Social Rating. BOM, Mozambique

Transcription

1 Social Rating Sep17 BOM, Mozambique SOCIAL RATING Draft Social Rating Committee Previous SR: Copyright 2017 MicroFinza Rating Srl (MFR). Any reproduction without MFR express permission is forbidden. SOCIAL RATING RATIONALE SOCIAL PERFORMANCE MANAGEMENT SYSTEM BOM's mission identifies social goals and was revised with new shareholders. Risk of mission drift does not exist in the short term, but the target population may become broader due to the business model change. Clear definition of target clients and targets to ensure alignment with mission are missing in the social strategy. Capacity to collect and alyse client profile data is limited, albeit the use of PPI. Performance appraisal of staff in part cover compliance to the social mission. CLIENT PROTECTION AND SOCIAL RESPONSIBILITY OUTREACH QUALITY OF THE SERVICES Social responsibility towards staff is adequate. Staff turnover has been high, because BOM restructured in Remuneration was adjusted to match local salary benchmarks and inflation. Overall alignment to client protection principles is moderate. Lack of client satisfaction studies hinders the products' adequacy to adapt to client needs and supervision of treatment of clients. Mitigation of overindebtedness risk is adequate, through the use of debt thresholds and the credit bureau, although the latter does not update data regularly. The average APR is significantly above tiol benchmarks and the transparency index is mediumlow. The breadth of outreach is adequate, thanks to the branch network in rural areas. Growth of clients has been hampered by the institution's fincial difficulties. The estimated level of outreach to clients with high poverty and fincial exclusion level and low education is lower compared to the regiol peer groups. The fincial and nonfincial services offered are varied, but their adequacy to the target clients has to be validated by client feedback. Client dropout rate cannot be measured due to MIS limitations to differentiate between new and repeat clients. Institutiol data Jun17 Social indicators Jun17 Active borrowers 6,847 Rural coverage, loans 83.8% Active savers 36,558 Female clients 42.0% Gross portfolio, USD 3,554,734 Female staff 49.2% Total active savings, USD 3,915,381 Female staff in magement 25.0% Branches 13 Average disbursed loan amount, USD 839 Total staff 195 Clients at third loan cycle Loans in > third cycle Legal form Bank Average loan balance / GNI pc 108.2% Year of inception 2005 Average saving balance, USD 107 Network Client dropout ratio Area Rural PAR % Credit methodology Indiv., Group Staff turnover ratio 7.6% Fincial services Credit, saving Average annual percentage rate (APR) 122.3% Non fincial services Training Average transparency index 62 Coverage Natiol Growth in active borrowers 25% See annex 2 and 4 for more details. MicroFinza Rating Headquarters BOM Via Rigola 7 Av. 24 de Julho, nr. 4136, Bairro de Malanga Milan Italy Maputo Mozambique Tel: Tel:

2 Area Social Performance Magement system Factor Social mission Social governce Assessment Results Mission states social goals, but the identification of target clients is improvable. Mission was revised with new shareholders and reflects the intentions of governce and top magement. Board proactively provides strategic guidance and monitors magement s achievement of the business plan. The board SPM committee reports basic social results quarterly but data reliability is improvable. No risk of mission drift in the short term, although target population may become broader in the long term, due to business model change. Social Strategy The definition of target clients and targets to be achieved are not sufficiently specified to measure the institution's alignment to mission. The product strategy is overall aligned to the mission and improvements in delivery channels are in progress. Assessment of social performance related risks by board and magement is mainly focused on fraud cases. Growth rates have been negative and on a downward trend. Social and fincial balance BOM challenged to comply with the double bottom line due to fincial difficulties, but new shareholders have clear plan to make the institution become sustaible. See client protection for responsible pricing. Magement compensation is transparent but the pay gap between magement and field staff is significant. Social monitoring and reporting HR alignment to the mission Limited capacity in collecting PPI data and alysing it to measure change in the clients' life. Social performance reporting uses data that is mainly calculated manually and does not include client satisfaction information. No training on mission or SPMrelated skills is organised. Performance appraisal partly serves to align to the mission, whilst the incentive scheme can induce loan officers to serve clients broader than target population. MicroFinza Rating 2

3 Area Client protection and social responsibility Factor Product design and delivery Prevention of over indebtedness Assessment Results Due to limited client feedback alysis, product design's adequacy in matching client needs is not monitored. Context risk for client overindebtedness is medium, due to limited competition in some areas of operation. The prudential limit set for debt threshold is good and the repayment capacity alysis is acceptable. Credit bureau is consulted for every loan but its data can be outdated, leaving space for potential multiple lending. Targets for disbursement are high for loan officers, but incentives are not paid unless portfolio quality target is met. Transparency Loan contract includes the majority of conditions, but does not mention some fixed fees. For saving products, clients receive a contract only when requesting a fixed deposit account and limited information is communicated verbally. The institutiol transparency index is mediumlow due to the use of flat interest rate and numerous fees charged to borrowers. Responsible pricing Fair and respectful treatment The average APR is high and significantly above peer groups in Mozambique and the region. Operations in rural areas and the offer of nonfincial services does not justify this high loan pricing structure. Policies are not adequate to promote fair and respectful treatment of clients. Debt collection and loan rescheduling policies are in place, but there is no formalised monitoring of staff behaviour with clients on behalf of supervisors or interl audit. Privacy of client data Written consent for sharing client data for loan alysis purposes is requested in the loan application form. Mechanisms for complaint resolution Social responsibility towards the staff Clients are not informed about the complaint handling mechanism unless requested and the channel used to complain is not effective. High staff turnover due to the shareholders' decision to restructure. Adequate HR policy and performance appraisal practices, although training plan leaves room for improvement. Remuneration recently alysed and improved. Green index BOM does not have an interl environmental strategy or green fincial or nonfincial products. Social responsibility community Committed to develop community projects, although the scale of current projects is limited and no specific budget is. MicroFinza Rating 3

