Document 6505832

Table of Contents
1
2
Introduction
1
Statement of the Problems
1
2.1
2.2
3
4
Why Social Performance Measurement?
The Importance of SPM for Nepal
Objectives of the Paper
4
Methodology of the Investigation
4
4.1
Social Performance Assessment Process
4.2
Social Performance Assessment Tools
4.2.1
CERISE Social Performance Indicators (SPI) Initiative
4.2.2
SPA Tool
4.2.3
ACCION SOCIAL Tool
4.2.4
CGAP–Grameen–Ford Progress out of Poverty Index (PPI)
4.2.5
FINCA’s Client Assessment Tool
5
1
3
4
5
5
6
6
7
9
4.3
Social Rating
4.3.1
M-CRIL’s Social Rating
4.3.2
Microfinanza Social Rating
4.3.3
Planet Rating
9
9
9
10
4.4
Social Performance Measurement/Research in Nepal
4.4.1
SFCL Social Performance Research
4.4.2
NUBL’s Client Data Management System (CDMS)
10
10
12
Results and Findings
5.1
5.2
5.3
5.4
5.5
13
MFIs are able to reach out to large Numbers of Poor People (Worldwide)
A Number of MFIs Worldwide are able to achieve Financial Sustainability (FSS)
while reaching out to the Poor
Nepali MFIs can achieve their Social Objectives in a sustainable Way
Investment in Social Performance Research can pay out for Nepali MFIs
SPM is particularly important in fragile Environments
13
14
14
15
16
6
Conclusions & Recommendations
16
7
Bibliography
18
Annexes
19
8
Annex 1: SPM Indicators for SFCLs
Annex 2: List of Abbreviations
19
22
2
1
Introduction
With high levels of poverty in Nepal, particularly in rural areas, microfinance can and
should play a key role in contributing to the improved livelihood of the poor. This
requires strong microfinance service providers which are both financially sound as
well as effective in reaching the (rural) poor. Only through double bottom line
businesses (defined as businesses which strive to achieve measurable social and
financial outcomes) can a significant contribution to poverty alleviation in Nepal be
achieved. By being both commercially viable and socially oriented, microfinance can
significantly contribute to Nepal’s development goals and the MDGs:
2
•
Improved access to microfinance services leads to an intensification and
diversification of micro-entrepreneurial activities, creating employment and
generating income for poor people (MDG 1).
•
Thanks to increases in income, poor people can afford health services (MDG
4 – 6) and parents can invest in their children’s education and training (MDG
2).
•
As the main beneficiaries of microfinance services are women, microfinance
contributes to women's empowerment and gender equality (MDG 3).1
Statement of the Problems
2.1 Why Social Performance Measurement?
As shown above microfinance can be an effective means for poverty alleviation and
for achieving social and economic impact. However, this requires effective monitoring
of the social performance of microfinance institutions (MFIs). Social performance can
be defined as “the effective translation of an organization’s social mission into
practice. Social performance is not just about measuring the outcomes, but also
about the actions and corrective measures that are being taken to bring about those
outcomes.”2 Social performance, therefore, looks at the entire process by which
impact is created.
1
2
GTZ (2005) p. 4ff
SEEP (2006) p. 18
1
Figure 1: Dimensions of Social Performance
Source: Accion (2007) p. 1
Monitoring social performance is a complex task which requires a considerable
investment of time and resources. So, why is social performance measurement
(SPM) so important for microfinance institutions and what are its benefits?
•
Focusing on financial performance indicators alone gives an incomplete
picture of the microfinance institution in question as its social impacts and the
processes leading to those impacts are not factored in; even a sound financial
institution can cause harm in a community, e.g. by excluding certain groups
and, thus, creating conflicts within the population.
•
By relying solely on financial indicators, a microfinance institution may
experience a mission drift when social objectives are replaced by purely
financial ones (particularly when incentive systems reward financial outcomes
but not social outcomes).
•
Social organizations or investors need information on social performance in
order to have a basis for planning and decision-making; the lack of social
performance information hinders private investment in microfinance by
making information acquisition on social risks and returns more difficult and
costly.
•
The absence of social performance information diverts private investment in
microfinance towards a relatively small number of “safe” investments;
particularly large and/or high profile microfinance institutions offering relatively
high financial returns, even though other microfinance institutions may yield
higher returns when considering both financial and social impacts.
•
Private investors in microfinance expect transparency and full disclosure, not
only of financial data but also of social performance. When given multiple
investment options, private investors will direct their money towards
investments that can plausibly offer higher risk-adjusted and blended returns.
2
All of the above implies that microfinance institutions have to understand the
relationship between financial and social return and they need to develop and/or
apply a set of tools in order to achieve both their financial and social goals.3
2.2 The Importance of SPM for Nepal
There are two more reasons why SPM should be of great importance to Nepal’s
microfinance institutions in particular:
1. Discrimination of certain ethnic and religious groups as well as women and
low caste members has led to huge disparities in income distribution in Nepal.
Poverty incidence is particularly high for Dalits (47%), Terai Janajatis (36%),
hill Janajatis (44%), and Muslims (41%).4 The exclusion of women, castes
and ethnic groups has been identified as one of the root causes of the tenyear long ‘people’s war’ and other current conflicts. Microfinance institutions
need to address these disparities and actively promote social inclusion of
discriminated groups by monitoring their social performance.
2. In Nepal’s current fragile political situation microfinance practitioners need to
be able to show the social impacts and benefits that they bring to the
communities. In many countries worldwide politicians have misused
microfinance as a topic during their election campaigns, lambasting
microfinance institutions for high interest rates and ruthless business
behaviour (see case study below).
Box 1 Case Study India: Conflict in Andhra - Would Social Performance Monitoring
Have Provided Early Warning?
The state of Andhra Pradesh in India is home to some of the fastest growing MFIs.
SPANDANA, founded in 1998, has over 800,000 clients today. SHARE has 1.5 million clients,
and SKS has managed to expand to 700,000 clients in just a few years. But this fast growth
has led MFIs to run up against a strong rural development program in India: the World Bank
funded and government-sponsored Indira Kranti Pratham (previously known as Velugu).
