TOWARDS A “SEAL OF EXCELLENCE”

IN GLOBAL MICROFINANCE

Social performance encompasses a family of

initiatives and actors

Responsible Finance

(do no harm)

Improve Clients’ Lives

Diff

ere

nt

Acto

rs

Client Protection Principles

Social Performance

Investor Principles for Inclusive Finance

MFT

CampaignSmart

• Invest in systems to manage double / triple bottom line

• Measure client outcomes

• Tailor services to client need and vulnerability

Seal of Excellence for

poverty outreach and

transformation

+ Institutional Commitment

Different initiatives apply to different segments of the industry

Smart Campaign Client Protection

Principles

Universal Standards for

Social Performance

Expectation for every financial provider – do no harm

Expectation for double or triple bottom line organizations

Seal of

Excellence

Expectation for an organization with a specific mission of poverty reduction and/ or transformation

Communication and coordination is strong

The initiatives are separate but complementary Our recommendations are NOT separate – we endorse

each other MIX reporting incorporates the thinking among the

Smart Campaign, MFTransparency, and the Social Performance Task Force

We are all talking to each other!

Smart Campaign Client Protection Principles

Six principles of client protection:1. Appropriate product design2. Transparency3. Responsible pricing4. Responsible treatment of clients5. Effective complaints resolution6. Privacy of client data

Certification: The Smart Campaign is currently developing criteria and a process by which MFIs can be recognized for meeting client protection standards

Timeline: Planned launch of the pilot phase of certifications in 2012

MFTransparency

Main areas of focus:1. Transparent prices2. Fair prices

Calculation transparent prices tool: Excel-based tool allows users to input different loan terms and see how they affect Annual Percentage Rate (APR) and Effective Interest Rate (EIR), total cost of credit, cash flow and repayment schedule. Put simply, it clarifies how much the client is paying / the MFI is charging for a given loan.

Timeline: MFT collects and publishes microfinance interest rate data for individual countries, 7 countries to date and 10 more pending.

Universal Standards Developed by the SPTF

SPTF is developing universal standards in six areas:1. Responsible Financial Performance2. Governance and Staff Commitment to Social Goals3. Products and Services that Meet Client Needs4. Client Protection – Six Principles of Client Protection5. Social Responsibility to Staff6. Client Monitoring

Overlap with Smart Campaign: While SPTF fully endorses the Smart Campaign’s client protection principles, the universal standards do not require the same level of performance as does Smart Campaign certification. Instead, the universal standards prescribe introductory steps in each of the six areas of CP.

Timeline: Proposed standards presented for discussion at the annual meeting in Den Bosch in June 2011. Standards in areas where enough data already exist ready in 2012.

Microfinance Information Exchange

Purpose: MIX collects and validates financial, operational, product, client, and social performance data from MFIs in all regions of the developing world, standardizing the data for comparability.

News: MIX, in collaboration with the SPTF, recently refined and

released an updated set of social performance indicators. Data collection on these indicators will begin in March 2011.

MIX is developing a survey to pilot additional questions related to social performance. The survey should be completed by June 2011.

MIX has recently upgraded its website to make the financial and social profiles of individual institutions more accessible.

Seal of Excellence for Poverty Outreach and

Transformation

Seal is an initiative currently under discussion: Envisioned by Microcredit Summit as a separate

initiative to promote excellence in poverty alleviation and transformation.

Builds on the Smart Campaign’s client protection principles and the Universal Standards work of the Social Performance Task Force

Discusses using systems for validation that have already been developed for rating social performance of microfinance institutions

Current Vision of the Seal

Seal

Demonstrated :• Implementation of the basic elements of every client protection principle

• Social performance activities in six key areas

Smart Campaign Certification on CPP

Universal Standards on SP

Demonstrated excellence in all six client protection principles

Awarded for excellence in poverty outreach and transformation

Client Protection Principles and Universal Standards Align and Overlap; the Seal Applies to Both Sets of Standards Plus a Poverty Reduction Mission

What Can You Do to Advance Responsible Finance and Social

Performance? Report your institution’s financial and social performance

data to MIX Sign on to the Client Protection Principles and get your

member organizations certified Sign on to the MFTransparency endorsement statement. Use

the MFTransparency calculator to calculate and report your interest rates

Conduct a social audit and/or Commission a social rating Provide input to the development of the Seal of Excellence Become a member of the Social Performance Task Force to

learn more about the ongoing work of these initiatives and to participate in trainings and conferences that can advance your work in this area

Attend the annual Social Performance Task Force meetings where we will continue these discussions. The 2011 meeting is June 19-23 in Den Bosch, the NetherlandsJoin, support, and strengthen current initiatives rather than

creating another one

Standards are not difficult to write. The difficult part is reaching agreement among a diverse group of stakeholders about what issues to cover and what to say about each issue.

ISEAL: International Social and Environmental Accreditation and Labelling Alliance

Previous Outline of a possible Seal

Gold

•RESPONSIBLE ++ & DEPTH & EFFECTIVE

•Linked or direct strategies to support client development (livelihood, health, children’s education)

•Evidence of access (at least 20% of clients) and value to clients

•Significant and fair wage employment (SME lending)

•Environmentally sustainable lending

Silver

•RESPONSIBLE+ & DEPTH OF OUTREACH

•Less developed areas, poor and excluded households at entry (Linked to country context, and use of PPI (at least = country average and monitored)

•Or SME lending for wage employment

•Gender diversity

Bronze

•RESPONSIBLE MICROFINANCE :

•Client protection principles + financial education for clients

•Standards around governance (level and allocation of profits ; remuneration to CEO (vs portfolio size and av. remuneration to average field staff)

•Conditions of staff employment

•SME lending – environmental standards

Excerpts from Annex VStandards for double bottom line

finance

Governance/ Responsible financial guidelines

1. Reasonable level of profitability:  [guideline - RoA slightly above the bank sector, to allow for additional risk - may differ by country];if high, then  clear rationale and evidence of allocation that benefits clients

2. Reasonable annual growth rate [guidelines for portfolio growth could be as follows:  < 50% for Tier 3 MFIs, 40% Tier 2, and 25% Tier 1]

3. Remuneration to CEO is transparently reported and is not more than the equivalent level in the country's private banking sector

4. Remuneration to CEO in comparison with lowest paid field officer is not more than a ratio of x

Excerpts from Annex V (cont’d)Seal 1 – Poverty Outreach

Outreach to less developed areas

Outreach to poor households

Client retention

Gender equity - opportunities for women

Excerpts from Annex V (cont’d)SEAL 2 - Transformation

Non-financial services to support clients in their businesses or other improvements in quality of life

Client ownership

Evidence for contribution to poverty reduction

ISEAL: best practice for the design and

implementation of social and environmental standards systems

A core group will likely drive the process: (Interim Steering Committee) should represent different potential interests for legitimacy

Determine the need for the standards: how to complement existing standards, and avoid duplications or contradictions

Know your stakeholders and communicate with them Have clearly defined objectives: Define objectives in concrete

terms as the change you would like to see.

Define procedures for the standards development process: stakeholder mapping, participation, and documented response

Decide the end use of the standards: intended as voluntary guidance on good practice? To be widely applicable across the industry?