4 Area Outreach Quality of the services Factor Breadth of outreach Geographical outreach alignment Alignment to the mission of clients vulnerability and finced activities Alignment to the mission of client poverty and fincial exclusion Variety of fincial services Accessibility of credit services Flexibility of credit services Client dropout rate Quality of other fincial services Quality of nonfincial services Assessment Results Adequate breadth of outreach, above tiol and regiol peers. Average growth of borrowers has been negative and downward, due to BOM's low profitability levels which led to 6 months of not disbursing loans. Adequate coverage of rural areas, although it could be overestimated due to the definition of rural areas that is used. Adequate outreach to women, but average education level of clients is above the tiol benchmark. The majority of loan portfolio finces income generating activities, including selfemployed or informal workers. Estimated poverty rate amongst clients is lower than the tiol benchmark. Share of clients with previous access to fincial services is higher than the regiol benchmark. Average loan balance per borrower indicates a broad type of segment reached. Average saving balance per borrower is low, which may indicate a high share of dormant accounts. Acceptable variety of fincial services (loans, savings and mandatory life insurance). Loan products mainly serve to meet business needs; neither loan nor saving products are adequately catered for maging emergencies. Fincial products accessible for target clients, although meeting guarantee requirements can be problematic. BOM's branch network ensures adequate service delivery, although loan disbursing time can be improved. Loan term and repayment frequency are tailored to client needs, allowing to match activities with high seasolity. Field staff customer service is not specifically monitored by supervisors or interl audit. The MIS is uble to differentiate new clients from repeat clients, hence, client dropout cannot be measured. Reasons for client dropout are not recorded either. The saving services are adequately varied to adapt to target client needs and clients with debit cards can withdraw from any ATMS in the country. Fincial literacy trainings have been organised in most areas of operation for both existing and potential clients; the training quality and sustaibility are improvable. indicates an adequate, good or excellent score; indicates a moderate, weak or poor score. MicroFinza Rating 4

5 Benchmark Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM Active borrowers 0 25,000 50,000 Average balance/borrower/gni pc Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM 0% 100% 200% 300% Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM Female clients 0% 50% 100% Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM Female staff 0% 50% 100% Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM PAR30 0% 10% 20% Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM Portfolio yield 0% 20% 40% 60% Growth in active borrowers Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM 40% 20% 0% 20% 40% Staff turnover ratio Rural Indiv, Group/VB Small outreach High fin. intermed. Bank SS Africa BOM 0% 5% 10% 15% 20% MicroFinza Rating database, until FI: Fincial Intermediation. High fin. Intermed: deposits >20% tot assets. MicroFinza Rating 5

6 1. Social Performance Magement system 1.1 Mission, governce and strategy Social mission: Social governce: Social Strategy: MISSION STATEMENT Through the provision of fincial solutions and training, we want to achieve an improved ProfitAfterTax (PAT) of MZN61m ( 825,000), a reduced CosttoIncome Ratio to <48%, and a growth in our Loan Customer base to 150,000 clients by 2018, which will empower BOM to serve the underserved and fincially excluded people in rural and urban areas of Mozambique to transform their lives, their children's futures and their communities. Social mission The mission identifies the three social goals but there is room for improvement in the identification of the target population. The target population is identified as the underserved and fincially excluded people in rural and urban areas of Mozambique, but they are not specifically in the Strategic Plan. There is also room for improvement in identifying the expected change in clients' lives, since "to transform their lives, their children's futures and their communities" is not directly measurable or bound to time. Social Goals Reaching target clients Meeting client needs Creating change Key words in mission statement Serve the underserved and fincially excluded people in rural and urban areas of Mozambique Provision of fincial solutions and training Transform their lives, their children's futures and their communities The mission overall reflects the institutiol intentions shared at governce and top magement level, specifically in terms of meeting client needs. The newly selected board members (as of September 2017) show good commitment in developing a varied offer of fincial solutions, while maintaining a balanced coverage of urban and rural areas. The Social Performance Magement (SPM) committee at the board level is also responsible for keeping track of the reporting of social data and the nonfincial activities BOM conducts. However, because the target clients are not clearly, reporting on outreach to target clients remains limited. The mission was updated in July 2017, as a result of the change in shareholding structure. The fincial targets were included, in order to emphasise the institution's aim to become fincially sustaible, considering the poor fincial performance levels in the past. However, in 2018 when the mission will be revised, it is recommended to leave the targets in the Strategic Plan and to only mention the institution's commitment to being fincially sustaible in the mission. Governce good practices The majority shareholder changed in 2016, whereby Opportunity Intertiol sold its shares to MyBucks, a South Africabased fintech group. 8% of shares were also sold to Futurium, a local software company, and the sale of Opportunity Cada is to be confirmed by end of Consequently, the members of the Board of Directors (BoD) changed in the third quarter, composed of the acting chairman representing Opportunity Intertiol, 2 members representing MyBucks, a member from Futurium and the CEO of BOM. The BoD is proactive in providing strategic directions to guide the magement in defining the strategy. The BoD members participate in setting the longterm objectives and approve the business plan, demonstrating domint control over the key strategic goals in this transition phase. MicroFinza Rating 6

7 Jun17 Equity 8% 3% MyBucks 90% Futurium Opportunity Cada The BoD performs regular supervision and control of the activities carried out by the magement, covering the key areas related to the achievement of the plans and providing constant feedback to the magement. For example, the majority shareholder, MyBucks, monitors the achievement of daily and weekly targets, which every branch is required to set for loan disbursements and collection. A code of conduct covering the ethical behaviour expected of BoD members and regulating potential conflicts of interest at governce level is in place, which is signed by every member. There is no evidence of risks of conflict of interest at the BoD or magement level, apart from the CEO's role in the BoD, which is mitigated by the proactive role the other board members take in supervising operations. Social governce The Board does not display specific social performance expertise, but a SPM committee has been established within the BoD. Also, BOM is actively involved in sharing experience in SPM within the Opportunity Intertiol network and contracted exterl providers in the last 2 years, for orienting the BoD on the subject and assist magement in relevant client data collection. The Board reviews basic information on the outreach to the desired target population, by reviewing quarterly the selfassessment of SPI4 audit report, which includes data on growth rate, number of new clients per gender and level of fincial inclusion. However, the data reliability is uncertain since it is calculated manually. There is limited evidence of alysis of the shared information in order to monitor the progress towards the achievement of the mission. In part, this lack of indepth alysis is justified by the limited resource and expertise desigted to social reporting at both governce and magement level. There is no risk of mission drift in the shortterm, but considering the new business model the possibility that in the longterm the institution will serve a broader target population exists. The importance of maintaining the social mission has been thoroughly discussed with the new majority shareholder prior to filising the change in ownership. Initially, the new majority shareholder was regarded as only 60% in line with the institution's mission, but then it committed to using technology in order to increase outreach to the fincially excluded in rural areas. There are uncertainties also around the regulatory framework of the Central Bank of Mozambique. Minimum capital requirements were more than doubled in March 2018, potentially limiting the institutiol capacity to maintain its social goals. However, by focusing on improving the institution's fincial performance in the shortterm and discussing about potential new capital injection, the BoD is mitigating such regulatory risk. Social Strategy The business plan includes some social goals and targets in terms of clients' needs to meet, i.e. fincial services and training. BOM does not set clear, timebound targets regarding outreach to the target clients, which would first require clear definition of what the institution defines as "rural" and "underserved and fincially excluded". For example, to distinguish the rural from urban areas in Mozambique, all provinces except Maputo are considered rural, which can be finetuned to consider other provincial towns as urban. MicroFinza Rating 7

