Social Investor Working Group Meeting SPTF … · Social Investor Working Group Meeting SPTF Annual Meeting in ... Based on comprehensive questionnaires ... (7 International: ACEP,

SocialInvestorWorkingGroupMeetingSPTFAnnualMeetinginMexico

June62017Summaryofdiscussions

1. WelcomeandUpdates

Groupco-chairsChristopheBochatay(TripleJump),JurgenHammer(GrameenCreditAgricoleFoundation),andLeticiaEmme(SPTF-coordinatorofSIWG)welcomedparticipantsandprovidedupdatesontheSocialInvestorWorkingGroup.Christopheprovidedanupdateonthecurrentprioritiesofthegroup.

• Harmonizinginvestorduediligenceandmonitoringonsocialperformance-uptakeofSPI4ALINUS

• Measuringandreportingonsocialoutcomes–guidelinesdevelopedandharmonizedindicatorsbeingpilottestedinLatinAmericaandIndia

• Aligningeffortswithotherinitiativesinresponsiblefinanceandtheimpactinvestingsector(includingUNRPI,GIIN,WEF,IMP,etc)

• NEW-Increasingalignmentwithassetowners• NEW-AssessingS&EperformanceofSMEfinance• Pricingtransparency–definingamodeltocontinuetohavetransparentpricing

dataina“postMFT”era• Harmonizingloanagreementscovenantsinsupportofresponsiblemicrofinance• Equity&responsibleexits

LeticianotedtheupcomingchangeingroupgovernancelaterthisyearwhenJurgenstepsoffhisroleasco-chairofthegroupgiventhatafteryearsofstrongleadershiphistermiscomingtoanend.SPTFwillbeholdingelectionsthisfallforinvestorstoselectthenextinvestorco-chairandrepresentative.

2. UpdatesonnewworkstreamsidentifiedatthelastinvestormeetinginZurich(March2017)

ThelastmeetingoftheSocialInvestorWorkingGrouptookplaceinZurichinMarch2017.71investorsparticipated.Atthemeeting,thegroupidentified2newareasofworkforthegroup:1)increasingalignmentwithassetowners,2)assessingthesocial&environmentalperformance(S&E)ofSMEfinance.LeticiaprovidedanoverviewoftheworktheSPTFandtheSIWGisdoingtoengagewithassetowners.TherewasaquestionaboutwhetherthenewframeworksbeingdevelopedtoaccelerateimpactmeasurementandmanagementtakeintoaccounttheSDGs.Leticianotedthatyes,theyarebeingpartoftheconversationandinitiativesarelookingathowtoincorporatethem.CecilenotedthattheSGDshavebeenmappedtothelastversionoftheSPI4.

LuciaprovidedanoverviewoftheworkthattheSPTFandeMFPareplanningtodointermsofassessingS&EofSMEs.TheobjectiveoftheworkistoconsolidatetheinformationavailableonhowtoevaluateSPMforFSPsfinancingSMEs.MaptherelevanceandapplicabilityforSMEfinanceoftheUniversalStandards,MIVduediligencetoolsandotherframeworks.Identifypossiblegapsandprovideindicationsonhowtofillthegaps.Thesourcesfortheworkwillinclude~200surveysconductedbyMicrofinanzaRating,duediligencetoolsofMIVsalreadyworkingwithSMEsandexistingliterature.SPTFwillalsobemappingsomeofthetoolsbeingusedbyDFIstoassessS&EofSMEs.Luciathenopenedtofeedbackfromparticipants.Discussion-Whatarethepriority/mostmaterialareasthatMIVslookatwhenlookingatSMEsbanks?

• MicrofinanceandSMEbankshavedifferentmindsets.Thereisamissingmiddlethatnobodyisfiling.CommercialbanksarenotlookingatSMElendingasasectorforprofitorrevenue.Lucianotedthansegmentationwouldbeneeded.

• SMEanalysiswouldbeveryinteresting.InCambodiamanyinstitutionsaremovingtoSMEs.Doesn’ttheSPI4alreadyassessSMEorganizations?Isthisnotsufficient?Itwouldbenicetojustuseonetool.LucianotedthattheworkwilllookintowhetherSPI4needstobeadaptedforSMEs,butrecognizingthatthereisvalueonkeepingthesuggestedtools/frameworkssimple.

• OneofthedifferencesbetweenfinancialinclusionandSMEistheintrinsicvalueofwhoyouarefinancing.

• ItwouldbereallyusefultoseethesocialimpactofSMEsandtheimpactofjobscreated.SymbioticssentteamtothefieldtoassesstheimpactofSMEstheyworkwith.Theywillbeabletosharelearningsinawhile.

