[PPT] - Social Investor Meeting on Responsible Inclusive Finance Customer PowerPoint Presentation

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Social Investor Meeting on Responsible Inclusive Finance

Customer Centricity Learning Event Chennai, India Monday February 19, 2018

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Agenda

11.00-11.10: Welcome and Updates
11.10-11.40: Understanding the risk for over-indebtedness in India
11.40-12.20: Implementing the Universal Standards in India
12.20-13.00: Responsible Exits
13.00-14.00: Lunch
14.00-14.30: SPI4 and ALINUS
14.30-15.00: Update on lender guidelines monitoring in Cambodia
15.00-15.45: Assessing S&E performance of SME finance
15.45-16.00: Coffee Break
16.00-16.45: Digitalization & Fintech
16.15-17.00: Data Platform
17.00-17.45: Aligning efforts with the impact investing field
17.45-18.00: Wrap up and conclusions

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One of the most active working groups of the SPTF..
…with a growing number of investors joining and committing to our

shared objectives - ~400 members from 133 organizations.

We work together to advance responsible investment in inclusive
finance. Together, we:

▫ Raise awareness and create ownership among investors of

ngoing initiatives and developments in SPM

▫ Identify areas of concern in responsible inclusive finance ▫ Take collective action in areas where it can help the market develop in a positive and unified direction

Welcome

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1. Harmonizing investor due diligence and monitoring on social performance through the common tool of SPI4 ALINUS 2. Evaluating client protection risks in fintech investments during due diligence and ongoing monitoring (CDC-SPTF fintech webinar series) 3. Aligning efforts with the broader impact investing sector, particularly related to accelerating impact measurement and management (WEF, GIIN, IMP, UNPRI) 4. Assessing S&E performance of SME finance 5. Other areas of priority include preventing over-indebtedness (guidelines and MIMOSA), managing social outcomes (outcomes working group), harmonizing loan agreement covenants (“reasonable covenants”), pricing transparency (data platform), and responsible exits

Current priorities of the SIWG

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We’ll be discussing updates on most of these today

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2017: Zurich (March), Mexico (May)
Next meeting in 2018 likely to take place in June in

Luxembourg

We also meet several times throughout the year via

webinars in areas of common interest to group members

In-person meetings: 2x a year

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Sign up to become an organizational member

Being 100% donor-dependant is no longer an
ption
SPTF recently introduced a new fee-based
rganizational membership model
Thank you to Oikocredit, Grameen Credit

Agricole Foundation, Symbiotics that recently became organizational members

Your organization will be receiving an invoice very

soon

To sign up visit https://sptf.info/about-

us/membership

For questions contact membership@sptf.info

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Agenda

11.00-11.10: Welcome and Updates
11.10-11.40: Understanding the risk for over-indebtedness in India
11.40-12.20: Implementing the Universal Standards in India
12.20-13.00: Responsible Exits
13.00-14.00: Lunch
14.00-14.30: SPI4 and ALINUS
14.30-15.00: Update on lender guidelines monitoring in Cambodia
15.00-15.45: Assessing S&E performance of SME finance
15.45-16.00: Coffee Break
16.00-16.45: Digitalization & Fintech
16.15-17.00: Data Platform
17.00-17.45: Aligning efforts with the impact investing field
17.45-18.00: Wrap up and conclusions

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Agenda

11.00-11.10: Welcome and Updates
11.10-11.40: Understanding the risk for over-indebtedness in India
11.40-12.20: Implementing the Universal Standards in India
12.20-13.00: Responsible Exits
13.00-14.00: Lunch
14.00-14.30: SPI4 and ALINUS
14.30-15.00: Update on lender guidelines monitoring in Cambodia
15.00-15.45: Assessing S&E performance of SME finance
15.45-16.00: Coffee Break
16.00-16.45: Digitalization & Fintech
16.15-17.00: Data Platform
17.00-17.45: Aligning efforts with the impact investing field
17.45-18.00: Wrap up and conclusions

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Frances Sinha & M-CRIL team www.m-cril.com

USSPM Dimension 5: Treat Employees Responsibly Some observations on MFI Practices in India

SPTF Social Investor Working Group February 2018

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M-CRIL

v Engaged with microfinance since 1998 v Now merged with EDA – training, research, social businesses Ø 2017 ADB equity investment; strengthens our work in microfinance and other sectors across Asia Ø Offices outside India – in Myanmar, Cambodia Ø In India: Applying for Rating license from RBI – to be recognized by banks in India. Fewer ratings, more Client Protection Certifications, Code of Conduct Assessments, Loan Portfolio Audits, Third Party Evaluations

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M-CRIL

Observations overall – India context

Ø Formal Banking

Distanced from low income people
Labour unions seen to be self-serving, disruptive, (and public

sector – politicized) Ø MFIs

Close to target market – low income people
Margin cap; drive for operational efficiency: staff are the

major operational expense – but sometimes very high compensation to CEOs/senior management

Differences: geography (north vs south; urban vs rural), size (Tier 1

= >250,000 clients, vs Tier 2/3)

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M-CRIL

Observations overall – MFIs

Ø MFIs contd.

