Antonique Koning

Blog Post

&gt; Posted by Antonique Koning and Kate McKee, Microfinance Specialist and Senior Adviser, CGAP

<a href="http://www.cgap.org/blog/six-dos-now-responsible-investors" target="_blank" rel="attachment noopener wp-att-10655"><img class=" wp-image-10655 alignright" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/03/cgap.jpg" alt="" width="335" /></a>The following post was <a href="http://www.cgap.org/blog/six-dos-now-responsible-investors" target="_blank" rel="noopener">originally published</a> on the CGAP Blog.

Microfinance investors are now openly discussing responsible investment, including balancing returns and how to reduce risks of market saturation and over-indebtedness, more than ever before. Investors agree it's time for action. At the mid-year Social Investor Roundtable, convening of the Sangam Group (CEOs of the ten largest MIVs) and annual Development Finance Institutions (DFI) consultation on responsible finance last month they agreed on a "to-do" list of six concrete actions:

1. Join the discussion on balanced returns: Many participating investors had signed the <a href="http://www.unpri.org/piif" target="_blank" rel="noopener">Principles for Investors in Inclusive Finance</a> (PIIF). Most agree that the balanced returns principle is the most difficult to pin down. The topic came up frequently: How much is too much, when it comes to prices and profits in the sector? Several MIV CEOs asserted that their commercial business model was the most effective way to drive responsible financial inclusion at scale. Eyebrows around the room shot up when one fund manager stated the target return of his fund: 20 percent. Other fund managers disagreed with the philosophy that such returns are consistent with responsible practice and desirable client outcomes. "We're fooling ourselves" to suggest that there are few trade-offs between the financial and social bottom lines, they said. By policy some funds agree to take a lower return in the short run if it translates into better rural outreach or services like deposits that clients need and want. Sangam MIVs formed a working group on balanced returns and will feed their perspectives into related discussions led by the PIIF and <a href="http://www.sptf.info/sp-task-force/working-groups" target="_blank" rel="noopener">Social Performance Task Force</a> (SPTF). If you’re an investor, you should join one of these processes and help the search for a pragmatic but meaningful understanding on balanced returns.

2. Use the new Lender Guidelines on avoiding over-indebtedness. Market saturation was another hot topic: What can and should investors do about risks of market saturation and over-indebtedness? Investors in the AvOID Working Group have developed a <a href="http://www.sptf.info/images/microfinance%20investment%20managers%20guidelines%20on%20over-indebtedness_feb%2027.pdf" target="_blank" rel="noopener">Lender Code of Practice</a>, which outlines steps investors should take in market analysis, due diligence, monitoring, and governance engagement. The Code has now been finalized and integrated in the PIIFs. Your investment organization can benefit by integrating the guidelines into your processes.

3. Support country-level research on market saturation and over-indebtedness: In addition to guidance that individual investors can use to rein in over-indebtedness, investors are also working together on analyzing such risks at the country or market level. DFIs and MIVs have supported this work in countries such as Azerbaijan, Bosnia-Herzegovina, Kosovo, the Kyrgysz Republic. Most recently, Blue Orchard, Incofin, and Oikocredit stepped up to jointly fund an innovative methodology in Cambodia that combined country-level proxies for market penetration, indicators of MFI lending practices, and surveys and qualitative research on borrower indebtedness and related factors. Findings were presented at the Social Investor Roundtable and will be formally released later this month. Sangam members committed funding to replicate the study elsewhere. Other investors can join and support expansion of this important work in additional markets.

4. Set reasonable covenants. Another investor working group has developed and adopted <a href="http://www.sptf.info/images/lenders%20guidelines%20for%20setting%20covenants%20in%20support%20of%20responsible%20microfinance_feb%2027.pdf" target="_blank" rel="noopener">lender guidelines for covenants that support responsible microfinance</a>, including practical guidance on acceptable investor actions when an MFI breaches a covenant. Recommendations include acceptable levels of Return on Assets (between zero and ten percent) and a requirement for investees to undertake a Smart self-assessment on client protection in the first three months. Nine investment fund managers and three DFIs have already endorsed the guidelines and several have started integrating them in their new loan agreements. Check out how your covenants stack up to this new standard of “reasonableness.”