• TripleJumpsharedGenesisEmpresarialistrackingSMEs.GenesisisoneofthemostdevelopedFSPsinthismarket.Genesismentionedthatforthemthekeyforanystrategyissegmentation–understandingcustomerneedsandwantsarekeytoproductdevelopment.Basedoncomprehensivequestionnaires,Genesisisabletounderstand“thedevelopmentroute”oftheircustomersandofferproducts/servicesbasedonwheretheyareandalsobeabletomeasuretheimpactoftheirloans--howmanycustomersareimproving?Howmanycustomersarestagnantinthejourney?

• MaterialtopicscomefromthesectorwheretheSMEis.Inmicrofinanceyoudon’tneedtoasksomanyquestionsaboutthesector.ButforanSMElender,itisexpectedthatthelenderhasdefinedforeachsectorwhataretheneedsofthecustomers.ItwouldbeinterestingtolookattheprocessesthanSMEshaveintermsofidentifyingthematerialareas/topicsforeachsector.

• Workshouldstartfromwhatalreadyexistsandisbeingused(e.g.SPI4,UniversalStandards)andseewhatisalreadyapplicableandthendevelopwhatismissing.

• Wouldbeusefultohaveagoodwaytodefinethedifferentsectors–anSMEinserviceswillhavedifferentrequirementsthanamanufacturingSMEforexample.Therewillbeaneedforsegmentationandsectoralization.Boliviaisagoodexampleofsegmentationandhowsectorsarebeingdefined(asitismandatoryhere).

• BasedonSPI4andUniversalStandardspointofviewisalreadypossibletoseesomeareaswhereSMEbanksarestrongerthanothers.

• ChallengeisthatsometimesonpaperSMEsmightnotlooksocial,butwhenyoulookattreatmentofemployees,customers,communitiestheyarestrongerthanMFIs.

• Compliancewithtaxeswouldbeanareainterestingtolookat.• StruggleonhowtodefineanSME.Thereareseveraldifferentdefinitions.It

wouldbeveryimportanttogettoashareddefinitionofwhatisanSME(e.g.,intermsofnumberofemployees,numberofend-clientsreached,etc).IFCforexamplelooksatsizeofloantodefineSMEs.AgoodstartingpointwouldbeashareddefinitionofSMEs.

• Itisalsoimportanttosplitoutthedestinationofloans.SMEsarenotdoingthatyet,butitsverydifferenttoseea30kloanthatgoestohousingvs.abusiness.

• GenesisdefinesSMEsbasedonasetofvariables,whichvarybytheeconomicconditionsofeachcountry.Theirformulalooksat6economicvariables(allweighted)todefineSMEs.

• Country-basedstandardsforhowtodefineSMEsmightbeagoodidea.Youcan’tstandardizeacrosscountries.

Discussion-Intermsofmateriality,is“doingnoharm”or“doinggood”moreimportant?

• BothareimportantforSymbioticsandGlobalPartnerships.Doingno-harmscreeningisadealbreakerbutinvestmentwouldn’tmoveforwardwithoutpositiveimpact.

• Alignmentonassetownersonnegativescreeningisstillastruggle.DFIshavetheirownscreenings,sohavingalignmentwithassetownersonhowtodonegativescreeningwouldbeuseful.

Discussion-WhofromthoseintheroomisinvestinginSMEs?

• TripleJump,Incofin,Symbiotics,COFIDE,SB,Oikcoredit,Nextsteps:

• WebinarinlateJunetogatherfeedbackofotherSPTFmembers• SMEliteraturereview(includingsocialratingsonSMEbanksalreadyavailable)• ReviewofDFItools• One-on-onecallswithselectinvestorsalreadyinvestinginSMEs• Interimmeetingtoshareinitialfindings(Addis,eMFPinLuxemburg)• Pilottestingbyinvestorsofdrafttools• Refineandfinalize(ideallypresentinMarch2018atnextSocialInvestor

Meeting).

