Social Rating Methodology

Transcription

1 Expertise for Transparency In Microfinance MF Rating HQ Via Rigola, Milan Italy Tel: MF Rating South America CallePasaje El Jardín #152 y Avenida 6 de Diciembre Quito Ecuador Tel.: Social Rating Methodology MF Rating Mexico Av. Patriotismo 229Piso8 Ciudad de México DF CP Tel Tel MF Rating Central Asia 231 Tynystanova Str., apt , Bishkek, Kyrgyz Republic Tel: MF Rating Africa Prima Apts.,Gichugu Road, Kileleshwa Nairobi, Kenya Tel: Mob: MF Rating South East Asia Unit 34 Cattleya Gardens, 111 C. Palanca St., Makati City Metro Manila, Philippines Tel: MicroFinanza Rating Srl All rights reserved August 2012

2 1. MicroFinanza Rating MicroFinanza Rating (MFR) is a private and independent rating agency specialised in microfinance and rural finance. It is one of the most active and experienced specialised agencies with more than 700 evaluation assignments carried out. MFR is qualified within the IADB/CGAP/EU by the Rating Initiative and is also the first specialised rating agency to be recognised by a national regulatory authority (Superintendence of Banks and Insurance in Ecuador) and licensed to carry out credit ratings. MicroFinanza Rating is your best partner for social rating as we offer: High professionalism: the only rating agency with a specialised social rating department; Largest experience: the rating agency with the highest number of social rating conducted (120 social rating carried out in 35 countries) Customized services: the rating agency with the most sensitive approach thanks to the broadest experience in different regions and different legal forms of MFIs. Twofold approach: the only rating agency systematically offering two social rating products - Standard and Comprehensive (see section 4) Well-founded credibility: quality of services provided internationally recognized, with several international investors recurrently using our services and member of the Social Performance Task Force (SPTF). Universal standards of social performance management integrated in the methodology (see annex 1). Our mission is to provide microfinance institutions, investors, donors and other stakeholders with independent rating, assessment and information services to foster the microfinance sector transparency and facilitate responsible investments and practices.

3 2. International Social Performance framework Social Performance Management Mission and Objectives Systems Output Intent Process and Input Output Outreach Services C H A N G E S I M P A C T Social responsibility towards staff, clients, community and environment Social Rating Impact Assessment MicroFinanza Rating Social Rating is aligned with the common framework for social rating and reporting established within the Social Performance Task Force 1 and with the pathway for social performance established by the Imp-act consortium. This includes both the short and long-term results that an MFI achieves as well as the activities it undertakes, the products it offers and the organizational values and behavior it promotes (not only results but also the process to achieve these results). The social rating does not measure the impact of the MFI; it analyzes the intentions (social mission and social objectives), systems and results of the MFI, before the impact that it may have on clients. Social rating and impact assessment are complementary tools; one does not substitute the other, since they respond to different needs. Social Rating Analyzes the objectives, systems and results of the MFI, before the impact that these may have on clients. Impact Assessment Measures the change in the living conditions of one population due to the action of an MFI. 1 The Social Performance Task Force was created in March 2005 with the aim of promoting social performance in microfinance, launched by the CGAP, the Ford Foundation and Argidius Foundation.

4 3. Social Rating Overview Investors, donors and practitioners are increasingly recognising the need to measure microfinance institutions social performance, in order to assess the achievement of the triple bottom line. Financial and operational information is necessary to make strategic decisions; however, it is not sufficient to answer important questions such as: Is the MFI achieving the mission? Is there a risk of mission drift? The Social Rating provides transparent information to balance social and financial considerations in decision-making. Social Rating definition The Social Rating provides an opinion on the capacity of an MFI to put its mission into practice and achieve social goals. External Independent Comparable Objective Social Rating advantages: Measure MFIs social performance with international standards (Universal standards, annex 1); Show MFI s social results to the investors through an independent tool; Improve MFIs social performance management and put your mission into practice. Internal users MFI management Identify the strategic priorities Focus on the areas that require intervention Facilitate enhanced social performance management systems External users Donors and investors Review social performance strengths and weaknesses of MFIs Monitor the MFI social performance progress Allocate the resources according to social objectives