Indira Kranti provides a range of services, including savings and credit services, to 12 million
women. The program has accused MFIs of charging excessive interest rates and of lacking
transparency in its dealing with clients. MFIs in turn have felt that their high-quality service
was attracting Indira Kranti clients and that hostility toward them stemmed from their
competitive edge.
The situation with Indira Kranti and the government was brewing for some time when, in
December 2005, it exploded. Women’s groups demonstrated against SHARE, and the Telugu
language press was full of accusations of harsh collection tactics, unethical and illegal
operational practices (such as taking savings, which the MFIs are not permitted to do), high
interest rates and profiteering, as well as accusations about governance structures and MFIs
being run as “family businesses.” In March 2006, the Krishna District collector invoked the
state Money Lenders Act to temporarily seize 50 SHARE and SPANDANA branches.
Although the situation has improved since then, the state government’s core concerns
remain. It believes that MFIs’ single-minded focus on profitability and growth leads to a culture
of pushing debt and ensuring strict recoveries—a culture where client welfare is
inconsequential.
Many in the microfinance field do not believe in the government’s characterization of MFIs in
Andhra. But they do feel that some of the MFIs lacked transparency in several areas. This
3
4
USAID (2005) p. 4-5
World Bank and DFID (2006) p. 18
3
ranges from opaque governance structures to interest rate calculations. They observed that
whatever social goals MFIs had set for themselves, they were only tracking and reporting on
their financial performance. Aligning performance indicators to social objectives would have
provided an early warning on any problems clients may have been facing. Tracking
improvements in client lives would have helped demonstrate an MFI’s social mission.
Source: CGAP (2007) p. 3
3
Objectives of the Paper
As shown in chapter 2 SPM is a must for any microfinance services provider in Nepal
for a number of reasons. This paper is geared towards microfinance practitioners in
Nepal, irrespective of whether they are social are double bottom-line businesses or
not. Analysing its social impacts is a necessity also for institutions which merely have
a commercial interest in microfinance, e.g. commercial banks entering the
microfinance market for profit or risk diversification reasons; measuring their social
impact helps these institutions vis-à-vis politicians and the public when getting
blamed for high interest rates.5
This paper will show how to structure and organize SPM within individual institutions
but also within the microfinance industry as a whole. It will further elaborate on SPM
systems and tools available internationally and how these systems and tools are best
applied. The paper will also show concrete examples of social performance
assessments carried out in Nepal along with their results and findings. At the end of
the paper the author will give recommendations on what needs to be done in the
area of SPM development in Nepal.
4
Methodology of the Investigation
The theoretical part of this paper is based on recent documents by relevant
microfinance practitioners and development partners/networks. It is aimed at giving
the methodological and theoretical background concerning the issue of social
performance and at describing state-of-the-art SPM systems and tools.
The paper also contains case studies from Nepal where SPM tools have been
applied and discusses the results and implications of the assessments. An in depth
social performance analysis of the Small Farmers’ Cooperative Limited (SFCL)
Dumarwana, Bara District, by GTZ staff from the Rural Finance Nepal (RUFIN)
project. This paper shows how the SPM was conducted and lays particular emphasis
on how the SFCL Dumarwana has applied SPM tools to increase its outreach among
the rural poor.6
4.1 Social Performance Assessment Process
SPM differs from impact monitoring as it not only looks at results but also at the
processes which led to the results. The process starts by looking at the intent and
design of the microfinance institution by looking at its vision and mission and
analysing the social objectives of the institution.7 The next step is to analyse the
5
The relatively high interest rates in microfinance are – of course – due to the higher
transaction costs of reaching out to poorer customers.
6
The author would like to note that social performance research refers to a (usually one-off)
analysis of the social performance of a particular institution; this is different from social
performance monitoring which is a management tool used on an ongoing basis. The words
social performance measurement, assessment, and monitoring are used interchangeably
throughout this paper.
7
As described above not all players in the microfinance business will have social objectives.
4
institution’s systems and to assess whether the MFI has procedures in place which
are linked to its social goals and whether it is carrying out the necessary activities to
achieve these social goals. The third step is to look at outputs and to verify whether
the MFI is reaching its intended clients (usually poor and low-income households,
excluded groups, etc.) and if so, how many of them. Additionally, the product range
of the institution and its suitability for meeting the needs of the target group need to
be analysed during this step. The forth step is to look at outcomes, i.e. whether
clients have managed to improve their social and economic conditions. The impact
assessment then tries to analyse to what extent these improvements can be
attributed to the MFI’s activities.
Figure 2 shows the social performance assessment process and what tools can be
used during the individual steps (a short description of the tools can be found
hereafter):
Figure 2: Tools for Assessing Social Performance
Source: CGAP (2007) p. 4
4.2 Social Performance Assessment Tools8
As shown above different tools focus on different steps of the social performance
assessment; e.g. the CERISE tool focuses on intent & design, internal systems, and
outputs only. Thus, in order to assess all aspects of social performance a
combination of various tools is needed. The following gives an overview of five major
social performance assessment tools.
4.2.1 CERISE Social Performance Indicators (SPI) Initiative
The CERISE9 tool assesses the intentions and actions of institutions and whether
they have the means in place to attain their social objectives. The CERISE tool uses
a questionnaire and guide to examine:
1.
2.
3.
4.
Outreach to the poor and excluded populations.
Adaptation of products and services for target clients.
Improvement in social and political capital.
Corporate social responsibility (CSR).
8
The overview on the social performance assessment tools is based on CGAP’s Focus Note
41 “Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions”,
p. 4ff
9
CERISE stands for Comité d’Echange, de Réflexion et d’Information sur les Systèmes
d’Epargne-Crédit and is a platform for the exchange of knowledge and information on credit
and savings systems
5
The CERISE tool determines outreach to the poor, through indirect means, by
analysing the mission statement, board and staff commitment, and targeting
methods. Rather than analysing client empowerment at household and community
level, the tool assesses their involvement in MFI decision making and the
transparency of financial transactions. Thus the tool is easy to apply and can be
administered by the MFI itself.