3. OpportunitiestoimproveSPMinMexico

ChristopheBochatayintroducedthestudyonmicrocreditinterestratesinMexicosponsoredbyTripleJump,IFC,FOMIN,PRONAFIMandconductedbyFAS.ResultsfromthestudyindicatethattheAPRofMexicoismuchhigherthanothercountriesintheregion(Peru,Colombia,Boliviaarealllowerthan30%).TherangeinMexicogoesfrom75%to120%dependingontheinstitution.ReasonsforhighratesinMexicoinclude:

• Smallaverageloansizes(average$650)whichturnsintohighoperatingexpenses

• Highpersonnelexpenses(representing70%ofOPEX–vs.lessthan10%inothercountriesintheregion).

o Veryhighstaffturnovero Highexecutivelevelsalariesandboardexpenses(particularlyinsmaller

MFIswithweakgovernanceandtransparency)o LowloanofficerproductivityinMexico

SomebodymentionedthatinPakistantheywereabletocutdownOPEXbyreducingunderwritingprocess.TheMexicanmarketisconcentratedinspecificclientsegments.Highconcentrationonwomen,trade,andinafewstates(wheremostpoorpeoplelive).Conclusions

• Grouploanmethodologyhasallowedtoreachthepoorestsegments• Despitehighgrowths,interestratestoborrowsremainhigh• HighOPEXkeepinterestrateshigh• Highstaffturnoverandlevelofexecutivesalariesandboardexpensesarea

concernRecommendations

• Supportdevelopmentofindividuallendingmethodologywouldhelpsatisfyneedsofanimportantsegmentofclients,increasetheaverageloansize,andloweroperatingcosts

• PromotecompetitionSomeindividualMFIsinMexicoaredevelopingindividualloans,butfacingseveralchallenges.Discussion--HowdoinvestorsreacttothehighinterestratesinMexico?Isitanissuethatislookedatbyinvestmentcommittees?Howisitaddressed?

• TripleJumphas2MFIinvesteesinMexicoand1educationalorganization.Theportfoliohasdecreasedsignificantlyinthelastfewyearssincemost

organizationsdonotpasstheirscreening–e.g.,over100%APR,transparentgovernance,productandgeographicanalysis.

• OikocreditfindsitchallengingtoexplaintotheirinvestorsthattheymightinvestinMFIswiththreedigitAPRs.ThereforegoingbeyondtheAPRandprovidingacomprehensiveanalysisontheSPMoftheorganizationisveryimportant.Still,insomecasesorganizationsdonotpassscreeningbecauseofAPRs.It’sacase-by-casethroughanalysistoapproveinvestees.

• DeutscheBankalsohasasmallportfolioinMexico(intermsofnumberofpartners–workingwitheducationallender,publictransport,1lenderdoinggrouplending)andtheyfocusonorganizationswithastrongsocialmission.TheytakeaverycloselookatAPRs.

• GrassrootshasanequityfundinLatinAmerica.Sincetheyareequityinvestorshighinterestrateswerenotseenassuchabigproblemasalong-termequitypositioncanhelpdecreaseratesovertime.However,whattheyfoundtobeadealbreakerwastheweakgovernanceandlackofaccountabilityofthegovernanceofmanyorganizations.

• GlobalPartnershipsalsohasaverycarefulapproach.Theynowhave4investeesinMexicoandtheytoofocusstronglyontheSPMoftheorganization,theproductsbeingserved,towhom,andwhetherpricingis“appropriate”forthemarket.

4. SPI4andALINUS

JurgenHammerandCecileLapenupresentedanupdateontheexperiencesofinvestorsandFSPswiththeimplementationoftheSPI4andALINUS.

• TheSPI4isthesocialstatementoftheFSPsanditallowsinvestorstogathertheinformationtheyneedfromthereinsteadofaskingtheFPSforadditionalreporting.

• ALINUSnowhas68indicatorsbasedoncommonselectionofinvestors.• Thetoolwillbefrozenatleastuntil2020.• CERISEisworkingondevelopingguidanceforauditors.• CERISEgathersresultsofSPI4fromFSPsonaconfidentialbasisandthen

developsandsharesbenchmarkssothatinvestorsandFSPscancompareperformanceofFSPstotheirpeers–alsousefultoidentifyneedsforTA

Currentlevelofuptake:

• 1OMIVs/DFIsusingALINUS(ADA/LMDF,AFD/Proparco,Alterfin,BlueOrchard,BNPParibas,Cordaid,GAWA,GCAMF,Incofin,Pamigafinance)

• 6MIVs/DFIsintesting/tsrtageicplanning(DeutscheBank,EuropeanInvestmentBank,GrassRoot,Oikocredit,Symbiotics,TripleJump)

• About15MIV/DFIsincontactwithCERISE/SPTFforawarenessraisingandstrategicdiscussions

• 13networksusingtheSPI4(7International:ACEP,Advans,OpportunityIntern’l,Oxus,Pamiga,VisionFund,CIFWestAfrica,6National:AmcredBrazil,CopemePeru,FinruralBolivia,RFD)

• 13networksintrainingorusingreducednetworkoption(3International:AgaKhan,GrameenFoundation,Microcred,etc,10National:AMAAlbania,AMFAAzerbaijan,AMFIKyrgistan,AMFOTTajikistan,ASOMIFNicaragua,CMFNepal,LMWGLaos,RadimArgentina,RedFascoGuatemala,UCORAArmenia,etc.)

