Social Investor Working Group Meeting SPTF … · Social Investor Working Group Meeting SPTF Annual...
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Social Investor Working Group Meeting SPTF Annual Meeting in Mexico June 6 2017 Summary of discussions 1. Welcome and Updates Group co-chairs Christophe Bochatay (Triple Jump), Jurgen Hammer (Grameen Credit Agricole Foundation), and Leticia Emme (SPTF - coordinator of SIWG) welcomed participants and provided updates on the Social Investor Working Group. Christophe provided an update on the current priorities of the group. • Harmonizing investor due diligence and monitoring on social performance - uptake of SPI4 ALINUS • Measuring and reporting on social outcomes – guidelines developed and harmonized indicators being pilot tested in Latin America and India • Aligning efforts with other initiatives in responsible finance and the impact investing sector (including UNRPI, GIIN, WEF, IMP, etc) • NEW - Increasing alignment with asset owners • NEW - Assessing S&E performance of SME finance • Pricing transparency – defining a model to continue to have transparent pricing data in a “post MFT” era • Harmonizing loan agreements covenants in support of responsible microfinance • Equity & responsible exits Leticia noted the upcoming change in group governance later this year when Jurgen steps off his role as co-chair of the group given that after years of strong leadership his term is coming to an end. SPTF will be holding elections this fall for investors to select the next investor co-chair and representative. 2. Updates on new workstreams identified at the last investor meeting in Zurich (March 2017) The last meeting of the Social Investor Working Group took place in Zurich in March 2017. 71 investors participated. At the meeting, the group identified 2 new areas of work for the group: 1) increasing alignment with asset owners, 2) assessing the social & environmental performance (S&E) of SME finance. Leticia provided an overview of the work the SPTF and the SIWG is doing to engage with asset owners. There was a question about whether the new frameworks being developed to accelerate impact measurement and management take into account the SDGs. Leticia noted that yes, they are being part of the conversation and initiatives are looking at how to incorporate them. Cecile noted that the SGDs have been mapped to the last version of the SPI4.
Transcript of Social Investor Working Group Meeting SPTF … · Social Investor Working Group Meeting SPTF Annual...
SocialInvestorWorkingGroupMeetingSPTFAnnualMeetinginMexico
June62017Summaryofdiscussions
1. WelcomeandUpdates
Groupco-chairsChristopheBochatay(TripleJump),JurgenHammer(GrameenCreditAgricoleFoundation),andLeticiaEmme(SPTF-coordinatorofSIWG)welcomedparticipantsandprovidedupdatesontheSocialInvestorWorkingGroup.Christopheprovidedanupdateonthecurrentprioritiesofthegroup.
• Harmonizinginvestorduediligenceandmonitoringonsocialperformance-uptakeofSPI4ALINUS
• Measuringandreportingonsocialoutcomes–guidelinesdevelopedandharmonizedindicatorsbeingpilottestedinLatinAmericaandIndia
• Aligningeffortswithotherinitiativesinresponsiblefinanceandtheimpactinvestingsector(includingUNRPI,GIIN,WEF,IMP,etc)
• NEW-Increasingalignmentwithassetowners• NEW-AssessingS&EperformanceofSMEfinance• Pricingtransparency–definingamodeltocontinuetohavetransparentpricing
dataina“postMFT”era• Harmonizingloanagreementscovenantsinsupportofresponsiblemicrofinance• Equity&responsibleexits
LeticianotedtheupcomingchangeingroupgovernancelaterthisyearwhenJurgenstepsoffhisroleasco-chairofthegroupgiventhatafteryearsofstrongleadershiphistermiscomingtoanend.SPTFwillbeholdingelectionsthisfallforinvestorstoselectthenextinvestorco-chairandrepresentative.
2. UpdatesonnewworkstreamsidentifiedatthelastinvestormeetinginZurich(March2017)
ThelastmeetingoftheSocialInvestorWorkingGrouptookplaceinZurichinMarch2017.71investorsparticipated.Atthemeeting,thegroupidentified2newareasofworkforthegroup:1)increasingalignmentwithassetowners,2)assessingthesocial&environmentalperformance(S&E)ofSMEfinance.LeticiaprovidedanoverviewoftheworktheSPTFandtheSIWGisdoingtoengagewithassetowners.TherewasaquestionaboutwhetherthenewframeworksbeingdevelopedtoaccelerateimpactmeasurementandmanagementtakeintoaccounttheSDGs.Leticianotedthatyes,theyarebeingpartoftheconversationandinitiativesarelookingathowtoincorporatethem.CecilenotedthattheSGDshavebeenmappedtothelastversionoftheSPI4.