4.2.2 SPA Tool10
The SPA tool mainly builds upon financial and client information which MFIs regularly
collect and uses it as proxies for the social performance assessment. The SPA tool
includes a scorecard with a set of indicators monitoring six dimensions of outreach:
breadth, depth, length, scope, cost, and worth of outreach to clients and the
community:
•
•
•
•
•
•
Breadth of outreach includes the number of borrowers, the percentage of
clients with non-enterprise loans, and voluntary savers as a percentage of
borrowers.
Depth of outreach measures average loan size, percentage of female clients,
and percentage of rural clients.
Length of outreach assesses financial performance - profitability and portfolio
quality.
Scope of outreach includes the number of distinct enterprise loan products,
number of other financial services, the type of savings offered, and the
percentage of clients with three or more products or services.
Cost of outreach calculates the financial costs in providing services, including
number of days taken to process loans and number of staff visits.
Worth of outreach measures client retention rate, loan loss rate, and portfolio
growth that can be attributed to clients.
A number of indicators which are connected to outreach to the community have to be
collected through interviews. The indicators include percentage of operating
revenues reinvested back into the community, staff turnover, female–male employee
ratio among professional-level staff, benefits to employees, and transparency and
management access for clients.
Besides the scorecard, an independent audit team judges the effectiveness of
institutional mission, management and leadership, hiring and training, monitoring
systems, incentive systems, and strategic planning. The findings of both the
scorecard and the audit of the institution’s processes both find entry in the final social
performance report.
Thus, the SPA tool assess whether key performance indicators are consistent with
social performance, and whether internal processes are designed and implemented
in a way that aligns policies, behaviours, and outcomes with the MFI’s stated social
mission.
4.2.3 ACCION SOCIAL Tool
SOCIAL is an acronym for the six elements of social performance that the ACCION
tool seeks to capture: Social mission, Outreach, Client service, Information
transparency, Association with the community, and Labour climate:
•
10
Social mission: articulation of mission; evidence of understanding &
commitment to mission; measurement of fulfilment of social mission
The SPA tool was developed by Gary Woller with funding from USAID.
6
•
•
•
•
•
Outreach: coverage; depth of outreach; products and services for
underserved clients
Client service: client satisfaction; adequacy of products and services being
offered; use of mechanisms to obtain feedback from clients
Information transparency/ Consumer protection: transparency; efforts to
ensure consumer protection
Association with the community: relations with surrounding community;
contribution to the well being of the community
Labour climate: staff satisfaction; mechanisms to gain feedback from staff
It is designed to complement the financial assessment provided by CAMEL11 by
putting an emphasis on the ability of an MFI to fulfil its social mission.
The assessment is implemented by interviewing management, staff, board members
and clients and reviewing strategies, business plans, and minutes of board meetings.
Data provided by the MFI is validated through comparisons with external surveys,
national data, MIX data, market studies, and other secondary information. The tool
also creates geographic coverage maps to determine both the breadth and depth of
coverage.
4.2.4 CGAP–Grameen–Ford Progress out of Poverty Index (PPI)
The idea behind the PPI is to have globally comparable client-level indicators that
can identify the economic levels of clients and demonstrate changes in their
conditions. The tool used is a country specific “poverty scorecard” which is based on
a statistical analysis of national household expenditure surveys.12 The tool (cobranded by CGAP, Grameen, and Ford) is named the Progress out of Poverty Index
(PPI) because it can be used over time to determine improvements in client
economic levels and their ultimate graduation out of poverty.
Every scorecard uses a small set of simple, easily observable indicators to estimate
the share of clients who are below an established poverty line. The MFI or an
external evaluator visits clients at home and obtains scores for each question. The
scores are then compared to a previously constructed “poverty likelihood” table to
determine the percentage of clients falling below the poverty line. The following table
shows a simple poverty scorecard for India. A total score of e.g. 5 points means that
there is a 96.3% likelihood that the person in question is poor, while a score of 10
points represents an 81.7% likelihood.
11
CAMEL is an assessment tool developed by ACCION which evaluates the financial and
managerial soundness of microfinance institutions. CAMEL is an acronym for five
measurements of a financial institution: Capital adequacy, Asset quality, Management,
Earnings, and Liquidity management.
12
Country specific “poverty scorecards” have already been developed for Bangladesh,
Bolivia, Haiti, India, Mexico, Pakistan, and Philippines (see
http://www.microfinancegateway.org/fulltext/results.php?ft_keywords=poverty+scorecard&ft_j
unction=all&Submit=Go&ft_fields%5B%5D=all).
7
Table 1: A simple poverty scorecard for India
No Questions
How many children aged 0 to 17 are in the household?
≥5
4
3
2
1
0
2
What is the household's primary energy source for cooking?
Firewood and chips, charcoal, or none
Any other fuel
3
Does the household own a television?
No
Yes
4
How many hectares of land does the household own?
Urban, any amount
Rural, 0 to 0.4
Rural, 0.41 to 2
Rural, >2
5
What is the principal occupation of the household?
Agricultural labourers
Operators and labourers, bricklayers, construction workers
Cultivators, farmers, fishers, hunters, loggers, unknown
Sales workers, service workers, transport equipment
operators
Professional, technical, clerical, administrative, managerial,
executive, teachers
6
How many almirah/dressing tables does the household own?
None
One
Two or more
7
Is the residence all pucca (burnt bricks, stone, cement, concrete,
jack board/cement-plastered reeds, timber, tiles, galvanized tin or
asbestos cement sheets)?
No
Yes
8
Does the household own a pressure cooker or pressure pan?
No
Yes
9
Does the household own a sewing machine?
No
Yes
10 How many electric fans does the household own?
None
One or two
Three or more
Source: Schreiner (2006) p. 37
Points
1
8
0
8
11
17
22
31
0
8
0
4
0
4
7
10
0
6
8
11
13
0
2
9
0
5
0
5
0
6
0
5
10
Actual
Score
4.2.5 FINCA’s Client Assessment Tool
FINCA implemented its FINCA Client Assessment Tool (FCAT) in 2003. It is a
comprehensive assessment tool that includes demographic information, loan
information, household expenditures, asset accumulation, social metrics (health,
housing, and education), business metrics, client satisfaction and exit interview
questions. The assessment is carried out annually by research fellows deployed in
the field who conduct 30 - 45 minute interviews with clients using handheld devices
to capture clients’ responses.
