The Social Dimensions of Development BankingInternational Labour Organisation (ILO) knowledge and tools for social finance

10th International CEO ForumKuala Lumpur, Malaysia

Patricia Richter

November 4, 2014

Overview

• Sustainable Finance Social Finance

• Background to ILO and Social Finance– What is ILO’s mandate in development?– What is ILO’s mandate in Social Finance?

• Three Social Finance examples – Building capacity for social compliance and impact

in agri finance– Microfinance for Decent Work– Impact Insurance

• Collaboration proposal

Sustainable Development (1)

"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet

their own needs”.

(Brundtland, 1987)

Sustainable Development (2)

Sustainable Finance

Sustainable finance implies making sustainable development a central concern for the financial system. Thus, it has a substance and a process dimension.

“Finance is our contribution to sustainable development being an association of development finance institutions”

Octavio B. Peralta, Secretary General ADFIAP

Sustainable Development Goals• Goal 1: End poverty

…by 2030, ensure that all men and women… have access to… financial services including microfinance

• Goal 2: End hunger…by 2030, double agri productivity and incomes of small-scale food producers… through… access to…financial services

• Goal 8: Inclusive and sustainable economic growth, full and productive employment and decent work for all…promote development-oriented policies that support… decent job creation, entrepreneurship… SME… including through access to financial services

• Goal 9: Build resilient infrastructure…increase access of small-scale industrial and other enterprises… to financial services including affordable credit

• Goal 10: Reduce inequality…improve regulation and monitoring of global financial markets and institutions and strengthen implementation of such regulation

Social side of sustainable development (1)

• Rights at work

• Employment and income

• Social protection

• Social dialogue

Social

Rights at work•Child labour •Forced labour and human trafficking•Gender equality and non-discrimination•Freedom of association •International labour standards

Employment & income• Enterprise development• Green jobs• Local development• Cooperative development• Corporate social responsibility• Employment-intensive investment •Skills development, vocational training

Social protection•Social security•Occupational safety and health and working conditions •International labour migration •HIV and AIDS

Social dialogue•Labour inspection•Labour dispute prevention and resolution•Social dialogue, industrial relations•Labour administration

Social side of sustainable development (2)

Access to finance

The ILO and its mandate

Established in 1919 by the Treaty of Versailles

(First) Specialised UN agency that seeks

“the promotion of social justice and internationally recognised human and labour rights”

Constitution 1919, Declaration of Philidelphia 1944

Formulates international labour standards through Conventions and Recommendations

Provides technical assistance

Promotes development of independent social partners and provides them with training and advisory services

Quiz…

Q How many Conventions has ILO passed in its almost 100 years of history?

ILO headquarters, Geneva

Q How many countries have ratified the Convention on the Elimination of the Worst Forms of Child Labour (C182)?

ILO Mandate in Social Finance…“It is the responsibility of the ILO to examine and

consider all international economic and financial policies and measures in the light of social justice.”

- ILO Constitution -

…and ILO’s structural response“The Social Finance Programme serves as the

focal point to analyze, evaluate and disseminate financial sector issues relevant for employment

and social justice.”

ILO 2005: Microfinance and Decent Work

ILO Social Finance Programme

Q&A: Do you have any questions?

Overview

• Sustainable Finance Social Finance

• Background to ILO and Social Finance– What is ILO’s mandate in development?– What is ILO’s mandate in Social Finance?

• Three Social Finance examples – Building capacity for social compliance and impact

in agri finance– Microfinance for Decent Work– Impact Insurance

• Collaboration proposal

BUILDING CAPACITY FOR SOCIAL COMPLIANCE AND IMPACT IN AGRI FINANCE

Example one

Capacity gap for social compliance and impact in agri finance (1)• Rural areas underserved by financial service

providers• Benchmarks exist (e.g. Equator Principles,

UNPRI, IFC PS)• Evidence shows that social concerns are often

not fully incorporated in funding decisions and delivery of services (compliance)

• Financial service providers that wish to invest in a socially responsible manner lack the capacity to evaluate social impact of investments

If…

Comprehensive methodology for social assessments,Comprehensive related training existed, andTrainings covered how to measure S&E effects and how to improve social aspects

… great steps could be made towards a financial system that contributes to social, economic, and environmental gains.