Field staff often recruited from same background as clients;

school leavers (class 10/12)

Common policy that local staff are not posted in their home

area; rotated across branches every 6 months (fraud mitigation)

Work requires early start to working day, mobility (motor bike)
These are reasons for low % women field staff

Ø Sector concerns since 2010 – client protection; less attention to staff protection, though recognition of HR issues, having an HR policy

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USSPM 5 - summary

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Source: CERISE SPI-4 Benchmarks, Feb 2018

Inde South Asia South East Asia Number of FSP 5 16 28 DIM 5: TREAT EMPLOYEES RESPONSIBLY 84% 83% 70% 5A - HR policy 79% 81% 68% 5B - Communication of terms of employment 95% 88% 78% 5C - Employee satisfaction 77% 79% 63%

4 Urban, 2 Tier 1, 2 headquartered in S India

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M-CRIL

The high flyers

Recognised as among top ‘best companies to work for’ in India, past 3 years and more: v Ujjivan v Equitas v Bharat Financial Inclusion (prev. SKS) What do you think about this? Tools applied: Trust Index - quality of employee experience Culture Audit - evaluates people practices Do we need such tools to reinforce USSPM 5?

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M-CRIL

EP 5A.1. HR Policy/Employee Rights

Most MFIs have an HR policy –

available at branches; updated via circulars;

Specify standard working

hours/holidays

Accommodation (and food) is

provided to staff at the branch

No field staff back up – so

long working hours; Sunday a training day; holidays not given easily

Very basic accommodation,

questionable - ventilation, lighting, hygiene

Women field staff – 0-22%
Women board members –

0/1-4/5

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M-CRIL

EP 5A.2. Staff compensation

Staff awareness of salary

structure is high

High incentives for growth

making a comeback

High targets for LOs set

immediately after LO induction

Performance evaluations
ften based only on targets

LOs: Other comparable industries provide better monetary compensation and reduced working hours to candidates of similar background Outstanding Issue of CEOs/senior staff: field staff pay (USSPM6)

Benchmark by minimum wage – appropriate?

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M-CRIL

MFIs have systems in place
Tier 2/3 MFIs lack multiple

channels that work effectively and maintain confidentiality; affects staff confidence in system – seldom complain

EP 5A.3 Staff complaints

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M-CRIL

EP 5A.4 Staff Health and safety

Shift from cash collections by

staff – because of security concerns

Nearly all MFIs provide private

health and life insurance for staff

Review of staff health risks –

limited to road accidents and wearing helmets

Risks and incidents not

reported to Board/Management Committee

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M-CRIL

EP 5B.1 Job description/performance evaluation

MFIs provide written

contract letters that contain JD or reference to it.

Most staff are well aware
f their roles and

responsibilities Tier 2/3 MFIs:

Criteria for promotion not

clearly defined

HR staff mostly perform
nly admin tasks related to

HR

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M-CRIL

EP 5B.2. Staff training/skill development

At least a one week

induction program for new employees

Task related refresher

trainings provided regularly

Promotions (field level) -

few FIs train on soft skills (e.g. leadership)

Performance appraisals and

training needs not linked

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Proj

ject update

Fe Feb 2018 2018

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Publications to date

Apr 2017 22

Country reports Jordan Apr 2018 En Nicaragua Mar 2018 En, Sp India

Uttar Pradesh Maharashtra Tamil Nadu

Feb 2018 En Morocco Jan 2018, Dec 2015 En, Fr Kyrgyzstan Aug 2017, Nov 2015 En Cambodia Nov 2015, May 2016 En Bolivia Dec 2015 En, Sp Peru Jan 2016 En, Sp Azerbaijan Apr 2016 En Senegal Sep 2016 En, Fr Circulars Cambodia Jun 2016, Dec 2016 En