LuciaprovidedanoverviewoftheworkthattheSPTFandeMFPareplanningtodointermsofassessingS&EofSMEs.TheobjectiveoftheworkistoconsolidatetheinformationavailableonhowtoevaluateSPMforFSPsfinancingSMEs.MaptherelevanceandapplicabilityforSMEfinanceoftheUniversalStandards,MIVduediligencetoolsandotherframeworks.Identifypossiblegapsandprovideindicationsonhowtofillthegaps.Thesourcesfortheworkwillinclude~200surveysconductedbyMicrofinanzaRating,duediligencetoolsofMIVsalreadyworkingwithSMEsandexistingliterature.SPTFwillalsobemappingsomeofthetoolsbeingusedbyDFIstoassessS&EofSMEs.Luciathenopenedtofeedbackfromparticipants.Discussion-Whatarethepriority/mostmaterialareasthatMIVslookatwhenlookingatSMEsbanks?
• MicrofinanceandSMEbankshavedifferentmindsets.Thereisamissingmiddlethatnobodyisfiling.CommercialbanksarenotlookingatSMElendingasasectorforprofitorrevenue.Lucianotedthansegmentationwouldbeneeded.
• SMEanalysiswouldbeveryinteresting.InCambodiamanyinstitutionsaremovingtoSMEs.Doesn’ttheSPI4alreadyassessSMEorganizations?Isthisnotsufficient?Itwouldbenicetojustuseonetool.LucianotedthattheworkwilllookintowhetherSPI4needstobeadaptedforSMEs,butrecognizingthatthereisvalueonkeepingthesuggestedtools/frameworkssimple.
• OneofthedifferencesbetweenfinancialinclusionandSMEistheintrinsicvalueofwhoyouarefinancing.
• ItwouldbereallyusefultoseethesocialimpactofSMEsandtheimpactofjobscreated.SymbioticssentteamtothefieldtoassesstheimpactofSMEstheyworkwith.Theywillbeabletosharelearningsinawhile.
• TripleJumpsharedGenesisEmpresarialistrackingSMEs.GenesisisoneofthemostdevelopedFSPsinthismarket.Genesismentionedthatforthemthekeyforanystrategyissegmentation–understandingcustomerneedsandwantsarekeytoproductdevelopment.Basedoncomprehensivequestionnaires,Genesisisabletounderstand“thedevelopmentroute”oftheircustomersandofferproducts/servicesbasedonwheretheyareandalsobeabletomeasuretheimpactoftheirloans--howmanycustomersareimproving?Howmanycustomersarestagnantinthejourney?
• MaterialtopicscomefromthesectorwheretheSMEis.Inmicrofinanceyoudon’tneedtoasksomanyquestionsaboutthesector.ButforanSMElender,itisexpectedthatthelenderhasdefinedforeachsectorwhataretheneedsofthecustomers.ItwouldbeinterestingtolookattheprocessesthanSMEshaveintermsofidentifyingthematerialareas/topicsforeachsector.
• Workshouldstartfromwhatalreadyexistsandisbeingused(e.g.SPI4,UniversalStandards)andseewhatisalreadyapplicableandthendevelopwhatismissing.
• Wouldbeusefultohaveagoodwaytodefinethedifferentsectors–anSMEinserviceswillhavedifferentrequirementsthanamanufacturingSMEforexample.Therewillbeaneedforsegmentationandsectoralization.Boliviaisagoodexampleofsegmentationandhowsectorsarebeingdefined(asitismandatoryhere).
• BasedonSPI4andUniversalStandardspointofviewisalreadypossibletoseesomeareaswhereSMEbanksarestrongerthanothers.
• ChallengeisthatsometimesonpaperSMEsmightnotlooksocial,butwhenyoulookattreatmentofemployees,customers,communitiestheyarestrongerthanMFIs.