4.3 Social Rating13
Three microfinance rating agencies (Planet Rating, Microfinanza Rating, and MCRIL) are introducing social rating as a complementary product to credit rating.
4.3.1 M-CRIL’s Social Rating
The aim of M-CRIL’s social performance rating tool is to assess “the likelihood of an
MFI achieving its social mission in line with accepted social values”. The analysis
covers both organizational systems as well as results (including client-level
indicators). The tool analyses whether mission statements, policies, and internal
systems are suitable to fulfil the institution’s social mission and whether there are
mechanisms in place for staff and client protection.
In addition, short household surveys are conducted to determine whether the poor
and excluded are being served and whether clients have improved their social and
economic conditions.
The M-CRIL tool is the largest of the assessment tools because it encompasses all
dimensions (intent, activities, output, outcome, and impact) of social performance.
4.3.2 Microfinanza Social Rating
Microfinanza Rating has created two different types of social rating:
1. Social Rating Survey: this rating is similar to the one done by M-CRIL rating.
It too covers the whole range of social performance dimensions, including the
social and economic context in which the institution works; its mission,
strategies, and systems; the quality of its services; its social responsibility;
and client-level information. In this rating, Microfinanza Rating surveys clients
directly.
2. Social Rating: this is a simplified version of the Social Rating Survey and
excludes direct client surveys. Instead, the rating assesses information
available at the institutional level (including staff interviews). But it too
provides diagnostic information on how well the institution is achieving its
social mission by meeting its social responsibility goals and providing quality
services to its clients, especially the poor.
13
The description of the social ratings by M-CRIL and Microfinanza Rating is based on
CGAP’s Focus Note 41 “Beyond Good Intentions: Measuring the Social Performance of
Microfinance Institutions”, p. 8-9; the information on Planet Ratings is taken from the Planet
Finance Homepage: http://www.planetrating.com/EN/rating_performance.php
9
4.3.3 Planet Rating
Differing from the ratings by M-CRIL and Microfinanza, Planet Rating relies
completely on data available at the MFI level. The rating is based on an analysis of
internal processes, documents and information and on socio-economic and sectorial
national/regional data. It covers four major areas:
1.
2.
3.
4.
Institutionalisation of the social mission.
Targeting and service offering.
Outreach.
Social responsibility.
4.4 Social Performance Measurement/Research in Nepal
As shown above, a number of useful tools have been developed and implemented
over the last few years. As in almost all other areas of microfinance, these concepts
and methods need to be adapted to the Nepali context.14 SPM must always make
reference to the country context. Furthermore, it needs to take into account the
mission and model of each MFI: specific indicators may be adjusted (or omitted)
depending on the MFI model. For example, indirect indicators of outreach (e.g., hired
employment in credit-supported enterprises) are applicable to MFIs that do not focus
on the poor, but aim to provide finance to micro- and small enterprises.15
So far, no comprehensive SPM has been carried out for the microfinance industry in
Nepal. Nevertheless, all major and a number of smaller microfinance players are
carrying out some sort of SPM. The following paragraphs highlight two assessments
conducted and the tools used by different stakeholders in Nepal, namely GTZ, and
Nirdhan Utthan Bank Ltd. (NUBL).
4.4.1 SFCL Social Performance Research
In 2007, GTZ tested some SPM tools in order to improve its monitoring and
evaluation concerning the Small Farmer’s Cooperatives Ltd (SFCL).16 It is important
to follow a structured approach when carrying out this kind of social performance
research in order to get unbiased results which enable the MFI to improve its client
targeting and to better fulfil its social mission. The following is an example of how
such an SP research can be structured:17
1. Deciding on your objectives for the research: the first step is to decide
what information you want to obtain. Possible questions here would be who
uses the institution’s services and who is excluded? Or why are clients
leaving the institution and fail to fully utilize its services? Or what is the effect
of the institution’s products and services on current clients?
2. Deciding on what resources to utilize for the research: this step is of
particular importance if the SP research is carried out by the MFI itself;
conducting research always entails a considerable use of time and/or
financial resources. But as will be shown later in this paper proper SP
14
For example, a simple “poverty scorecard” for Nepal could be developed using the poverty
scorecard developed for the Indian market.
15
Sinha (2006) p. 1
16
SFCLs are the main beneficiaries of the joint Agricultural Development Bank of Nepal Ltd.
(ADBL), Small Farmers Development Bank Ltd. (SFDBL) and GTZ project “Rural Finance
Nepal” (RUFIN). For more information on the project see http://www.gtz.de/en/weltweit/asienpazifik/nepal/20635.htm or http://www.microfinance.org.np/
17
The following research plan is based on Imp-Act (2005), p. 2ff. and was used in a similar
form during the GTZ’s social performance research for the SFCLs.
10
3.
4.
5.
6.
7.
research can contribute significantly in strengthening the financial position of
an MFI (through an increased customer base, savings mobilization, loan
portfolio, and decreased client drop-outs).
Planning the research: these steps comprise of developing (or simply
choosing) research tools, agreeing on the methodology for using the tools
(including sample size and selection), training staff in the use of the tools, and
preparing detailed data collection plans.18 Furthermore, decisions on data
cleaning and entry, and data analysis have to be made.
Selecting the sample: the size and structure of the sample are important
factors in order to get unbiased and meaningful results. As a rule, it will be
necessary to select quite large sample sizes for survey work (usually at least
100 respondents) and smaller samples (e.g. less than 30 individuals or
groups) for qualitative techniques. Regarding the structure, it can be
interesting to organize focus group discussions (FGD) with people who are
not yet members of an MFI in order to understand why certain people are
excluded.
Conducting the research: the research should adhere to the guidelines and
data collection plans developed during step 3. An important issue here is to
respect the privacy of clients; you have to clearly and carefully explain to
participants of the survey the purpose and the anticipated consequences of
the research, as well as how the data will be used and stored.