5 4. Twofold approach Two different Social Rating products are available, to meet the needs of the different stakeholders: Standard Social Rating Information available at MFI-level Comprehensive Social Rating Direct collection of client-level information through a client survey STANDARD SOCIAL RATING The analysis is based on the information available at the institutional level. The outreach analysis uses all of the available data that can be obtained by the MIS of the MFI. The quality of the services is investigated through the products design, competitive advantages and client feedback made available by the MFI. COMPREHENSIVE SOCIAL RATING The Comprehensive Social Rating measures the outreach and quality of the service at the client level through a survey on clients and focus group discussions. The in-depth field analysis implied by this product is more demanding in terms of time and resources. Nevertheless, the direct collection of complete and reliable information on the social and economic profile of the clients results in a more comprehensive picture of the social performance. CLIENT SURVEY FOCUS GROUP DISCUSSION A questionnaire is administered to a representative sample of clients, covering: social and economic profile of the clients, satisfaction with the services and client protection. The Progress out of Poverty Index (PPI) 2 is included in the questionnaire when available, representing a pilot experience for MFIs willing to introduce it in the internal systems. Focus group discussions (FGDs) with the clients are carried out to obtain direct feedback on the quality of the services and client protection. The FGDs composition reflects the target market segmentation. Additional advantages of the Comprehensive Social Rating: Provision to the MFI of inputs for improving its SP management and tracking systems 3 ; Dissemination in the MFI of sound techniques to measure client socio-economic profile, customer protection and satisfaction; Possibility for the MFI to increase transparency in the sector with complete and reliable data; Creation of baseline data for impact studies on clients that may be conducted in future. 2 The PPI is a country-specific tool derived from the national household survey which assigns poverty likelihood levels (national and international poverty lines) to the population of interest allowing targeting, poverty measurement at one point in time and poverty evolution monitoring. 3 Providing a set of indicators that the MFI can consider introducing in the internal systems. It can also provide information to design technical assistance interventions aimed at putting in place effective systems to measure and monitor social performance.

6 5. Social Rating Structure The social rating structure is composed of six sections: the first two describe the institutional profile and social and economic context, while the following four sections assess the components of the MFI social performance. Section 1. Socio-economic context Content summary Socio-economic development of the country, poverty and inequality, progress towards the Millennium Development Goals. Key features of the national microfinance market Social Performance Management System Client Protection and Social Responsibility Social mission, governance support, management capacity to set objectives, design strategies, monitor social performance and put in place systems to achieve the mission. Policies and activities to minimize possible negative impact on society, promotion of positive values among staff, clients (client protection), community and environment. 4. Outreach 5. Quality of the service Breadth of geographical and individual outreach. Alignment of the socio-economic profile of clients (poverty, financial exclusion, vulnerability) to the target indicated in the mission. Variety of the financial services, appropriateness of the services to clients needs, competitive analysis. Quality of the non-financial services (when applicable). In addition the Social Rating report includes: A summary of the main strengths and weaknesses of the social performance of the MFI by area of assessment The social rating grade, the evaluation by area and the final opinion on the social performance; The social rating reports can be customised depending on the needs of the different clients (MFIs, donors, social investors, regulators, etc), with a different focus and a different degree of synthesis.