8 The product strategy is overall aligned to the mission. The fincial products and delivery models are tailored to the target clients, even if the capacity of some delivery channels presents some shortcomings (see adequacy of services). For example, in areas where BOM operates through mobile banking, i.e. once a week mobile banking staff visits with a truck that functions as a fullfunctioning branch, competitors are establishing small agencies and attracting more customers. The institution's magement is currently in talks with the post office to explore the possibility of placing BOM agents in post office branches across Mozambique. Also, ongoing conversations with exterl providers, to launch mobile money application from which loans can be disbursed, internet banking and intertiol money transfer service, are taking place and due to be confirmed in short to midterm. The BoD and top magement occasiolly assesses social performance related risks, such as reputatiol risk and incidents resulting in harm to clients especially in relation to fraud cases, by using interl audit reports. However, they demonstrate a moderate capacity to take appropriate actions to mitigate such risks, due to the infrequent reporting of client satisfaction levels, considering the lack of client satisfaction surveys or questioning regarding incidents resulting in harming clients during client visits (or calls) by different levels of supervisors. 1.2 Social and fincial balance Responsible growth Responsible growth: Investors' alignment to the double bottom line: Responsible pricing: Magement compensation alignment to the double bottom line: The magement team reviews the total growth rates, split per branch very regularly, because every branch has to report daily on achievements of the day and targets for the following day. It would be recommendable to conduct variance alysis against established growth targets on a quarterly basis. The market saturation, in terms of demand and competitors penetration, is not assessed in a formal and regular manner, to determine growth targets. The overall growth rates in the past 3 years have been negative and in a downward trend. Thus, BOM's growth rates do not appear to have been sustaible, exposing the institution to significant reputatiol risk amongst clients and investors. The negative growth rate as of June 2017 was due to prolonged liquidity problems, which resulted in BOM halting loan disbursements for the first 6 months of BOM had identified the necessary funds sooner, but the central bank took several months to approve relevant bureaucratic processes. MicroFinza Rating 8

9 Investors' alignment to the double bottom line Sustaibility has not yet been achieved (negative three years' average ROA), exposing the clients to the risk of not being able to access the institutions' services in the long term. However, the new majority shareholder has a clear plan in place for BOM to become sustaible in the short term. This new shareholder's time horizons and exit strategy are sufficiently aligned with the institution's level of development and social goals, as the time horizon for MyBucks is longterm (minimum 5 years) and it has shown full commitment to the realisation of the Business Plan The recent exit of Opportunity Intertiol as shareholder is supported by the criterion of the social alignment considered to select new shareholders, even if it is not a primary criterion. Extended discussions prior to formalising the shareholder change took place regarding MyBucks' alignment to social goals. However, the shareholders' agreement does not formalise the social expectations from each shareholder, entailing some risk of mission drift. Fincial performance Dec15 Dec16 Jun17 Growth in active borrowers 8.1% 2.5% 30.2% Growth in outstanding portfolio 15.1% 11.0% 20.9% Growth in number of staff 0.4% 12.5% 22.0% Growth in number of branches 7.1% 0.0% 0.0% PAR % 5.6% 10.4% Writeoff ratio Restructured portfolio 7.9% 2.5% 3.0% Credit risk ratio Return on Equity (ROE) 13.0% 75.0% 12.0% Return on Assets (ROA) 3.6% 14.5% 5.3% Oper. Selfsufficiency (OSS) 73.0% 62.0% 61.0% Portfolio to assets ratio 65% 66% 36% Equity to assets ratio 28% 18% 43% Debt/Equity ratio Staff productivity (borrow.) LO productivity (borrow.) Operating expense ratio 61.0% 80.0% 51.0% Funding expense ratio 6.0% 6.0% 6.0% Provision expense ratio 7.0% 5.0% 3.0% Portfolio yield 57.0% 56.0% 36.0% Risk coverage ratio (PAR30) 142% 185% 122% Magement/field staff compensation 44 Source: BOM Annualized. The fincing structure is transparent, as the reported leverage ratios incorporate all funding sources. BOM reports to the central bank its compliance with the prudential limits on a monthly basis and the audited fincial statement are available upon request. The liabilities towards the customers, including savings and cash collateral, are exposed to risks, because they are not protected under a formal agreement that places them as a higher priority than the institution's returns to shareholders. Considering the number of depositors (36,558 as of June 2017), this lack of protection on the customers' liabilities reduces the institution's level of commitment to being socially responsible. Responsible pricing Please refer to section 2.2 for the responsible pricing alysis. MicroFinza Rating 9

10 Magement compensation alignment to the double bottom line 1.3 Social performance measurement Target client The top magement compensation is transparent, being accessible to raters upon request. The gap between the top three magement and the bottom three field staff compensation is significantly above the regiol benchmark. In part, this is justified by the fact that the CEO is the only expatriate employed at BOM and the wage gap between local employees and expatriates in Mozambique is steep. Also, the CEO currently has a substantial challenge to transform the institution to a sustaible one. That being said, BoD does not specifically compare the top magement compensation to similar double bottom line institutions, and the incentivebased top magement compensation is based on the fincial performance of the institution. The Board uses a formalised scorecard to evaluate the CEO on an annual basis. The scorecard is based on annual objectives set for the CEO, where some parameters indirectly adhere to the institutiol values and social goals, such as growth targets in terms of borrowers and the development of new fincial services. Since the institution is going through a transition phase with the entry of the new majority shareholder, the board members are currently assessing the CEO on a monthly basis. Measurement of the target client: Measurement of the quality of the services: Measurement of the change/impact: Social information consolidation, alysis and reporting: Relative to its size, BOM demonstrates high commitment but a moderate capacity to monitor the client characteristics relevant to its mission and the alignment of outreach results to the target population. Few demographic data is captured electronically in and outside of the core banking system (CBS). However, some data relevant to the mission are only available for a small share of clients, such as fincial inclusion data (previous access to credit or savings) and poverty level, which were collected through the use of the Progress out of Poverty Index (PPI) survey (see below). The institution has started using the PPI as poverty measurement tool but its overall implementation presents some shortcomings. Firstly, the sample size is not representative of BOM's customers and the collected data was not integrated in the CBS; thus, change in client's lives across time or BOM's fincial products were not measured. Secondly, PPI data was collected only once, hence it needs to be rolled out for more years, in order to demonstrate its effectiveness in monitoring the alignment of the poverty outreach results to the social goal of the mission. The CBS has only partial capacity to disaggregate the client data (birth date, achieved education level, household size, and place of residence) by few relevant characteristics, such as branch and product used. PPI data are not yet integrated in the system. The PPI use made by the institution to monitor the client poverty profile does not fully comply with some aspects of the PPI certification standards. The PPI results were reported to the board and senior magement. However, the mager and the surveying staff in charge of PPI were not trained on its use. The PPI data are collected with a sample of the existing and potential customers, but its sampling methodology is questioble. Also, a random and representative sample (at least 5% of collected PPI scorecards) has not been reviewed to verify the accuracy of the data. Quality of the services Please refer to section for the monitoring of the quality of the service. MicroFinza Rating 10