Analysing the data: a critical aspect is to transform the data gathered into
useful information. This requires ensuring that the team conducting the
assessment possesses the necessary analytical skills to perform this task.
Writing the report: the last step is to process the information collected and
presenting it in a short and concise way. It is important to remember what
objectives had been outlined during step 1 (this includes who the target
audience is) in order to write a balanced report.
The GTZ team in Nepal followed the steps mentioned above during the social
performance research conducted in 2007. The methodology followed primarily a
qualitative method which involved using a mix of secondary research followed by
board members/employee’s workshops, group discussions and an in depth interview
with the SFCL manager. The research draws heavily on the findings of five focus
group discussions (FGD) which were conducted with:
1.
2.
3.
4.
5.
members of the steering committee
female clients
clients from socially excluded groups
a mixed group
a group of people who were not members of the SFCL.19
The information was collected in the following for core areas (on the basis of predefined indicators which can be found in Annex 1: SPM Indicators for SFCLs).
1.
2.
3.
4.
Outreach to the poor and excluded
Adaptation of the services and products to the target clients
Improved social and political capital of clients
Social Responsibility of the institution 20
18
An overview on nine research tools can be found in Imp-Act (2005), p. 7-8
Pant and Shrestha (2007) p. 3
20
Pant and Shrestha (2007) p. 6
19
11
4.4.2 NUBL’s Client Data Management System (CDMS)
Since 2002 Nirdhan Utthan Bank Ltd. has developed a very comprehensive client
data management system (which incorporates elements of SPM) in order to better
understand their customers and to verify whether NUBL reaches out to the people it
intends to, the poor.21
The CDMS involves all staff of NUBL, from the main data collectors, i.e. the loan
officers, to the compilers of data, i.e. branch and area managers, to the top
management and the monitoring unit, which analyse and use the data.22
The system consists of various tools to regularly monitor NUBL’s customers with a
particular focus on assessing whether its clients are able to significantly improve their
livelihood situation. The system monitors five areas to assess in what poverty
category its customers fall:
1.
2.
3.
4.
5.
Education ranking
Land ownership ranking
Housing ranking
Living standards ranking
Food sufficiency ranking
In each category the evaluator asks (and verifies) a number of questions. For
example for the housing ranking:
Table 2: NUBL’s housing ranking
Area
Wall
Roof
Water
source
Toilet
Variables
Points
for cement joint brick or stone wall
for mud joint brick or stone wall
for uncooked brick wall
for mud-wall or bamboo (tati) wall
for straw or santhi wall
for RCC or RBC roof
for tin or stone or cement tile roof
for mud tile roof
for Khar roof
for straw roof
for houses with drinking water source such as personal
water-tap, tube-well or dug-well
for houses with drinking water from community group
owned and managed water facility such as community tubewell, dug-well, tap-stands
for houses with drinking water from common and not well
managed water sources
for HH that uses at least sanitary pan
for HH that uses pit latrine
None for lower than above
5
4
3
2
1
5
4
3
2
1
3
2
1
2
1
Source: NUBL (2004) p. 8
Based on above results customers are categorized into A, B, C, D, and E (category A
having the highest scores. The poverty rating of the customer is then made using
either a two-dimensional model (e.g. using only the results from the housing ranking
21
22
NUBL (2004) p. 2
NUBL (2004) p. 3-4
12
and the land ownership ranking) or a multi-dimensional model.23 Of particular interest
for this assessment is to see whether customers managed to upgrade over the years.
The CDMS comprise of three more additional parts:
1. Client empowerment monitoring which looks into such aspects as: influence
in household decisions, participation in social and community organizations,
participation in public processes and political institutions, self-confidence in
accessing public services, and harmony at home.
2. Client drop-out monitoring which looks at the reasons why customers choose
to terminate their relationship with NUBL.
3. Customer satisfaction monitoring through regular market research.24
CDMS has already been piloted in two branch offices in Bhairahawa and Kotihawa
(both in the Bhairahawa area). The people from NUBL involved in this process find
that the CDMS has proven very valuable in helping to better understand their
customers and analysing how well NUBL manages to reach out to the poor. The
information gathered through the system helps the staff concerned to improve their
products and procedures.
The biggest challenges in the development of the CDMS were (a) to develop
meaningful indicators for the poverty ranking, (b) to design easy-to-use software
which can process all the data inputted and (c) to convince staff and customers of the
importance of the tool. In particular, the last issue needs to be addressed carefully;
loan officers have to carry out customer interviews and might be unhappy about the
extra workload. Only if they see the benefits of the CDMS they will buy in and apply
the tools properly. The customers also need to have the tool carefully explained to
them, otherwise might be reluctant to answer the interviewer’s questions.25
5
Results and Findings
As shown in the previous chapters, SPM has become an important aspect for
management of MFIs. With increased scrutiny of microfinance by the public and
politicians as well as increased involvement of private investment in this area, social
performance is (or, better, should be) high on the agenda of policymakers,
microfinance practitioners and international development partners.
But, as has also been shown, SPM is a complex process which requires a substantial
investment of resources and in new skills. The justification for such an investment
lies in the need to substantiate the double bottom line in microfinance. Experience
around the world has also shown that the substantial investment in SPM may pay off
through greater loyalty of clients (and even staff motivation).26
5.1 MFIs are able to reach out to large Numbers of Poor
People (Worldwide)
Unfortunately, a common framework encompassing all microfinance services
providers has not yet been developed worldwide (or for the Nepali context, for that
matter). But assessments of social performance and impact show that there “are over
750 million accounts in various classes of financial institutions that are generally
aimed at markets below the level of commercial banks, and that a substantial fraction
23
NUBL (2004) p. 5ff
NUBL (2004) p. 11ff
25
This assessment was given by Mr. Prabin Dahal, Senior Manager of Nirdhan Utthan Bank
Limited
26
Sinha (2006) p. 1
24
13
of these institutions' clients are probably poor or near-poor.”27 This by no means
implies that microfinance has already reached all poor people: CGAP estimates the
figure for potential microfinance clients to be 3 billion people. 28 Additionally, the
question arises how many microfinance institutions are able to achieve the double
bottom line, i.e. reaching out to the poor and operate in a financially sustainable way?
