to financial inclusion faced by target clients. (e.g. making points of service accessible to excluded people, offering suitable product terms for poor people). 4c.3 Creating other benefits for clients by enabling them to invest in economic opportunities (e.g., loans for or leasing of machinery) and address anticipated household needs (e.g., home improvement loans, wedding savings). 4c.4 Complaints information is used to improve the organization s operations, products, and communications. (Client Protection Principle 7) 4c.2 Providing timely access to sufficient money and services that allow clients to reduce their risk and cope with common emergencies (e.g., access to savings, insurance, emergency loans, business support services).

46 Case Study: Alalay sa Kaunlaran, Inc. (ASKI), Philippines Founded in 1987, ASKI s mission is to promote socio-economic and spiritual development through customer-focused financial services in the Philippines. ASKI recognizes that to truly help people, it must work to understand its clients needs and meet those needs with a range of services. As such, it uses a credit plus plus approach that focuses on community development. As part of this, ASKI implements an innovative program to strengthen livelihoods in communities that no other MFI has successfully served. The Community Development Program (CDP) focuses on supporting whole communities by increasing income, creating jobs, and forming strong partnerships with local governments and other organizations. The CDP is unique because ASKI workers live among its members in the co mmunity to get to know them and learn all aspects of their livelihoods and needs. A community development worker is briefed on how to join the community s way of life, analyze why they are poor, assess their varied issues, and train clients on ways to mee t their minimum basic needs. If members of the community decide they are ready to accept the work with ASKI, that s where the expertise of an ASKI Community Development Officer (CDO) comes in. The CDO must be especially patient, strong in organizing information and people, and willing to live in the community. The CDO, Loan Officer, and community members work together to create a tailored set of products and a community development plan. The CDO also networks with individuals and organizations in the community to create business connections and learn who hasn t received support from ASKI. The Loan Officer focuses on financing, and the CDO s strength is in organizing and empowering people. ASKI monitors how well its members are doing by analyzing the income of the people and assessing whether children are going to school, what types of houses they live in, and how they participate in their own community. ASKI uses the PPI, as well as some qualitative tools, to gather this information. This in-depth approach to understanding and responding to a community s needs represents a major financial investment for ASKI. They see this risk as being offset in two ways. Firstly, ASKI s financial support to communities is supplemented by donations and funding from governments and other organizations. Secondly, they have found that a strong portfolio in one community can sustain a program. This is because ASKI develops a deep understanding of each community s needs and capacity, and tailors its products and services accordingly, which in turn reduces ASKI s risk exposure. An ambitious program like this one requires a highly motivated staff. ASKI believes that building an organization s commitment to helping people starts with the employees feeling a personal devotion to helping and giving. It fosters this culture in many ways.

47 It keeps all employees well informed about what s happening at ASKI, announces concerns in the communities it serves, and encourages employees to be active as members of their own communities. New employees are given the challenge that if they d like to work with ASKI, they have to deeply love the poor and want to help them. Recently, management learned that a local home had been destroyed in the night. ASKI leadership showed a picture of the situation to the employees and the Board and simply said that those who would like to help may do so. Many showed their support and a new home was given to the family. Case Study: Sarvodaya Economic Enterprise Development Services (SEEDS), Sri Lanka SEEDS was founded in 1986 to eradicate poverty in Sri Lanka by promoting economic empowerment of rural people and contributing to the creation of a sustainable livelihood. SEEDS' distinctive identity and core values are rooted in the concept of a no-poverty, no-affluence society. It offers lending and voluntary savings products as well as training and consulting services. SEEDS was originated by a leading NGO in Sri Lanka who brought aspects of the double bottom line philosophy to its organization from the beginning. The SEEDS Board of Directors includes members from diverse backgrounds with a social focus. Board members bring expertise not only in banking and finance, but also in education, gender and human rights, public health, community development, agriculture and renewable energy. SEEDS ensures that its Board understands the mission of the organization by reporting on financial information as well as how client earnings are impacting family income. It currently tracks information around microenterprise development which has helped it to design/modify some of its microfinance products. For example, SEEDS offers clients business advice on how to find prospective buyers, control technology, and manage product development and modifications to better meet the needs of its clientele. To get a better understanding of client needs and satisfaction levels, SEEDS loan officers personally speak with their clients to gather information. They enquire about income generated, management practices and service offerings as well as challenges that clients face in their personal lives. Additionally, they review outcomes and behaviors including employment opportunities created and timely loan repayments. To ensure that it is meeting the needs of its client base, SEEDS has developed a twopronged lending strategy. It makes loans directly to clients and through umbrella organizations. It is often easier to administer and less costly to work through local Community Based Organizations (CBOs). CBOs will then make individual loans as well as fund social programs including schools for children, information centers and libraries

48 helping to increase the well being of its client as well as that of the entire village/community. SEEDS provides training for the CBOs on how to keep books and monitor their clients and creditors. Before offering loans it tries to determine if its clients are experiencing family issues, help to address any personal issues they are facing, and then enter into loan agreements so that the clients don t experience increased hardships like difficulty with loan repayments. Case Study: Génesis Empresarial (Genesis), Guatemala Genesis was founded in 1988 to provide financial and nonfinancial services to rural community members and small business owners to help them achieve sustainable development, accelerating the progress of Guatemala. It offers loans, training and consulting, and fund transfer services to a predominantly female client base. To measure social objective achievement, Genesis gathers economic, social, and client data. It is currently finalizing the implementation of a SPM software system that will enable increased information gathering and incorporate PPI. Additionally, Genesis has collected annual client satisfaction data for the past three years. This data, combined with information regarding evolving client needs, drives innovative product and service offerings and fuels a culture of perpetual improvement. Development of products and services tailored to the needs and wants of clients. Approximately 85% of Genesis clients are located in remote rural areas. It has developed targeted tactics to reach its clients in efficient ways including: Use of cell phone technology: Genesis created a six-pronged strategy to promote proper credit use and to communicate its Business Development Service through text messages. The six strategies are: Inform, Retain, Re-incorporate, Promote, Learn, and Portfolio Health. Each strategy is comprised of a credit and a training component. Information is delivered via 5-6 text messages that encourage proper credit use, stimulate the utilization of training services, and offer recommendations that aid in the creation of higher incomes to improve the quality of life of clients and their families. Development of community-meeting points: Genesis has developed communitymeeting points located near clients, saving them time and money as they are no longer required to travel to distant bank branches. Currently, these locations only gather information and paperwork, but they will soon be able to accept small payments. These payments will be limited to a one-day deposit delay that will not affect liquidity.

49 Implementation of community correspondents: Genesis is currently developing a community correspondent role to receive payments from clients in their local communities so they will no longer have to travel to a physical bank location. The role will be filled by established Genesis clients with businesses that are open to the public, manage cash transactions, and offer proof of payment. Business Development Service Client training: The combined formula of offering credit, training, and advice has equipped Genesis clients with the tools necessary to develop their businesses in a gradual and sustainable manner. By the end of 2011, a team of 48 volunteers had delivered 130 modular monthly trainings to over 9,600 clients. According to a satisfaction survey conducted in the third quarter of 2011, 94% of clients found the trainings useful, believed it was helpful for their continued advancement, and agreed that for them to achieve sustainable development it is necessary to invest in education, innovation, creativity, and entrepreneurship. Efficient processes to gather information about client wants and needs. Client need identification studies are conducted bi-annually. Information is gathered directly from clients as well as from branch managers, regional training managers, and credit advisors. The market research department is in charge of developing the studies, designing and updating the tool, hiring researchers, conducting the analysis, and developing and presenting final reports. Results are presented to management, branch managers and staff who design action plans that respond to the identified key client needs. The gathering of this information enables Genesis to remain close to its clients. Listening and responding to their needs is what drives innovation and continuous improvement in processes, products, services, structure, and reach in order to increase client satisfaction and consolidate the client relationship. Case Study: Institute for Financial Management and Research (IFMR), India IFMR (India) is in the process of deploying Kshetriya Gramin Financial Services (KGFS). KGFS is an innovative financial services entity aimed at delivering a range of products and services to ensure the financial wellbeing of remote rural households and enterprises, including credit, remittances, insurance, pensions and investments. KGFS serves a total population of about 3.5 million people, with each branch working with everyone within a 2,000 household cluster. The cornerstone of the KGFS approach is a focus on understanding household, rather than individual needs, and delivering a range of products tailored to those needs.

50 KGFS s wealth management approach starts with an individual wealth management plan and is developed with each household. Wealth Managers work with clients to perform an analysis of the household using an automated financial well-being report. This report is generated on the basis of detailed household information including incomes, expenses, assets and liabilities, along with future financial goals the household wishes to achieve. The report assists KGFS staff in delivering customized wealth management advice on the products and strategies that will support a household to achieve its goals given its own unique financial situation. KGFS s wealth management approach asserts that while it is integral for the client to be fully informed about a certain product and contract-related features, the decision of choosing the optimal product may be too technical for the client to make on her own. For example, on the decision of how much life insurance to purchase, the client may not be equipped to estimate how much coverage she needs or evaluate the assortment of choices in the market. On the other hand, the provider, with its expertise in financial services and detailed information about the client s financial profile, is better positioned to make the appropriate recommendations. While the final choice of product purchase rests with the client, KGFS takes full accountability for the appropriateness of the recommendation and disclosure. Wealth Managers also talk with households about how to protect and dive rsify their financial plan. Together, they consider the household s insurance needs and risk exposure. Insurance choices may be based on whether they earn an hourly wage or own livestock or a shop full of inventory, for example. Knowing their risk expos ure, KGFS can help them plan for diversifying investments into gold, buildings, land, or other options. Importantly, Wealth Managers do not sell any financial products to clients. They are trained (and supported by technology) to actively work with their clients to explore opportunities to reduce their financial vulnerability and maximize their wealth over time. As part of this, staff incentives are linked to whether they recommend the right combination and extent of products to their clients rather than how many products they actually sell. Given KGFS s in-depth approach with clients, the physical proximity of a branch and locally-hired staff are critical components of product customization. Also, given the indepth approach taken with clients, efficiency is maintained through a high reliance on technology, where all KGFS branches have real-time connectivity to enable automated transaction processing and data capture.

51 Case Study: Banco Solidario, Ecuador Banco Solidario helps reduce poverty and improve the living conditions of less favored segments of the Ecuadorian population, by meeting their needs for high quality, innovative financial services. Its services include microloans (for microenterprise, agriculture, and housing), savings accounts, and microinsurance. Banco Solidario offers several kinds of microinsurance products (life, credit life, medical, emergency, and catastrophe) but two in particular exemplify practices described in the Standards medical and life insurance. The medical insurance product was designed, from the beginning, based on client feedback. Focus groups identified demand and important features for the product. Then, the bank worked with the insurance company to structure the product around the feedback. In the case of the life insurance, the current client feedback mechanism (gathered through the Financial Literacy program) is helping revise existing products. Since insurance is so much harder than credit or savings, in terms of the clients knowledge gaps, Banco Solidario believes that product design must include education. Banco Solidario has several tools to gather client feedback when developing a new program. Prior to launching the Financial Literacy program, a nationwide client survey was conducted with almost 3,000 clients. This survey helped the bank understand the level of product usage for micro-insurance and select its priority topics for follow up. This year, those same clients have been resurveyed to determine the program s impact. The Financial Literacy program was not designed as a client feedback mechanism; however, it has become an important source of client insights and has prompted a new analysis of all the bank s products. The Financial Literacy program began with the premise that for staff to successfully describe the products to clients, the bank needed to carry out a detailed analysis of how clients used the products. Through this analysis, the bank discovered many problems. The bank sought to address these problems through 1) improved staff training, 2) improved loan officer outreach to clients, and 3) educational talks delivered to clients. The staff training allows the loan officers to carry out an ongoing dialogue with clients on insurance in general. These discussions have greatly increased usage of a product that clients previously had, but did not understand or utilize. This iterative process of loan officer training, loan-officer/client dialogue, and feedback from clients has become an iterative and ongoing process that channels client feedback up to the bank where products are refined, staff is retrained, and clients receive improved products. Focus groups, prior to product design and then analysis of the call center statistics after the product was launched, also help inform the product development process.

