SANABEL 6 th Annual Conference Beirut - May 2009 PRESENTATION TITLE Micol Guarneri Social Rating Director MicroFinanza Rating.

SANABEL 6th Annual ConferenceBeirut - May 2009

PRESENTATION TITLE

Micol GuarneriSocial Rating Director

MicroFinanza Rating

MicroFinanza RatingPrivate and independent rating agency specializing in microfinance and rural finance, registered in the IADB Rating and Assessment Fund and in the ADA Microfinance Rating and Assessment InitiativeFirst specialized rating agency recognized by a national regulatory authority (Superintendency of Banks and Insurance in Ecuador) and licensed to carry out credit ratingsMore than 380 evaluations in 50 countries (LARGEST MARKET SHARE in 2007*)A large number of investors use our reports (BlueOrchard, DWM, Deutsche Bank, Incofin, KfW, Microinvest, Oikocredit, ResponsAbility, Triodos etc.)MicroFinanza Rating has pioneered the social rating for microfinance institutions, developing an innovative methodology which can include the direct collection of client-level data (32 SR conducted so far).

Our Offices

Managua

Quito

MILAN

Bishkek

Nairobi

Mexico

Social Rating: How did we get there? Increasing focus on financial performance, commercial approach and

transformation Social performance of microfinance assumed and risk of mission drift Increasing flow of resources (public and private) towards the microfinance

sector Media exposure and growing critics Recent financial crisis

Focus on responsiveness to client’s needs Recognize need for consumer protection (CPPs) Various initiatives (SPTF): social performance norms, standards and tools Pressure to better measure and evaluate social performance of

microfinance: development of Social Rating tools

What is a Social Rating?

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It provides an opinion on the capacity of an MFI to put its social mission into practice and to achieve its social goals.

It is based on an in-depth analysis of an MFI social performance management system and social responsibility and an evaluation of its

results (output)

External and independent

Quantitative and qualitative

Objective

Comparable

Stand-alone or coupled with financial rating

Framework for sp measurement

Outreach

Services

I MPACT

Social responsibility – towards clients, community, environment, staff

Social Performance Management

Mission and Objectives Systems Output Intent Process and Input Output

“Put its mission into practice”

Social Rating Impact Study

C H A N GES

Social Rating versus Impact Studies

An impact study measures the change in the living conditions of one population due to the action of an MFI.

Social rating does not measure impact; rather, it analyzes the objectives, systems and results of the MFI, before the impact that these may have on clients.

Social Rating and impact studies are complementary tools, meaning one does not substitute the other, but they respond to different needs.

Social Rating Dimensions

Appropriateness to clients’ needs and attention to clients satisfaction

SR towards the staff

SR towards the community and the environment

SR towards the clients (including attention to women empowerment)SOCIAL RESPONSIBILITY

Non-financial services

Variety of the service

QUALITY OF THE SERVICE

Target reached

Operational areasOUTREACH

Alignment of the operational systems to the mission (HR, Internal control, product design)

MIS and Social performance tracking and monitoring system

Social Mission, Objectives and Strategy, Governance

SOCIAL PERFORMANCE MANAGEMENT SYSTEM

SUB-DIMENSIONSDIMENSIONS

Appropriateness to clients’ needs and attention to clients satisfaction

SR towards the staff

SR towards the community and the environment

SR towards the clients (including attention to women empowerment)SOCIAL RESPONSIBILITY

Non-financial services

Variety of the service

QUALITY OF THE SERVICE

Target reached

Operational areasOUTREACH

Alignment of the operational systems to the mission (HR, Internal control, product design)

MIS and Social performance tracking and monitoring system

Social Mission, Objectives and Strategy, Governance

SOCIAL PERFORMANCE MANAGEMENT SYSTEM

SUB-DIMENSIONSDIMENSIONS

MicroFinanza Rating’s Approach:Two different products

COMPREHENSIVE SOCIAL RATING

Collection of clients level information: submission of a questionnaire focus group discussion with clients

Deeper Analysis: Indicators about clients socio-

economic profile Feedback from clients about

satisfaction/dissatisfaction

STANDARD SOCIAL RATING

Data available at institutional level

Proxies

Differences can be more or less relevant depending on the effectiveness and reliability of the SP monitoring system of the MFI

Why a Comprehensive Social Rating?

….Can answer to several important questions:

• Which is the incidence of poverty among the clients of the MFI?

• Which is the degree of financial exclusion of entering clients? How many did not have previous access to credit?

• How severe are the living conditions and social vulnerability of clients’ households?

• Are clients satisfied about the services offered?• Which are the main strengths and weaknesses in terms of

adequacy of the products to clients’ needs, and why?• Which is the degree of financial awareness among clients?• Are clients over-indebted?