11 Outcome The system to measure the change in clients' lives is not adequate yet. PPI data was collected in March 2017, but the progress in client's lives is mainly documented through successful client case studies. While the qualitative technique can be interesting in understanding the dymics behind the positive changes supported by the institution's services, the case studies' evidence is anecdotal and can't be generalized to the entire client base. No crosssection or longitudil methods are used to enhance the measurement of the change; however, there are plans to collect PPI data annually and integrate the data in the CBS in the mid term. BOM began to use PPI only from 2017, hence it still needs to be fully rolled out in order for the institution to fully comply with the PPI certification standards and be able to monitor change in clients lives. Social information reliability and reporting Limited amount of information is currently collected on the client profile or on the client satisfaction. To the extent that it is available, the quality and reliability of the information collected on the clients' profile, their satisfaction and the change in their lives is weak and not supported by a clear process that identifies the personnel responsibilities and the methods for the collection, storage, alysis, quality control and reporting. The social data collection and data entry are not covered yet by trainings and the data collected are not controlled by the interl audit or the supervisors. The information collected on the client profile and client satisfaction is not often consolidated or alysed, affecting the frequency and regularity of reporting of the social information. Social performance data are disclosed in a transparent manner through the current and first social rating of the institution. In addition, the institution reports to the MIX Market and SPI4 Audit on a quarterly basis, but the data requires manual reporting as the CBS functions do not allow for systemic updates and it is not validated by exterl assessors; thus, data reliability is questioble. 1.4 HR alignment to the mission Staff recruitment and training alignment to the mission: Staff evaluation and incentive alignment to the mission: Staff training alignment to the mission The staff training contribution to the dissemition of the mission to the personnel is limited. The induction provided to the staff includes a brief overview of the mission, however, no training on social performance, the institution's social goals or client protection principles are organised. That being said, the mission dissemition among the staff is adequate, especially when taking into consideration the high staff turnover ratio in the last 3 years (see Section 2.1). Staff evaluation and incentive alignment to the mission The alignment of the staff appraisal to the mission is adequate. The evaluation structure formally includes and assigns a score for the employee's adherence to the institutiol values and reviews social performance factors, such as the quality of the customer service. However, the employees are not formally assessed in terms of their contribution to the institutiol social goals, ability to recruit target clients or the positive change in the clients served. The staff incentive scheme does not include explicit criteria linked to the institutions' social goals to ensure the staff orientation towards the achievement of the mission. The risk of mission drift is in part mitigated because the productivity targets include the number of new clients and portfolio quality, and no incentive is awarded if the loan officer surpasses the thresholds set for PAR1 (5%) and PAR30 (10%). However, the target for loan amount to be disbursed is much higher than the average disbursed loan amount, hence the incentive scheme can potentially lead loan officers to deviate from serving the target client segment. MicroFinza Rating 11

12 2. Client protection and social responsibility 2.1 Social responsibility towards the staff Labor climate: Staff compensation: Professiol development: Personnel gender balance Staff turnover The gender balance is adequate: the composition of staff is well balanced, while female magement (25%) and BoD members (0%) are under represented. The staff turnover rate has been significantly higher than the benchmark (please refer to the benchmark session), because of the shareholder change in between 2015 and 2016 and the overall restructuring of the organization. However, since January 2017, staff turnover began to stabilise. The turnover is not significantly concentrated in specific staff categories, but it peaked to 43.6% in December A significant portion of magement left the institution in the last 2 years, which led to some instability in the organisatiol structure and reporting lines. The main bulk of staff who left were dismissed due to the restructuring of the institution and, in some cases, for fraud. However, amongst those who resigned from BOM, better working conditions or higher salaries in the local fince and development sectors are among the reasons of turnover. Disagreement with the new majority shareholder was a reason for a couple of magement who left as well. The HR function tracks the number of employees who left the organization, but does not calculate the staff turnover rate, preventing an effective monitoring over time. The employees leaving the institution do not go through an exit interview, but the alysis of staff turnover reasons is conducted informally by the HR mager. Staff Dec15 Dec16 Jun17 Total staff Female staff 46.7% 49.5% 49.2% Female staff in magement 20.0% 20.0% 25.0% Female members of the BoD 0.0% 20.0% 0.0% Staff turnover ratio* 31.2% 43.6% 7.6% Male 9% 49% 9% Female 6% 36% 6% Magement 0.0% 40.0% 60.0% Loan officers 36.9% 52.1% 3.3% Other staff 29.6% 33.0% 2.3% * The last period refers to the last 12 months Human resource policies and occupatiol safety The HR policy is generally available to the staff and overall complete, covering wages, benefits, working conditions, discipliry procedures and sanctions. However, safety at work especially regarding field staff who travel often and sometimes handle cash is not yet covered in the policy. The existing HR policy complies with the tiol labour laws. For example, the institution complies with the tiol minimum wage and does not use forced or child labour (under 14 years of age). The risk of staff discrimition or favouritism due to gender, religion, family or other factors is adequate. A nondiscrimition policy for the staff is formalized and covers sex, race, religion, HIV status and disability. Taking into account that Mozambique has a high prevalence rate of AIDS (12.3% of adults aged 15 to 49, as of 2016), the right to confidentiality of one's HIV status is very relevant to the context. The nondiscrimition policy is missing sexual orientation. MicroFinza Rating 12