5.2 A Number of MFIs Worldwide are able to achieve
Financial Sustainability (FSS) while reaching out to the
Poor
A number of successful MFIs who actively target the poor and excluded have
emerged worldwide over the last couple of/few decades. But an in-depth analysis
conducted by M-CRIL on 27 MFIs in Bangladesh, India and Myanmar could not find a
strong correlation between financial sustainability (measured as FSS) and poverty
outreach, meaning that institutions were not automatically sustainable when they
reached out to the poor, but rather that it was only possible for a number of wellmanaged institutions to be so.
Figure 3: Comparing depth of outreach and financial
sustainability
Source: Sinha and Brar (2005) p. 3
5.3 Nepali MFIs can achieve their Social Objectives in a
sustainable Way
There is more than anecdotal evidence that a number of Nepali MFIs are fulfilling
their social mission whilst operating on a sustainable basis. Unfortunately, no
comprehensive studies have been carried out in this area. Additionally, no common
understanding about poverty and social performance measurement or what
microfinance encompasses has been developed so far.
27
28
CGAP (2004) p. 1
CGAP (2004) p. 13
14
GTZ carried out a social performance assessment of one of its beneficiary MFIs in
2007. The study concluded that of the 1,672 households reached by SFCL
Dumarwana, Bara District, by July 2007 a high proportion were to be considered as
poor. 74% of its customers were women, 50% came from socially excluded groups,
50% were landless tenants and 25% were illiterate individuals (the categories are not
mutually exclusive).29 The study team found that Dumarwana SFCL really gives a
clear example of how an MFI can positively touch all three dimensions of sustainable
development (economic, social and environmental)
The SFCL had been instrumental in bringing together the different ethnic groups in
the VDC and thus contributed to maintaining social peace even during the People’s
War. Thanks to its good social performance, the SFCL has not only survived the
conflict unharmed, but even managed to grow during those difficult times. 30
Households which were members of the SFCL had significantly better access to
savings and credit than their non-member counterparts. Almost all of the SFCL
members were able to generate income from more than two livelihood sources. This
led to higher incomes (compared to non-member households) which had a
favourable impact on their expenditures on food, education and health. 31
Another research conducted by the Centre for Micro-Finance (Pvt) Ltd (CMF) as part
of the worldwide SPM initiative Imp-Act32 showed that MFIs can operate sustainably
even in the hilly districts of Nepal which – in general - are more difficult to access for
microfinance services providers than the Tarai (lowlands). The four microfinance
cooperatives which were assessed assisted communities not only to increase their
income but also to, e.g. build up social capital or increase female participation in
decision-making processes in their households. However, the research also showed
that the cooperatives still had difficulties in reaching out to the (ultra) poor in their
communities.33
5.4 Investment in Social Performance Research can pay out
for Nepali MFIs
As stated at the beginning of this chapter, measuring social performance requires
both time and financial investment. Experiences worldwide, however, show that MFIs
can benefit tremendously from such exercises not only in terms of being able to
better fulfil their social mission but also financially.
This same experience was had by MFIs in Nepal which also conducted social
performance analyses. The following case study shows in what ways MFIs can
benefit from SPM:
Box 2: Expansion of SFCL Dumarwana based on SP research results
After conducting a household survey in 2005/06 the SFCL Dumarwana realized it had not yet
managed to reach out to all of the poor in its VDC and decided to increase its outreach both
within its existing area of operation (i.e. VDC Dumarwana) as well as in the adjoining VDC
Pipra.34 The SFCL developed a vision to include only women from Dalit, ethnic and backward
communities as new members in order to fulfil its social mission to serve the poorest of the
poor villagers. The SFCL management proposed to its board to apply a solidarity group model
with collateral-free loans (with five members each where `first two members receive loans;
29
Pant and Shrestha (2007) p. 2
Pant and Shrestha (2007) p. 2
31
Pant and Shrestha (2007) p. 7
32
See http://www2.ids.ac.uk/impact/
33
Sharma et al. (2005) p. 50ff
34
VDC stands for Village Development Committee and is an administrative unit in Nepal.
30
15
after their repayment two more members receive loans, and, finally, the group leader receives
a loan).
In the beginning, the board members were very sceptical about this idea and raised several
questions such as: “Why only women?”, “Why collateral free loans?” as well as many more.
Some board members feared that this new policy would create problems in the future.
However, after long discussions the board was convinced that the new policy would both help
the SFCL to achieve its social goals as well as strengthen its financial position through
increased membership and business. The new policy was passed and SFCL Dumarwana
started its business expansion; GTZ together with its partners ADBL and SFDBL supported
this process by providing advice on how to best increase business and provided incentives for
the fastest and strongest growing SFCLs during the fiscal year 2006/07.
Within one year SFCL Dumarwana was able to increase its membership by 94% and the
number of borrowers by 43%. The SFCL board and management learnt that in order to serve
very poor (particularly excluded and disadvantaged groups), one has to go to these people’s
doorsteps, otherwise it is difficult to reach out to them. The SFCL also discovered that
repayment rates for collateral-free loans were higher than for collateralised loans as the
customer relation is much closer with people who are usually excluded from participation in
microfinance or other schemes. Therefore, through analysing its customer base and reaching
out to formerly un-served poor, the SFCL is now in a much stronger financial position and,
also, better fulfils its social mission.
Source: Roshan Shakya, Microfinance Advisor, GTZ Nepal
5.5 SPM is particularly important in fragile Environments
SPM has become an important management tool for MFIs worldwide. There is a
point to be made that SPM is even more vital for Nepali MFIs for two reasons: (1) to
protect themselves against accusations from politicians and the public that
microfinance is not helping the poor, and (2) to steer clear from threats of conflict
parties who either try to extort money or accuse them of being partial, for example by
excluding certain groups from accessing their services.