• 341FSPshavecompletedSPI4auditsfrom88countriesJurgensharedtheexperienceofGrameenCreditAgricoleFoundationinusingtheSPI4toassesstheirentireMIVportfolio.They’vebeenusingtheSPI4induediligencesince2015.ThankstobenchmarksofCERISEtheywereabletocomparehowtheirportfoliocomparestotheglobalbenchmark.Discussion–WhatisyourexperienceinusingALINUS/SPI4?

• DeutscheBanksharestheSPI4totheirinvestees.Alsonotedthatthereisaneedfortrainingofpartners.

• IncofinshiftedfromitsproprietarytooltoadoptingALINUS.TheSouthEastAsiaofficesalreadyusesALINUSfortheirduediligence.Thetoolwillbecompletelyrolledoutinallofficesbytheendoftheyear.UnlikeDBtheydonotsendtheSPI4inadvance,butsuchisnotachallengesincemostofthequestionsintheSPI4werealreadyinECHOS(proprietarytools).

• Oikocredit,whilenotusingtheformalversionoftheSPI4yetisworkingonaligning(challengeisthattheyhave70officesaroundtheworldbuthavealreadyalignedandlinkedtouniversalstandardsandSPI4language).

• Locfundusesitsownscorecard,whichhastobeusedforthelifeofthefundaccordingtotheLPagreement.However,whentheydevelopedtheirinternaltooltheyusedtheSPI4asinput.13outoftheir41investeesareusingSPI4.Forthosewhoare,Locfundcanhelpfundtraining.

• GlobalPartnershipshasaproprietarytoolthatlooksatseveralsectors(beyondfinancialinclusion).Theyhaveincorporatedseveralpractices/questionsfromtheSPI4particularlyregardingclientprotectionforfinancialinclusion.TheyhavealsoseenuptakeintheirportfolioofuseofSPI4bypartners.Overtimetheyexpecttohavemoredimensionsofthestandardsincorporatedintotheirtool,particularlyasmorepartnersadopttheSPI4.

• BancoPymeEcofuturo(FSPperspective).ThebenefittheyseeinhavingimplementedSPI4istoreportonwhattheyareanddo.OfthesixdimensionsoftheSPI4,only2arenotat100%alignmentwiththestandards.ItisimportanttonotethatBoliviahasastrongregulatoryframeworkforreportingandtheSPI4helpswithreporting.However,theycan’tyetprovideanSPI4reporttoregulators,theyhavetosubmitasocialrating.TheSPI4hasbeenveryhelpfulintermsofdoingbetterinsocialratings.Bolivianregulationhelpsmakesocialmissionmorevisible.Forthefirsttime,thesocialdimensionisincludedintheirstrategicplan.

• Opportunityinternational(internationalnetworkperspective).WhenSPI4cameouttheydidamappingbetweentheirowntoolandtheSPI4anddecidedtodrop

theirowntoolandadopttheSPI4.Theystronglypromotedatameasurementandmanagementbytheirpartners.Sincetheyareanetwork,theydon’tuseSPI4forduediligencebuttomonitorthesocialperformanceoftheirpartners.Strongadvanceinlast18month–90%ofportfolionowusesSPI4.OIrequestsanannualreportwithquarterlyupdatesonkeyindicators.TheyhaveseenhighsupportfrompartnersinuseofSPI4,astheyseethevalueitprovidestothem.Intermsofchallengesthey’veseenthatself-assessmentsarenotasaccurateasexternalassessments.Nonetheless,itstillhasbeenaveryusefultooltoidentifygapsandhelpimproveinareasofneed.GoingforwardOIwouldliketosettargetsforcompliancebydimension,basedonbenchmarks.

• Symbioticsstillusesitsowntool,however,thedimensionsarequitealignedwiththeSPI4.Theyrealizethattheyneedtoupdatetheirtool(developedin2009).Whiletheyarenotreadyforafullswitch,theyfirmlybelieveinbenefitofsharingindicators.

• GlobalPartnershipsseesthatSPI4isusefulforothersectorsbeyondfinancialinclusionparticularlyintermsofclientprotection.Also,gender-lesscutsthroughalldimensionsandwouldbeveryinterestingtoseeuseoftoolinthataspect.