Social Rating: Audience and Objectives

For the industry: To increase transparency in the microfinance field To compare social performance across MFIs

For the MFI: To provide a clear diagnostic of social performance strengths and weaknesses to

the staff, management and governance, representing an important step towards the establishment of an effective social performance monitoring and tracking system

To facilitate the access to financial capital

For external stakeholders To provide potential donors and investors with the most appropriate tools and

information for making resource allocation decisions To monitor the SP of their partners (particular important in case of equity investment) As a basis for designing technical assistance intervention to put in place effective SP

management and monitoring system

Dimension 1: spm system

Dimension 2: Social Responsibility

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Dimension 3: Outreach

Outreach: economic poverty(survey on clients)

AREA OF ANALYSISAREA OF ANALYSIS

SP MANAGEMENT SYSTEMSP MANAGEMENT SYSTEM

SOCIAL RESPONSIBILITY

OUTREACH

QUALITY OF THE SERVICES

Outreach: financial inclusion (survey on clients)

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AREA OF ANALYSISAREA OF ANALYSIS

SP MANAGEMENT SYSTEMSP MANAGEMENT SYSTEM

SOCIAL RESPONSIBILITY

OUTREACH

QUALITY OF THE SERVICES

Dimension 4: Service Quality

Value of Social Rating to MFIs

INTERNAL EXTERNALTo enter in a learning process dealing with managing the social performance

To give a clear picture of social performance to the management of the MFI

To improve social the performance management system:

Basis for revising the mission statement Basis for rethinking strategiesTools available at institution level to track poverty profile of clients (PPI, questionnaire);Consider improvements in product design based on feedback on clients’ satisfaction.

Be able to compare MFI’s own social performance with best practices.

Produce information that can facilitate carrying out impact studies (comprehensive social rating)

to prove social performance to investors (and donors). Competitive advantage in a period of financial crisis.

Permits to report on the core social performance indicators -MIX-

To align to international standards for measuring social performance

SP & Social Rating and the Current Financial Crisis

• Social performance and social rating cannot be considered an “ornament”: there is a need to put the “social” into performance management

• Focusing on social performance measurement and management is all the more important in the current time of crisis:– Not only to attract funds from social responsible investors (social ratings

facilitate communication with potential investors)– But also to face and manage reputational risk

• Additional cost of tracking social performance indicators are compensated by medium/long term benefits (retention of clients, lower operational costs, higher productivity)

• MFIs are increasingly seeking guidance on what factors to consider when tracking their social performance: important for the MFI to get familiar with social rating area of analysis to get ready with a social rating (couple SR with training).

Some findings from our experience: SPM System• Intentions are generally well reflected in the mission statement, but key terms

are not often specifically defined (poor/disadvantaged, etc)

• Overall, the social mission is well disseminated even if in some cases:– it needs to be reinforced among more recently hired staff;– it is less disseminated at branch level;– systematic and formalised channel for communicating and reinforcing the

social mission are generally not in place

• General good balance (social/financial) in governance even if some strategies are only focusing on financial aspects... BoD need training on SPM

• Mission orientation broadly influences the overall approach of the MFI, but broad social goals are not translated in strategic more specific objectives and performance targets to guide operations (resulting in poor social strategy)

• MIS is not adequate to track and monitor achievements of social goals (where info available, not entered in the MIS…where in the MIS, not consolidated..)

• Systematic Social Reporting is rarely available in MFIs.

• HR policy alignment not always satisfactory: balance of skills and social orientation in job recruitment; reference of social mission and values as part of induction…but not reflected in the staff appraisal and incentive system

Some findings from our experience: Social Responsibility

• MFIs are committed to Social responsibility and see it as an integral part of their orientation…but there is a need for formalisation of policies and mechanism to ensure compliance

• Staff satisfaction surveys are rarely performed

• Transparency is an area of improvement: generally higher in regulated MFI

• Overindebtedness is often a critical issue:

– MFI not always equipped with effective policies to mitigate and manage it

– Necessity of effective Credit Bureaux

– Policy for maximum level of indebtedness

– Improve analysis of repayment capacity

Thank you!!!!MF Rating HQ

Corso Sempione, 65 20149 Milan – Italy Tel: +39-02-3656.5019 Fax: +39-02-3656.5018

MF Rating South AmericaCalle Pasaje El Jardín #152 y Avenida 6 de Diciembre, Quito – Ecuador Tel.: +593-2-2248.114

MF Rating Central AmericaCostado Nor-oeste Parque El Dorado Casa 116. Residencial El Dorado, Managua – Nicaragua

Tel.: +505-2480.85839 Poniente 3515, 5° piso Las Animas, 72400 Puebla – Mexico

Tel +52-222-1414.812/1414.861 Cel.: +52 2223433168

MF Rating Central Asia, the Caucasus and RussiaApt.14, 231, Tynystanov Str., 720000, Bishkek, Kyrgyz Republic Tel: +996-312.682997

MF Rating Africac/o Prima Apartments, Gichugu Road, Kileleshwa, Nairobi - Kenya

Tel: +254 (0)20 300 6423; Mob: +254 (0)737 43 9297

Antenna in BrusselsRue de la Victoire 101, Brusseles - Belgium Tel.: +32-2-539.2422

www.microfinanzarating.com [email protected]