13 Labor climate monitoring Contractual conditions and benefits Evaluation, training and development The safety risk in areas of operation is medium, since the incidences of field staff handling cash is concentrated mainly on credit supervisors and around the set repayment dates. This level of risk can be higher when field staff are not accompanied by company drivers but use public transport to visit clients. The institution has collected staff feedback on the workload, training, communication, participation and leadership from supervisors annually, but no formal reports on the results were produced or discussed at magement or board level. A formal grievance mechanism is in place to allow employees to raise concerns in a confidential manner to the HR mager, if needed. However, it does not seem to be effectively used by the staff. Employees can also use informal channels to present their complaints. All employees have a formal employment contract and the salary policy respects the minimum wage regulation. The salary surveys revealed that the institution's salaries were slightly below the local labour market. Considering also the significant inflation in Mozambique (average inflation period in the last 3 years is 17%), the board approved a salary raise by 20% in April 2017, which helped to raise staff satisfaction levels and hire adequately experienced top magement staff. The quality of staff training is moderate: a formal training plan and a dedicated budget are not yet in place but the induction of new staff covers the basic skills for each position. The majority of the staff receive trainings less than biannually, which have been exterl trainings funded by shareholders. A formal staff performance appraisal is conducted for the majority of employees twice a year. A formalised template with set persol objectives and the employee's compliance to institutiol values is used to conduct the appraisal. Overall, the staff understands the performance appraisal criteria and its results are used for promotions and raises. However, individual development plans are not available for the majority of the positions, and succession plans are not set in place. 2.2 Client protection Appropriate product design and delivery Appropriate product design and delivery: Prevention of over indebtedness: Transparency: Responsible pricing: Fair and respectful treatment: Privacy of client data: Mechanisms for complaint resolution: Some basic information is collected by the Sales and Marketing mager informally through daily calls with branch magers, to monitor how the clients use the products and services, including the ways in which they help reducing risks and investing in economic opportunities. Formal surveys on client satisfaction are not regularly conducted. A partial alysis of the client satisfaction (including some aspects of overall satisfaction with the products and their terms and relationship with field staff) is performed informally by the field staff without a set frequency and formalised method of recording information. Please refer to section 4.2 for the client dropout alysis. Prevention of over indebtedness The context risk factor for client overindebtedness is medium, because the fincial sector of Mozambique is concentrated in Maputo and Beira, where incidences of overindebtedness occur. The level of multiple borrowing can be high where the sector penetration level is high, because the credit bureau information is updated only every two months, leaving this span of time for borrowers to apply for more loans than the set debt threshold. The growth rates of the main competitor in the past years has been reasoble, but other microfince institutions instead stopped operations. MicroFinza Rating 13

14 Debt threshold limit is set for all loan products. The prudential limit of loan repayments representing maximum 50% of the disposable income is considered, in determining the loan size and term for the majority of cases. This threshold applies for the total amount of loan repayments including loans with BOM and other fincial institutions. The individual cashflow alysis is overall adequate: an acceptable estimate of the client repayment capacity is obtained considering the business income and expenses, and basic family expenses. Proof of payment or income are requested, when possible, but it is rare that clients have such proof considering the target client type. The loans of other family members are not included among the family expenses, unless they are of the coborrower. The alysis of the group members' capacity to repay is adequate. The loan officer conducts a simplified cash flow alysis for one year for every group member, incorporating both business and family income and expenses, including other loans. Group loan members seldom have proof of payment or income, however, by alysing the yearly cash flow, the loan officer is able to capture the seasolity of the borrower's activity. The quality and quantity of the initial and refresher trainings provided to the loan officers on client repayment alysis are moderate. The induction includes a training on the loan process, however, the refresher trainings have been taught by exterl technical assistance providers at irregular intervals, the last one taking place in As a result, the technical capacity of loan officers varies across branches and years of experience. The system to review and report client data through the credit bureau is adequate: all loans undergo a credit bureau verification prior to disbursement, including the verification of the coborrower's credit history. The credit bureau covers some of the key formal fincial providers, which are relevant for the target market of BOM, but the information is updated only every couple of months. The portfolio quality has been moderate over the period of alysis and it shows a negative trend, reaching PAR30 of 10.4% in June Client overindebtedness and weak debt collection process are among the factors contributing to late payments. The institution reacted by separating the collection department from sales, where a call centre that focuses on calling borrowers with arrears was put in place, together with a small group of recovery officers who visit customers with arrears. The staff incentive scheme and the productivity targets contribute to preventing the risk of overindebtedness, because they value portfolio quality over the portfolio volume and the number of new clients, by not awarding the incentive unless the PAR targets are achieved. That being said, disbursement targets are high in terms of loan amount, which is partly justified by the planned introduction of government payroll loans. Transparency Clients receive a contract that includes the total cost of credit amount, which is the way the target clients best understand the loan price. The contract includes the majority of the loan conditions: loan amount, nomil interest and some fees, disbursement date and loan term, pelties for arrears and the repayment schedule (with principal and interest amounts by instalment). However, some loan conditions are not included in the contract: Annual Percentage Rate (APR), fee amount for service duty, obligatory insurance and pelties for prepayment. A Key Facts Document that summarises the main loan conditions, in addition to the loan contract, is not provided, while a document that summarizes the conditions of the mandatory insurance is given to every borrower When opening a transactiol account, clients do not systematically receive written information about the terms and conditions. In the case of saving accounts, the documentation given to the clients is a basic contract that refers to interest rates, minimum accounting balance and term. However, other key information, such as all relevant fees, is not clearly communicated upfront to the clients. MicroFinza Rating 14

15 The Transparency Index indicates the gap between the average nomil interest rate disclosed to the clients by BOM and the Annual Percentage Rate (APR) calculated according to the intertiol standards (MFT methodology), which includes all obligatory fees and commissions. The institutiol transparency index (weighted average of different loan products) is mediumlow (62%), due to the use of flat interest rate and numerous fees charged to the borrowers, which include administration fee, application fee, annual insurance fee and stamp duty. BOM's transparency index is relatively higher than the regiol peer groups which score an average of 53%, but much lower than the average index of banks which is 80%. Responsible pricing The Annual Percentage Rate (APR) of the Individual Loan product, representing more than 75% of the portfolio is 122%, which is significantly above the peer group of loans with similar size, with an estimated deviation between 20% and 30%. The use of flat interest rate and the numerous mandatory fees contribute to the high loan pricing structure. The regulation does not establish an interest rate cap, but the Central Bank of Mozambique monitors closely the interest rates of the commercial banks. In the past, the central bank has advised some banks to lower their interest rates and it also publishes on a monthly basis the margin that every commercial bank is charging on top of the established prime rate for the main product types (leasing/factoring, housing loan, consumption, short and long term loans). This high APR level compared to peers cannot be justified by the high penetration in rural areas or the offering of nonfincial services, since the loan prices are extremely high and there is room for improving efficiency and productivity. Please refer to section 1.2 for the alysis of the profitability alignment to the social mission. Credit products Avg. annual percentage rate (APR) ¹ Average Average Average loan loan transparency Active loans Portfolio balance, balance / index ¹ USD ² GNI pc ² % 75% % % 75% % Individual loans 122% BOM 122% MicroFince Transparency methodology: Pricing alysis tool. ¹ Main loan products (annex 4). ² BOM line data refer to the total portfolio. Fair and respectful treatment The collection policy describes the specific steps to follow in case of default, but it includes steps that are considered too aggressive compared to intertiol practices, such as the right to sell seized collateral after 15 days of arrears. The acceptable and ucceptable collection strategies (e.g. using violence or humiliating language, calling the client after 8pm) have not been formalized. Systematic monitoring of collection related staff regarding their treatment of clients is missing. A loan rescheduling policy exists and it is applied for late clients with willingness, but no capacity to repay. The policy formalizes the cases of specific distress under which clients can be eligible for rescheduling, such as tural disaster and hospitalisation. Reaching informal repayment agreement, i.e. without changing the loan contract, is possible but in such cases, the origil loan terms are updated in the MIS. A loan writeoff policy is also in place. Loans with more than 120 days of arrears can be considered for writeoff, but have to be approved by the Collection Committee. Considering the sample size of clients visited and the scope of the client interview which focuses on the loan process, the interl audit mitigates in part the risk of fraud against the clients, but not that of abusive collection practices. Informally, the interl auditor asks clients for their feedback regarding the customer service. However, when visiting some remote areas, the auditor needs to visit clients with the desigted loan officer in order to locate their homes easily; as a result, the scope of the client interviews can be compromised. MicroFinza Rating 15