• Compliancewithtaxeswouldbeanareainterestingtolookat.• StruggleonhowtodefineanSME.Thereareseveraldifferentdefinitions.It
wouldbeveryimportanttogettoashareddefinitionofwhatisanSME(e.g.,intermsofnumberofemployees,numberofend-clientsreached,etc).IFCforexamplelooksatsizeofloantodefineSMEs.AgoodstartingpointwouldbeashareddefinitionofSMEs.
• Itisalsoimportanttosplitoutthedestinationofloans.SMEsarenotdoingthatyet,butitsverydifferenttoseea30kloanthatgoestohousingvs.abusiness.
• GenesisdefinesSMEsbasedonasetofvariables,whichvarybytheeconomicconditionsofeachcountry.Theirformulalooksat6economicvariables(allweighted)todefineSMEs.
• Country-basedstandardsforhowtodefineSMEsmightbeagoodidea.Youcan’tstandardizeacrosscountries.
Discussion-Intermsofmateriality,is“doingnoharm”or“doinggood”moreimportant?
• BothareimportantforSymbioticsandGlobalPartnerships.Doingno-harmscreeningisadealbreakerbutinvestmentwouldn’tmoveforwardwithoutpositiveimpact.
• Alignmentonassetownersonnegativescreeningisstillastruggle.DFIshavetheirownscreenings,sohavingalignmentwithassetownersonhowtodonegativescreeningwouldbeuseful.
Discussion-WhofromthoseintheroomisinvestinginSMEs?
• TripleJump,Incofin,Symbiotics,COFIDE,SB,Oikcoredit,Nextsteps:
• WebinarinlateJunetogatherfeedbackofotherSPTFmembers• SMEliteraturereview(includingsocialratingsonSMEbanksalreadyavailable)• ReviewofDFItools• One-on-onecallswithselectinvestorsalreadyinvestinginSMEs• Interimmeetingtoshareinitialfindings(Addis,eMFPinLuxemburg)• Pilottestingbyinvestorsofdrafttools• Refineandfinalize(ideallypresentinMarch2018atnextSocialInvestor
Meeting).
3. OpportunitiestoimproveSPMinMexico
ChristopheBochatayintroducedthestudyonmicrocreditinterestratesinMexicosponsoredbyTripleJump,IFC,FOMIN,PRONAFIMandconductedbyFAS.ResultsfromthestudyindicatethattheAPRofMexicoismuchhigherthanothercountriesintheregion(Peru,Colombia,Boliviaarealllowerthan30%).TherangeinMexicogoesfrom75%to120%dependingontheinstitution.ReasonsforhighratesinMexicoinclude:
• Smallaverageloansizes(average$650)whichturnsintohighoperatingexpenses
• Highpersonnelexpenses(representing70%ofOPEX–vs.lessthan10%inothercountriesintheregion).
o Veryhighstaffturnovero Highexecutivelevelsalariesandboardexpenses(particularlyinsmaller
MFIswithweakgovernanceandtransparency)o LowloanofficerproductivityinMexico
SomebodymentionedthatinPakistantheywereabletocutdownOPEXbyreducingunderwritingprocess.TheMexicanmarketisconcentratedinspecificclientsegments.Highconcentrationonwomen,trade,andinafewstates(wheremostpoorpeoplelive).Conclusions
• Grouploanmethodologyhasallowedtoreachthepoorestsegments• Despitehighgrowths,interestratestoborrowsremainhigh• HighOPEXkeepinterestrateshigh• Highstaffturnoverandlevelofexecutivesalariesandboardexpensesarea
concernRecommendations
• Supportdevelopmentofindividuallendingmethodologywouldhelpsatisfyneedsofanimportantsegmentofclients,increasetheaverageloansize,andloweroperatingcosts
• PromotecompetitionSomeindividualMFIsinMexicoaredevelopingindividualloans,butfacingseveralchallenges.Discussion--HowdoinvestorsreacttothehighinterestratesinMexico?Isitanissuethatislookedatbyinvestmentcommittees?Howisitaddressed?
• TripleJumphas2MFIinvesteesinMexicoand1educationalorganization.Theportfoliohasdecreasedsignificantlyinthelastfewyearssincemost
organizationsdonotpasstheirscreening–e.g.,over100%APR,transparentgovernance,productandgeographicanalysis.