Capacity gap for social compliance and impact in agri finance (2)

=> ILO collaboration with a Fund investing in African agriculture

18

Details of collaboration partner

Fund Target Countries: All African countries

Beneficiaries: Small, medium and large scale agricultural companies, financed directly or indirectly by AATIF

Direct Investments: Cooperatives, outgrower schemes, commercial farms, processing companies, i.e. along the entire value chain

Indirect Investments: Local financial institutions or other intermediaries (such as agribusinesses) which on-lend to the agricultural sector

Interest Rate/Return: AATIF provides financing at market rates

Investment Size: 5-30m USD(other currencies possible)

Fund Size: USD 100-180m, growing over time

Technical Assistance: Projects with a measurable positive impact on local

populations may benefit from a technical assistance facility (e.g. training measures or grants that improve food security, household income or working and living quality)

Fund Launch Launched in 8/2011,

Key data

Partners Multilateral Agencies, Development

Banks and NGOs Input providers and Off-takers Risk insurers and Local financial institutions

Target region

Organisational Set-up

• Revision of Social and Environmental Safeguard Guidelines

• Development and testing of social and environmental assessment method

• Implementation of S&E studies

• Technical backstopping of development impact evaluations

• Provision of small-scale technical assistance

• Development of training materials

Role of Compliance Advisor

• Development and implemenation of formal Social and Environmental Management System

• Development of S&E Policy covering:

– objectives for engagement in environmental and social management,

– standards with which projects have to comply, – responsibilities for policy implementation, and

• Development of inhouse training on S&E risk identification and management

• Introduction / updating of exclusion list

• Re-classification of business activities financed

• Commitment to sustainable development in strategic plans

Examplary covenants for financial institutions

Q&A: Do you have any questions?

Collaboration proposal

Nov 2014 -March 2015

April 2015

June 2015

If you would like to participate in this collaborative effort to analyse the Social and Environmental Policies and Procedures of Development Finance Institutions, please fill in the contact sheet.

Overview

• Sustainable Finance Social Finance

• Background to ILO and Social Finance– What is ILO’s mandate in development?– What is ILO’s mandate in Social Finance?

• Three Social Finance examples – Building capacity for social compliance and impact

in agri finance– Microfinance for Decent Work– Impact Insurance

• Collaboration proposal

MICROFINANCE FOR DECENT WORK

Example two

Microfinance for Decent Work in a nutshell...

Action Research ProgrammeTimeframe: 2008-1216 partner-MFIs worldwide

GOAL:To measure the impact of innovations on the welfare of microfinance clients

Clients of microfinance institutions must cope with serious work

challenges

Child Labour Occupational Safety and Health

Informality

…and

• vulnerability to income shocks• overindebtedness

Quiz• What percentage of total employment created was

child labour (5-14 years)?

• What percentage of clients reported dangerous working conditions or injuries?

• What percentage of clients operated informal businesses activities?

• What percentage of clients had a large unforeseen expense in preceding year?

• What percentage of clients used insurance to cover unforeseen expenses

Findings from the Diagnostic Phase

• Child labour (5-14 years) constituted 5% of total employment created

• 11% reported dangerous working conditions or injuries• 54% of client’s business activities informal, 41% paid

taxes• 8% reported cross-borrowing and 14% had repayment

issues• 43% reported large unforeseen expense in preceding

year (main reason: accident, illness)• Only 2-3% used a form of insurance to cover

unforeseen expenses

(N= 4748)

Innovations

Formalization

•Awareness raising and client sensitisation to benefits•Business development services

Occupational Safety and Health

•Client training on good working conditions and agreement on improvement plan•Specific loan product for work improvements

Job Creation/ Women Empowerment

•Organisational restructuring: new SME lending window•Client training on women‘s empowerment

Risk Management/ Overindebted-ness

•Insurance products: multi-risk for business loan clients, health, credit life•Leasing product•Financial education•Client risk management training•Entrepreneurship training

Child Labour •Modification of existing microinsurance product•Awareness campaign•Client training to increase production productivity

Results: Child Labour

Innovation: Extended micro-insurance coverage to HH members

• Upgrade of health and accident insurance product available to all non-nuclear family members between 18 and 65 in the client HH

• Increased awareness of loan officers on microinsurance product and informal coaching of clients on its use.

Results:• Increased coverage at individual level and increase usage• 7% decrease in child labour• 5-6% lower risk of children involved in hazardous occupations• Average hours worked reduced 2.5 to 3.5 hours per week • No effect on child schooling

Results: Risk Management (1)

Innovation: Entrepreneurship training

Results: • Attitude towards entrepreneurship improved

through 13% decrease in perception of barriers• Business profit increased by PHP 2’000 (approx. USD

50) which was almost double the baseline profit• Ownership of motorized vehicles increased by 3.5%

(positive impact on asset building)• Incidents of late repayment decreased by 4%, taking out

a loan to repay another loan decreased by 10% (positive impact on overindebtedness)

• 5% increase in use of microinsurance to cover unforeseen expenses (positive impact on risk management)

Results: Risk Management (2)

Innovation: Financial Education Programme• Trained field staff in better position to advise clients,

through group and individual counseling, on financial matters including risk management and over-indebtedness

Results:• Strongest impact on repayment behaviour of clients:

reduction of late payments 3.4%• Significant and positive impact on asset building

through 10% increase of insurance uptake• Significant and positive impact on clients’ association of

savings and security, handling of debt, attitude towards borrowing (financial attitude)

How to take this further?