52 One of the outcomes of loan officer dialogue with clients through the Financial Literacy program was a welcome campaign for new clients. The insurance product required the clients to contact a call center or hotline in order to place claims, but there was a lot of confusion on the part of the clients was the insurance through the bank or the insurance company? Should they call the loan officer or the hotline? The clients did not feel comfortable with the hotline so always called the loan officer. During an emergency, these calls slowed response times. Also, the clients did not understand 1-800 numbers and the hotline had an area code in the capital and was a more expensive call. To address these problems, the bank encouraged the insurance company to create local access numbers for the hotline to decrease expense and increase a sense of familiarity for the clients. Also, the loan officers called each new client to explain bank and insurance company responsibilities, how the client s product worked, and to provide an orientation to the claims process. This seems to be working, as calls to the hotlines and usage of the insurance products have increased. Banco Solidario both develops products prior to client input and after gathering market research and client feedback. In the case of the medical insurance, the bank talked to clients first and then designed the product. Ironically, this product has needed more revision than the others. It is contemplating switching providers, since the insurance company and the medical micro-insurance product have not sufficiently met the clients needs. For the other types of insurance, the product was designed and then the clients feedback was used to refine the products. For the 3 rd generation micromedical insurance products that the bank plans, it will use a combination of client feedback through the Financial Literacy program and market research. The bank is now in the process of formalizing its social indicators and will be including insurance in those indicators. Quality service is part of the bank s mission and so that must include high quality insurance products, too. The bank considers products that don t meet client needs as a risk and it mitigates that risk as much as possible. Case Study: Contactar, Colombia UPDATED POST JORDAN Founded in 1991, Contactar supports the development of micro enterprises. Since 1995 it has operated as a microfinance institution, focusing in the rural areas of southwest Colombia. It currently serves 47,000 clients. Contactar s mission is to provide high -quality sociallyand environmentally-conscious inclusive microfinance services to rural populations in order to help them improve their quality of life. The institution s products and services

53 include: loans, financial services, and training geared toward developing businesses and improving the quality of life of its clients and their communities. Contactar is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of designing products and services that meet clients needs and preferences, treating employees responsibly, and balancing social and financial performance. (For details on treating employees responsibly, and balancing social and financial performance please refer to standards 5 and 6 respectively). The following are some specific examples on how Contactar designs products and services that meet clients needs and preferences. One area in which Contactar has been particularly active is offering microinsurance products that were previously unavailable to its target clients. Specifically, Contactar has worked with insurance companies to design the following new products and services: Life insurance plans with relatively low premiums that can be canceled every month. The most basic plan pays USD 4,000. Cattle and real estate insurance. Another new financial product recently designed by Contactar is Microfactoring. Medium-sized agriculture producers who sell to large store chains are usually paid 60 days after the sale. Contactar knows that many times its clients cannot afford such a delay in cash flow. Hence the institution offers to buy its clients invoices at 80% of the value right away, thus ensuring that clients receive cash without delay, and then Contacter pays the remaining 20% when the invoice is paid by the buyer. Furthermore, Contactar and the Ford Foundation developed Proyecto Semilla, a pro ject through which certain store chains agreed to pay a large group of organized producers in 15 (vs. 60) days. To inform clients of its new products and services Contactar plays videos in the waiting rooms at its branches and puts up fliers with simple language. Case Study: AMK, Cambodia UPDATED POST JORDAN AMK s mission is to help large numbers of poor people improve their livelihood options through the delivery of appropriate and viable microfinance services. These services include multiple loans, savings, and money transfer products.

54 With a client base of over 300,000, AMK serves customers at the lowest end of the economic pyramid in Cambodia. AMK is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of designing products and services that meet clients needs balancing social and financial performance. (For details on balancing social and financial performance please refer to standard 6). AMK invests significant time and effort to clearly understand its client s needs and preferences, and tailors its products and services accordingly. In addition, AMK s board has put in place several mechanisms to ensure ongoing commitment to this client segment. AMK believes that poverty measurement and product design are highly complex tasks. For this reason, AMK s Research Department systematically collects, stores, and analyzes information on an annual basis to produce market and social research reports. Market research is designed to determine client needs, market trends, and AMK performance compared to competitors. Social research, on the other hand, measures breadth and depth of outreach, client protection, and impact. These Research Intelligence Reports are used to determine how closely AMK is following its missi on, to identify social performance strengths and weaknesses, and to adjust policies and products accordingly. Driving this work is a full-time Research Department staffed by eight professionals with backgrounds in qualitative and quantitative data analysis. For each study, the research team surveys a statistically valid sample, and conducted almost 900 detailed client interviews in 2012. This approach ensures that field staff concentrates on loan assessments only and do not get involved in the more complex issues of poverty assessment or client satisfaction. AMK feels that entry level field staff does not normally have the necessary skills to survey client in a way that produces meaningful results for strategic management decisions. Also there is also an inherent conflict of interest in involving operational field staff in client satisfaction surveys. Analyzing client-level information for such a large client base requires a nuanced approach and disaggregation of data across multiple dimensions; locati on, gender, product, as well as poverty profile. When MFIs look at aggregated data across the entire client population, the louder, more articulate voices can sometimes dictate management decisions. This can result in MFIs reacting to better-off clients, and moving up-market accordingly. For this reason, AMK disaggregates all survey results by poverty level, normally splitting results into four quartiles poorest, poor, middle, and better-off. This segmentation produces interesting trends and sometimes shows very distinct and often conflicting preferences by poverty quartile.

55 AMK s credit line product is an example of AMK creating a product based on intimate knowledge of its target customer segment. Many of AMK s clients are involved in subsistence rice farming, with their income augmented by day labor and petty trading. This typically produces quite irregular income flows that are not naturally compatible with traditional installment and/or end of term repayment loan products. After extensive research into client cash flow seasonality, AMK created a credit line product. This is basically an overdraft that gives clients ultimate flexibility on drawdown and repayment schedules, over a one to two year period. Today, AMK has 80,000 clients using its credit line product with total product portfolio exceeding $17 million. AMK liquidity risk is higher as it needs to reserve cash to cover undrawn loan amounts, but repayment history indicates very low credit risk. Interestingly, client retention in this product is much higher than any other AMK product. Case Study: MI-BOSPO, Bosnia and Herzegovina MI-BOSPO is a microcredit organization established in 1996 and registered as microcredit only foundation in 2000. It provides loans in Bosnia and Herzegovina for economically active low-income women entrepreneurs, with the mission of improving their economic position and the living standards of their families. Product and service offerings include loans for microenterprise, agriculture and housing as well as training on financial literacy, basic business skills, making market connections and advocacy activities. MI-BOSPO has a very active Board of Directors that is committed to their mission. Based on an understanding that loan size doesn t always directly correlate with poverty outreach and impact it has looked for other ways to understand the differing needs of different clients (they do not currently measure poverty outreach), and how loans are helping clients to improve their well-being and grow their businesses. As such, it has begun to segment client data based on whether the women are self-employed, employed, or non-employed. It does this because while the majority of their loan portfolio is consumption (housing) loans, the women s income source will tell them a lot about her means to repay. Based on this, MI-BOSPO did interviews and focus group discussions to better understand the life and business needs of their clients. Interesting ly, the results were much along the lines of its initial assumptions which is a good indication that management and staff are in touch with the reality of its clients lives.

56 However, it also learned that there are cases where clients express their wants, o r even use loans, in a way that isn t in their best interest. For example, clients request longer loan periods (with small installments) without understanding that it increases the cost of the loan. For MI-BOSPO, delivering products and services to clients is a balance between client preferences and their developmental needs. For this reason, they also put a lot of emphasis on training loan officers on loan use monitoring, to ensure that clients are benefiting to the extent possible. Listening to clients has also led MI-BOSPO to understand that clients often require more than just financial support to grow their businesses. Thus, MI-BOSPO now provides nonfinancial services including market connections, a program that helps clients learn about increasing sales through such tactics as improved packaging and learning from competitors. Case Study: ENDA INTER-ARABA (ENDA), TUNISIA UPDATED POST JORDAN Enda s mission is to be a socially and environmentally responsible institution that helps improve the living standards of low-income Tunisians through high quality, innovative and inclusive financial services. Its financial services include loans, loan insurance, and life insurance. Its non-financial services include training in accounting, business development, networking, financial literacy, and counseling (legal, health, social security, gender issues, and public services). Commitment to social goals Reaching its targeted clients To improve geographic and individual targeting techniques to reach its target clients, Enda has worked since 2007 with Mr. Azzam Mahjoub, professor of economics, to refine social performance indicators. His study helped Enda define a composite indicator for the geographical targeting, called the decile. The decile takes into account the number of children attending school, illiteracy, rural indicators, the size of habitat, poverty rate, etc. Additionally, Enda uses data from INS3 and the Ministry of Industry and Technology to identify zones of intervention, usually classified as Priority zones of intervention by the state, in order to choose where to locate its new branches. A first screening is done according to this data. A market survey is then conducted in the selected zones in order to understand the profile of the potential clients, their standard of living, and their needs in terms of financial and non -financial products. 3 Institut National des Statistiques

57 A market segmentation study carried out in 2008 helped Enda refine its segmentation criteria, understand the content of its portfolio, and therefore improve the selection of its clients. Four segments were identified: income-generating activities, microenterprises, very small enterprises, and low-income employees in both rural and urban areas. The chosen indicators for each segment were included in the management tools and the MIS in order to follow the target clientele evolution and to reach the strategic objectives of the institution. The segmentation criteria mainly rely on indicators linked to the household or the micro-enterprise: Indicators related to the household: expenses and incomes per capita, level of education, the dependency ratio, the density ratio (household size/number of rooms), bathroom availability, etc. Indicators related to the project: for non-agricultural activities, if formal or informal, the location, number of employees, net profit, seasonality. For agricultural activities, the size of the irrigated and unirrigated fields, the herd size, etc. In 2011, 30% of Enda s 195 000 active clients were located in the less-favored rural areas, 20% were under the poverty line of $2/day (the poverty rate in Tunisia is 11%), 63% were women and 9.5% came from the marginalized populations (small farmers of less-favored areas, refugees and youth under 25 years old). Enda will be using the PPI in 2012. Responding to clients needs and preferences: Adapting and designing products In 2006, the institution adopted a special strategy to respond to clients needs and preferences. Enda carried out market studies to determine the needs of existing and potential clients, in order to offer them adapted financial and non-financial products. Enda adapted two existing financial products. These were first designed to retain longterm clients and were later generalized to all the customers. The products are the Ta alim loan, for the back-to-school expenses, and the Eddar loan, designed to improve the standard of living. A variety of products were offered to the micro entrepreneurs according to whether they lived in rural or urban areas. In 2010, the innovative Mawsem loan, designed for farmers and breeders, was launched to give these customers the possibility to pay back according to cash flow during the financing period. This product is aimed to respond to the varied needs of farmers and to prevent over-indebtedness. In 2011, Enda designed products to respond to political change and the acts of destruction, fire, and robbery that occurred during the related political events. These products helped protect clients with injuries and damaged property. In addition to refinancing procedures and a rearrangement of monthly payments, a loan to cover