5. DataPlatformSimulationLuciaprovidedanupdateonthedataplatformconceptbeingdevelopedbyMicrofinanzaRatinggiventhatMFTransparencyhasnotbeeninoperationsforawhile.Theideaofthecommondataplatformistoaone-stop-shopfortransparentdatafromFSPsintermsofAPR,outcomes,greenindex,clientprotection,SPI4ALINUS,IRIS,ESGindicators.Theplatformwillhavemultipleprovidersofdata(raters,investors,networks,individualFSPs).Usersmightbeinvestors,networks,standard-settingbodies,academics,regulators–datawouldbeusefulforbenchmarkingofFSPsforduediligenceandmonitoring.TheplatformwouldprovideincentivesforFSPstoprovideinformation(includingawards,benchmarkreports).Luciathenprovidedasimulationofwhatthedataplatformwouldlooklikeandhowitwouldoperate.TheexampleshownillustratedthecaseofaspecificFSPversusthebenchmarksofFSPsinthecountry.Discussionwithparticipants

• WhatisincludedinAPR?Nominalinterestrate,calculationmethod,ongoingfees,upfrontfees,taxes,insurance,andmandatorydeposits.

• IsTieraselectioncriteriaforcomparingresultsinthedatabase?Whileincludedinthedatabase,Tierisnownotoneoftheselectioncriteria(scaleis)butcanbeincluded.

• Canselectionofcriteriaforcomparison/benchmarkbemultiple?(e.g.,morethanjustaregion)?Yes,itwillbepossible.

• Whatisthecolor-coding?It’sthesameastheSPI4(colorsvarybydimension,standards,essentialpractices,andindicators).

• Modulesavailabletocomparedatawillincludesocialperformance,green,gender,etc.

• Mostorganizationsintheroommightagreethatthereisvalueinhavingthedataplatform,butmightnotbeabletofullysupportthebudgetoftheplatform.Willsomepartofthecostbecoveredfromtop-down/subsidizedbydonors?WhilesomefundingcouldbeprovidedbyDFIs,Microfinanzawantstoensurethattheplatformissustainedovertime.Also,themoresubscribersthatjoin,thelowertheshared-cost.

• Haveyouconsideredopen-sourcedplatformswhereraterscanallenterdataandbringcostdown?Technologyisnotwhatiscostly,whatiscostlyismakingsuredataisofhighquality,comparable,havingeducationavailableforusers.

• Whatwouldsubscriptioncostbe?Rangefrom$2-20kdependingoncoverage(country,region)andtypeofdata.

• Mostallinvestorsintheroomshowedhighinterestincontinuingtheconversation.

Nextsteps:• Feedbackfrominvestorsintermsoftheusabilityofplatformandwillingness

oforganizationstobecomesubscribers.Ifviable,platformwillmovefrompilottoexecution.

• Luciaaskedforfeedbacktobeprovidedwithinthenextthreemonths.6. Discussiononcapturingthevoiceofthestakeholdersthroughoutthe

investmentprocessLeticiaEmme(SPTF)providedanoverviewoftheworkSPTFisengagedinwiththeWorldEconomicFoum(WEF).In2017theWEFlaunchedanactionagendatohelpaccelerateimpactmeasurementandmanagement.Forthis,sevenactiongroupswereidentified.Giventheexperienceofthefinancialinclusionsector,SPTF,isleadingtheworkofoneoftheseactiongroupswhichisActionGroup3andwhichfocusesoncapturingthevoiceofstakeholdersaspartoftheimpactinvestment/intervention.Theworkbeingdonebyallthesegroupsisbeingcoordinatedandwillbecomplementary.TheworkofotherinitiativessuchastheImpactManagementProject(facilitatedbyBridgesImpact+),NavigatingImpact(GIIN),OECD,andUNPRIisalsocoordinatedwiththiswork.GiventheexperienceofSPTFanditsmembersinfinancialinclusion,oneofthebiggestsectorsof“impactinvesting”,wehavebeentappedtobeinvolvedinthiswork.Ourobjectiveistobringtheexperienceoffinancialinclusion,andthecollaborationthathasbeenachievedwhereweestablishedandimplementedstandards,commonassessment

tools,andoutcomesmanagementguidelinesandindicators,tothebroaderimpactinvestingsector.

• Astheimpactinvestingsectorcontinuestogrow,withnewinvestorsandfundsflowingin,thereisasignificantneedtoprovideclarityandguidancefornewinvestors.Thisiskeytoavoid“impact-washing”.

• Gatheringthevoiceofthestakeholderaspartoftheimpactinvestmenthelpsensurethattheinvestment/interventioncreatesvaluefortheaffectedstakeholdersandalsohelpsunderstandanyun-intendedeffectsoftheinvestment.