• OikocreditfindsitchallengingtoexplaintotheirinvestorsthattheymightinvestinMFIswiththreedigitAPRs.ThereforegoingbeyondtheAPRandprovidingacomprehensiveanalysisontheSPMoftheorganizationisveryimportant.Still,insomecasesorganizationsdonotpassscreeningbecauseofAPRs.It’sacase-by-casethroughanalysistoapproveinvestees.
• DeutscheBankalsohasasmallportfolioinMexico(intermsofnumberofpartners–workingwitheducationallender,publictransport,1lenderdoinggrouplending)andtheyfocusonorganizationswithastrongsocialmission.TheytakeaverycloselookatAPRs.
• GrassrootshasanequityfundinLatinAmerica.Sincetheyareequityinvestorshighinterestrateswerenotseenassuchabigproblemasalong-termequitypositioncanhelpdecreaseratesovertime.However,whattheyfoundtobeadealbreakerwastheweakgovernanceandlackofaccountabilityofthegovernanceofmanyorganizations.
• GlobalPartnershipsalsohasaverycarefulapproach.Theynowhave4investeesinMexicoandtheytoofocusstronglyontheSPMoftheorganization,theproductsbeingserved,towhom,andwhetherpricingis“appropriate”forthemarket.
4. SPI4andALINUS
JurgenHammerandCecileLapenupresentedanupdateontheexperiencesofinvestorsandFSPswiththeimplementationoftheSPI4andALINUS.
• TheSPI4isthesocialstatementoftheFSPsanditallowsinvestorstogathertheinformationtheyneedfromthereinsteadofaskingtheFPSforadditionalreporting.
• ALINUSnowhas68indicatorsbasedoncommonselectionofinvestors.• Thetoolwillbefrozenatleastuntil2020.• CERISEisworkingondevelopingguidanceforauditors.• CERISEgathersresultsofSPI4fromFSPsonaconfidentialbasisandthen
developsandsharesbenchmarkssothatinvestorsandFSPscancompareperformanceofFSPstotheirpeers–alsousefultoidentifyneedsforTA
Currentlevelofuptake:
• 1OMIVs/DFIsusingALINUS(ADA/LMDF,AFD/Proparco,Alterfin,BlueOrchard,BNPParibas,Cordaid,GAWA,GCAMF,Incofin,Pamigafinance)
• 6MIVs/DFIsintesting/tsrtageicplanning(DeutscheBank,EuropeanInvestmentBank,GrassRoot,Oikocredit,Symbiotics,TripleJump)
• About15MIV/DFIsincontactwithCERISE/SPTFforawarenessraisingandstrategicdiscussions
• 13networksusingtheSPI4(7International:ACEP,Advans,OpportunityIntern’l,Oxus,Pamiga,VisionFund,CIFWestAfrica,6National:AmcredBrazil,CopemePeru,FinruralBolivia,RFD)
• 13networksintrainingorusingreducednetworkoption(3International:AgaKhan,GrameenFoundation,Microcred,etc,10National:AMAAlbania,AMFAAzerbaijan,AMFIKyrgistan,AMFOTTajikistan,ASOMIFNicaragua,CMFNepal,LMWGLaos,RadimArgentina,RedFascoGuatemala,UCORAArmenia,etc.)
• 341FSPshavecompletedSPI4auditsfrom88countriesJurgensharedtheexperienceofGrameenCreditAgricoleFoundationinusingtheSPI4toassesstheirentireMIVportfolio.They’vebeenusingtheSPI4induediligencesince2015.ThankstobenchmarksofCERISEtheywereabletocomparehowtheirportfoliocomparestotheglobalbenchmark.Discussion–WhatisyourexperienceinusingALINUS/SPI4?
• DeutscheBanksharestheSPI4totheirinvestees.Alsonotedthatthereisaneedfortrainingofpartners.
• IncofinshiftedfromitsproprietarytooltoadoptingALINUS.TheSouthEastAsiaofficesalreadyusesALINUSfortheirduediligence.Thetoolwillbecompletelyrolledoutinallofficesbytheendoftheyear.UnlikeDBtheydonotsendtheSPI4inadvance,butsuchisnotachallengesincemostofthequestionsintheSPI4werealreadyinECHOS(proprietarytools).