58 damages was granted to clients who lost equipment, livestock, housing, or their work place. This loan was aimed to help them rebuild and deal with an exceptional situation that harmed their business or living conditions. After the Libyan revolution, many Tunisians that used to live in Libya came back to Tunisia. In an act of solidarity with the Tunisian people, Enda created the Watani loan to support their reinsertion. This loan can be used to buy cattle, equipment, or for working capital. To contribute to the national efforts for employment, Enda is launching a new product for start-ups in order to promote self-employment among young people under 35. The Bidaya loan will answer the needs of young promoters who cannot afford to start their micro-enterprise. This loan goes along with a variety of non-financial services to enable the success of the project. Case Study: Pro Mujer Inc. (Pro Mujer), Latin America UPDATED POST JORDAN Pro Mujer, Inc. is an international, women s development and microfinance organization. Its mission is to provide Latin America s poor women with the means to build livelihoods for themselves and their families through microfinance, business training, and healthcare support. Pro Mujer has operations in five countries in Latin America with a headquarters in New York City. It began in Bolivia in 1990 and expanded to Nicaragua (1996), Peru (1999), Mexico (2002), and Argentina (2006). Pro Mujer s services include micro loans linked to regular savings and life insurance; health prevention, screening and primary care services; and training in business topics, empowerment, and leadership, among others. The financial service operations are self -sufficient and the health and training services are sustainable through a mix of service income and donations. The organization also links women and their families to existing resources and services in their communities. As of April 2012, Pro Mujer serves 265,000 clients, 95% of which are women. Pro Mujer is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, specifically in the area of designing products, services, and delivery models that meet clients needs and preferences. The following are some specific examples. Improving data gathering and analysis to better understand clients needs. In 2008, Pro Mujer worked with a consultant to better define its target market and understand the needs of new and seasoned clients. Next, the organization developed a client data form, ficha de cliente, to capture important socio-economic, household, business and demographic information on all clients when they first entered the organization, and

59 that would be periodically updated thereafter. Collecting this data is critical to Pro Mujer s philosophy that a healthy business must focus on the unique aspects of each client. Pro Mujer piloted the completed client data form in 2011 and encountered some important challenges. First, though the standardized form had an extensive number of variables, it nevertheless provided insufficient information on clients, client segments, and specific country needs. Second, applying the segmentation and PPI (Progress Out of Poverty) 4 questions to all clients created high costs with a marginal increased benefit. Third, the data form was so comprehensive that it created delays in loan processing. Given the results from the pilot, Pro Mujer fundamentally changed the client data form and collection process in order to improve efficiency, data quality and completeness of data. The most important change was to separate the transaction data (address, business information, credit bureau information, data required by regulators and credit information) from the data needed for client segmentation, poverty assessment (PPI) and other social impact purposes (demographic, family, housing, education, health, economic, habits and needs, etc.). Going forward, Pro Mujer will collect transactional data each loan cycle, and is currently piloting use of a tablet, which will also contribute to optimizing the credit processes by improving quality of data and shortening processing times. Once a year, Pro Mujer will hire external interviewers to collect the segmentation/ppi data on a sizeable client sample via survey. These interviewers are also responsible for data quality checks. These additional data sources, combined with historical loan data already in its management information system, will allow Pro Mujer to analyze the needs of both new and existing clients by segment, and therefore to improve how it tailors its products, designs new ones and manages aspects of its service delivery. With the PPI, Pro Mujer will be able to target clients by poverty level, giving management the information it needs to stay true to the mission. Understanding root reasons for client desertion. In 2009, Pro Mujer began conducting formal client desertion studies. The studies gather both qualitative and quantitative information from the following data sources: a) research on external context; b) client and credit officer focus groups; c) a quantitative survey of the deserting clients; d) Pro Mujer s database of financial information, including data on loan size, arrears, and number of loan cycles; and e) information from the credit bureau on each client s total amount of debt, portion of debt with Pro Mujer versus other institutions, and access to financing by institution type. Collectively, these various data sources allow Pro Mujer 4 Available PPIs were added shortly after the conclusion of the pilot and the new form was reviewed by all countries and management. In analyzing them, we found only three of the ten questions in common across all countries, so the revised data form varied by country to include the complete PPI for each country, which added complexity. All the other questions in the data form were the same across countries, adapted for local language differences.

60 to analyze the problem of desertion by client segment, pinpoint where urgent action is needed, and examine the impact of over-indebtedness on client satisfaction and desertion. Having concrete information on client desertion has enabled Pro Mujer to improve client well-being and satisfaction, and to take quick corrective action in areas where client exit becomes a problem. For example, after Pro Mujer began implementing formal client desertion studies, it discovered the following: 1) many of the clients who were deserting were probably outside of the target market (had access to other sources of funding and longer experience in their businesses), 2) there were problems when new clients joined existing groups, and 3) there were problems with service quality and customer attention. Based on those results, Pro Mujer analyzed its value chain and support functions and created an action plan for change. Some of the actions include: Adjusting schedules to improve quality of loan officer work. By setting clear working hours and defining consistent process for customer service some regions have seen an increase in productivity and customer satisfaction. Changing loan officer selection and recruitment process to ensure staff have the correct profile for working with target clients. In Peru, for example, where the labor market is very competitive, Pro Mujer is assessing the option of offering higher salaries to be able to attract top talent. Leveraging the experience of the top performing loan officers. To ensure that loan officers sell to the right target clients and do so in an effective and clear way, Pro Mujer plans to film top loan officers (for example explaining products and services to potential clients) and using the videos to train other high potential staff. Improving assistance to client groups and value of time spent in meetings. For example, emphasizing the social value in designing group meetings and using text messages to remind clients of upcoming group meetings, which include mention of birthdays, and other social events that clients look forward to and encourage them to attend meetings. Case Study: Finca Peru, Peru UPDATED POST JORDAN Founded in 1993, FINCA Peru s mission is to create comprehensive and innovative solutions to facilitate social inclusion, as well as the empowerment of women and low-income communities. The organization focuses its efforts on the three poorest areas of the country. Within these, since 2009, it has also extended its focus from women in urban areas to those in

61 remote rural areas. The organization operates through communal banks. The three fundamental pillars of FINCA Peru are training, credit, and promotion of savings. FINCA Peru uses several strategies and tools to ensure its social performance and focuses on the satisfaction of both internal and external clients. FINCA Peru is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of designing products and services that meet clients needs and preferences and treating employees responsibly. (For details regarding treating employees responsibly please refer to Standard 5). FINCA Peru seeks to design products and services that help target clients to improve their quality of life, achieve higher productivity, and create financial efficiencies. To achieve this, FINCA Peru has become involved in production chains and has alliances with other organizations, both in the private and public sectors, to provide more and better services to its clients. In rural areas, the organization recently moved from a mentality defined as fighting against poverty toward one of generating wealth. Alliances are key to help achieve this vision. For example, FINCA Peru partnered with other organizations and corporations to provide technical assistance to clients to help them increase productivity, mitigate the risk involved with dependency on water/rains, and improve access to markets. Last year, many of FINCA Peru s rural clients with dairy productions had their products promoted at a very large food fair. In urban areas, the organization is focused on promoting good health habits among its clients. For example, FINCA Peru partnered with the health ministry and some nonprofit organizations to offer trainings on nutrition and health for pregnant women, sexual education, and gynecological services and tests at FINCA Peru offices. While the ministry of health does generally offer these services in other locations, FINCA Peru knows that their clients have tended not to use them, either because they were not aware of them, or felt embarrassed, or didn t know where or how to attend. Therefore, the organization decided to bring the services to FINCA Perus locations. Currently, FINCA Peru is looking into how to replicate these services in rural areas. In terms of measuring client satisfaction, FINCA Peru is trying new rating scales that match the grades used at school. In this way, clients have an easier time understanding how to assess categories and the studies portray more accurate results. All client satisfaction surveys are conducted via a third party to ensure high quality data and analysis.

62 Case Study: Vision Fund Credo (Credo), Georgia NEW SINCE JORDAN The mission of Credo is to provide financial services to the poor and micro-small businesses, especially in the rural areas of Georgia. Credo s primary clients are economically active male and female entrepreneurs. Its vision is to enable the poor to increase their household incomes and reduce their vulnerability, enabling them to build a meaningful, su stainable and selfdetermined livelihood. A few of its financial services include granting micro -loans, insurance, credit cards, and SMS service. Meeting clients needs and preferences Client research and responsiveness: Credo has developed an effective means of collecting information about client needs and preferences and feeding this information into decisions around product design and adaptation. Firstly, it conducts bi -annual surveys around client satisfaction and client needs for new products, using questionnaires and focus group discussions. Secondly, it has a continual feedback loop whereby staff can raise concerns or ideas around product design and delivery. This information flows upwards from the staff through the branch management level to the head office. In both instances, red flags and suggestions are addressed immediately by a team comprised of staff from finance, IT and marketing. Credo draws on existing marketing data to shape its decisions, but also seeks feedback from the staff and clients on proposed changes. This creates additional motivation and sense of ownership over the sales strategy for field staff. Also, it seeks to balance client demands with Credo s own understanding of clients developmental needs. In doing so, Credo draws on its own internal research and organizational philosophy to drive its product design and adaptation decisions. For example clients often express they need higher amounts of loans. In order to protect clients and itself, Credo will not compromise with client s repayment capacity ratio. It will offer loans with longer term to clients, which will enable them to take higher loan amount and repay it without difficulties. High quality of customer service: Thirdly, Credo invested significantly in Quality of Customer Service. Credo developed comprehensive customer service standards, followed by training standards and polices. All field staff is obligated to pass a test on these standards, after a probation period. Monitoring and improving customer service quality is handled internally (by a Customer Service Auditor) and externally (by conducting Mystery Shopper Research, twice a year). Furthermore, Credo makes an effort to limit the number of times the clients have to travel long distances. For example, the loan application processes take place at clients villages (through Village Day and Network of Village Consuls), Loan Officers visit business and homes, and loan repayment is done through banks or Payment Machine and Terminals. Clients go to

63 town only once in a loan cycle to sign the agreement and take a loan. Also, Credo established an annual award called Best Branch in Customer Service. Credo campaign on responsible finance: Credo prints and distributes free booklets that educate clients about what is important to consider when they decide to take a loan and what behaviours to avoid. Booklets are written in very simple language, avoiding complicated banking terminology that only creates additional confusion for the client. Many booklets are written simply for this reason. Field staff is trained on how to explain and distribute the booklets. Case Study: Ahon Sa Hirap Inc. (ASHI), Philippines UPDATED POST JORDAN UPDATED POST JORDAN ASHI is dedicated to building a sustainable microfinance Grameen Institution in the Philippines, by creating an environment that enhances empowerment of women and their families and sharing expertise among MFIs and anti-poverty-focused institutions. It integrates value formation while living out the ASHI core values of discipline, patience, industry, courage and unity. ASHI s financial services include a range of loans (agriculture, education, small business, and housing), savings (voluntary and compulsory), and microinsurance. Its non-financial services include financial education, leadership training, health services, women s rights training and legal services. ASHI is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of des igning products and services that meet clients needs and balancing financial and social performance. (For details regarding balancing financial and social performance please refer to Standard 6). In 2010, ASHI created the members desk to better discern client needs. It s an independent department separate from operations and has become a critical resource to ASHI management. Because it s independent, feedback does not get filtered through field staff and clients are more open to share. The members desk is the conscience of ASHI. Three mandates have resulted from the members desk. First, ASHI conducted a study of inactive members (these are members not attending center meetings) to listen to what they are feeling and determine how to address their issues. ASHI learned that many have emergencies at home and couldn t attend the meetings. It immediately began working with these clients and the number of inactive members has already decreased from 5,000 to 3,000.

64 Second, ASHI assessed its clients levels of over-indebtedness. Many clients had been indebted in loans for decades and their poverty is a mindset. If ASHI had ended their loans, they would return to poverty. Last year, ASHI began educating both clients and staff to set a standard for a higher quality of life. The CEO travelled throughout the Philippines last year discussing quality of life and family issues with clients and staff. Now, clients are breaking harmful habits and learning to evaluate their portfolio and the effectiveness of their loan use. Third, ASHI conducted a client satisfaction survey. All clients, from the very oldest to the youngest, were surveyed and all products are being evaluated. The survey is now complete and the results will be presented to management this fall. An indication of the member desk s success is ASHI s retention rate. It was 96% in 2011 and is 98% in 2012. ASHI is finding that even when clients problems have not been resolved, they are confident that ASHI hears them. After listening to clients, many of whom were typhoon victims, ASHI implemented new products based on their varied circumstances. These include the Recovery Loan, a multi-purpose loan that provides the victim with funds for any of her recovery needs, not just home repair, and the Flexible Loan, a low-cost loan for members to respond to varied emergency situations. To serve the most vulnerable, ASHI began another new program called APRROOT ASHI Project Relief and Rebuilding to Overcome Ondoys Tragedy. APRROOT is a low - cost, seven-year loan program for families who lost everything in the typhoon and live in a flooded danger zone. It provides capital to support their livelihoods and their current loans are adjusted. ASHI conducts a review every six months to assess the needs and progress of these clients. APRROOT is a success - enjoying cooperation with the local government, planning for a sustainable community association, and receiving substantial donations, including the property.