16 Privacy of client data The loan application form includes a privacy clause indicating that the client gives consent to share their persol and fincial information to execute all necessary verifications relevant to the loan process. It would be recommendable to specify with which institutions (e.g. credit bureau, the insurance provider) the institution shares client data. Also, there is no evidence of the institution asking written consent to clients when their information is shared for marketing purposes. Mechanisms for complaint resolution The complaint channels suit clients' preferences only partially. Clients can submit a complaint to someone different than their main point of contact, but the only channel available is to write in the suggestion book of the branch offices. Every branch mager is responsible for sending a scan of the suggestion book to the Sales and Marketing Mager every time a new complaint is filled in. When the complaint is regarded minor, then the branch mager is expected to resolve it locally. This complaint retrieval mechanism does not sufficiently assure that cases of fraud organised by the branch staff will be reported to the head office. The clients are not systematically informed about the existence of a complaint mechanism or how to submit a complaint unless the client requests it, hampering the effectiveness of the complaint mechanism. In Mozambique, when a customer that complained is not satisfied with the resolution offered by the fincial institution, the person has the right to complain directly to the central bank. However, this information is not systematically provided by BOM staff. 2.3 Green index and social responsibility community Green index Environmental risk magement: Enviromental products: Community protection policies: Community projects: The environmental strategy has not been formalized so far, mainly because the environmental protection goal is not among the formalized institutiol values. The BoD members have not recently participated in awareness raising activities on environmental regulation, risks and opportunities. There is currently no specific person in the organization that has been appointed to mage environmental issues. The institution's environmental practices are not included in the annual report or in the report to the BoD. Specific awareness raising activities have not been conducted yet for all the staff and no systems are currently in place to reduce the interl environmental risk related to paper, water, energy consumption, waste or carbon emissions. The environmental risk does not play a role yet in the loan approval process: there is no specific restriction to the fincing of activities with different degrees of environmental risk (no environmental risks covered by the exclusion list), and the loan contracts do not include clauses requiring clients to improve environmental practices or mitigate environmental risks. The institution does not provide specific green loan, saving or insurance products. Green nonfincial services such as awareness raising activities on the environmental risks, training on environmentallyfriendly practices or businesses have not been conducted with the clients yet. Social responsibility towards the community The exclusion of activities harmful for the community such as terrorism, moneylaundering and child labour is formalized in a basic exclusion list. The capacity to verify the compliance to the exclusion list is adequate, since the type of activity the clients engage in are generally verified by the branch mager, credit supervisor or the interl auditor during their client visits. However, the sample size and frequency of these supervisors' client visits is limited, partially due to the low population density and scarce road infrastructure in most provinces of Mozambique. MicroFinza Rating 16

17 The institution engages in socially responsible projects that benefit the community, mainly revolved around its fincial literacy training offered to both existing and potential clients. BOM is also trying to engage with the Natiol Industrial and Commercial Institute, in order to provide eyeglasses to albino students with severe visual impairments. However, the funds redistributed to the community are not identified as a separate budget line and there is no specific criterion to determine their amount in a consistent way. MicroFinza Rating 17

18 3. Outreach 3.1 Area of operation Geographical coverage: Alignment of the geographical outreach to the mission: BOM Regions of operation Poverty Outstanding Active loans portfolio Maputo 4.3% 14.7% 23.6% Sofala 38.1% 26.6% 20.1% Manica 30.1% 24.1% 23.4% Tete 46.6% 6.8% 7.2% Zambezia 52.8% 20.5% 16.1% Nampula 40.0% 7.4% 9.5% Total, BOM 100% 100% Urban operations 16.2% 28.4% Rural operations 83.8% 71.6% Total, Mozambique 38.9% Mozambique, population Urban 18.9% 32% Rural 48.0% 68% Source: BOM, Oxford Poverty and Human Development Initiative (OPHI) Between 60%75% of the number of provinces of the country are covered by BOM operations. The estimated outreach to areas poorer than the tiol average is limited, considering that the majority of active loans are concentrated in provinces with relatively lower incidence of multidimensiol poverty (less than 40%). However, the low Human Development Index of the Country (0.418) suggests a good depth of geographical coverage in absolute terms. Based on BOM data, the coverage of rural areas, where the fincially excluded population tends to concentrate, is very large. The share of rural clients (83.8%) is significantly higher than the average tiol rural population (68%). However, such figure is likely to be overestimated considering the institution's definition of rural. 3.2 Clients reached Breadth of outreach: Alignment of the depth of outreach to the mission: BOM Jan15 Jan16 Jul16 Dec15 Dec16 Jun17 Active borrowers 9,330 9,099 6,847 Active savers 42,790 33,911 36,558 Gross outstanding portfolio, USD 6,101,424 4,355,572 3,554,734 Total active savings, USD 5,428,752 3,490,323 3,915,381 Branches Growth in outstanding portfolio 15% 11% 21% Growth in active borrowers 8% 2% 30% The breadth of outreach indicated by the number of active borrowers compared to the regiol benchmark (7,435 clients) is adequate. The number of borrowers is estimated to be in line with the average of the main competitor in the local microfince sector. However, because of the lack of market study, BOM's market positioning in terms of outreach cannot be confirmed. MicroFinza Rating 18