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Apr 2017 23

Su Subsc scrib ibers ca can no now ac access all all reports on

Micr crofinance ceReports.com

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2018 Subscription Fee Schedule

24 Apr 2017

Annual subscription Access to all current & past reports €9,900 Single report One country report (current & past) €1,500 Commissioned reports Report on country of choice + annual subscription €15,000 MicroFinanza Rating discount For subscribers to MicroFinanza rating & country reports 15%

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Subscriber list is growing…

v BNP Paribas v Deutsche Bank v Kiva (in-kind) v MCE Social Capital v Proparco v responsAbility v Triple Jump v Commission from IFC (for Jordan) v And core funding & administrative support from e-MFP

25 Apr 2017

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A whole new look at India data

26 Apr 2017

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Data Analytics

MIMOSA scores and multiple borrowing data

§ State level for all India § District level for UP, TN, and MH

§ Targeting trends for different loan segments – comparing banks and MFIs § Changes in competitive landscape § Analysis of impact of demonetization

27 Apr 2017

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Field survey of 450 interviews

§ Aggressive collections § Intra-household borrowing § Loan “bicycling” examples § Other input to shed light on the numbers…

28 Apr 2017

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And much more…

§ Competition levels at state-level § MFI survey results § Market trends § Etc.

29 Apr 2017

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Expanding MIMOSA dataset (and knowledge!)

30 Apr 2017

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MIMOSA in Cambodia: from knowledge to impact

31 Apr 2017

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Th Thank yo you!

32 Apr 2017

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M-CRIL

EP 5C. Staff satisfaction/turnover

Larger MFIs:

conduct staff satisfaction

surveys regularly; analyse data by position

conduct exit interviews;

share data with Board

Exit rate formulae not

standardized (do not disaggregate for staff on probation)

Tier 2/3 MFIs: Less regular

surveys; lack formal exit process

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M-CRIL

EP 5C. Data

Average figure often cited for staff exit: ‘25%’
Reported data, 29 MFIs, north and east:

average 35% 2015-2016, 5 MFIs >50% (Ujjivan, 6%) [38% in 2016-17, after ‘demon’]

Staff dissatisfaction – example, 1 Tier 1 MFI, north q 37% not satisfied with leave days q 31% not satisfied with salary q 27% inadequate training for the job q 15% management communication not good

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M-CRIL

To conclude…

v Responsibility to staff – some strong examples, but needs attention v Beyond policies to actual implementation v Aim for more transparency, real data on staff conditions (field) – (as well as on remuneration to top staff)

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Agenda

11.00-11.10: Welcome and Updates
11.10-11.40: Understanding the risk for over-indebtedness in India
11.40-12.20: Implementing the Universal Standards in India
12.20-13.00: Responsible Exits
13.00-14.00: Lunch
14.00-14.30: SPI4 and ALINUS
14.30-15.00: Update on lender guidelines monitoring in Cambodia
15.00-15.45: Assessing S&E performance of SME finance
15.45-16.00: Coffee Break
16.00-16.45: Digitalization & Fintech
16.15-17.00: Data Platform
17.00-17.45: Aligning efforts with the impact investing field
17.45-18.00: Wrap up and conclusions

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Responsible Exits: Buyer Selection

Catalina von Hildebrand, NpM Daniel Rozas, e-MFP

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1. Feasibility of

regulatory approval

2. Preliminary

exclusionary criteria

A.History of malfeasance or criminality B.Non-transparent finances

r sources of funding

C.Links with sectors tied to ESG exclusion list or other exclusionary criteria legally binding to the seller D.Negative headlines or rumors E.Reasonable suspicion of bad faith

Pass Pass

At each progressive step, all prior criteria should be already met
Importance of most criteria (including prior steps) increases with size of stake sold
3. Minority stake
A. Buyer’s social responsibility

profile (rank order)

i. Buyer is an established

social investor

ii. No, but has established

track record in financial inclusion

iii. No, but is acceptable to

existing shareholders

B. Demonstrated commitment

to client protection & SPM

C. Strategic value to investee
D. Likely timeline to complete

transaction

A. Buyer profile (e.g. fintech,

bank, VC, etc.)

B. Strategic goals
i. For the investee
ii. For the buyer
C. Buyer’s stated & effective

investment horizon

D. Capacity and willingness to

provide additional financial resources post-purchase

E. Capacity and willingness to

provide non-financial resources

F. Retention of management

at MFI G.Capacity to facilitate external funding

H. Explicit commitment to

maintain social mission (eg letter of comfort)

I. Geographical proximity to

investee

Pass

4. Minority stake

Multi-seller Consortium?