65 Standard Category 5 Treat Employees Responsibly Standard 5a The institution follows a written Human Resources policy that protects employees and creates a supportive working environment. Essential Practices 5a.1 A written Human Resources policy is available to all employees; is compliant with any existing national law; and explains employees rights related to all of the following: wages, benefits, working conditions, safety at work, non-discrimination, freedom of association, and grievance resolution. 5a.2 Employee compensation levels constitute a living wage 4 for employees. 5a.3 The institution accepts and responds to employee grievances through a formal and confidential grievance system that protects employees from retaliation for submitting their complaints. 5a.4 The institution neither employs nor benefits from forced or compulsory labor. 5 If national law allows employment of minors, the institution complies with the national and international legal requirements and norms when hiring minors. 5a.5 The institution assesses the health and safety risks (e.g., excessive pressure and work load, driving without helmets) that employees face on the job and provides to employees, free of charge, the training and equipment necessary to mitigate those risks. 5a.6 The institution documents, reports, and investigates all occupational accidents, injuries or diseases. 4 A living wage is a wage sufficient to provide minimally satisfactory living conditions for the employee in the location where s/he works. 5 Any work done under the threat of penalty or involuntarily is considered forced or compulsory labour. 6 The minimum age for admission to regular work is at least 14 years (developed countries: 15 years). Exceptions may be made from 12 years (developed countries: 13 years) for light work that does not interfere with the child s schooling and does not harm

66 the child in any other way. The minimum age for hazardous work that is likely to harm the health, safety or morals of a child is 18 years

67 Standard 5b The institution communicates to all employees the terms of their employment and provides training for essential job functions. Essential Practices 5b.1 Each employee receives a written job description and a written or verbal employment contract that includes his/her salary, benefits, and employment conditions. 5b.2 Each employee receives jobspecific training and/or skill development necessary to perform his/her essential job functions. 5b.3 Each employee understands how his/her performance will be evaluated and rewarded by the institution. 5b.4 Employee rules include specific provisions on what is considered acceptable/unacceptable behavior. Provisions describe reprimands and actions that can result in termination of employment. Employees are informed of penalties for non-compliance with ethics code/collections policies, violations are sanctioned, and sufficient monitoring of the practices (by operations department, internal audits) is carried out to provide education or sanctions as necessary). (Client Protection Principle 5)

68 Standard 5c The institution monitors employee satisfaction and turnover. Essential Practices 5c.1 The organization gathers, documents, and analyzes employee satisfaction data. 5c.3 The institution takes action to correct institutional problems leading to employee turnover and dissatisfaction. 5c.2 The institution monitors the rate of employee turnover 7 and understands the reasons for employee exit. 7 The MIX calculates employee rotation rate in the following way: Staff rotation rate = Exit during the period / average (Number of employees at the end of the reporting period + Staff employed for one year or more)

69 Case Study: Contactar, Colombia UPDATED POST JORDAN Founded in 1991, Contactar supports the development of micro enterprises. Since 1995 it has operated as a microfinance institution, focusing in the rural areas of southwest Colombia. It currently serves 47,000 clients. Contactar s mission is to provide high-quality sociallyand environmentally-conscious inclusive microfinance services to rural populations in order to help them improve their quality of life. The institution s products and services include: loans, financial services, and training geared toward developing businesses and improving the quality of life of its clients and their communities. Contactar is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of treating employees responsibly, designing products and services that meet clients needs and preferences, and balancing social and financial performance. (For details on designing products and services that meet clients needs and preferences, and balancing social and financial performance please refer to standards 4 and 6 respectively ). The following are some specific examples on Contactar s responsible treatment of employees. Given that Contactar works in remote areas that are expensive and difficult to access, high employee productivity is key to the accomplishment of Contactar s social and financial goals. Contactar has found that treating employees in a fair, re sponsible way is critical to achieving the high employee productivity it needs. To this end, Contactar has the following HR practices in place: Recruiting local staff: Contactar hires loan officers that live in the same areas where its target clients are. This brings jobs to the area and enables employees to know their clients, their economic activities, and the local dynamics, which allows them to provide better follow-up and monitoring. Local recruiting keeps transportation costs and times to a minimum. Matching job assignments with skills: Contactar assigns employees to jobs depending on their skills, abilities, and interests, as well as on the main local economic activities. This helps employees maximize their performance and better understand clients, who are largely below the poverty line. Ongoing training: Contactar provides employees with ongoing training on processes, new developments, and products, including refresher trainings on Contactar s mission, vision, polices, and financial and social strategies. To be cost efficient, Contactar prioritizes activities that target large groups of people, can be scalable or replicated, and have high impact.

70 Assessing employee satisfaction: Contactar promotes work-life balance and uses annual work climate assessments to measure the wellbeing of its staff. Currently, Contactar s employee turnover rate is 10%, which is significantly lower than that of similar organizations. Case Study: Fondo de Desarrollo Local (FDL), Nicaragua Fondo de Desarollo Local (FDL or Local Development Fund) is a nonprofit MFI created in 1997 by the Universidad Centroamericana of Nicaragua. Its mission is to render financial services to small and medium, rural and urban entrepreneurs (mainly women), allowing them to enhance both their living standards and access to capital. It offers loans and insurance for individuals as well as for groups. For FDL, managing its social performance and ensuring good outcomes for clients means investing in its employees because FDL knows that skilled, content employees translate into high quality of client service. The organization also places a strong emphasis on gender equality. FDL s commitment to staff development is clear from the moment a person is recruited. Some of the people development tools and practices used by FDL include: New employee induction and training: New employees are introduced to the organization s mission, history, values, polices, as well as to expectations regarding their role. Once employees start their jobs, they also receive on-the-job training. Investment in staff development: For the last 10 years, FDL has provided internal training as well as sponsorship to postgraduate programs. These programs have allowed many male and female employees rise to managerial position s within their branches. Gender code of conduct: FDL places a strong emphasis in gender equality, has developed rules of conduct to protect women, and reprimands those who do not obey the rules. Incentives aligned to social goals: FDL holds staff accountable to achieving its social objectives. For example, employees are evaluated on outreach to women in rural areas. Maternity and breastfeeding-friendly polices: FDL provides a welcoming environment for women and new mothers by offering maternity leave and breastfeeding policies that are much more generous than the national standards.

71 Assessments of the workplace environment: Each of FDL s 36 branches conducts workplace environment assessments in order to promote a positive and healthy work climate. Personal development workshops: FDL provides workshops that address certain personal issues (e.g., addictions, serious family illnesses, etc.) that otherwise tend to interfere with employee s development and conduct. These practices have enabled FDL to maintain a content workforce, which is reflected in the organizations relatively low staff turnover. Case Study: Finca Peru, Peru UPDATED POST JORDAN Founded in 1993, FINCA Peru s mission is to create comprehensive and innovative solutions to facilitate social inclusion, as well as the empowerment of women and low-income communities. The organization focuses its efforts on the three poorest areas of the country. Within these, since 2009, it has also extended its focus from women in urban areas to those in remote rural areas. The organization operates through communal banks. The three fundamental pillars of FINCA Peru are training, credit, and promotion of savings. FINCA Peru uses several strategies and tools to ensure its social performance and focuses on the satisfaction of both internal and external clients. FINCA Peru is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of treating employees responsibly and designing products and services that meet clients needs and preferences. (For details regarding designing products and services that meet clients needs and preferences please refer to Standard 4). FINCA Peru has policies and procedures in place that protect the rights of its employees and promote a good, positive working environment. Workday: The organization tries to make sure employees do not work more than 8 hours a day. Equal employment opportunity between men and women: FINCA Peru employs affirmative action in the recruiting, hiring, and training of staff and prioritizes the hiring of women. Maternity leave: New moms have a three-month leave, and once back at work, their workday is reduced by one hour for a full year to allow them to take nursing breaks.

72 Continuous training: Employees receive training not only for job-related aspects, but also regarding personal development such as how to deal with personal and family issues, stress management, etc. Every week, work teams get together to celebrate achievements, identify opportunities for improvements, and suggest new ideas. Recently, FINCA Peru started offering coaching sessions with external consultants. These sessions have been very well received and proved to also be a good channel to speak up about new ideas, frustrations, etc. Continued education: Employees are encouraged to continue their formal education. FINCA Peru enables them to have flexible work hours so they can attend school and sponsors up to 50% of tuition. Interest-free loans: Employees have access to interest-free loans to use toward housing, education, and health needs and very low interest rate loans to use toward family businesses. Office staff participates in a communal bank through which they can save and have quick access to loans. Safety risks: To ensure that all employees, particularly those working in rural areas, feel safe, FINCA Peru has very strict safety regulations. For example, all transport vehicles are in good condition and rural employees have health and accident insurance. Open door culture: The Executive Director instituted an open door culture that encourages people to come and talk to her anytime. Family friendly environment: Employees families are invited to participate in outings, sports, and special celebrations. Also, employees have permission to leave work to attend important school events and family celebrations, and care for sick family members. While the organization does have a written Human Resources manual, it is aware that many of the employee benefits mentioned above are still communicated in an informal way and is working on formalizing them all into the written manual.

73 Standard Category 6 Balance Financial and Social Performance Standard 6a Growth rates are sustainable and appropriate for market conditions, allowing for high service quality. Essential Practices 6a.1 The institution sets sustainable target growth rates for all branches/regions and for all products, considering both internal factors (e.g., staffing, information systems, financing) and external factors (e.g., competition, market saturation, client overindebtedness). 6a.2 The institution manages the risks associated with growth by: 1) assessing market conditions to ensure that neither long-term sustainability nor client well-being are jeopardized by pursuit of short-term growth, and 2) verifying compliance with growth related policies across all departments and branches. 6a.3 The institution examines quarterly growth rates for all branches/regions, not just the overall annual rates (which may not capture high growth followed by contraction) and has a monitoring system in place to identify unexpected and unsanctioned growth. 6a.4 The institution monitors whether its internal capacity (e.g., management information system, risk management procedures, employee training) is keeping pace with institutional growth in number of clients and amount of loans and deposits, and enhances that capacity as needed.

74 Standard 6b The institution s financing structure is appropriate to a double bottom line institution in its mix of sources, terms, and desired returns. Essential Practices 6b.1 The institution and its investors align upfront their desired level of returns and how those returns will be allocated (e.g., using profits to create benefits for clients, to distribute to shareholders), in a manner consistent with the institution s social goals. These expectations inform all of the institution s specific decisions about returns (e.g., how much of the current year s profit will be allocated to dividends, lower interest rates for clients, product improvements, bonuses to employees). 6b.2 The Board establishes desired ranges for risk-adjusted return on assets (ROA), risk adjusted return on equity (ROE) and other relevant profitability ratios, and has a rationale for how these target ranges balance financial and social goals. 6b.3 The institution works with investors whose expected time horizons and exit strategies are aligned with the institution s social goals and stage of development. 6b.4 The institution considers its total cost of capital when deciding on a financing structure in order to understand what cost would be passed on to the client. 6b.5 The institution has a transparent financing structure including disclosing and incorporating any off-balance sheet sources of funding into reported leverage ratios. 6b.6 The institution s funding model protects client savings and cash collateral. 6b.7 The institution has a system in place to manage financial risk (e.g., a formal asset/liability management committee at the Board or senior management level). 8 6b.8 The financial institution invests a portion of its profits to increase value to customers, such as lowering interest rates or adding or improving products and services. (Client Protection Principle 4) 8 If maturity of liabilities is not well matched to maturity of assets, the institution may be forced to find other ways to generate sufficient cash to meet its obligations that would negatively affect clients (e.g., redesigning loan products to be larger and shorter in term, liquidating whole segments of the portfolio).