19 The average growth of borrowers in the last 3 years has been negative, due to the fincial difficulties the institution went through, which impeded it from investing further in product development or promotiol activities in new markets and also the decision to stop disbursements for 6 months. Moreover, number of staff was cut by 22% between June 2016 and June 2017 to ratiolise operatiol expenses and this had an impact on the overall magement of the loan portfolio. The average growth of borrowers in the last 3 years shows a negative trend, which was particularly affected by the halt in loan disbursements in the first 6 months of However, fresh capital was injected in June 2017, allowing the institution to resume disbursing loans and so the number of borrowers is expected to grow back again. Social vulnerability and household profile The outreach to households with a relatively low education level is limited based on the proxies available. The estimated share of clients without completed primary education (approximately 11%) is lower than the regiol benchmark amongst peer groups (32%). The outreach to households with vulnerable demographic characteristics is adequate based on the data available. The household size (4.2 people) is less than the regiol benchmark (6.9), but the share of clients belonging to the vulnerable youth and senior categories (<24 and >60 years of age) is not margil (5.6%). The outreach to women is adequate based on the available data. The share of female clients (42%) is in line with the regiol benchmark (46%). The reliability of data regarding the share of outstanding loan portfolio that is represented by women borrowers is questioble and no data is available regarding the number of female headed households. Jun17 Gender Outstanding portfolio 58% 42% Male Female Active clients 58% 42% Finced activities The share of loans fincing income generating activities is high (97.2% of loan portfolio), above the regiol benchmark (71%) and peer groups amongst banks (51%). Nonetheless, the social goals of the institution do not directly refer to the fincing of income generating activities. Jun17 Finced activities Outstanding portfolio 89% 5% 2% 5% Trade Agriculture 3% 1% 1% Consumption Active clients 95% Staff MicroFinza Rating 19

20 The estimated share of selfemployed clients and informal microenterprises finced is high, above the peer groups. In Mozambique, BOM is one of the only two formal fincial institutions that provide loans to clients without requiring hard collateral, such as salary slips or mortgage. Data on the use of savings made by clients are not available. Economic poverty Considering BOM's areas of operation, its poverty outreach is moderate. The estimated poverty rate among clients is slightly lower than the tiol average, showing some room for improvement in the alignment with the mission. The PPI data collected in March 2017 would suggest an even lower level of poverty outreach. However, because only a very limited share of this data (approximately 200 respondents out of 1,000) was stored and available for alysis, the information on the likelihood of clients being below the tiol poverty line cannot be generalised from it. Dwelling and assets No data on house and land ownership. No data on access to basic services The bulk of loans backed by soft guarantee (such as vehicles and electronic appliances) instead of hard guarantee represents 80% of the loan portfolio. This indicates that the majority of clients may not necessarily own a large amount of assets, such as land or property. Jun17 Lending methodology Active loans Outstanding portfolio 97% 95% Individual Solidarity group Jun17 Collateral Active loans 97% Salary Pledge Outstanding portfolio 80% 15% Mortgage Pledge Access to fincial services The outreach to the fincially excluded is relatively low: the share of clients with no previous access to formal fincial services as reported by the institution on a small sample of clients (less than 57%) is lower than the average amongst the regiol peer groups. The share of clients with previous access to loans in banks and regulated fincial institutions (43%) is above the average amongst regiol peer groups (8%), suggesting a moderate outreach to the population excluded from bank lending services. MicroFinza Rating 20

21 Credit and saving size The average loan balance per borrower on Gross Natiol Income per capita (GNIpc) is between 100% and 150%, suggesting a broad type of segment reached. That being said, the high level of poverty in Mozambique brings down significantly its GNIpc (USD 480) compared to the regiol GNIpc (USD 1505 for the SubSaharan Africa IDA & IBRD countries), hence on a regiol level, the average loan balance is significantly below GNIpc. Loan size Average loan balance, USD Average disbursed loan amount, USD Average loan disbursed ($PPP) Growth in average loan balance¹ ¹ Annual average growth in the last three periods. Dec15 Dec16 Jun ,103 2,337 2, % The growth in the average loan balance in the last three periods of alysis has been in line with the inflation (16% as of June 2017) and below the majority of the peer groups considered in the country. However, considering the introduction of payroll loans for government officials and the reduction of solidarity group loans, changes in mix of segments of population reached are to be expected. Loan size by product Individual loans Agriculture loans Consumer loans SME loans Staff loans Solidarity loans Total ¹ Per loan. ² Last period. Average loan balance, USD Loan balance¹ / GNI pc Growth in portfolio ² % 26.5% % 2.1% 1, % 54.4% 6, % 10.9% 1, % 17.9% % 91.1% % 21% Data on the average loan size by cycle are not available, because the MIS is not able to separate repeat clients from new ones. The average saving balance per borrower indicates a poor type of segment reached, as it represents 22% of the Gross Natiol Income per capita (GNI pc). However, because all borrowers are obliged to open a transactiol account with BOM, the low average saving balance may indicate instead a high share of dormant accounts. Saving size Transactiol account Savings account Conta Oportunidade Term Deposit Flexi Deposit Total Average savings balance, USD Average saving balance/gnipc Number of savings accounts Amount of savings 28 6% 70% 39% 34 7% 29% 19% % 0% 1% % 1% 40% % 0% 2% % 100% 100% MicroFinza Rating 21

22 4. Quality of the services 4.1 Variety of services Variety of types of services: Variety of types of services:: Service variety to meet diverse client fincial needs: The overall variety of the types of services provided is good. Credit and saving products, as well as nonfincial services, are provided to the clients. Other fincial services, such as leasing, factoring or payment services, are not currently available; however, there are short term plans to launch a mobile money service that will help not only customers to make payments, but also the institution to disburse loans electronically. The institution is licenced to mobilize savings from the clients and currently offers saving services, both as transactiol accounts with the option of having a debit card, or as a fixed term deposit with an interest rate that ranges from 1 to 20%. Clients can open these accounts at BOM branches and withdraw with the debit card using the ATM of other local banks. The only insurance service currently offered by the institution is the mandatory life insurance covering the loan balance. It covers tural disaster, hospitalisation (minimum 5 days) and death of the borrower or other household members. In the case of the borrower's death, MZN 15,000 premium for the funeral is given to the coborrower. Service variety to meet diverse client fincial needs The need for clients to invest in economic opportunities is adequately met by the products and services of the institution. The flexible product characteristics match the need to fince business working capital, business investments, agriculture working capital, or investments and to build savings. However, the current offer of products does not help to address life cycle household needs, such as to fince weddings and funerals, education, health, or to build savings for youth, live events and housing. The need for clients to cope with common emergencies is partly met by the products and services of the institution. Clients have access to loan rescheduling or restructuring when appropriate and easily withdrawable savings in case of emergency from their transactiol accounts. However, other options to mage the shocks in the clients' cash flow such as emergency loans, accessible funds or reserves in case of emergency, or insurance or health services are not available. To cover such situations of urgency that clients may face, BOM is planning to introduce quick loans (e.g. one week or one month loan) in the short to mid term, by following MyBucks' model of digital loan application and disbursements. 4.2 Adequacy of services Accessibility: service delivery, time, procedure, guarantee Adequacy of credit services: Adequacy of other fincial services: Adequacy of nonfincial services: Adequate The fincial products do not present barriers to the access of the main target population, thanks to the accessible loan and saving size (e.g. small minimum amount), loan repayment schedules and the savings withdrawal conditions (e.g. compatible with the cashflows of the target populations), and delivery channels (e.g. mobile banking and ATMs). However, some specific features of the products may constitute a barrier for the more vulnerable segment of the target population, such as the guarantee which on average needs to represent 150% of the agreed loan amount. There were incidences where borrowers were caught registering assets of their neighbours, which were temporarily placed in their homes to pretend that the assets were theirs. The service delivery channels are adequate thanks to the coverage of the branch network and the proximity of branches to the areas where the target population lives, thanks to the "mobile banking" service (albeit there are competitors that began establishing branches in these areas). The client satisfaction with the delivery channels has not been specifically alysed in client satisfaction studies yet. MicroFinza Rating 22