Agree on threshold

f acceptability

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Buyer Selection Framework

1. Feasibility of regulatory approval
2. Preliminary exclusionary criteria

A. History of malfeasance or criminality B. Non-transparent finances or sources of funding C. Links with sectors tied to ESG exclusion list or

ther exclusionary criteria legally binding to the

seller D. Negative headlines or rumors E. Reasonable suspicion of bad faith

Pass

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3. Minority stake
A. Buyer’s social responsibility profile (rank order)
i. Buyer is an established social investor
ii. No, but has established track record in financial

inclusion

iii. No, but is acceptable to existing shareholders
B. Demonstrated commitment to client protection &

SPM

C. Strategic value to investee
D. Likely timeline to complete transaction

Buyer Selection Framework

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A. Buyer profile (e.g. fintech, bank, VC, etc.) B. Strategic goals i. For the investee ii. For the buyer C. Buyer’s stated & effective investment horizon D. Capacity and willingness to provide additional financial resources post- purchase E. Capacity and willingness to provide non-financial resources F. Retention of management at MFI

G. Capacity to facilitate external funding

H. Explicit commitment to maintain social mission (eg letter of comfort) I. Geographical proximity to investee

4. Minority stake

Multi-seller Consortium?

Agree on threshold

f acceptability

Buyer Selection Framework

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Thank you!

inclusivefinanceplatform.nl e-mfp.eu fiecouncil.co m @NPM_inclfinance @e_MFP @Accion

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How Equitas Small Finance Bank Balances Financial and Social Performance

Voluntary cap on interest rates of 26% since

inception

Target ROE ~20% and cap of 25%
Cap on CEO salary of 40x lowest paid employee
Annual 5% profits to social programs, like housing,

food security, healthcare, livelihood skill development, and supplemental education for Equitas Small Finance Bank clients and the ultra poor

15% of net worth invested in land and buildings for

schools

Smart Certified

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Agenda

11.00-11.10: Welcome and Updates
11.10-11.40: Understanding the risk for over-indebtedness in India
11.40-12.20: Implementing the Universal Standards in India
12.20-13.00: Responsible Exits
13.00-14.00: Lunch
14.00-14.30: SPI4 and ALINUS
14.30-15.00: Update on lender guidelines monitoring in Cambodia
15.00-15.45: Assessing S&E performance of SME finance
15.45-16.00: Coffee Break
16.00-16.45: Digitalization & Fintech
16.15-17.00: Data Platform
17.00-17.45: Aligning efforts with the impact investing field
17.45-18.00: Wrap up and conclusions

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SPI4 and ALINUS: uptake, support, state of practices

SPTF ANNUAL MEETING – SOCIAL INVESTOR WORKING GROUP CHENNAI, INDIA, FEB 19, 2018

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SPI4 and ALINUS, a brief reminder

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S P S P I I 4 4 . x l . x l s s m m

Green Index FSP ID/ Org Info

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50 Each participating MIV selected from SPI4 the indicators they wished to use during due diligence/monitoring. CERISE analyzed this list, and asked MIVs to reconsider their choices when they had selected indicators that few

ther MIVs were interested

in. These iterative rounds of input made it possible to finalize a list of 80 indicators from the SPI4. In July 2016, SPI4 revised, with 20% fewer indicators. ALINUS 2.0 frozen at 68 indicator until 2020.

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Development of ALINUS

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www.cerise-spi4.org

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CONCENTRATE CONVINCE COMPILE COMPARE COMMUNICATE

SPI4-ALINUS, Why?

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MIV/DFIs using ALINUS

Full use (direct or aligned indicators) ADA/LMDF, AFD, Alterfin, Blue Orchard, BNP Paribas, Cordaid, European Investment Fund, Gawa, GCAMF, Incofin, Oikocredit, Pamiga, Proparco, Sidi, Stromme MF/EA Testing/strategic planning Deutsche Bank, European Investment Bank, FAS, GrassRoot, Symbiotics, Triple Jump, Verdant Capital Awareness raising

In contact with CERISE/SPTF for strategic discussions

1 5 7 1 7

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International/National Networks using SPI4/ ALINUS

Networks using SPI4

8 International: ACEP, Advans, CIF West Africa, Microcred, Opportunity Intern’l, Oxus, Pamiga, Vision Fund 6 National: Amcred Brazil, Copeme Peru, Finrural Bolivia, RFD Ecuador, MCPI Philippines, PMN Pakistan

Networks in training/awareness or using reduced network option

3 International: AgaKhan, Grameen Foundation, CICM, etc. 10 National: AMA Albania, AMFA Azerbaijan, AMFI Kyrgistan, AMFOT Tajikistan, ASOMIF Nicaragua, CMF Nepal, LMWG Laos, Radim Argentina, RedFasco Guatemala, UCORA Armenia, etc.

