Social Investor and DFI Meeting on Responsible Finance 2015
March 11-12 – Luxembourg, EIB
Executive Summary
The European Investment Bank (EIB) hosted the SPTF social investor working group meeting in Luxembourg on March 11-12. Day 1, March 11, was a day of pre-meetings for members of the SPTF social investor working group. The objective of the day was to discuss among members updates on all ongoing initiatives and identify key action items for the group for the year. On Day 2, March 12, the group opened the discussion to a broader audience that had not always been part of the conversation in the past. The objective of the day was to exchange experiences and ideas with the broader audience and, based on the discussions of Day 1, refine the action plan for the SPTF social investor working group for 2015.
One key theme common throughout all discussions of the two-day meeting was the importance of coordinating the work of the different initiatives and tools, harmonizing language, and working collectively. A strong appeal was issued to all to increase commitment to implementation - any initiative that the group works on can only achieve its goals to improve practice in the responsible finance sector if it is taken up and translated into change by a growing number of stakeholders. There are a number of challenges and hurdles to be addressed, internally and externally. This working group focuses on addressing them, sharing them, and by doing so supporting individuals who commit to push change in their respective organizations.
The next meeting of the SPTF social investor working group will take place in June 9, 2015, as pre-meeting of the SPTF Annual Meeting in Cambodia.
Below is a summary of the topics discussed each day (pages 1-6). For detailed notes refer to pages 7-23 for March 11 and pages 23-40 for March 12. For the list of attendees see page 41. Presentations for both days as well as other relevant materials have been posted on the SPTF website under the social investor working group section and can be accessed through the following link http://sptf.info/sp-task-force/http-www-sptf-info-sp-task-force-social-investors-working-group
Summary of discussions of March 11 (organized by session, according to agenda)
· Update on the work of the SPTF and Implementation of the Universal Standards. The Universal Standards have managed to achieve a very high level of awareness across stakeholder groups in the microfinance industry. However, more needs to be done now to support implementation by MFIs and investors/donors to change practice. To continue to support implementation and help change practice, the SPTF has planned several activities, which are described in its recently developed 3-year strategic plan under the section “Improve Practice”. One way in which the SPTF is working to improve practice is through the recently launched Responsible Microfinance Facility (RMF) thanks to the support of AfD. Furthermore, to allow improvement in practice, the SPTF knows that stability and relevance of the standards is key. For this reason, the SPTF is collaborating with Cerise and The Smart Campaign to maintain the Universal Standards, the Client Protection Principles, and SPI4 stable until June 2016. The SPTF is also in the process of creating a process and structure to manage and review the Universal Standards going forward.
Ø Key takeaways: A key aspect mentioned during this session, and that came up many times during the 2-day meeting was the importance of working collectively to implement change. Any investor interested in learning more about the activities in the 3-year SPTF strategic plan or interested in getting involved should contact Laura Foose at .
· Results of the SPTF-run survey “How socially responsible is your MIV?” Sascha Noe shared a summary of the results of the survey conducted by the SPTF in late 2014-early 2015 to MFIs to understand their perception of how socially responsible their investors are. The survey was an initiative of the SPTF social investor working group and might be conducted again in 1-2 years to compare results and measure progress. If so, it was discussed that SPTF will partner with other initiatives (e.g., GIIN, Symbiotics) as well as with investors to increase reach to MFIs.
Ø Key takeaways: Results from the survey showed that MIVs have room for improvement in regards to legal conditions being fair, no surprises taking place between terms and conditions mentioned during due diligence and those translated into loan agreement, clarity in communication of terms and conditions, and whether covenants are in line with Lenders’ Guidelines; also while MIV monitoring of risk of over-indebtmentness at the client level is common, it does not always happen on a consistent basis; MFIs agreed that social reporting would be easier if a common reporting framework (SPI4) was widely adopted and required by MIVs, MIX, raters, shareholders; and while MIV support to MFIs to improve SPM is common, it is not widely adopted (particularly for lender MFIs). To access the full report click here.
· Overview of GIIRS rating. The session provided an overview of the GIIRS rating for funds and MFIs and included the experience of Grassroots Capital Management and Bamboo Finance in using GIIRS.
Ø Key takeaway: The SPTF is working with GIIRS to ensure alignment and include in its tools the Universal Standards and SPI4. As a next step, discussions will be started regarding better alignment of GIIRS and PIIF.
· Investor use of SPI4. Emmanuelle Javoy provided an update on the SPI4, particularly regarding the development of a version with a reduced number of indicators that can be used by investors for due diligence and monitoring (SPI4 light). She also showed an example of the custom SPI4 version used by Cordaid. Participants discussed and provided feedback on a list of additional indicators to be added to those already largely chosen for the SPI4 light. The goal is to narrow down and finalize a list to 70-80 indicators.
Ø Key takeaways: Investors are generally aware of the need to improve SPM collection information processes and are open to consider reviewing internal processes, of course depending on internal constraints. The next steps are to finalize a due diligence adapted tool and test its uptake by the industry.
· MIX Gold. Blaine Stephens provided an overview of MIX Gold including the feedback and experience of investor users.
Ø Key takeaway: There is global awareness of the inefficiency of present financial reporting from MFIs to various donors and investors. The financial model still lacks of visibility and adaption to the investor readiness to move on. We need performing examples that satisfy investor needs to generalize the offer.