75 Standard 6c Pursuit of profits does not undermine the long-term sustainability of the institution or client well being. Essential Practices Prices of products and services (e.g., effective interest rates on loans, fees for remittances, insurance premiums) are responsible, meaning that they: 6c.1 Offer value to the client for the price. 6c.2 Do not pass on cost of inefficiency to the client. 6c.3 Allow the institution to earn a rate of return to support operations and grow, that does not deviate significantly from the peer group 9. (Client Protection Principle 4) 6c.4 Are market oriented and competitive within the country context, and are not subsidized. Any product contributing >25% of portfolio is evaluated on these criteria (both APR & EIR must be considered). (Client Protection Principle 4) 6c.5 The Board monitors whether the institution s pricing levels are consistent with the institution s policies on returns (see 6b). 6c.6 The institution establishes a loanofficer-to-client ratio that promotes high service quality for clients. 5 Peer groups are defined as financial institutions of similar size, with similar delivery models and channels, targeting the same types of clients, in the same country. At least five institutions are needed to comprise a peer group. In case of no in-country peer group, the regional peer group should be used.

76 Standard 6d The institution offers compensation to senior managers that is appropriate to a double bottom line institution. Essential Practices 6d.1 The institution transparently discloses compensation (defined as salary, benefits, bonuses, stock options, and cash value of perquisites) to regulators, donors, and investors upon request. 6d.2 The institution calculates the difference between the average compensation of its top level executives (e.g., CEO, CFO) and its field employees, and evaluates whether this spread is consistent with the institution s mission, social goals, and commitment to treat employees responsibly.

77 Case Study: Alexandria Business Association (ABA), Egypt ABA s microfinance operation aims to develop and promote existing small and micro enterprises (SME), to raise funds and income of SMEs, to help transform SMEs from the informal to the formal sector, supporting households, extremely poor and youth to start or expand their business and ultimately contribute to solving chronic unemployment problems in Egypt. Its services include group and individual loans, life insurance, financial literacy training, and leadership training for women. ABA s history of balancing social and financial performance has sustained it through Egypt s government collapse last year. When the crisis erupted, ABA s main priority was to visit all clients, despite the security risks, to determine their situation and to help them. Instead of its usual monthly Takaful committee meetings, it held weekly meetings. The CEO personally travelled to 50% of the branches to talk with clients about their individual needs and to get their commitments to ABA as well. All members of senior management were expected to come into the office throughout the crisis period, in order to set a good example for staff (although female staff was given the option of staying home, if they were concerned for their safety). In addition, management took the decision to maintain and increase staff salaries and bonuses to ensure that they focused on protecting and supporting clients. ABA s commitment to clients was also demonstrated when it continued to do business while the national communications and banking infrastructure collapsed in January and February of 2011. Lacking a means to access new capital and transfer it between branches, ABA opened its branches to clients on a cash-only basis on February 5. By February 6 it was issuing new loans. Management decided to only extend new loans to committed clients, as demonstrated by continued repayments. In order to direct support where it was most needed, ABA asked clients who were less vulnerable to keep repaying their loans, so that the cash could be used for someone who was worse off. ABA found that clients, who had come into the branches to inform ABA that they wouldn t repay their loan, often saw how other clients were committed to pay, and changed their mind as a result. In this way, over 90% of clients committed to pay during February 2012 a figure which improved gradually over time. In addition, a bail-out fund which was created to support vulnerable clients. For example, if a client experienced a death in the family, the full loan (not just outstanding balance), would be disbursed from the fund, so the client would have the means to get back on their feet. Drawing on an extra fund of 1.2 million, staff assessed each case according to the individual client s situation. Some were given 3-4 interest-free installments from the bail-out fund, to help them overcome their

78 situation. After finishing the original loan, they would then pay back the bail -out fund. Other loans were forgiven and clients were even granted further financial support. In 2010, ABA s MFI profits were 30 million. In a best case scenario in the crisis, it expected its profit to drop to 10 million. Instead, ABA had 25 million in profit, while increasing staff by 35% and sustaining a 10 million financial loss in portfolio. The loss this year was only 3.5% Case Study: AMK, Cambodia UPDATED POST JORDAN AMK s mission is to help large numbers of poor people improve their livelihood options through the delivery of appropriate and viable microfinance services. These services include multiple loans, savings, and money transfer products. With a client base of over 300,000, AMK serves customers at the lowest end of the economic pyramid in Cambodia. AMK is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of balancing social and financial performance and designing products and services that meet clients needs and preferences. (For details on designing products and services that meet clients needs and preferences please refer to standard 4). AMK s shareholders are committed to maximizing social impact whilst delivering a fair and reasonable return to investors. In the current Cambodian context, AMK believes this to mean 15-20% Return on Equity (ROE). AMK has explicitly incorporated this into management incentive plans. The current 2012 senior management incentive plan pays increasing incentive amounts as ROE increases to approximately 20%. However there is no incremental incentive to exceed 20%. In addition, a negative incentive is in place for deserting the low end of the market. AMK considers loans over $300 to be large loans. The CEO and senior management team receives the maximum bonus by ensuring that management focus primarily on the small loan market. If management loses focus on the small loan segment and increases the percentage of large loans to over 8% of total portfolio (in 2012), their bonus diminishes. While additional criteria are included in the management incentive plan, the key messages from the AMK Board are commitment to the lowest end of the market, client driven innovation in this market and fair but not excessive returns.

79 Case Study: Contactar, Colombia UPDATED POST JORDAN Founded in 1991, Contactar supports the development of micro enterprises. Since 1995 it has operated as a microfinance institution, focusing in the rural areas of southwest Colombia. It currently serves 47,000 clients. Contactar s mission is to provide high-quality sociallyand environmentally-conscious inclusive microfinance services to rural populations in order to help them improve their quality of life. The institution s products and services include: loans, financial services, and training geared toward developing businesses and improving the quality of life of its clients and their communities. Contactar is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of balancing social and financial performance, designing products and services that meet clients needs and preferences, and treating employees responsibly. (For details on designing products and services that meet clients needs and preferences, and treating employees responsible please refer to standards 4 and 5 respectively ). The following are some specific examples on how Contactar is balancing social and financial performance. The institution, together with the Board of Directors, agrees upfront on how returns will be allocated (both in terms of percentage split and activities) so that internal and external clients benefit. Internal clients: Contactar is aware that a high percentage of its personnel comes from lower socio-economic circles. Therefore, last year the Board of Directors decided to distribute $200,000 of profits among employees. External clients: Contactar has a dedicated Social Performance Management department that develops activities for Contactar s clients and their communities, and executes these activities through strategic partnerships with external organizations. Last year, 6% of profits (after the above mentioned distributions to employees) were allocated to co-finance social performance activities in three categories: o Financing productive and environmental projects to help sustainable development. For example, projects in to food safety, urban agriculture, and use of biodigesters. o Consulting, assistance, training, and education. Examples include financial education (e.g., promotion of savings, creation of family budget, debt management), assistance in the creation of self-managed funds (for which Contactar receives no profit but has two dedicated staff members working on training and monitoring), and promotion of organic agriculture.

80 o Workshops that promote health and self-care. Activities include dental hygiene education for school children and financial education for their parents, teaching healthy habits, and self care for young adults. Once activities end, Contactar conducts an informal assessment. Most people have responded that they were not aware that many health issues and family conflicts could be prevented with good habits. The value that Contactar creates for its clients and their communities through these social performance activities results in high client loyalty to the organization. Case Study: VisionFund Cambodia, Cambodia UPDATED POST JORDAN Initially operating in the 1990s as a micro-credit program of World Vision, VisionFund Cambodia transformed in 2003 into a commercial entity. In 2011, VisionFund was granted a savings license from the National Bank of Cambodia. Consistent with their roots with World Vision, VisionFund s ultimate aim is on child well-being. As part of this, its mission is to provide financial services to help the poor liberate themselves from poverty. It targets primarily poor rural women with a range of loans (for agriculture, small business, asset creation, emergencies, education, and purchase of water sani tation and solar products), voluntary savings and micro-insurance. It also offers complementary financial education, basic health education, and promotes client awareness around social issues like human trafficking and domestic violence. In recent years, VisionFund Cambodia has increased its focus on balancing social and financial returns, particularly through keeping profit within acceptable levels. Its policy is to maintain interest rates in line with market rates, at a level equal to or lower than their direct competitors. Its business plan approved by the Board and management includes decisions around return on assets (ROA). VisionFund Cambodia considers 3 per cent (+/-1 per cent) to be an acceptable return and by keeping this indicator in sight, it has established a conversation around whether it is spending adequately on social performance efforts, and making decisions accordingly. For example, it sees the need to manage indirect trade-offs in terms of staff productivity. As loan officers are expected to administer not only the PPI but also financial education to clients, it recognizes that to do this with quality, staff -client ratios will necessarily be capped at a reasonable level. Currently, loan officers handle a

81 portfolio of around 350 clients and their incentive system is also tied to social performance indicators apart from financial performance. VisionFund Cambodia has also established a safety net within its microinsurance program, whereby if a client dies, then the loan is written off from the provision allocated for the product. In numerical terms, this equates to an expense of around 0.20% - 0.25% p.a. on the loan portfolio, as this is given as a free benefit to the client. Case Study: Ahon Sa Hirap Inc. (ASHI), Philippines ASHI is dedicated to building a sustainable microfinance Grameen Institution in the Philippines, by creating an environment that enhances empowerment of women and their families and sharing expertise among MFIs and anti-poverty-focused institutions. It integrates value formation while living out the ASHI core values of discipline, patience, industry, courage and unity. ASHI s financial services include a range of loans (agriculture, education, small business, and housing), savings (voluntary and compulsory), and microinsurance. Its non-financial services include financial education, leadership training, health services, women s rights training and legal services. ASHI is already implementing some of the essential practices included in the Universal Standards for Social Performance Management, notably in the areas of balancing financial and social performance and designing products and services that meet clients needs. (For details designing products and services that meet clients needs please refer to Standard 4). Following several calamities in 2009, ASHI determined to invigorate its commitment to social performance management. While looking out for its clients is in the DNA of ASHI, management observed that many of its clients lives were not really changing. After nearly losing 4,000 clients following three typhoons that year, it decided to change its mindset. ASHI invited Microsave to perform market research on its organization and to study costing and pricing for its loan programs. It analyzed elements such as interest rates, costing, and loan disbursements. ASHI s interest rates were considered high by clients and the industry, partially because it was charging a flat rate. However, ASHI s evaluations concluded that its overall costs were not high because it provides many social development programs, environmental training, and other nonfinancial services for no extra fees. These additional benefits are calculated in the overall costing and pricing.

82 Management made a deliberate decision to have smaller returns on assets in order to deliver these services to the clients and remained determined to be competitive. Additionally, ASHI gave generous compensation packages and appreciation bonuses to staff that provided significant help during the typhoons. ASHI strongly believes that financial returns should be reinvested in its clients and staff.

83 ANNEX 1: Additional Good Practices This section lists additional good practices for many, but not all, of the standards. These are practices that are generally recommended but are not essential to strong social performance management, and may not be applicable to institutions in all contexts. Standard Category 1: Define and Monitor Social Goals Standard 1a: The institution has a strategy to achieve its social goals. Additional Good Practices 1a.7 The institution s mission statement defines the institution s social goals (what), target clients (who), products and services (how), and expected benefits for target clients (why). 1a.8 The institution reviews its strategy (including the mission) at least once every three years. 1a.9 The institution reviews its social targets at least once every year. 1a.10 The institution designs the strategy to achieve its social goals with input from employees at different levels of the organization. 1a.11 The strategy is defined in at least one of the following documents: the institution s strategic/business plan, the institutional charter, and/or the institution s shareholder/investment agreement(s). Standard 1b: The institution collects, reports, and ensures the accuracy of client-level data that are relevant to the institution s social goals. Additional Good Practices 1b.7 The institution s internal system for managing data has the capacity to analyze financial and social data together. 1b.8 The institution s internal system for managing information (e.g., MIS) allows the institution to track the performance of clients over time. 1b.9 The institution ensures the accuracy of client data using one or more of the following methods:

84 a) Visiting a random sample of clients to confirm that interviews happened; b) Observing the data collector in action and providing feedback on his/her performance; c) Verifying a random sample of data entered by the data entry personnel to confirm accuracy. Standard Category 2: Ensure Board, Management, and Employee Commitment to Social Goals Standard 2a: Members of the Board of Directors are committed to the institution s social mission. Additional Good Practices 2a.3 One or more of the Board members has expertise in some aspect of social performance (e.g., experience as a microfinance practitioner, product design experience, market research experience, human resources experience, etc.). 2a.4 Board members have a mechanism for direct contact with clients (e.g., field visits, Board meetings with client representatives). Standard 2b: Members of the Board of Directors hold the institution accountable to its social mission and social goals. Additional Good Practices 2b.6 The Board is formally organized (e.g., a social performance sub-committee, a social performance champion, mainstreaming SPM into the audit process) to review the social performance data detailed in Essential Practice 2b.1. 2b.7 The Board is evaluated on its effectiveness (internal or external review) and these evaluations include social performance criteria (e.g., how often social performance is discussed at meetings, profit allocation decisions that reflect social goals). 2b.8 The Board reviews any social audit, rating, or other assessment (e.g., client protection certification) of the institution.