5. Harmonize your social performance management indicators and make it easier for your partners and staff: <a href="http://www.sptf.info/images/alinus_overview%20christophe.pptx" target="_blank" rel="noopener">The ALINUS working group</a> (Aligning Investor Due Diligence and Monitoring Practices) has identified key indicators for partners to report on progress against the <a href="http://www.sptf.info/spmstandards/universal-standards" target="_blank" rel="noopener">Universal Standards for Social Performance Management (USSPM)</a>. In addition to reducing reporting burdens, use of these indicators will help ensure comparable information from the analysis undertaken by investors, raters, and auditors. ALINUS invites investors to comment on a draft set of indicators next month. Another cross-industry group is working to develop a full set of USSPM indicators, which will go out for public comment in May.

6. Be more transparent and report. For the first time a group of investors reported on their implementation of the Principles for Investors in Inclusive Finance while piloting the <a href="http://www.cgap.org/news/principles-investors-inclusive-finance-report-progress" target="_blank" rel="noopener">PIIF Reporting Framework</a>. Results are encouraging and summarized in the PIIF Report on Progress. From now on reporting will be mandatory for all signatories, which should create more accountability. Even investors who have not yet signed up to the PIIFs may find the reporting framework a useful tool to assess how well they are doing on their investment practices.

These heated debates and coordinated investor efforts are good news. They signal maturity and investors’ desire to move beyond the crises to concrete actions – individually and collectively – that will help make the sector more responsible. Taken together with recent initiatives to certify MFI compliance with the Smart Campaign <a href="http://www.cgap.org/blog/supporting-client-protection-cambodia" target="_blank" rel="noopener">client protection principles</a> and to improve transparency on responsible investor behavior through the PIIF, they demonstrate momentum and sincere steps to define what precisely the microfinance sector means when we say we are learning from experience.

Image Credit: <a href="http://www.cgap.org/blog/six-dos-now-responsible-investors" target="_blank" rel="noopener">Gayanath Wimaladasa/CGAP</a><a href="http://www.cgap.org/blog/can-self-regulation-protect-microfinance-clients" target="_blank" rel="noopener">
</a>

Have you read?

<a href="http://cfi-blog.org/2013/03/14/the-smart-campaign-challenges-investors-to-get-involved-with-certification/" target="_blank" rel="noopener">The Smart Campaign Challenges Investors to Get Involved With Certification</a>

<a href="http://cfi-blog.org/2012/11/06/making-the-case-for-the-universal-standards-of-social-performance-management/" target="_blank" rel="noopener">Making the Case for the Universal Standards of Social Performance Management</a>

<a href="http://cfi-blog.org/2011/01/31/making-history-investors-in-microfinance-agree-on-principles-of-conduct/" target="_blank" rel="noopener">Making History: Investors in Microfinance Agree on Principles of Conduct</a>

&nbsp;

Six To-Dos Now for Responsible Investors

&gt; Posted by Sonja E. Kelly, Fellow, CFI

There’s a lot of data out there. And some of us are brave enough to use it (including you, my friend).

Recently we released an interactive <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/data-explorer" target="_blank" rel="noopener">Data Explorer</a> tool and individual <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/country-profiles" target="_blank" rel="noopener">Country Profiles</a>, allowing users to visually explore financial inclusion data in comparison with other development indicators in one central location. You can <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/demographic-window" target="_blank" rel="noopener">see our analysis of some of the data</a>, but more importantly, we would like to invite you to explore the data for yourself.

For those interested in financial inclusion figures in specific countries, regions, or income groups of interest, visit <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/country-profiles" target="_blank" rel="noopener">Country Profiles</a>. There we display data from the Global Findex along with demographic data relevant to understanding financial inclusion across the lifecycle. As we continue our own analysis of global trends, we will add figures on income, urbanization, technology, and more for each country.
<a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/country-profiles" target="_blank" rel="attachment noopener wp-att-10635"><img class="aligncenter size-full wp-image-10635" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/03/country-profiles.png" alt="" width="490" height="395" /></a>
Click on the financial inclusion bars to see a breakdown of the data by client segment, and use the tool to understand why or how people use financial services in particular countries. At the bottom of the page, you can interact with the demographic data by scrolling through the years to see past and projected population trends from 1950 to 2100. (This is very cool.)