Scale-up

• Dissemination of lessons learnt and keys results

• Promotion of effective strategies • Capacity building of microfinance

stakeholders

Additional research

www.ilo.org/socialfinance

Q&A: Do you have any questions?

Collaboration Proposal•Business case study on linking financial with non-financial service provision

Overview

• Sustainable Finance Social Finance

• Background to ILO and Social Finance– What is ILO’s mandate in development?– What is ILO’s mandate in Social Finance?

• Three Social Finance examples – Building capacity for social compliance and impact

in agri finance– Microfinance for Decent Work– Impact Insurance

• Collaboration proposal

IMPACT INSURANCEExample three

Access to insurance matters

“Vulnerability and poverty go hand in hand, but microinsurance holds out the promise of breaking a part of the cycle

that ties them together.”

Jonathan Morduch, Economist, New York University

Insurance drives social

and economic inclusion

Indispensable element of financial inclusion agenda

Insurance contributes to

the SDGs

Launched as Microinsurance Innovation Facility in 2008

Housed at the International Labour Organization based on the work of the Microinsurance Network

US$34 million grant from the Bill & Melinda Gates Foundation

Additional support provided by Zurich, AusAID, Munich Re Foundation and the World Bank Group

Mission“Our mission is to increase

the availability of quality insurance for the

developing world’s low-income families to help them guard against risk and overcome poverty”

Beliefs“We believe in the power of insurance to change

people’s lives, to protect their health and their

assets, and to give them peace of mind to make

investments for the future”

Impact Insurance Facility

Work 2008-2013 • Tested innovations and providing capacity building for

leading microinsurance providers• Shared insights from this work extensively with the global

microinsurance community.

Major progress in microinsurance…

Growth: microinsurance now covers 0.5 billion risks, up from 135 million in 2009. In 2011, 33 of the world’s largest insurance companies offered MI, up from just 7 in 2005.

New delivery channels: retailers, utility, cell phone companies, cooperatives and labour unions.

Demonstrated business case: microinsurance can be profitable, but under certain circumstances.

Loyalty and incentives: insurance is used by financial institutions and cell phone companies to reward customer loyalty and/or increase usage.

Impact: demonstration of a positive impact of MI on the lives of the poor and in their communities.

… but challenges remain

Patchy progress: microinsurance is developing rapidly in countries such as India, South Africa and the Philippines; still, outreach in many developing countries remains meagre.

Limited innovation: significant scope to provide quality insurance at scale, even in mature markets.

Reinventing the wheel: lessons and experiences from mature markets are slow to reach practitioners elsewhere.

Regulation and policy: in many countries it is hard to accommodate innovative products or alternative distribution channels.

Specialized expertise: more skilled professionals who understand the needs of the working poor are needed.

Financial literacy: necessary to help the poor appreciate the value of insurance.

10 key lessons for creating client value

FUNDAMENTALS

•Start simple with partial, single, mandatory cover•Boost access and understanding•Ensure great client experience through claims and servicing•Offer complenentary solutions

ENHANCEMENTS

•Bundle insurance with other fin services•Include value-added services•Use technology without loosing client touch•Expand benefits•Provide choice through voluntary options•Offer multi-risk products

Impact Insurance: 5 research & innovation themes

HEALTH insurance

PPPs & subsidies, supplementary health

insurance, primary care, bundling with health

services BUNDLING with other financial

servicesSavings, cash transfers /

remittances, bundling for SMEs

Alternative DISTRIBUTION

‘one-stop shops’, bundling with non-financial services, sales

force & agent network development

MOBILE servicesMobile for all functions, safe payments, telemedicine & agriculture advisory, ‘paid’

mobile insurance

BALANCE

Overcoming short-term trade-offs and following

long-term strategies

VIABLE BUSINESSReaching scale, increasing efficiency and facilitating new business models

CLIENT VALUEDelivering value to clients to ensure that microinsurance

delivers on its social promise

through game changing solutions in

AGRICULTURE insurance

Messo-level PPPs, bundling with agriculture services, livestock

insurance

Q&A: Do you have any questions?

For further information:

www.ilo.org/impactinsurance

Thank you!

Patricia Richterrichter@ilo.org