SPTF Annual Meeting 2015

SPTF Annual Meeting 2015

Day two meeting notes

Opening remarks

Frank de Giovanni (Ford Foundation, and SPTF Board Chair)

This is the 10th Anniversary of the SPTF – a very important milestone. We have accomplished a lot over the last ten years – adopted the USSPM and grown to more than 2,600 members in 127 countries. We just developed a new three year strategic plan and conducted a survey in partnership with the MIX and The Global Appeal which indicated that 90% of stakeholders were “aware, familiar, or very familiar” with the Universal Standards indicating that they have achieved high recognition worldwide.

I would like to take this opportunity to reflect on how we have arrived at this point, to say a few words about where we still need to go, and to offer my thoughts on why I think the SPTF is so important to helping the microfinance sector achieve its original vision. I hope that you will indulge me in a bit of personal reflection.

Microfinance began in 1977 when Muhammed Yunus in Bangladesh and other organizations in Asia and Latin America experimented with the notion that poor women could borrow small amounts of money to invest in their livelihoods and repay these loans.

Yunus was motivated first and foremost by a desire to improve the lives of these women, and saw access to credit as a key means to do this.

I know this, because my organization – the Ford Foundation – provided Professor Yunus the funds to conduct the experiment that eventually became the Grameen Bank.

So the original vision of microcredit – and its successor microfinance – was rooted in using financial services to improve the lives of poor women – to move them out of poverty and to empower them.

It was a decidedly people or client-oriented viewpoint married to the development of a financial institution. Thus it had a double bottom line from the outset. Financial services were only a means to an end, not an end in themselves.

But over the years, this original vision of improving the lives of the poor receded as concerns over the financial sustainability of the MFI took on more importance.

Thus, we seem to have shifted from a major concern or focus on poor clients to a dominant focus on the institutions that provide the financial services.

Just think back to the major debates in the field during the 1990s and 2000s. They included:

• What is more effective – group-based vs. individual lending?
• Should NGOs convert to regulated FIs?
• What are the most important or best indicators to use to measure financial performance?
• How long should it take an MFI to reach financial sustainability?

These are clearly critical issues, because we need sustainable FIs to continue delivering financial services to poor people.

But the problem was that a comparable level of ferment and energy was not being applied throughout the industry to trying to answer questions such as:

• What is the best way to target services?
• What types of financial services do poor households need to improve their lives?
• How can we tell if clients’ lives are improving?
• Can MFIs serve poor clients and become financially sustainable?

In short, ½ of the double-bottom line was being taken for granted and therefore overlooked by many organizations in the field. Not all of them as we saw yesterday in the examples of Cashpor and AMK. And, in the worst case, many organizations began Serving better off clients as they strove to become financially sustainable. This was the proverbial “mission drift” that many observers talked about in the 2000s.

The unspoken assumption seemed to be that if you built a strong microfinance organization, and your heart was basically in the right place, then social performance would happen by itself.

But a number of us were troubled by this state of affairs. We did not believe that MFIs could do a good job of helping clients improve their lives without consciously setting out to do this.

In essence, this would not happen by itself. We believed you could not just luck your way into strong social performance any more than you could stumble into strong financial performance by trying to do the right thing and then hoping for the best. I don’t think anyone here believes you can achieve strong repayment rates without working hard to put in place rigorous systems of due diligence, loan monitoring and collection systems.

Thus, if you want to be equally serious about both halves of the double bottom line, you need to devote as much energy, thought, debate, and resources to social performance as to financial performance.

And it is critical to remember that financial performance focuses on the institution. Social performance emphasizes the client. Strong institutions—with the right legal and governance structure, delivering the right products, through the right channels operating at sufficient scale to be sustainable—all of that is critical to the success of microfinance, but it is a necessary but not sufficient condition. That is, it is not enough.

We also need to care about the client. But we have to do more than that.

All financial institutions care about their clients. They spend lots of resources on market research to identify what their customers or clients want and need. Unless their product offerings are grounded in the needs of their clients, they will not sustain a strong financial performance. Their clients will go elsewhere. We heard that yesterday in the panel on client satisfaction and retention.