85 Standard 2c: Senior management sets, and oversees implementation of the institution s strategy for achieving its social goals. Additional Good Practices 2c.6 Senior managers analyze client outcomes and client exit for different client groups (segmentation analysis). 2c.7 The institution undergoes an internal or external social audit to identify strengths and weaknesses and to prioritize areas for improvement. 2c.8 The institution undergoes a social rating to increase social performance transparency. Standard Category 4: Design Products, Services, Delivery Models and Channels That Meet Clients Needs and Preferences Standard 4a: The institution understands the needs and preferences of different types of clients. Additional Good Practices 4a.4 The institution asks field employees for their insights on the needs and preferences of clients. 4a.5 The institution understands client demand for services and products not currently offered. 4a.6 The institution understands the ways in which its methodology affects inclusion or exclusion of certain populations from its client group. Standard Category 5: Treat Employees Responsibly Standard 5a: The institution follows a written Human Resources policy that protects employees and creates a supportive workplace. Additional Good Practices 5a.5 The institution bases employment decisions on the principle of equal opportunity and fair treatment regardless of sex, ethnic background, race, age, disability, descent including caste, religion, sexual orientation, or HIV/AIDS status.

86 5a.6 The institution avoids using work provided on a casual, temp orary and/or unpaid basis unless its nature is truly short term. 5a.7 The institution takes documented action to hire and promote qualified women and achieve representation of women in leadership positions (e.g., encouraging internal and external job applications from women, setting goals for women s employment, and mentoring women employees). 5a.8 The institution provides reasonable accommodation (e.g., wheelchair ramps, printing documents in large font) for employees with disabilities. Standard 5b: The institution communicates to all employees the terms of their employment and provides training for essential job functions. Additional Good Practices 5b.5 An employee s performance objectives are established through consultation with and agreement from the employee. 5b.6 The institution has an employee development system in place to attract and maintain a qualified and motivated workforce, including skills development, training and learning opportunities for career enhancement (e.g., special projects, rotatio ns, and stretch assignments). These opportunities are provided to all employees on an equal, non-discriminatory basis. Standard 5c: The institution monitors employee satisfaction and turnover. Additional Good Practices 5c.4 The institution monitors the rate of employee turnover by employee level (e.g., field staff, executive staff) and gender. Standard Category 6: Balance Financial and Social Performance Standard 6a: Growth rates are sustainable and appropriate for market conditions, allowing for high service quality. Additional Good Practices 6a.5 The institution examines whether its growth is created by moving to new clients and markets ( extensive growth ) or among existing clients and within current markets ( intensive growth ).

87 6a.6 The institution reports to MIX and/or a microfinance association on its portfolio (clients, loans, savings) and portfolio quality (including PAR) for each geographic area/administrative unit in the country, so that data can be computed against population numbers for that area. 6a.7 The institution reports information to a credit information sharing system (e.g., credit bureau, microfinance association) where available. Standard 6b: The institution s financing structure is appropriate to a double-bottom line institution in is mix of sources, terms, and desired returns. Additional Good Practices 6b.9 Any un-hedged foreign currency exposure represents no more than one third of equity, and is in line with local regulations. Standard 6c: Pursuit of profits does not undermine the longterm sustainability of the institution or client well-being. Additional Good Practices 6c.7 In countries where MFTransparency analysis is available, the institution evaluates its effective interest rate on each credit product relative to average loan size, and understands the reasons for any deviation (e.g., delivery channels and the range of services and non-financial services provided) from the pricing/loan size curve 11 for the country. 11 See www.mftransparency.org for pricing/loan size curve which shows the relationship between size of loan and interest rate by country. Standard 6d: The institution offers compensation to senior managers that is appropriate to a double bottom line institution. Additional Good Practices 6d.3 The institution observes disclosure guidelines specified in emerging international standards (e.g., IAS 24). 6d.4 The institution includes all employees, not just senior managers, in benefits (profit sharing, education loans, health insurance, etc.).

88 ANNEX 2: CEO Roundtable Summary Notes This section includes the summary notes from the CEO Roundtable meeting held in Jordan on June 5, 2012. These notes reflect the dynamic and candid discussion that took place around challenges faced by MFIs as they implement SPM practices and the unique strategies being used to address those challenges. In order to maintain the confidentiality of the discussions, these summary notes maintain a generic tone hence not attributing any comments to any person in particular. Following the notes is the list of attendees to the meeting including CEO and Non-CEO participants. Facilitators: Masami Hayashi, MicroFinance Network and Sharon D Onofrio, SEEP Network Attendees: See full participant in pages 98-100. Introduction The day began with opening remarks from Leah Wardle, Deputy Director of the SPTF and Sharon D Onofrio, Executive Director of The SEEP Network and Steering Committee member of the SPTF. The idea for the CEO Roundtable came directly from members who requested a safe place where CEOs could gather together to speak freely about the real challenges they face in their respective institutions. The Roundtable agenda was shaped by the input of the participating CEOs and was designed to provide a balance of structure and flexibility. As a result each session began with a kick-off presentation from a peer CEO followed by an open discussion with the entire group. In the spirit of beginning to shift focus to the implementation of the Standards, the SPTF distributed a draft version of a Briefing Book to accompany the day s session. The book will eventually hold 50+ case studies featuring MFIs who are implementing well one or more of the practices listed in the Standards; this will serve as an excellent resource for the industry. The CEO Roundtable Summary Notes will be added to the Book as well. Session 1, Enhancing Institutional Commitment to Social Performance How does the CEO ensure that board members, employees and investors understand and act in accordance with the mission of the organization? How do you hold these stakeholders accountable to the mission? As the CEO, how can you communicate effectively with these stakeholders?

89 The kick-off speakers for this session reflected on some of their experiences building an institutional commitment to social performance and the benefits they have seen along the way. The speakers highlighted the following: How they are building a strong social performance culture o Started with deepening their understanding of whether they were reaching their target market. Both presenters mentioned using a tool or survey to understand poverty levels and market segments they were serving to determine whether they were really reaching their target market. In both cases that data served as a wake-up call: in one case, the MFI learned they were not reaching their target market, and in the other case data suggested they should re-consider who their target market is. o Communicating data and results to staff and board. One speaker noted the importance of sharing compelling data with staff and board members so they too can understand where the MFI is falling short of its mission and where the opportunities lie. In one case a two-day workshop with management was organized to really get into the data and its implications for strategy and operations. o Establishing clear mechanisms to gather client and staff feedback and monitor client progress. In one case the MFI uses a free hotline to hear the client and staff voice. In another case, they hired staff dedicated to social performance monitoring, data collection, and reporting. Benefits of building a strong SP culture o Deepens MFI s understanding of where opportunities lie (by looking at data regularly). One presenter noted that we should not be scared of failure or trying new things it s through making mistakes that great ideas can be realized. o Positions the institution to take advantage of emerging opportunities to serve existing and new markets and reinforce the mission. o Enables the institution to adapt quickly to client and staff needs during and following crises (i.e. revolution, natural disaster, etc.). Following these kick-off reflections rich discussion ensued, which focused largely on the importance of communications and messaging, as well as the merits and drawbacks of social performance measurement in supporting institutional alignment with the social mission. The communications and messaging discussion focused largely on what a CEO communicates with stakeholders and how, in order to ensure a strong social performance culture and

90 commitment throughout the organization. While one CEO mentioned he spends 25%-30% of his time managing social issues, others estimated closer to 75%-90% of their time is spent communicating the right messages to all stakeholders. One participant noted that 100% of the CEO s time should be spent in creating the right institutional culture. The discussion highlighted the following key strategies around messaging and communications: It was noted that tailoring the message to your audience is essential because how data and information are presented to staff might be different from board members. The CEO needs to help different audiences digest the information. Communicating the right message is essential for staff buy-in. One CEO gave an example of how they rebranded social performance as operational excellence so that it is seen as an integral part of the staff s work and not as an added responsibility. Several felt that staff orientation is not enough to make sure the culture and mission are consistent across all levels. CEOs should continue to follow up with staff through field visits, meetings, and staff mentoring to reinforce the mission and values. One CEO mentioned that during his field visits he never asks branch staff about numbers; the focus is always on client well-being and satisfaction, because if you only ask about numbers it communicates that only numbers matter. This approach has had a substantial impact on his organization s culture. It was noted that what a CEO asks and even in what order can have a profound impact on what staff perceive to be important. One CEO shared how a staff satisfaction survey revealed that staff alignment was strongest at the field level and became weaker as they moved up the management chain. As a result, they started a program that requires management and board to participate in field visits regularly. Key takeaway? You have to be close to the customer and naturally your mission and everything else will fall into place. By interacting with the customer and front-line staff you learn more about your mission than any presentation or PowerPoint could ever do. Numerous participants underscored the importance of having social data to inform conversations with staff and the board about mission achievement. The room largely agreed that messaging needs to consistently remind stakeholders of the organization s values ( clients are at the heart of everything we do ) and how achievement of social goals and financial goals are linked. One participant mentioned how he emphasizes with his board, We want to give our clients the tools they need to walk out of poverty good treatment of clients will translate into superior financial performance.

91 The room agreed that messaging is an ongoing effort: none of us is going to be where we want to be financially and socially overnight. A few challenges associated with communications and messaging were also discussed: One of the main challenges discussed with regard to communication was how to convey a balanced message around financial and social priorities. One participant admitted that when his organization first started he really struggled with balancing the financial and social message. It was not until they were financially self-sustaining that he felt freer to focus on the social. Other participants identified with his struggle and the room posited that perhaps there is a period of maturation where the focus on financial might be stronger. One participant stressed: You ll never have a strong social impact if you re not settled financially. However, all seemed to agree that the focus on understanding clients and listening to them should always be instilled from the beginning...it is central to the business and achieving the mission. Another challenge discussed was the achievement of staff buy-in and keeping staff aligned as the institution grows. In many cases staff are not much better off than clients, so treating them well and helping them understanding their role in carrying out the social mission is of the utmost importance. Ensuring the message is consistent and repeated down to the branch/front-line staff level is a challenge. One participant mentioned how as his MFI grows (>1000 employees now) they are finding it increasingly difficult to maintain and communicate the social mission and values and would like concrete examples of how other MFIs are dealing with this. While participants acknowledged that understanding client needs and characteristics are essential and important for communications, messaging, and decision-making, the second major topic of discussion centered on the merits and drawbacks of social performance measurement and the tools used to collect related data and information: There were varied opinions about the value of social performance measurement, specifically when taking into consideration the time and costs associated with using certain tools. Some participants expressed concerns about how burdensome measurement can be on an institution. One CEO commented let them come measure, but we just don t have time. The participant s position was that at some point we have to stop measuring and do our work and, in her experience, the tools that are used to fulfill reporting requirements are becoming too burdensome.