· Responsible pricing. Chuck Waterfield shared the results of the pilot conducted with investors to gather data. He mentioned the decision of MFT to stop gathering data, yet noting that tools and resources will remain available on the MFT website. Investor participants expressed interest in continuing the work on this topic.
Ø Key takeaways: Responsible and transparent pricing is a central topic of responsibility in the industry. While many investors in the room expressed interest in continuing the discussion it is also important to note that this topic needs to be taken up seriously. Investors must acknowledge their responsibility in terms of contributing to data collection (part of the fault for the failing of the MFT pilot failing was the lack of data collection). It was decided for the SPTF social investor working group to create a specific workstream to coordinate and continue industry work on the topic. Concrete details will be shared in the next weeks.
· Measuring and reporting outcomes. Frances Sinha provided an overview of the ongoing work and future plans of the SPTF outcomes working group. Christophe Bochatay shared the experience of TripleJump. Bamboo Finance and Oikocredit also shared brief experiences in the topic. Investors decided to not create a separate working group on this topic only for investors but rather join the work of the ongoing group. Those interested in joining the SPTF outcomes working group should contact Amelia Greenberg at the SPTF .
Ø Key takeaways: There is a high level of interest among investors in the topic of outcomes. It is clear that measuring and reporting outcomes takes time. And while there is no question on the validity of RCTs, when there is no budget for such study, conducting market research (even internally) can also help an organization understand how to serve its target population and whether is its contributing to improve the life of its clients.
Summary of discussions of March 12 (organized by session, according to agenda)
· Transparency and reporting. Dina Pons gave an overview of the PIIF, the Lenders’ Guidelines and shared the experience of Incofin regarding reporting to PIIF.
Ø Key takeaways: Industry leaders must commit to implementation. The Lenders’ Guidelines have been finalized and stabilized. Members of the SPTF social investor working group should provide feedback and progress on implementation of the Guidelines at the next social investor meeting to take place in June in Cambodia.
· LuxFlag: labeling. Annemarie Arens gave an overview of the work of LuxFlag and its labels for regulated funds.
Ø Key takeaway: There is a need to start to coordinate the work of SPTF, Smart Campaign, rating agencies and auditors on the MFI level to the service providers at the MIV level (such as PIIF, GIIRS, LuxFlag).
· Importance of transparent pricing. Chuck Waterfield provided an overview of the data gathered by MFT and its use for investors. All resources and tools are available on the MFT website for investors to use.
Ø Key takeaway: Based on importance of this topic in the industry and the interest expressed by investors both on March 11 and 12, the investor working group will start a workstream to continue the discussion on this topic. Details will be shared soon.
· Preventing over-indebtedness (MIMOSA). Emmanuelle Javoy gave an overview of MIMOSA, a tool that helps identify the warning signs of over-indebtedness. A new version of the tool, MIMOSA 2.0, is expected to be ready in 2015.
Ø Key takeaway: The new version of the tool will maintain its simplicity yet be more robust.
· Creating common social statements (SPI4). The SPI4 is a social assessment and reporting tool developed by Cerise, together with MIX and SPTF that is completely aligned to the Universal Standards. Cecile Lapenu and Emmanuelle Javoy gave an overview of the level of use to-date of the tool and the ongoing work of a small group of investors (ALINUS) to develop a version of the tool that has fewer indicators and can be used as the common tool for due diligence and monitoring (SPI4 light). Several investors shared examples of how they use the SPI4 and its benefits (BlueOrchard, Cordaid, Proparco, Ada, Deutsche Bank). ADA gave an overview of its Microfact (financial factsheet), which is used by many investors and with the help of Cerise, integrates social performance indicators.
Ø Key takeaway: If adopted widely, the SPI4 has the potential to become the “social statement” to complement annual financial statements of MFIs.
· Importance of good governance at the MIV, MFI, and asset owner levels. Paul DiLeo (Grassroots Capital Management) shared the lessons learned from the AfriCap fund case study (AfriCap was one of the earliest microfinance equity funds, established in 2001, long before many of the current governance and good practice guidelines were available). Dina Pons shared examples of good governance at the MFI level (AMK and Kushali bank). These examples illustrated how social performance is discussed at the board level and implemented throughout the institution.
Ø Key takeaways: While there are examples of MIVs and MFIs who have made very good progress in incorporating SPM into their ongoing processes and operations, unfortunately this is not yet common practice in the industry. AMK and Kushali bank provide good examples to learn from in terms of how SPM can be embedded and the benefits that it provides. Embedding SPM in the governance of an institution (as equity investor) is possible, and it can be simple and cost-effective. If an organization claims to be double-bottom line, having a social dashboard that is part of the regular reporting is absolutely necessary.
· Challenges and considerations when exiting. A panel of investors shared their views on the topic of responsible exits from equity sales. Discussion centered on the measures that can be taken into account to help plan for exits that try to maintain the social mission and character of the organization after the sale.
Ø Key takeaway: With the volume of sale transactions (exits) expected to increase significantly in the near future, defining what is meant by “responsible exit” and what can be done to try to ensure is now more important than ever.
· Measuring and reporting outcomes. Frances Sinha led the session on measuring and reporting outcomes. Prof. Malcom Harper shared his views and mentioned that while RCTs are the gold standard, organizations can also do assessments in house (e.g., AMK). Assessing results should be part of the regular operations of an organization rather than a one-time research exercise. Investors provided examples of their work, including Bamboo Finance, EIB, Oikocredit, and Incofin.