For those who want a data adventure, driven by an interest in specific issues or factors, we suggest you go to <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/data-explorer" target="_blank" rel="noopener">Data Explorer</a>. Data are now available from the UN on demography, the Findex on financial inclusion, as well as the World Bank’s World Development Indicators, with more to be added in the coming months.
<a href="http://www.google.com/publicdata/explore?ds=fghe7f0nco614_&amp;ctype=c&amp;strail=false&amp;bcs=d&amp;nselm=s&amp;met_y=WP11648&amp;scale_y=lin&amp;ind_y=false&amp;idim=region:EAP:HIC:ECA:LAC:MNA:SAS:SSA&amp;ifdim=region&amp;hl=en_US&amp;dl=en_US&amp;ind=false&amp;icfg" target="_blank" rel="attachment noopener wp-att-10637"><img class="aligncenter wp-image-10637" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/03/fin-inst.png" alt="" width="550" /></a>
Data Explorer is built on Google’s platform, and lets users choose the type of graph they want to look at, add up to four variables, plot the data on a map, and more. For datasets that include more than one year, you can “play” a video of the variable changing over time (look for the triangle in the bottom left hand corner). If you have a hypothesis you want to investigate, this is the place to go.

For example, I’ve been wondering for some time now if mobile phone penetration translates into the use of mobile phones for banking. I plotted, therefore, mobile phone subscriptions against the percent of people that use mobile phones to receive money. Each dot represents a country, and I colored the countries by their income group (as determined by the World Bank). I found something quite surprising:
<a href="http://www.google.com/publicdata/explore?ds=fghe7f0nco614_&amp;ctype=b&amp;strail=false&amp;bcs=d&amp;nselm=s&amp;met_y=WP11674&amp;scale_y=lin&amp;ind_y=false&amp;met_x=IT.CEL.SETS.P2&amp;scale_x=lin&amp;ind_x=false&amp;dimp_c=wb_country:income&amp;idim=wb_country:KE&amp;ifdim=wb_country&amp;hl=en_US&amp;dl=en_US&amp;ind=false&amp;icfg" target="_blank" rel="attachment noopener wp-att-10640"><img class="aligncenter wp-image-10640" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/03/kenya-mobile.png" alt="" width="550" /></a>
There really doesn’t seem to be much of a relationship in 2011 between mobile phone subscriptions and the percent of people who use a mobile phone to receive money. This raises the question of what prompts mobile phone banking to take root in a financial culture.

Over the coming months, we’ll be posting observations and analyses that emerge from the use of these tools. If you find something that you want to share, feel free to <a href="mailto:skelly@accion.org" target="_blank" rel="noopener">contact us</a>. We’re looking forward to hearing stories from the data adventures our users take.

For more information on Financial Inclusion 2020, <a href="http://bit.ly/FI2020signup" target="_blank" rel="noopener">sign up for campaign updates</a>.

Have you read?

<a href="http://cfi-blog.org/2013/03/08/international-womens-day-2013-where-are-we-with-womens-access-to-financial-services/" target="_blank" rel="noopener">International Women's Day 2013: Where Are We With Women's Access to Financial Services?</a>

<a href="http://cfi-blog.org/2013/02/04/first-report-from-fi2020s-mapping-the-invisible-market-highlights-implications-for-financial-inclusion-as-worlds-demography-changes/" target="_blank" rel="noopener">First Report from FI2020's Mapping the Invisible Market Highlights Implications for Financial Inclusion as World's Demography Changes</a>

<a href="http://cfi-blog.org/2013/01/28/cfi-citi-and-visa-inc-launch-financial-inclusion-2020-to-accelerate-universal-financial-access/" target="_blank" rel="noopener">CFI, Citi, and Visa Inc. Launch Financial Inclusion 2020 to Accelerate Universal Financial Access</a>

Antonique Koning

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