But what sets MFIs apart from mainstream FIs is that they should care whether their clients use financial services to improve their lives.

And that is why a few of us came together in 2005 to create the SPTF because we did not believe that the MF industry was paying enough attention to this question – the question that motivated its start – could financial services improve the lives of the poor?

We wanted to explore how the microfinance industry could get intentional and consistent about measuring social performance. And looking back on the last ten years, there are many things I am truly grateful for, and here are just two of them.

First, we started our task force initiative a couple of years before microfinance’s first initial public offering and before the onset of the over-indebtedness crisis in many countries. That first IPO was (and remains) controversial and troubling to many observers, both within and outside our industry because it lead to such a major emphasis on the profit motive in microfinance rather than the social purpose of microfinance.

I think there’s a real possibility that if the Social Performance Task Force had been created after that IPO and the over-indebtedness crises, we might have been perceived cynically as an after-the-fact PR exercise, and there would not have been much we could have done to fight that perception. As it was, the Task Force’s work was already well underway before the IPO and the OI crises. That timing gave us credibility, and that credibility has served the industry well. I am grateful for that.

I am also thankful that we were able to take the time we needed, to develop the Universal Standards. If the USSPM had been a response to externally-driven events, they might not have taken ten years to develop . . . but they also would have been seen for what they would have been: top-down, imposed, and ceremonial. Instead, the Universal Standards are bottom-up, deeply collaborative, and highly practical. We developed them through an intensive process with working groups involving hundreds of people from a variety of stakeholder groups.

I mention the Universal Standards because they are such a major milestone. Now that the Universal Standards exist, part of the Task Force’s work will shift to using its collective voice to promote their broad adoption.

We also want to ensure that every institution that wants to implement the Universal Standards has access to the support they need to do so. Those twin goals are at the heart of our new 3-year strategic plan which includes a major focus on developing a long term communications strategy and well as trainings and resource materials to support implementation.

I would now like to shift focus to talk about why I think the SPTF is so special. It has a set of attributes I call the four C’s: client-centric, change-oriented, collaborative, and committed.

Focusing on the needs of clients is our WHAT.The essence of “social performance management” is “a management style that puts customers at the center of every strategic and operational decision.”

The second C is change – orientation – asking whether the products and services that we provide are improving the lives of our target population in line with the goals that we have set for these clients. This is our WHY – the reason that we exist. The strategic plan will devote increasing attention to outcomes as you will hear later today.

The Universal Standards themselves reflect this client-centricity – the what and why. Each of the Standards’ six dimensions focuses on the client: from defining the goals an institution wants to achieve with the target clients it wants to reach, to designing products and services to meet those clients’ needs, to ensuring client-centricity on the part of board, management, and staff, to treating clients responsibly—and also, critically, to treating staff responsibly—because it’s the right thing to do, and also because the way you treat your staff is the way they will treat your clients, and to ensuring that the institution’s growth does not imperil its social mission.

We started with AMK on Tuesday and Khushhali Bank and Cashpor yesterday because those organizations live, breathe, eat, sleep, and get up in the morning driven by the why. Thriving customers are the bedrock goal, but it’s not a one-way street. Happy customers are loyal customers, and that loyalty is good for the “other bottom line,” the financial one.

The third C – collaboration – is the HOW of the Social Performance Task Force. From its earliest days back in 2005, the Task Force was determined to build social performance management for the whole industry. We wanted to do this in a participatory manner.

We didn’t want donors or investors defining success for practitioners, or practitioners deciding for themselves what success would mean, or researchers laboring in isolation to devise evaluation frameworks. Rather, we wanted an understanding of social performance management that would be relevant for the entire industry, developed by all segments of the industry to get buy-in from everyone —hence the word “Universal.”

And that meant involving the entire industry, or at least a representative cross-section of it. And that’s exactly what we have built. The work of the SPTF is largely done through working groups. And this meeting also reflects the high degree of collaboration that characterizes all our work. Over 50 people were involved in designing the content of the sessions.

My final “C”—committed—describes the “WHO,” the people of this Task Force. We started with a small group of committed people, and the fact that many of them are in this room ten years later speaks volumes.