92 One participant countered this viewpoint to say we have to start prioritizing measurement. Microfinance can be a benchmark industry for impact investment, and we need social indicators to balance out the financial ones. Another participant stressed that we make a lot of assumptions about the impact of our work, and we must start using data-driven analysis to show us where our assumptions are wrong. Several participants made the point to distinguish between internally driven versus externally driven data collection. Too much externally driven data is burdensome. Everyone seemed to agree that data collection and tool use should be driven by internal information needs. Several participants mentioned that some of the international standard tools do not measure what is most important to them. One CEO questioned how they can measure women s empowerment, which is a central part of their mission. Another CEO shared that while donors want them to use an absolute poverty measurement tool what really matters to them is relative poverty. Towards the end of the session there were several comments made with regard to investor and board composition and how this influences the culture of the organization. One participant stressed that the greatest challenge to ensuring institutional alignment is the investors understanding of the mission. Participants also stressed that the board needs to have individuals with diverse backgrounds who are aligned with the institution s values something that is increasingly difficult in this world of commercialization. Session 2, The Role and Influence of the Board of Directors How does your Board of Directors monitor the institution s social performance and take action in accordance with the mission of the organization? As the CEO, how do you ensure that all board members are on the same page? Topics discussed in Session 1 provided a nice segue into Session 2, which was kicked off by one peer CEO. He shared an example of how his MFI has developed a social performance framework, which takes the organization s mission and breaks it down into components for which they can then set specific objectives and define measurable indicators. He stressed the only way this has worked is because the data needs are internally driven (focused on understanding the client, the market, and progress toward the mission), and the framework, criteria, and indicators were developed in consultation with all stakeholders. He sees social performance data collection and measurement as essential to knowing his target market and delivering for those customers; but he packages this as customer intimacy.

93 This MFI has institutionalized a conversation around social performance so that it is rooted in the social performance framework and progress toward the mission. The board is deeply implicated through a board social performance committee that reviews and passes judgment on the data. Through looking at data regularly the board and management have been able to better understand trends and opportunities. Social performance data encourages a nuanced conversation that is colored by context. The kick-off presentation sparked a lively discussion about other MFI s strategies and struggles with regard to ensuring board engagement to social performance. The room spent some time, once again, discussing the merits of measurement as it helps to inform the conversation with the board: Participants stressed again that measuring social performance MUST be internally driven. Some investor or rater in DC or elsewhere doesn t understand our client base or context. However, several noted that there is a role for international standards: We re in a world where people are asking whether we are really creating value for society if we can t explain our value-added in a coherent way to the world that can cause a problem. Several participants expressed their agreement with the idea that SPM enhances client intimacy, which is good for the organization; if MFIs provide products that clients like, it enhances the relationship with clients as well as the institution s profitability. Several participants agreed that CEOs have to force the conversation on SPM to get the board to enforce it; the conversation does not tend to happen naturally because we fall back on more familiar financial indicators. This once again circled the conversation back around to the merits of social measurements and performance data. The conversation then shifted over to board composition. It was brought up that shareholders and investors tend to dominate the discussion in the board room, so making sure these stakeholders are aligned with the institution s mission from the beginning is important. Many other viewpoints were shared about the importance of and challenges associated with board composition: Participants shared perspectives on what the ideal board composition looks like to them. Several participants agreed that they prefer board members with diverse dimensions and viewpoints. One CEO shared that when he served on the board he had a completely different view of what skills a board member should have. Now that he is CEO, what matters most is commitment he needs people to show up! Several participants agreed with this point.

94 Some CEOs mentioned their struggle to maintain the right balance on the board as they underwent transformation. Members with commercial backgrounds can add a lot of value but should not overpower the board with views that may not align with the mission. The board needs to choose the right investors, and the CEO needs to help guide the board on financial and social performance tracking and reporting. It was reiterated again that packaging social performance as client intimacy resonated well with board members regardless of their background (i.e. private, non-profit, etc). Social performance should not be seen as divorced from the business side. One CEO whose MFI focuses largely on health programs shared how she brought external experts on health to the board meetings because she realized there was a knowledge gap on the board. This was an example of how the CEO can play an important role in changing the dynamic by guiding conversation and influencing who is at the meetings. One CEO stressed a strong preference for having a board member with regulatory experience if operating in a country where this is regulation. Another participant shared that she finds it advantageous to have clients on the board with voting power; they add tremendous value especially when debating issues related to client services. It was noted that the CEO cannot always successfully influence the board composition but can try. With regard to ensuring board commitment, several additional strategies were shared Several MFIs established board committees focused on social performance. Some CEOs mentioned that they are required to include social performance data and information as part of their normal reports to the board. One MFI shared how each year they fold social performance objectives into the overall institutional work plan; this mitigates any future conflict throughout the year as there is buy-in from the beginning. Everyone has the same information and understanding of the goals. At one point a question was asked of the CEOs to understand if they perceive their organizations as more management-driven or board-driven. The participant posited that most creative, social organizations are management-driven and fall into the pattern of management pulling the board. How do we get into a more balanced place where management and boards achieve a more balanced tension?: One participant shared that her organization, while management-driven historically, recently started working to restore balance; she shared that this has lifted a huge burden

95 off of her. It s really exciting when you see the board take responsibility for the future of the organization. One CEO shared that while balance should be maintained the organization should ultimately be driven by management. Several participants shared that while originally they were management-driven, as they transformed to a commercial entity they became more board-driven with a commercial culture. Finally, participants gave examples of changes they have realized in their organizations as a result of engaging the board and sharing social performance data with them: One CEO shared that within a year of establishing a social audit committee he is seeing transformational changes within his organization. Specifically, now that the board understands better the value and role of social performance, they are mandating investments to strengthen social performance (i.e. putting a social performance officer in all subsidiaries). One of the biggest manifestations of strengthened social performance is what it does to an MFI s products. Once you have this information in your possession you understand who you are not serving and where the opportunities are. Following the session, one participant shared an outstanding question: Are people compensating their board? If so, how? What is the compensation structure? If you can t compensate financially, what strategies do they use to motivate members and ensure they re engaged and committed? Session 3, Balancing Financial and Social Returns How can you determine adequate ways of use of profits that are in accordance with your corporate values and mission? How do you ensure that investor and MFI expectations of financial returns are explicit, realistic, and in sync with the social mission of the institution? Two speakers kicked off session 3 and highlighted several key points on the challenges of effectively balancing social and financial returns. One presenter stressed that there may never be a perfect balance between social and financial outcomes, but a clear definition of viable financial and social goals is crucial. Another speaker spoke to the question of adequate use of profits and argued that the maturity of the institution (i.e. age, size, etc) largely drives and determines an organization s use of profits. Others provided the counter-argument if you do not embed social performance in the mission and operations of the organization from the beginning, the MFI will always be struggling to achieve its social goals.

96 To gauge a better understanding of the participants viewpoints with regard to the issues within this session, the room was polled with several questions. Through a show of hands, about a quarter of CEOs in the room have created a social account (a foundation, a line item for social services, etc) within their budget and/or organizational structure. Furthermore, about 40-50% of CEOs by show of hands indicated that costs to clients should be decreased once profits reach a certain threshold. Lastly, approximately seven CEOs raised their hands to indicate that the reduction of interest rates is their organization s number one priority. On the use of profits, about 25% of CEOs present at the meeting indicated that their boards have a clearly defined strategy about the use of profits and ROE. In another view, a participant voiced that their organization s budget is more integrated; all components of the budget include some social development element. This MFI views its spending on the social dimension as a part of a normal operating cost; there is no clear need to separate it into a separate line item. Several participants similarly stated that as microfinance practitioners, we must not forget that microfinance is primarily an instrument for human development. From the discussion, the following key challenges were identified regarding the balance between social and financial returns: Because a clear mission is the key to success, many CEOs expressed that one main challenge is to first agree upon and define a vision, mission and goals that attempt to find the appropriate balance between social and financial elements as an organization. The room furthermore expressed that it can be challenging to convince shareholders that the social dimension is a useful investment. It is not just a matter of determining how much of an MFI s profits should be dedicated towards social returns, but what products and services exactly should be offered to clients to realize the desired returns. The microfinance industry needs to continue to distinguish that microfinance activities are distinct from CSR; the social impact is an integral part of our business and not merely a nice thing to do. Finally, many agreed that MFIs need to act on the question of How do we get back to the basics of who we really are and why we are in the business of microfinance? To address some of these challenges, several solutions were identified within the group: Consistent planning, from the birth of the organization through maturity, to ensure that the appropriate balance between social and financial returns can be achieved.

97 For example, one CEO highlighted that their MFI has a consistent, specific line item in their budget where 15-20% of yearly profits are dedicated to non-financial social services. Careful measurement to ensure transparency and align non-financial social services with desired outcomes. Finally, many agreed that MFIs should have some obligation to share lessons learned on the balance of social and financial returns. The room overall seemed to agree that some balance between social and financial returns is what distinguishes MFIs from other organizations. If an MFI is charging too high of an interest rate and seeking too of high profits, then the organization may not truly be considered a microfinance provider and social performance may be severely constrained. Sentiments were expressed that perhaps certain basic social goals should be mandatory of all MFIs. Overall, the group agreed that finding the right balance between social and financial returns will not happen unless an MFI s board and management clearly define financial and social goals and engage in thoughtful analysis and action to find a balance appropriate for the MFI. Session 4, Next Steps for MFIs & the Industry What are the next steps for you, as the CEO? What remaining questions do you need answered? As leaders in the field, what is your responsibility for focusing the industry on social performance? One participant kicked off the final discussion of the day sharing his reflections on the Standards and next steps for MFIs and the industry: He began his remarks with a noteworthy analogy: though participants may be feeling that this session is preaching to the converted, it is important to do so in order to become better evangelists and adhere to certain minimum standards. He also noted that MFIs have the tendency to be very inward-looking, but the sociopolitical context should be examined as well. In addition, even though CEOs may not always agree on acceptable levels of certain financial indicators like ROE, this group is unified by the belief that social services to the poor is critical and continues to drive the work of the MFIs. The presenter also asserted that one common critique of the USSPM is actually a strength. Some argue that the USSPM are vague and do not have a compliance component. However, he challenged this criticism by arguing the standards are not too

98 prescriptive; MFIs have ample room to experiment and determine how to best implement and comply with the standards. He concluded that this group should not be too focused on trying to be absolutely perfect with the standards and consequently disregard something very good and solid in a pursuit of perfection. A noteworthy exchange took place when one participant raised a question about what investors reactions will be to an MFI that implements the USSPM. The participant asked specifically, To what level will investors appreciate the MFIs that are partially or fully compliant? Will there be any incentive for MFIs to be fully compliant? This CEO was primarily concerned about the smaller MFIs that are not typically recipients of investor funds. His question was answered by another participant who stated that there will be a new fund set up for the purpose of socially responsible MFIs that need debt financing. Furthermore, MFIs must be a part of the process and dialogue to ensure that investors are educated about and understand the value of the measurement of social performance. From the lively discussion that followed among the participants about next steps in the industry, and for MFIs specifically, the following key challenges were identified: The implementation of social performance standards is not a central challenge; however, buy-in throughout the institution is the key challenge. Similarly, many MFIs raised concerns about staff training to ensure that the standards are completely embedded throughout the institution and field staff are committed. Some were concerned about the assumption that MFIs will necessarily decrease poverty if social performance is monitored. Many agreed that the USSPM are necessary but not sufficient. Performance-driven data are needed to show that the USSPM are translating into better outcomes. As mentioned above, incentives for compliance, particularly for smaller MFIs may be a challenge going forward. Finally, a concern was brought to the table that some countries and regions need more external oversight before social performance goals can be fully realized. There is not always a watchdog or an independent body to provide additional scrutiny. In addition, thoughts on best practices and potential solutions were shared with the group: Clients are the best quality control for MFIs; improved communication to clients about social performance standards can help improve outcomes.

