Social Performance Management

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Garry Wiggins
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1 Microfinance in Europe Social Performance Management Data from 25 finanical institution Microfinance Centre members in Europe The report was developed with the support of the Social Performance Fund, financed by the Ford Foundation 1

2 Main achievements Support to excluded segments of population. Positive contribution to sustainability of microbusinesses Follow minimum practices of client protection Active engagement in supporting local communities 2

3 Main challenges MFIs demonstrate strong social commitment, however, few have been able to translate mission into S.M.A.R.T. objectives Non-financial products and services are underdeveloped in microfinance 3

4 MFIs social goals MFIs fulfill their primary goal well through helping excluded population to grow business MFIs main social goals Increased access to financial services 19 5 Growth of existing businesses 1 19 Employment generation 0 19 Development of start-up enterprises 0 17 Poverty reduction 4 11 Housing Gender equality, women's empowerment Youth opportunities Primary goal Secondary goal Adult education improvement 0 5 Children's schooling 0 5 Access to water and sanitation 0 3 Health improvement

5 Strategic documents definition Lack of S.M.A.R.T. social targets creates a difficulty to effectively monitor MFIs social aspirations. 100% 95% 90% 85% 80% 75% 96% Strategic document define 84% 70% 65% 60% 60% 55% 50% Mission Social goals Social targets 5

6 Client outcomes monitoring MFIs continue to play positive role in microbusiness sector development number of jobs sustained Outcome number of jobs created MFIs report at least one indicator related to supporting business. number of clients with increased income (business 9128 income)

7 Target markets MFI target markets Most MFIs target groups which are excluded from traditional financial services Rural clients Urban clients Women Youth (up to 29 Ethnic minorities Refugees 12% 32% 48% 76% 64% 96% Percentage of institutions targeting group Other migrants 8% EU Internal Migrants 8% Other 16% 0% 20% 40% 60% 80% 100% 120% 7

8 Product and service offering Building partnerships with non-financial providers may be an opportunity for MFI to respond to diverse client needs. Non-financial services could play a positive role in further sector Product and service offering Loans Non-financial services 40% Other financial services 20% Deposits 12% 100% development. Insurance 8% 0% 20% 40% 60% 80% 100% 8

9 Financial products Number of borrowers (as of 31 Dec 2017) Portfolio in EUR (as of 31 Dec 2017) 39% 61% 34% 66% Business Loans Non Business Loans Business Loans Non Business Loans 9

10 Loan purposes Loan uptake (number of borrowers as of 31 Dec 2017)* Agriculture loans dominate which confirms primary interest to support clients in rural areas Agriculture Consumption Service Housing loans Trade Production Other 3772 Education 327 Microleasing *Based on information from 23 MFIs 10

11 Development of non-financial services 8 MFIs reported providing business development services, 1 MFI provides financial education and 5 MFIs other nonfinancial services. Business development Financial Education Other Non-financial services (clients outreach)

12 Gender distribution Field and front office Management Board 48% 47% 38% 52% 53% 62% Women Men Women Men Women Men Gender distribution is successfully addressed among staff. Efforts to increase number of women in governance need to be undertaken. 12

13 Over-indebtedness prevention MFIs need to expend more effort in regular monitoring of indebtedness levels 100% 95% 90% 85% 80% Over-indebtedness prevention 75% Internal audit verification maximum percentage of a borrower's disposable income defined Repayment capacity analysis conducted Indebtedness monitored by board/management 13

14 Costs transparency Disclosing contract terms and conditions are a norm. Further disclosure is driven by national legislation. 100% 96% Transparency 80% 80% 60% 60% 40% 20% 0% The contract provides total cost of product, interest rate, APR(or EIR), fees (including penalties fees), Repayment schedule Product pricing displayed in branches Product pricing is displayed on website 14

15 Client complaint channels Significant majority have at least 2 channels to submit complaints. Majority of MFIs prefer complaints to be submitted in writing via /web/fb/letter. 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 100% System to submit complaint Customer complaints mechanism 96% 88% Dedicated person Complaints are reccorded responsible for recording and cataloging complaints 15

16 Client research For the innovation sector, additional efforts need to be made to learn about clients needs and preferences. 100% 80% 60% 40% 80% Market research 40% 40% 40% 20% 0% Target client characteristics Clients Need/preferences for products Clients need/preferences for delivery channels Potential barriers to access products 16

17 Green agenda implementation 20 MFIs reported at least 1 initiative related to green microfinance. Green microfinance policies and processes Raises staff awareness on internal ecological footprint Offers loans for renewable energy and energy efficiency Evaluates environmental risks of clients' activities Has processes/mechanisms to reduce internal ecological footprint Has a formal environmental policy Offers loans for environmentally-friendly technologies/activities Offers loans to improve clients' environmental resilience Tracks achievement of quantitative objectives to reduce internal ecological footprint Has an environmental manager

18 Supporting local communities MFIs could more strategically link their community engagement with social goals as the supported group is often not related to MFI social goals Support for excluded population Youth Disabled people 5 Indigenous people or ethnic minority 4 Unemployed MFIs reported financial and/or nonfinancial support to local communities. Migrants, internally displaced people, refugees Elderly Other

19 Looking to the future With increased market saturation, competition and legal limitations, diversification of non-financial services may be the most effective way for future development of microfinance. Digitalization brings new opportunities to the sector but MFIs planning any new solutions should not forget about one of their key market advantages relationship with client and putting the client in the centre. Social aspiration is what makes microfinance sector different from other types of financial players. Therefore MFIs need to expend more efforts to monitor and report social outcomes to their stakeholders. 19

20 Respondents of the research 25 financial institutions reported social performance data for 2017: Albania: Noa Sh.a., AgroSocial Fund; BiH: EKI, Lider, Mi-Bospo, Partner, Sunrise; Bulgaria: Maritza Invest, Ustoi; France: Adie; Greece: KEPA; Hungary: Local Enterprise Agency Heves County; Kosovo: Agency for Finance in Kosovo, KEP Trust, KosInvest; Macedonia: Moznosti; Montenegro: Alter Modus, Monte Credit; Romania: good.bee Credit, Patria Credit, Vitas; Serbia: Agroinvest, Opportunity Bank; Spain: ACAF; UK: BCRS Business Loans 20

21 About microfinance sector in Europe Majority of the sector is registered as non banking financial institutions (40%) There is also a certain number of MFIs operating as NGOs (24%). Legal form 4% 8% 24% 24% Commercial Bank Cooperative/Cre dit Union NGO NBFI 40% Other 21

22 About microfinance sector in Europe European microfinance sector is relatively mature. 76% of MFIs were established between Year microfinance operations began 32% 12% 4% 0% 8% 44% Before

23 About Microfinance Centre (MFC) MFC is an international financial inclusion resource centre and network 23

24 About Microfinance Centre (MFC) Our vision is for finance that is centered around creating benefits for clients and excels at delivering responsible financial services. Our mission is to empower people and communities through social finance. 24

25 Microfinance Centre services Research Capacity building SPM & Customer Protection Financial Education Support for Networks Policy Work Regional Networking & Information Exchange

26 Contact us! Microfinance Centre Noakowskiego 10/ Warsaw, Poland

September. EMN POLICY NOTE on the EMN Overview of the Microcredit Sector in the European Union

September. EMN POLICY NOTE on the EMN Overview of the Microcredit Sector in the European Union September 2014 EMN POLICY NOTE on the EMN Overview of the Microcredit Sector in the European Union 2012-13 EMN POLICY NOTE Steady growth of microcredit provision in value and number of microloans surveyed