23 The loan disbursement procedure is not as fast as other fincial institutions: disbursing a loan takes over a week for SME loans, and up to 6 days for other types of loans for both new and existing clients, due to some inefficiency in the loan process, such as the delay in checking credit bureau data. The process of fillingup the application form is supported by the field staff. The documents required in case of nonmortgage loans are easy to collect for clients in the majority of cases. There is evidence of verification of credit bureau data taking time, due to lack of personnel who can be available to check the data immediately after it is requested. The value of the guarantees required (maximum 150%) is in line with the credit risk of the loans disbursed. Despite allowing to register pledge as collateral, due to the poverty level of Mozambique there is evidence from the field staff that some clients struggle to identify enough assets to meet this guarantee requirement. Guarantee requirement is reduced to 70% of the loan amount from the third cycle loan onwards, if the borrower has no record of payment in arrears. Flexibility: term, frequency, amount and service The loan terms are adequately tailored to the main fincial needs of the target population segments, however, there is no relevant evidence from formalised client feedback, such as client satisfaction studies. The loan repayment frequency is well tailored to the most frequent business and household cashflow patterns of the target population segments, because the clients can choose among several appropriate repayment frequency options, including balloon payments for agricultural loans. On the other hand, no grace period is permitted at BOM. The majority of the target clients fincial needs are adequately matched by the loan size options available among the variety of credit products offered that are catered for different sectors and people working in informal activities or with fixed salary. However, there are no client satisfaction studies that can substantiate this informal client feedback. The customer service may not be uniform across branches and field officers, and a notmargil share of clients may not be fully satisfied with the field staff interaction, mainly due to the amount of fraud cases recorded in the past 3 years. Also, there is evidence of negative client feedback on the interaction of debt collection call centre staff with them. However, these informal findings are not substantiated by a formalised client satisfaction study. Client dropout rate There is currently no registered information available on the client dropout or retained clients. The MIS cannot distinguish between repeat versus new clients. As a result, it is not possible to calculate the client dropout rate. The clients drop out reasons are investigated only informally at the client level, without a consolidated alysis. There is evidence that one of the main reasons for client dropout in 2017 is due to the halt in loan disbursement that took place in the first 6 months, which led to reduction of client confidence regarding the institution's viability. Target clients leaving for other fincial institutions with more diverse and appropriate products and services, such as faster loan processing time or branch office location, is among the reasons of client dropout, but not perceived as the main reason. Appropriateness of fincial services other than credit The target segments' needs to build savings and mage their cashflow are adequately met by the saving services offered by the institution thanks to the diversified saving size options and the convenient delivery channels (e.g. mobile banking, ATMs). However, the withdrawal conditions for the term products have room for improvement in better tailoring to the needs of the target population to be able to withdraw immediately in case of emergencies, because only savers with transactiol accounts can have a debit card with which they can use ATMs. No client satisfaction study has been conducted on customers who use the saving products. MicroFinza Rating 23

24 Variety and appropriateness of non fincial services The quality and relevance of the nonfincial services for the target population segments is adequate. The fincial literacy trainings are designed to empower and improve the capacity to take advantage of economic opportunities by existing and potential clients. However, the perceived quality and effectiveness of these trainings has not been investigated yet. The offer of nonfincial services is adequate, as 656 existing and potential clients attended the fincial literacy trainings in 10 different locations without any charge on the clients, as of August However, the nonfincial services business model is not fully sustaible: the funding sources on the long term are not identified. While as of August 2017, the Corporate Social Responsibility activities were limited, the magement is committed to consolidating partnerships with local organisations to develop further activities for the community, as reported to the board SPM Committee. However, a dedicated budget is not yet formalized. MicroFinza Rating 24

25 Annex 1 Universal Standards and Client Protection Certification Social rating Social performance magement Client protection Outreach Quality of the services Universal Standards of Social Performance magement Social Rating demonstrates the implementation to the USSPM*. Client Protection Certification Social Rating gives an indicator of the efforts required to achieve certification. Social Rating is not a certification, but it can be combined with a certification with MicroFinza Rating, a licensed certifier. Universal Standards of Social Performance magement validated by Social Rating Implementation 1 Define and Monitor Social Goals Draft 1a The institution has a strategy to achieve its social goals 1b The MFI collects, reports, and ensures the accuracy of clientlevel social data 2 Ensure Board, Magement, Employee Commitment to Social Goals Draft 2a Members of the Board of Directors are committed to the mission 2b Board of Directors holds the institution accountable to its mission 2c Senior magement sets and oversees the strategy for achieving its social goals. 3 Design Services and Channels That Meet Clients Needs Draft 3a The MFI understands the needs and preferences of different types of clients. 3b The products and delivery channels are designed to benefit clients 4 Treat Clients Responsibly Draft 4a The MFI avoids client overindebtedness. 4b The MFI communicates clear, sufficient and timely information to the clients. 4c The MFI treats their clients fairly and respectfully. 4d The institution respects the privacy of client data. 4e The MFI has timely and responsive mechanisms for complaints resolution. 5 Treat Employees Responsibly Draft 5a The MFI policies protects employees and create a supportive working environment. 5b Employment terms are transparent and training is provided to the employees 5c The institution monitors employee satisfaction and turnover. 6 Balance Fincial and Social Performance Draft 6a Growth is sustaible for market conditions, allowing for high service quality 6b The fincing structure is appropriate to a double bottom line MFI 6c Pursuit of profits does not undermine the sustaibility or client wellbeing 6d The senior magers compensation is appropriate to a double bottom line MFI 7 Green microfince Draft 7a The institution addresses environmental issues through a formalized strategy. 7b The institution mages its interl environmental risks. 7c The institution mages its exterl environmental risks. 7d The institution fosters green opportunities. Implementation: high; intermediate; low. *Correspondence map between the USSPM and the Social Rating: annex 1 of the Social Rating Methodology ( Social Rating general opinion on the Client Protection Certification 1 Appropriate product design and delivery 2 Prevention of over indebtedness 3 Transparency 4 Responsible pricing 5 Fair and respectful treatment 6 Privacy of client data 7 Mechanisms for complaint resolution Effort required Draft Draft Draft Draft Draft Draft Draft MicroFinza Rating 25