7 6. Areas of assessment Aligned to the Universal Standards of Social Performance Management of the SPTF (see annex 1). 1 CONTEXT AREA SUB - AREA INDICATOR 1.1 Socioeconomic context 1.2 Microfinance sector Macroeconomic context Human development, poverty (national and regional) and inequality Demand, cross-indebtedness, MFIs, competition, network Microfinance regulation and supervision, including client protection AREA SUB - AREA INDICATOR Mission reflecting intentions, clear and complete Governance good practices, social and financial returns balance Social governance: social commitment, social guidance, supervision 2 SOCIAL PERFORMANCE MANAGEMENT SYSTEM 2.1 Mission, governance and strategy 2.2 Tracking and Monitoring System Risk of mission drift and strategic capacity to achieve the mission Alignment of the overall strategy to the mission Formalization of social strategic objectives and operational targets Alignment of the products and strategy to the mission Balance social and financial performance: growth, financing structure, profitability, management compensation Tracking and monitoring of the client profile Tracking and monitoring of the client satisfaction Tracking and monitoring of the change / impact in clients lives Internal audit of social performance information Social reporting and use of information for decision making 2.3 Human resources alignment Staff recruitment and training alignment to the mission Staff evaluation and incentive alignment to the mission, avoiding the risk of mission drift

8 Aligned with the Smart Campaign Client Protection certification indicators and the MicroFinance Transparency tool. AREA SUB - AREA INDICATOR Non-discrimination environment and gender balance among the staff 3.1 Social responsibility towards personnel Staff turn-over, reasons, concentration and trends Transparency and completeness of HR policies, labor conditions safety Labor climate, participation and monitoring tools Contractual form and conditions, staff compensation Evaluation, training and development opportunities for the staff 3 CLIENT PROTECTION AND SOCIAL RESPONSIBILITY 3.2 Client protection Appropriate product design and delivery Prevention of over-indebtedness Transparency Responsible pricing Fair and respectful treatment of clients Privacy of client data Mechanisms for complaint resolution 3.3 Social responsibility: community and environment Policies and activities for the benefit of the community Policies and activities for the benef of the environment

9 AREA SUB - AREA INDICATOR 4.1 Area of Operation Breadth of geographical coverage Outreach to poor and rural areas Outreach to areas with limited access to financial services 4 OUTREACH 4.2 Target reached Breath of outreach, growth and availability of saving services Social vulnerability of client household: education, gender, dependency, children, income volatility and risk Financed activities and use of loan; productive activities of clients: sectors, size, start-up and employment support Poverty outreach: incidence of economic poverty among clients (national and international poverty lines) Dwelling and assets profile of clients, access to basic services Financial inclusion of clients, previous financial exclusion from credit and saving services Credit and saving size The client profile vulnerability is assessed based on the comparison with the local context. The depth of outreach is judged based on the alignment of the clients characteristics to the mission Collection of client-level information through a client survey and focus group discussions Comprehensive Social Rating ensures: deep analysis of the client feedback on the service quality deep analysis: complete profile of clients reached field verification of client protection AREA SUB - AREA INDICATOR 5.1 Variety of the services Overall variety of the financial and non-financial Variety of credit products 5 QUALITY OF THE SERVICES 5.2 Adequacy of the services Accessibility: service delivery and guarantee Ease of procedure, processing time Flexibility: term, repayment schedule and amount Customer service and client drop-out rate Appropriateness of non-credit financial services, including savings Variety and appropriateness of non financial services

10 7. Social Rating scale All rated MFIs are given a grade according to the scale depicted below. The Social Rating scale has been built through an accurate analysis of MicroFinanza Rating cumulated experience and the data recorded in over 120 social ratings issued up to March The current scale was introduced starting from April 2012 and relies on a clear range of grades and streamlined definitions 3. The client protection is taken into account through a cap system applied to the overall grade. Grade S AA S A S BB S B S C Definition Excellent social performance management and client protection systems. High likelihood of achieving the social mission. Good social performance management and client protection systems. Social mission likely to be achieved. Adequate social performance management and client protection systems. Satisfactory alignment to the social mission. Moderate social performance management and client protection systems. Partial alignment to the social mission Weak social performance management and client protection systems. Medium risk of mission drift S Poor social performance management and client protection systems. D Risk of mission drift. The modifiers + and - which can be added to the rating grade denote small relative differences within each rating category. The areas of assessment contribute in the following way to the social rating model: AREA WEIGHT SOCIAL PERFORMANCE MANAGEMENT SYSTEM 28% Mission, governance and strategy 13% Tracking and Monitoring System 9% Human resources alignment 6% CLIENT PROTECTION AND SOCIAL RESPONSIBILITY 27% Social responsibility towards personnel 9% Client protection 15% Social responsibility: community and environment 3% OUTREACH 25% Alignment of outreach depth to the mission 17% Breadth of outreach 8% QUALITY OF THE SERVICES 20% Variety of the services 6% Adequacy of the services 14% Total 100% 3 For more information about the comparability between the current social rating scale and the scale used up to March 2012, please refer to the Updated Social Rating scale in the section Products and Services Social Rating of our website