99 MFIs need to ensure that the same momentum exercised at the international level is carried forward to the national level; MFIs need to play an active role to generate that dialogue at the national level. A commitment to transparency will ensure MFIs adhere to client protection principles, measurement of impact, and the embedding of social performance standards within their institutions. As the CEO Roundtable discussion closed, the call to action was for MFIs to work very quickly over the next twelve months to go as far as possible to embed the USSPM into their organizations. One participant asserted that MFIs need to do so in a consultative way, and maybe even a competitive way. It was pointed out that the CEOs are responsible for the microfinance brand and what it means to be a social performer. Can we take microfinance to the next level? Citing an example of a partnership with Freedom from Hunger, it was suggested that CEOs in the next 90 days try to find an external partner or third party that can help them with a baseline assessment to determine where their institution s current practices stand vis-à-vis those laid out in the Standards. Urgency was expressed about the next 30 days, 90 days, and next 12 months for MFIs to move towards implementation. The stakes are too high to not move swiftly towards something valued by all. The session concluded with the facilitators providing a vision for the future regarding social performance standards for the industry: What if, in the past, the world s MFIs had been certified in consumer protection standards? And we had universal standards for social performance? And were all able to present solid data? Then it seems that past criticism could have been blunted. Therefore in the future, can you imagine an industry with standards that everyone abided by for client protection? For social performance? For the client outcomes we seek to achieve? Perhaps our survival depends on it. List of attendees CEO Participants ABA, Egypt ACCION, USA Al Majmoua, Lebanon AMK, Cambodia Motaz El Tabaa Michael Schlein Youssef Fawaz Pete Power

100 ASHI, Philippines ASKI, Philippines Bai-Tushum, Kyrgyzstan Caurie MF, Senegal Contactar, Colombia Bank Constanta, Georgia DBACD, Egypt DECSI, Ethiopia DEF, Jordan enda inter-arabe, Tunisia ESAF Microfinance (EMFIL), India FDL, Nicaragua FINCA, USA FINCA, Peru FMM Popayán, Colombia Fonkoze, Haiti Fundación Génesis Empresarial, Guatemala Grameen Foundation, USA Horizonti, Macedonia Juhudi Kilimo, Kenya Kamurj, Armenia KGFS/IFMR Rural Finance, India LAPO, Nigeria MEMCC, Jordan MI-BOSPO, Bosnia & Herzegovina Microfinanzas PRISMA, Peru Microfund For Women, Jordan MicroLoan Foundation, Malawi Pride, Tanzania PRIZMA, Bosnia & Herzegovina Pro Mujer, USA RCPB, Burkina Faso Mila Mercado-Bunker Rolando Victoria Gulnara Shamsieva Mamadou Lamine Gueye Gloria Bustos Tamar Lebanidze Hassan Faried Atakilti Kiros Omar Al Omari Essma Bin Hamida Paul K. Thomas Julio Flores Rupert Scofield Iris Lanao Flores Leonor Melo Anne Hastings Carlos Herrera Alex Counts Vase Davaliev Nat Robinson Gagik Vardanyan Anil Kumar SG Godwin Ehigiamusoe Naser Darwish Nejira Nalic Diego Fernandez Concha Muna Sukhtian Peter Ryan Rashid Malima Jure Zigo Rosario Perez Daouda Sawadogo

101 SEEDS, Sri Lanka SogeSol, Haiti Tamweelcom, Jordan TYM, Vietnam Ujjivan, India VisionFund, Cambodia VisionFund International, USA WV Credo, Azerbaijan & Georgia Oxus Development Network Shakila Wijewardena Pierre-Marie Boisson Ziad Al-Refai Duong Thi Ngoc Linh Samit Ghosh Chin Hoe Chee Scott Brown Ljiljana Spasojevic Michael Knaute Non-CEO Participants AMK, Cambodia Bank Constanta, Georgia BRAC, Bangladesh BURO, Bangladesh Center for Financial Inclusion, USA CGAP, USA Citi Microfinance, UK enda inter-arabe, Tunisia FMM Popayán, Colombia Mibanco, Peru PRIDE, Tanzania Borran Kia Nana Chikhivadze Shameran Abed Mosharrof Hossain Beth Rhyne Kate McKee Philip Brown Michael Cracknell María Velasco Carolina Benavides Shimimana Ntuyabaliwe

102 Learning /Resources Online Learning Events The Social Performance Task Force offers regular, free, online learning events that address many different areas of social performance. The majority of the events are open to all Task Force members and anyone else whom they invite. SPTF also hosts some additional events tailored to specific working groups or other specialized teams. Overall, the online learning events not only help to keep Task Force members aware of the latest initiatives, research, tools, and resources from the field, as well as updated on the activities of the SPTF Secretariat, but also provide a channel throug h which members can ask questions and provide their feedback and expertise. If there is a particular topic you would like to see addressed in an online learning event, please email info@sptf.info SPTF Online Training Series on SPM Essentials The following training materials and audio recordings for SPM Essentials are available on our website. Please visit http://sptf.info/sp-task-force/online-learning-events#2 to access the following: SPM Essentials Resource Handbook SPM Essentials Presentations (PowerPoints, "Take the Next 10 Steps" follow-up handouts, and audio recordings are available for each training) Module 1 - Introduction to Social Performance Management Module 2 Translating Your Mission into Targets Module 3 - MIX Presentation of Social Performance Indicators Module 4 Smart Campaign s Client Protection Principles Module 5 - Pricing Transparency Module 6- Social Audit and Social Ratings Module 7 Client Assessment Tools Module 8 - Universal Standards for Social Performance Management Implementing the Universal Standards for Social Performance Management Webinar Series A seven session online series launching in September of 2012 (in English, Spanish version to launch in October) in response to SPTF members request for practical

103 guidance in implementing the practices found in the Standards. Each of the seven online sessions will feature one or more practitioners who are successfully managing their social performance and will include time for discussion with participants. Series schedule: 1. September 2012: Introduction to the SPTF Universal Standards for SPM (two sessions offered) 2. October 2012: Defining and Monitoring Social Goals 3. November 2012: Ensuring Board, Management, and Employee Commitment to Social Goals 4. December 2012: Treating Clients Responsibly 5. January 2013: Designing Products, Services, Delivery Models and Channels That Meet Clients Needs and Preferences 6. February 2013: Treating Employees Responsibly 7. March 2013: Balancing Financial and Social Performance For more information please visit http://sptf.info/sp-task-force/online-learning-events

104 Web Resources Social Performance Management The SPM Network: www.spmnetwork.net SPM Resource Centre: www.spmresourcecentre.net Guides and Trainings Social Performance Task Force - SPM Essentials Online Training: www.sptf.info/sp-taskforce/online-trainings Imp-Act Consortium Publication: Putting the social into performance management: A practice-based guide for microfinance: www.imp-act.org/resources/publications/practice-guide Social Reporting Tools The MIX Market Social Performance Standards Report: www.themix.org/social-performance SPTF Companion Resource Guide to MIX Market's SPS Report: http://sptf.info/resources/mix-sp-indicators Smart Campaign Getting Started Questionnaire: www.smartcampaign.org/tools-aresources/2/41 Client Protection The Smart Campaign: www.smartcampaign.org MicroFinance Transparency: www.mftransparency.org Microfinance Opportunities, Financial Education: http://microfinanceopportunities.org/ Freedom from Hunger, Financial Education: www.freedomfromhunger.org/press/consumerprotection.php Client Assessment Tools Poverty Assessment: Grameen Foundation Progress out of Poverty: www.progressoutofpoverty.org USAID Poverty Assessment Tool: www.povertytools.org Participatory Wealth Ranking: www.microfinancegateway.org/p/site/m/template.rc/1.11.48260/1.26.9234/p/site/m/template.rc/1.11.48260/1.26.10538/ Means Test: www.microfinancegateway.org/p/site/m/template.rc/1.11.48260/1.26.9234/p/site/m/template.rc/1.11.48260/1.26.10539/ Housing Index (Example: CASHPOR, India): http://www.cashpor.in/housingindex1.asp Client feedback/market Research: MicroSave: www.microsave.net/toolkits/2/7 Women s World Banking, Publications, Product Development and Marketing: http://www.swwb.org/expertise/publications

105 SEEP Network, AIMS Tools, Client exit survey, Client satisfaction: www.seepnetwork.org/learning-from-clients--assessment-tools-for-microfinancepractitioners--seep-aims-tools--resources-24.php Social Audit Tools The Quality Audit Tool (QAT): http://www.mfc.org.pl/ The Social Performance Indicators (SPI): http://www.cerise-microfinance.org/ Social Rating Tools M-CRIL: www.m-cril.com MicroFinanza Rating: www.microfinanzarating.com MicroRate: www.microrate.com Planet Rating: www.planetrating.com

106 About the Social Performance Task Force The Social Performance Task Force (SPTF) was established in March 2005 by the Consultative Group to Assist the Poor (CGAP), the Ford Foundation, and the Argidius Foundation. They brought together leaders from various social performance initiatives in the microfinance industry to agree on a common social performance framework and to develop an action plan to move social performance forward. Since that time, the SPTF has emerged as the key dialogue platform for the promotion of social performance in microfinance. The SPTF facilitates information exchange and stakeholder coordination to improve the social performance of the microfinance industry. Currently, the SPTF consists of over 1,300 members from all over the world and every microfinance stakeholder group: practitioners, donors and investors (multilateral, bilateral, and private), global, regional, and national associations, technical assistance providers, rating agencies, academics and researchers, regulators, and others. As organizations involved in the field of microfinance, members of the SPTF: 1. Define social performance as the effective translation of an institution s social goals into practice in line with accepted social goals such as: Serving increasing numbers of poor and excluded people sustainably (e.g., expanding and deepening outreach to poorer people) Improving the quality and appropriateness of financial services available to target clients through systematic assessment of their specific needs Creating benefits for clients of microfinance, their families, and communities relating to social capital and social links, assets, reduction in vulnerability, increase of income, improved access to services, and fulfillment of basic needs Improving the social responsibility of our own organizations and the partners we support. This includes consumer protection and gender equity, as well as responsibility to staff, environment and the community. 2. Recognize that financial performance alone is insufficient to achieve our goal of serving and improving the lives of increasing numbers of poor and excluded people sustainably. Success in microfinance is driven by a double-bottom line, strong financial

107 and social performance, and these equally important aspects are mutually reinforcing in the long run. 3. Commit to improving the social outcomes of microfinance by: o Setting clear and specific social objectives for our own organizations and expectations for the organizations we support. o Designing, introducing and using systems to manage, assess, monitor, and report on social performance inside our own organizations and the organizations we support. o Using information on social performance to improve our own operations. o Verifying our social results with external assessments, audits and ratings where appropriate and available. o Being transparent about our social performance and promoting transparency of the partners we support through regular reporting to the MIX on its indicators of social performance standards (SPS). o Promoting and exchanging ideas, resources, good practices, and other information on social performance. o Implementing the Social Performance Management Principles for MFIs (http://www.sptf.info/images/spm_principles_english.pdf) and the Principles for Investors in Inclusive Finance for Investors (http://www.unpri.org/piif/). The SPTF is governed by a Board of Directors and is managed by a Secretariat. The SPTF has several operational and technical Working Groups and works in close partnership with industry organizations in various disciplines. Vision and Mission Vision: Social performance management is standard business practice and considered fundamental to microfinance providers delivering meaningful benefits to their clients and achieving sustainability.

108 Mission: To engage with microfinance stakeholders to develop, disseminate, and promote standards and good practices for social performance management and reporting. The SPTF will achieve this by: Setting and promoting industry standards for SPM Providing a platform for dialogue, learning and collaboration Facilitating engagement and advocacy across the industry among all stakeholder groups Promoting good practices of MFIs with demonstrated success in social performance management In June of 2012, after an 18-month process, the SPTF launched the Universal Standards for Social Performance Management (USSPM). For more information on the USSPM please refer to pages 1-4 of this document, Introduction to the SPTF Universal Standards for Social Performance Management.

109 Keep Us Updated on Your Experience of Implementing the USSPM While some of the case studies included in this document will be featured in the Implementing the USSPM global webinar series, the SPTF will continue to update this publication to share further examples on how MFIs are implementing the Standards. We encourage you to keep us updated on new ways in which you are implementing the USSPM. For more information, or if you would like to provide further examples on how your organization is implementing the USSPM, please contact the SPTF at leticiaemme@sptf.info.