• Manyinvestorsacknowledgethattheydon’tknowhowtoorwhattorequirefromtheirinvestmentmanagersintermsofgatheringthevoiceofstakeholders.Hence,thereisaneedtoprovideguidanceforeachinvestortothentakealong,acknowledgingthateachwillbeindifferentpartsoftheimpactinvestmentjourney.

• SPTFcanbringtheexperienceoffinancialinclusiontohelpinvestorsunderstandthekeyaspectsofthesector(whicharedifferenttootherimpactinvestingsectors)andhelpbuildprocessesthatcapturethevoiceofthestakeholder(aswedidwiththestandardsandoutcomeswork).Wealsowanttohighlightthepracticesandexperienceofourinvestormemberswhohavesignificantexperiencetosharewithotherinvestors/sectors.Theexampleoffinancialinclusioncannotonlyhelpattractmoreresponsibleinvestmenttothesector,butalsohelppavethewaytothedevelopmentofotherless-maturesectorsofimpactinvesting.

Theobjectiveofgroupistoprovideguidanceonbestwaystogetstakeholderinputinordertopromoteresourceallocationdecisionsthatwouldbeendorsedbyallthosewhomaybeaffectedbyimpactinvestment/intervention.Thegroupisplanningtwodeliverablesbytheendof2017(topilottestin2018)andothertwodeliverablesfor2018(fundingpermitting).Coredeliverables(readybyendof2017tobepilottested)

1. Outlineoftheidealprocesstoengagestakeholders--withtheobjectivetohelpmoveinvestorsclosertotheideal

2. Developaself-assessmentchecklistorrubricforinvestorstoassesstheextenttowhichtheyachievetheideal.

Additionalrecommendeddeliverables(iffundingallows,developmentin2018)

3. Developadocumentthatprovidesguidanceforimprovement4. Definethebusinesscasefortheimpactinvestor–explainwhyengagingand

understandingallstakeholdersinthedesignandthroughoutaninterventioniskeytodeliveringimpact.

Discussionwithparticipants

Whatareyoucurrentlydoingintermsofgatheringstakeholderinput?Inwhatstagesofyourinvestmentdoyouconsiderit?

• Thereseemedtobeagreementthatinvestorsengagedwithafewend-clientsattheduediligencestageoftheinvestment(e.g.,conductinginterviewsto3clientstounderstandlevelofsatisfactionwithproducts/servicesprovidedbytheFPS).

• Achallengeinvestorsfindintermsofgatheringstakeholderinputishavingarepresentativesampleaswellascostandresources/timesrequired.

• ManyinvestorsrelyontheFSP(andontheirimplementationofthestandards)toensurethatpracticesareclient-centered,andjustasktheFPSifwhattypeoffeedbackloopstheyhavewithend-clientstoensuresatisfaction/usage(e.g.,“doyouhaveafeedbacklookwithclients?”,“whatdoesitlooklike”?)

• Someinvestorswhogatheroutcomedata,measuretheeffectinthelivesofthestakeholdersthatway(butnotnecessarilydefinetheoutcomeswiththestakeholderdirectly,justwiththeFSP).

• Therewasagreementbyseveralinvestorsthathavingan“idealprocess”andchecklistwouldbeveryhelpful,eveniftheydonotnecessarilycanyetaligntoallthestepsoftheidealprocess.

• Theneedforabusinesscase–toconvinceinvestorsontheneedforengagingstakeholders-wasnotedbyafewinvestors.

• GlobalPartnershipsnotedtheimportanceofhavingtherightmethodforengagingstakeholders(e.g.,havinglocalwomenfromacommunityaskquestionstoothercommunitymembershasbeenmoreeffectivethanusinganoutsider)

Nextsteps:AnyinvestormemberinterestedintakingpartoftheActionGrouptoletLeticiaEmmeknow.

7. Thefutureofmicrofinance–theroleofinvestorsgiventheemergenceandgrowthofdigitalfinancialservices.

Grassrootsprovidedtheirperspectiveasinvestor.Theydefineinvestmentsindigitalfinancialservices(DFS)asMFIsprovidingdigitalservices,sometimesinconjunctionwithfintechproviders(MNOs).IntermsofDFSadoption,theyseelessadoptionintheirLatinAmericaportfoliothanintheirportfolioinIndia.GrassrootsbelievesthatMFIsarethebestpositionedtoprovidedigitalservices(vs.fintechproviders)givenstrongergovernanceandwhathasbeenlearnedovertheyearsinfinancialinclusion.TheyseeDFSasscomplementnotareplacementofMFIbusinessmodels,withkeepingcustomersatthecenterasakeytoprovidevalueforclients.Intermsoftheroleoftheinvestors,thefollowingpracticesweresuggested:providingguidanceandlong-termviewintermsofcapitalforinvestmentsinnewtechnologies,productsandservices,askingtherightquestionsattheboardlevel(forexample,whatdoestheorganizationplantodowiththetime/resourcessavedfromDFS?),monitoringfintechrisksandprotectingclients.