11 8. Social rating process Preliminary analysis 30 days Preliminary information Survey preparation* Visit 5-10 days 2 analysts Questionnaire adaptation, training of interviewers* Survey implementation and supervision* Interviews with staff, management, directors, competitors Branch visits Reporting days Data analysis and report drafting Integration of MFI feedback Social Rating committe Final Social Rating issued *Comprehensive Social Rating only

12 Annex 1: Map of Universal Standards of Social Performance management (USSPM) The compliance of the MFI to the USSPM can be demonstrated with the social rating, through the specific social rating areas indicated in the map below. Universal Standards of Social Performance management (USSPM) analyzed in Social Rating sections* 1 Define and Monitor Social Goals 2 Social Performance Management system 1a The institution has a strategy to achieve its social goals 2.1 Mission, governance and strategy 1b The MFI collects, reports, and ensures the accuracy of client-level social data. 2.2 Tracking and Monitoring System 2 Ensure Board, Management, and Employee Commitment to Social Goals 2 Social Performance Management system 2a Members of the Board of Directors are committed to the mission 2.1 Mission, governance and strategy 2b Board of Directors holds the institution accountable to its mission. 2.1 Mission, governance and strategy 2c Senior management sets, and oversees implementation of, the institution s strategy for 2.1 Mission, governance and strategy achieving its social goals. 2.2 Tracking and Monitoring System 2d Employees are recruited and evaluated based on social and financial performance 2.3 Human resources alignment 3 Treat Clients Responsibly 3.2 Client protection 3a The MFI avoids client over-indebtedness. 3.2 Client protection 3b The MFI communicates clear, sufficient and timely information to the clients. 3.2 Client protection 3c (CPP5) The MFI treats their clients fairly and respectfully. 3.2 Client protection 3d (CPP6) The institution respects the privacy of client data. 3.2 Client protection 3e (CPP7) The MFI has timely and responsive mechanisms for complaints resolution. 3.2 Client protection 4: Design Products, Services, Delivery Models and Channels That Meet Clients Needs and 2.1 Mission, governance and strategy Preferences 3.2 Client protection 4a The MFI understands the needs and preferences of different types of clients. 2.2 Tracking and Monitoring System 4b (CPP1) The MFI designs products and delivery channels avoiding clients harm. 3.2 Client protection 4c The MFI products and delivery channels are designed to benefit clients 2.1 Mission, governance and strategy 5 Treat Employees Responsibly 3.1 Social responsibility towards personnel 5a The MFI policies protects employees and create a supportive working environment. 3.1 Social responsibility towards personnel 5b Employment terms are transparent and training is provided to the employees 3.1 Social responsibility towards personnel 5c The institution monitors employee satisfaction and turnover. 3.1 Social responsibility towards personnel 6 Balance Financial and Social Performance 2.1 Mission, governance and strategy 6a Growth is sustainable for market conditions, allowing for high service quality 2.1 Mission, governance and strategy 6b The financing structure is appropriate to a double bottom line MFI 2.1 Mission, governance and strategy 6c Pursuit of profits does not undermine the sustainability or client well-being. 2.1 Mission, governance and strategy 6d The senior managers compensation is appropriate to a double bottom line MFI 2.1 Mission, governance and strategy *For more details, please see chapter 6 -Areas of analysis-, or contact Lucia Spaggiari, Social Rating director: lucia.spaggiari@microfinanzarating.com