1 4 1 3

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Two companion guides to assess and improve

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www.RIFacademy.org

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MIR Action Group - Lessons learned

Work in progress with eMFP, MFC, SPTF, CERISE and investors (Making

Microfinance Investment Responsible)

4 surveys to FSP, networks, SPI4 auditors and investors
First feedbacks
What would you need, as investors, to improve the

awareness/use/progress in the Universal Standards?

What would you like to learn from this work?
Feel free to participate!

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Testimonies from other users

SIDI : early stages of adoption, SPI4 vs. SPM
GCAMF: benchmarks, SP requirements, trends in 2017
INCOFIN: implementation for due-diligence

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Grameen-Credit Agricole Microfinance Foundation

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Portfolio Benchmark by dimension –SPI4 ALINUS

GCAMF Database CERISE N=38 N=85 DIM 1: DEFINE AND

MONITOR SOCIAL GOALS

56% 46% DIM 2: COMMITMENT TO

SOCIAL GOALS

54% 47% DIM 3: PRODUCTS THAT

MEET CLIENTS' NEEDS AND PREFERENCES

61% 57% DIM 4: TREAT CLIENTS

RESPONSIBLY

69% 60% DIM 5: TREAT EMPLOYEES

RESPONSIBLY

76% 68% DIM 6: BALANCE

FINANCIAL AND SOCIAL PERFORMANCE

63% 62% TOTAL 63% 57% GREEN DIM* 14% 26%

0% 20% 40% 60% 80% 100% DIM 1 DIM 2 DIM 3 DIM 4 DIM 5 DIM 6

Average score by dimension

GCAMF N=38 * Only 36 % of MFIs from CERISE database have filled in the green dimension

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Our key strengths: Sub-Saharan Africa, Asia and small size MFIs

0% 20% 40% 60% 80%

DIM 1: DEFINE AND MONITOR SOCIAL GOALS DIM 2: COMMITMENT TO SOCIAL GOALS DIM 3: PRODUCTS THAT MEET CLIENTS' NEEDS AND PREFERENCES DIM 4: TREAT CLIENTS RESPONSIBLY DIM 5: TREAT EMPLOYEES RESPONSIBLY DIM 6: BALANCE FINANCIAL AND SOCIAL PERFORMANCE GCAMF (SSA region) N=20

0% 50% 100%

DIM 1: DEFINE AND MONITOR SOCIAL GOALS DIM 2: COMMITMENT TO SOCIAL GOALS DIM 3: PRODUCTS THAT MEET CLIENTS' NEEDS AND… DIM 4: TREAT CLIENTS RESPONSIBLY DIM 5: TREAT EMPLOYEES RESPONSIBLY DIM 6: BALANCE FINANCIAL AND SOCIAL PERFORMANCE GCAMF (ASIA region) N=11

0% 20% 40% 60% 80%

DIM 1: DEFINE AND MONITOR SOCIAL GOALS DIM 2: COMMITMENT TO SOCIAL GOALS DIM 3: PRODUCTS THAT MEET CLIENTS' NEEDS AND… DIM 4: TREAT CLIENTS RESPONSIBLY DIM 5: TREAT EMPLOYEES RESPONSIBLY DIM 6: BALANCE FINANCIAL AND SOCIAL PERFORMANCE GCAMF (Tier 3) N=20

GCAMF vs benchmark by region: Sub-Saharan Africa GCAMF vs benchmark by region: Asia

Our achievements

Strong ALINUS score for Africa
5 out of 6 dimensions above benchmark.
Well above for Dimension 1: Our partners have a clear social

strategy and properly measure these social goals.

ALINUS score for GCAMF portfolio in Asia above benchmark

for all dimensions.

Strong over-performance on staff (5) and client protection (4)
Tier 3 partners of GCAMF Portfolio are well above the

benchmark.

Our Tier 3 partners are in particular highly committed to

social goals and their Boards, management and staff are aligned with these goals

SUB- SAHARA N AFRICA ASIA TIER 3

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Grameen Credit Agricole Foundation