FundacionGenesisEmpresarialsharedtheirexperienceasproviderabouttolaunchaDFSpilot.ForGenesis,itallstartswithsegmentation,understandingtheevolutionofcustomersandproducts.Theystartwithasegmentationmatrix,followedbyasocialevaluationofcustomers(lookingathousing,education,familysize,etc).Whenthesetwomodelsarecrossed,theyidentifycustomersbysegments.Thissegmentationhelpsthemunderstandareaswheretheyarelackingproduct,aswellasareaswherecustomersareusingproductsthatarenotbest-servedforthem.Genesislooksathelpingcustomersevolveintheirjourney,notjustprovidingloans.Segmentationhasalsobeenkeyindevelopingdigitalfinancialservices.Theyhavea“creditfactory”thatevaluatescreditscores,psychometricscores,andsegmentation(toensurepreventionofover-indebtedness).Basedonthat,theydesigntheappropriateproductsandchannelsandclientscanchosewhichproductstheywant(basedonwhatisavailableforthem).Thecreditfactorythenevaluatescreditpolicesandverifiesrequirements,andthenthecreditisfinallydeliveredtotheclient.ThepilotforDFSwillbelaunchedwithinthissummer,withanonlineplatformforcustomerstofillapplicationsforonlinecreditupto$50.CGAPsharedtheirpointofview.ThewayCGAPseesDFSasanenhancementandevolutiontohelpincreasescaleinamoreefficientway.Technologyisbeingusedatdifferentpointsofthebusinessmodel.CGAPhasateamworkingon“digitalfinancefrontiers”.Theyarelookingat6digitalattributes:1)digitaldatatrails,2)leveragingsocialnetworkstoincreaseaccesstoDFS,3)smartphonesandrichuserinterfaces,4)real-timecustomerinteraction,5)Identification,6)Tailoringfinancialservices.Alloftheseattributeshaveaclient-centricangle,whichisveryimportanttoCGAP.They’velearnedthatforproduct-designtobesuccessfulacomprehensiveapproachwasneededthatlookedatwhatend-customersneedbutalsothatisbackedbystaffandmanagement.TheSmartCampaignsharedanupdateonwhatthey’vebeendoinginDFSandfintech.WhenlookingatresponsibleDFS,SmartisnotjustlookingatMFIsbutalsoatotheractorssuchasMNOs.TherehasbeenalotofhypeintermsofDFS,butthereisalsogrowingrecognitionthatDFSpresentshighrisksforclientsandcountries.TheSmartCampaignwantstoworktowardsmoreconsensusinguidanceandpractice.Theyareworkingondigitalcreditandresponsibleagentmanagement.TheyhavefoundthatwhiletherearemanyongoingeffortsonresearchandexamplesofDFS,thereisnotalotofeffortyetonbuildingacommunitytosetthebarforgoodpractices,testdraftstandards,androlloutinassessmentandcertificationprograms.Theyaredevelopingbriefsonresponsiblemobilecredittoarticulaterisksandprovokeconversation,developcasestudiesongoodpractice,anddevelopacommunityofpracticewithfintechproviders.Finally,theynotedthatstandardsforthisareawillnotberushed,firstthereisaneedtoidentifyrisks,guidance,andacommunityofpractice.HowareinvestorsadaptingtoDFS?

• SofarintheLatinAmericaregion,DFSisinearlystages.Ithasnotreacheddigitalmassasforsomeinvestorstochangeduediligenceorunderwritingprocedures.

• Investorsareappraisingchannelsingeneral,notDFSinparticular.• TherewaswideacknowledgmentthatengagementwithDFSislowinLatin

Americabutthatitwillgrowfastinthemediumterm.• Clientprotectionisveryimportant,butsoisinvestorrisk.DFScande-

personalizethecredit,whichcanincreaselackofpay-backmorality.• OpportunityInternationalhaspartneredwithafintechprovided(notan

investment,apartnership).Theydiddoaduediligencebeforeengagingonthepartnership.Itsnotjustinvestorswhohaveademandforbestpractices.Thisisneededfornetworksaswell.

AreinvestorsintheroomlookingatinvestmentsinMNOs?

• EngagingwithMNOsdidnotseemtobearealityyetforinvestorsintheroom.Atthispointtheyareatastageofbetterunderstandingthedynamicsandrisks.