But whether they were present at the creation or whether they joined the Task Force more recently, our members all believe strongly in the Task Force’s vision: of a true double-bottom-line industry where social performance and financial performance mutually strengthen and reinforce each other.

Social performance is nothing more—but also nothing less—than knowing your clients and trying to help them improve their lives. Institutions that regard their poor and low-income clients as capable, multi-dimensional, dynamic human beings will know them—their goals, their challenges, their opportunities, and—yes—as a byproduct of that deeper knowledge, they’ll also know what products and services and delivery channels and marketing messages address their needs.

And I believe that they will know whether the products and services they provide are making a difference in the lives of their clients. And this knowledge will, in turn, enable them to further improve those products and services. This may be more vision than reality for most MFIs now, but examples such as the ones highlighted in this meeting give us hope that they can be a reality for most, if not all, MFIs

And the Institutions that get that right can thrive. Examples such as Khushhali Bank indicate that it is not feel-good spin to say that strong social performance supports strong financial performance. Every successful business in the world needs to understand its clients.

But low-income people in developing countries are not a consumer segment like any other, and financial services are not a consumer product like any other. We’re in a more complex business than many, and our customers’ lives and needs are more complex than many, too.

True client-centricity, under those conditions, simply demands more effort. So we need to be in it for the long haul. It takes commitment from all of us: practitioner commitment, patient capital, and also a commitment to candor—about how implementing social performance management plays out on the ground, about asking the hard questions about what works and what doesn’t, about identifying the challenges, and how to address them.

I want to stress that the Social Performance Task Force – which, again, is a cross-section of the entire industry—is not in the business of creating tools or systems. We’re seeking to create and sustain an industry culture. And like any culture, it depends on consistency, on that commitment I just mentioned.

The best comparison I can think of is a culture that values physical health. You don’t wake up one day and say “I know I am out of shape and today is the day I am going to fix that, I am going to go to the gym and work out for 9-1/2 hours and then I am going to check off that box on my to-do list.”

It just doesn’t work that way!

You make a commitment. You exercise that day. And the next day and the next day and the day after that. And no, you are not going to see results the first day. And the second day, you still won’t see results – plus you’ll be in pain! But what I can tell you is that if you commit to regular exercise, you will be in good shape and you will be healthier and your quality of life will improve.

If your institution commits to social performance, it will be a healthier, client-focused, grounded “in the why” institution. If enough institutions do it, we will have a healthier, client-focused, why-grounded industry. That’s the industry I want to see. That’s the industry the Social Performance Task Force was created to bring about. And that’s the industry that we are committed to working toward, until it is a universal reality.

Thank you.

Recognizing the Warning Signs of Market Saturation: Avoiding a National Over-indebtedness Crisis

This plenary session explored how policymakers and other industry stakeholders can encourage responsible finance through regulation. In particular, it examined the importance of consumer protection practices for preventing over-indebtedness in high growth markets such as Cambodia. The National Bank of Cambodia provided key commentary from the perspective of the local marketplace.

Speakers: Alok Misra, M-CRIL; Rath Sovannorak, National Bank of Cambodia; Jhale Hajiyeva, Azerbaijan Micro-finance Association; Daniel Rozas, MIMOSA

Alok Misra (M-CRIL, Session facilitator)

This panel is designed to give a macro-economic perspective on over-indebtedness. In the background of this discussion lay the many crises in different countries over the past ten years – and indeed we still see problems emerging around the world. The impact of the crisis, whether it comes from the client side or the public policy side, can be overwhelming. Institutions fold, clients get denied access to credit. In light of this, the objective of this session is around learning from these crises, asking what we can do proactively. A recent CGAP study considered over-indebtedness crisis and found three common elements: markets that were over-saturated, incidence of multiple borrowing, failure of clients’ businesses, and MFI systems that were overstretched. What’s the local perspective on this? A recent study in Cambodia on over-indebtedness in a sample of villages found that nearly 22 per cent of clients were insolvent or at risk. But does this matter? Many sceptics to this argument, where over-indebtedness has not increased, say that growth is necessary to tackle financial exclusion. It’s important to state that we here are not anti-growth. Exclusion is clearly a big challenge. But we are for long-term sustainable growth, which is a different matter.