Box 3: Importance of SPM in conflict or war environments
During the People’s War, the Kewalpur SFCL, a women-only SFCL, received massive threats
by the Maoist People’s Liberation Army (PLA). In response to this, the SFCL organized village
meetings where they educated the villagers about the purpose of the cooperative (serving the
poor and excluded) and its principles (e.g. open membership, social inclusion, women
empowerment). This was intended to let the Maoists living in the village know about how and
why the cooperative is helping the village. The women of the SFCL also engaged in direct
dialogues with Maoists and even asked them how they could further improve their institution.
The Maoists - unable to counter the women’s arguments - left the cooperative unharmed.
Source: Shrestha (2007) p. 4
6
Conclusions & Recommendations
This paper shows that SPM is a must for microfinance institutions: the simple
assumption that microfinance will “somehow” trickle down to poor people is not
enough in these times where the use of public funds or social investment is under
much scrutiny by the public and the investors themselves.
Results from SPM worldwide prove that microfinance can indeed achieve the double
bottom line. Also in Nepal a number of microfinance players are able to reach out to
large numbers of poor and excluded groups while at the same time generate enough
profits to sustain operations in the long run. However, no common standards are
applied which makes comparison between institutions difficult and, possibly, creates
market distortions as politicians, investors, and international development partners do
not have sufficient information to make informed decisions about where to put their
funds. Additionally, the MIS systems of many MFIs (both regarding financial as well
16
as social performance) are not yet well enough developed to provide this kind of
information.
The paper has shown a number of SPM methods and tools which have been tested
worldwide and/or in Nepal. MFIs and other microfinance stakeholders need to
analyse the suitability of the various methods and tools for their specific purposes
and make adjustments, where needed. The provision of social performance
information based on proper analysis will help them (1) to strengthen their own
financial position and better fulfil their social mission, and (2) to provide them with
empirical evidence from the field that microfinance indeed reaches out to the poor
and helps them to better their lives. The latter will not only help them improve their
image amongst the general public but can also assist them in attracting more
investment or refinance, either by government institutions, financial institutions,
development partners and/or social investors.
In order to achieve all of the above, the author would like to give a number of
recommendations:
1. Investment in MIS: microfinance institutions, possibly supported by
government and development partners, have to invest in their MIS and
monitoring systems. Only institutions with well-designed customer databases
and the capacity to analyse the information gathered will be able to implement
SPM.
2. Design of suitable SPM tools for Nepal: the methods and tools described in
this paper have to be scrutinized for their suitability for the Nepali perspective
and - in a second step - the tools selected have to be adapted to the context.
Microfinance institutions can either build up the necessary human resources
internally or by outsourcing it to specialized microfinance support institutions
or apex bodies.
3. Joint understanding of SPM: the Nepali microfinance industry has to
develop common standards for SPM. A starting point should be to come up
with joint definitions of e.g. poverty; the development of a simple ‘poverty
scorecard’ as described in table 4 can be a starting point.
4. Dissemination of SPM results: the results from SPM have to be
disseminated to the general public (e.g. through the media), to policymakers
(e.g. through joint seminars) and to prospective investors (e.g. through the
microfinance marketplaces like the MIX MARKET35). This will help to create
an improved image of microfinance in general, a more favourable (policy)
environment, and, hopefully, increased investment in MFIs.
5. Regulations on Social Investment: microfinance institutions are currently
not entitled to attract foreign equity investment. Only after the Central Bank
(NRB) removes this barrier will Nepali MFIs have access to the large pool of
funds which are currently being invested in microfinance. Thus, a change in
regulations concerning foreign investment has the potential to strengthen the
capital base of Nepali MFIs and will – at the same time – foster them to
become more transparent in terms of social and financial performance as
international investors will look very carefully at whether a prospective MFI
achieves the double bottom line or not.
35
See http://www.mixmarket.org/
17
7
Bibliography
Accion: “In Sight 24: Guidelines to Evaluate Social Performance”, Boston, 2007
CGAP: “Occasional Paper No. 8 - Financial Institutions with a ‘Double Bottom Line’:
Implications for the Future of Microfinance”, CGAP Washington, 2004
CGAP: „Focus Note No. 41 - Beyond Good Intentions: Measuring the Social
Performance of Microfinance Institutions”, CGAP, Washington, 2007
GTZ: „Der Beitrag von Mikrofinanzierung zur Erreichungder Millennium Development
Goals (MDGs) und des Aktionsprogramms Armut 2015 - Die Erfahrungen der GTZ“,
GTZ, Eschborn, 2005
Imp-Act: „Planning Research to Assess Social Performance – Guide for Managers”,
Imp-Act Secretariat, Institute of Development Studies, University of Sussex, Brighton,
2005
NUBL: “Approaches and tools for Client Data Monitoring Systems (CDMS)”, Nirdhan
Utthan Bank Ltd., Kathmandu, 2004
Pant, Anupa and Roshan Shrestha: “Assessment of Social Performance and Social
Impact of Dumarwana SFCL”, GTZ, Kathmandu, 2007 (unpublished)
Schreiner, Mark: „A Simple Poverty Scorecard for India”, Washington University in
Saint Louis, Saint Louis, 2006
SEEP: „Social Performance Glossary“, SEEP, Washington, 2006
Sharma, Namratta; Roshan Shrestha and Navraj Simkhada: “Impact Assessment of
SACCOs in Nepal’s Hill Districts”, Centre for Micro-Finance (Pvt) Ltd, Kathmandu,
2005
Shrestha, Roshan: “Community Participation and Conflict Management: The Case of
Small Farmer Co-operatives Ltd.”, GTZ, Kathmandu, 2007 (paper presented at the
“International Conference on Sustainable Development in Conflict Environment:
Challenges and Opportunities” organized by CECI in Kathmandu, Nepal, on January
18, 2007)
Sinha, Frances and Amrit Brar: “M-CRIL Technical Note 3: Can MFIs achieve the
Double Bottom Line?”, M-CRIL, Gurgaon, 2005
Sinha, Frances: “Social Rating and Social Performance Reporting in Microfinance Towards a Common Framework”, EDA/M-CRIL, Argidius Foundation, and the SEEP
Network, Washington, 2006
USAID: “Proposal for a Social Performance Measurement Framework
Microfinance: The Six Aspects of Outreach”, USAID, Washington, 2005
in
World Bank and DFID: “Unequal Citizens: “Gender, Caste and Ethnic Exclusion in
Nepal – Summary”, World Bank and DFID, Kathmandu, 2006
18
8
Annexes
Annex 1: SPM Indicators for SFCLs
Indicators to measure the social performance of SFCLs
1.