• SomeMNOsinAfricashowsignificantlackoftransparency,whichisasignificantrisk.

WhatroleshouldSPTFplayinthedevelopmentofguidelinesandstandardsforFinTech?Isthereneedtodevelopguidancebeyondclientprotection?

• Fintechistoobroad—tolookatapplicabilityofstandardsSPTFshouldnarrowthescope,e.g.,lookatMNOs.

• LookingatSmartCampaigntohelpidentifytherisks.• UniversalStandardsareenoughintermsofDFS.• Itwouldbegoodtohaveacommunityofpractice/discussion.Itistooearly

forstandards,butsharingexperiencesandlearningfromeachotherindifferenttopicswouldbevaluable.

8. DiscussiononSPTFmembershipmodelJurgenintroducedthediscussiononSPTFintroducingamembership/feemodelwherefundingcomesbothfromfunders/donorsbutalsofrommembershipfees.

• PakistanMicrofinanceNetworkwentthroughasimilarexercisetoassesslong-termsustainability.Theyrecommendationsincluded:

o Firstunderstandbudgetandbudgetgapo Ifworkdoneovertheyearsisconsideredvaluable,peopleshouldbe

willingtopay–thisshouldbeaveryconvincingargumentforanybodytopay.

o Diversifymembershiptoincludethosewhoarenotcurrentlymembersbutneedtheinformationandwouldbewillingtopay.

• Thevaluethatisprovidedtoinvestorsisalsorelatedtotheinvestororganization.Forexample,MIVswhoarenotverysocially-mindedwillbelesslikelytocontribute.

• ThereisatrendofMIVsbecomingmoresociallyconscious.• OikocreditwilllikelybesupportiveoftheSPTFasawhole.Needtogetmore

detailsofthefees,structure,valueproposition.• MFIswouldbewillingtopayamembershipfeetobepartofanetworkthat

helpslearn,share,andexchange.SPTFhoweverisnotknownoutsideofthemicrofinanceworld.CouldSPTFprovideconsultingservices?

• SPTFshouldthinkofbroadeningmembershipbase–forexample,includeregulators.(JurgennotedthatthishascomeupinthepastandthereasonwhySPTFhasnotengagedregulatorsisgivenbudgetandthelargeeffortthatengagingregulatorswouldentail.InsteadSPTFhasengagedwithregulatorsonaone-to-onebasiswhenspecificallyapproachedbythem,e.g.,inNicaragua).

• DeutscheBanksharedOikocredit’sperspective.TheworkdonewithSPI,outcomes,hasbeenveryvaluabletoDB.Theywouldbewillingtosupportthewholeorganization.

• Desjardinsalsosharedtheviewofsupportingthewholeorganization.Tostayrelevant,weneedthecross-stakeholdervoice.Theysuggestedamixed-feestructure,dependingonthetypeofmember(capacitytopay).

• Grassrootsechoedothersintermsofthevaluetothewholeorganization.Suggestedabundledapproach(e.g.,includedataplatform).

Nextstep:InvestorstoprovidefeedbackonthevaluepropositionthatSPTFwouldsendtotheirorganizations

Listofparticipants Organization FullName(Last,FirstMiddle)1 CERISE Lapenu,Cecile2 CGAP Seltzer,Yanina

3

CompañíaEspañoladeFinanciacióndelDesarrollo,COFIDES,S.A.S.M.E. Rabadán,Julia

4DéveloppementInternationalDesjardins Quirion,Marisol

5 DeutscheAssetManagement Howe,Sarah6 EAConsultants Magnoni,Barbara7 FundacionGenesisEmpresarial Perez,Edgardo8 GlobalPartnerships Murphy,Tara

9GrammenCreditAgricoleFoundation Hammer,Jurgen

10GrassrootsCapitalManagementPBC Hamilton,AnnaKanze

11 Incofin Liv,DannetLinarin12 LOCFUND/BIM Céspedes,VerónicaSusana13 MicroFinanzaRating Spaggiari,Lucia14 MicrofinanzaRatingsrl Moauro,Aldo15 Oikocredit Dominguez,AndreaInés16 OpportunityInternational Scott,Calum

17SmartCampaign@CenterforFinancialInclusion Samuels,Sarah

18

SolidaritéInternationalepourleDéveloppementetl'Investissement Orliange,Gabrielle

19 Symbiotics Rosales,Anne20 TripleJump Bochatay,Christophe21 TripleJump China,Cristopher22 TripleJump Pérez,Gabriela23 TripleJump Rojas,Claudia24 TripleJump DeVlaam,Dirk25 WorldBank Arbab,AmjadAli