1.1.
1.2.
1.3.
1.4.
1.5.
2.
2.1.
2.2.
2.3.
2.4.
Outreach to the poor and excluded
Mission and objectives of the SFCL
Does the SFCL have a social mission and objectives?
Geographic and socio-economic focus in client-group targeting
Does the SFCL provide loans to:
• urban areas
• rural areas
• workers with insecure status
• socially excluded
• women
• illiterate individuals
Methods and tools for targeting
What tools are applied to improve the depth of poverty outreach of the
SFCL?
Size of transaction
What is the average size of transaction?
Collateral
Does the SFCL agree to provide loans only secured by ‘social’
collateral?
Adaptation of the services and products to the target clients
Range of services
How many different loan products does the SFCL provide?
Does the SFCL provide consumer /emergency loans?
How many different voluntary savings products does the SFCL
provide?
Does the SFCL provide insurance products?
Is there any flexibility concerning repayment?
Quality of services
In rural areas, what is the maximum distance between clients and the
financial institution?
How often does the credit committee come together to approve loans?
Has the SFCL ever conducted any market surveys in order to improve
the quality of services to the clients?
What is the percentage of client drop-outs or inactive clients over the
last 12 months?
Has the SFCL ever conducted any surveys on client drop-out?
Non-financial services accessible to the clients
Does the SFCL provide or support access to the following non
financial services?
• Non financial services related to financial and economical
management of the loan: business training, management of
family budget, access to market, innovation, etc.?
• Non financial services related to social needs: literacy
training, health services, access to social workers, etc.?
Participation
19
Has the SFCL ever used tools to involve its clients in the design of the
services provided?
3.
3.1.
3.2.
3.3.
4.
4.1.
4.2.
4.3.
Improvement of social and political capital of clients
Transparency
Does the loan statement differentiate between the amount of the
principal and the amount of the interest and fees to be paid in order to
give information to the borrowers which is easy to understand?
Do clients receive written statements for every loan transactions?
Do clients receive written statements for every savings transactions?
Do clients have access to the SFCL’s annual accounts?
Clients representatives
Do clients of the SFCL elect representatives to an representative
body?
Do these bodies have an effective impact on decision-making and
actions of the SFCL management?
How often do these bodies meet staff managers?
Is there a system of rotation of the elected members?
Is there a system of training for representatives / elected members?
What is the percentage of women among client representatives?
Empowerment
Does the SFCL provide leadership training for clients?
Does the SFCL have power to influence decisions concerning policies
of the local government?
Are any SFCL’s leaders elected to the VDC?
Is the SFCL mobilizing any VDC funds?
Social responsibility of the institution
Human resources policy
What is the starting salary for loan officers (p.a.)?
What is the budget for training of employees (p.a.)?
Do employees participate in decision making?
How many employees have left the SFCL during the last 12 months?
Social responsibility towards the clients
Has the SFCL ever had to change its products and services due to
negative impact on social cohesion or welfare of its clients?
Does the SFCL provide any type of insurance that frees the family
from the burden of debt in case of death of the borrower?
Does the SFCL propose specific measures in case of natural disaster?
Social responsibility towards the local community
Does the SFCL take care that its actions are compatible with the local
culture and values?
Does the SFCL work with local loan officers who can speak the local
language and know the local culture?
How often has the SFCL assisted the local community through
financial support for community projects?
Has the SFCL ever had to change its products, services and way of
functioning due to negative impact on the social cohesion or welfare of
the community?
20
Indicators to measure the social impact of SFCLs
1.
2.
3.
4.
Employment creation for the excluded
Increased part-time and permanent wage labour for the socially
excluded
Empowerment (i.e. position of individuals in their family and communities;
social capital building)
Increased ability to participate in the meetings and speak one’s mind
Increased cooperation amongst group members/friends
Increased cooperation between husbands and wives
Increased literacy in legal matters
Better access to social networks
Decreased migration
Health related issues
Improvements in toilet facilities
Reduction in illness
Child education & other child related issues
Increased awareness of the importance of equal treatment of female
children
Improved access to education for children
Decreased prevalence of child marriages
Indicators to measure the economic impact of SFCLs
1.
2.
3.
4.
5.
6.
Increased incomes
Increased savings
Better access to food
Easier access to credit
Increased self-confidence concerning financial transactions
Increased female participation in income generating activities
21
Annex 2: List of Abbreviations
ADBL
CAMEL
CDMS
CERISE
CGAP
CMF
CSR
FCAT
FSS
GTZ
RUFIN
M-CRIL
MDG
MFI
MIS
NRB
NUBL
PPI
SEEP
SFCL
SFDBL
SOCIAL
SPM
USAID
VDC
Agricultural Development Bank Limited
Capital Adequacy, Asset quality, Management, Earnings, and Liquidity
Management.
Client Data Management System
Comité d’Echange, de Réflexion et d’Information sur les Systèmes
d’Epargne-Crédit
Consultative Group to Assist the Poor
Centre for Micro-Finance (Pvt) Ltd
Corporate Social Responsibility
FINCA Client Assessment Tool
Financial Self-Sufficiency Ratio
Deutsche Gesellschaft für Technische Zusammenarbeit - German
Technical Cooperation
Rural Finance Nepal Project
Micro Credit Ratings International Ltd
Millennium Development Goals
Microfinance Institution
Management Information System
Nepal Rastra Bank – Central Bank of Nepal
Nirdhan Utthan Bank Ltd
Progress out of Poverty Index
Small Enterprise Education and Promotion (Network)
Small Farmer Cooperative Limited
Small Farmer Development Bank Limited
Social mission, Outreach, Client service, Information transparency,
Association with the community, and Labour climate
Social Performance Measurement
United States Agency for International Development
Village Development Committee
22