• Oikocredit,whilenotusingtheformalversionoftheSPI4yetisworkingonaligning(challengeisthattheyhave70officesaroundtheworldbuthavealreadyalignedandlinkedtouniversalstandardsandSPI4language).
• Locfundusesitsownscorecard,whichhastobeusedforthelifeofthefundaccordingtotheLPagreement.However,whentheydevelopedtheirinternaltooltheyusedtheSPI4asinput.13outoftheir41investeesareusingSPI4.Forthosewhoare,Locfundcanhelpfundtraining.
• GlobalPartnershipshasaproprietarytoolthatlooksatseveralsectors(beyondfinancialinclusion).Theyhaveincorporatedseveralpractices/questionsfromtheSPI4particularlyregardingclientprotectionforfinancialinclusion.TheyhavealsoseenuptakeintheirportfolioofuseofSPI4bypartners.Overtimetheyexpecttohavemoredimensionsofthestandardsincorporatedintotheirtool,particularlyasmorepartnersadopttheSPI4.
• BancoPymeEcofuturo(FSPperspective).ThebenefittheyseeinhavingimplementedSPI4istoreportonwhattheyareanddo.OfthesixdimensionsoftheSPI4,only2arenotat100%alignmentwiththestandards.ItisimportanttonotethatBoliviahasastrongregulatoryframeworkforreportingandtheSPI4helpswithreporting.However,theycan’tyetprovideanSPI4reporttoregulators,theyhavetosubmitasocialrating.TheSPI4hasbeenveryhelpfulintermsofdoingbetterinsocialratings.Bolivianregulationhelpsmakesocialmissionmorevisible.Forthefirsttime,thesocialdimensionisincludedintheirstrategicplan.
• Opportunityinternational(internationalnetworkperspective).WhenSPI4cameouttheydidamappingbetweentheirowntoolandtheSPI4anddecidedtodrop
theirowntoolandadopttheSPI4.Theystronglypromotedatameasurementandmanagementbytheirpartners.Sincetheyareanetwork,theydon’tuseSPI4forduediligencebuttomonitorthesocialperformanceoftheirpartners.Strongadvanceinlast18month–90%ofportfolionowusesSPI4.OIrequestsanannualreportwithquarterlyupdatesonkeyindicators.TheyhaveseenhighsupportfrompartnersinuseofSPI4,astheyseethevalueitprovidestothem.Intermsofchallengesthey’veseenthatself-assessmentsarenotasaccurateasexternalassessments.Nonetheless,itstillhasbeenaveryusefultooltoidentifygapsandhelpimproveinareasofneed.GoingforwardOIwouldliketosettargetsforcompliancebydimension,basedonbenchmarks.
• Symbioticsstillusesitsowntool,however,thedimensionsarequitealignedwiththeSPI4.Theyrealizethattheyneedtoupdatetheirtool(developedin2009).Whiletheyarenotreadyforafullswitch,theyfirmlybelieveinbenefitofsharingindicators.
• GlobalPartnershipsseesthatSPI4isusefulforothersectorsbeyondfinancialinclusionparticularlyintermsofclientprotection.Also,gender-lesscutsthroughalldimensionsandwouldbeveryinterestingtoseeuseoftoolinthataspect.
5. DataPlatformSimulationLuciaprovidedanupdateonthedataplatformconceptbeingdevelopedbyMicrofinanzaRatinggiventhatMFTransparencyhasnotbeeninoperationsforawhile.Theideaofthecommondataplatformistoaone-stop-shopfortransparentdatafromFSPsintermsofAPR,outcomes,greenindex,clientprotection,SPI4ALINUS,IRIS,ESGindicators.Theplatformwillhavemultipleprovidersofdata(raters,investors,networks,individualFSPs).Usersmightbeinvestors,networks,standard-settingbodies,academics,regulators–datawouldbeusefulforbenchmarkingofFSPsforduediligenceandmonitoring.TheplatformwouldprovideincentivesforFSPstoprovideinformation(includingawards,benchmarkreports).Luciathenprovidedasimulationofwhatthedataplatformwouldlooklikeandhowitwouldoperate.TheexampleshownillustratedthecaseofaspecificFSPversusthebenchmarksofFSPsinthecountry.Discussionwithparticipants
• WhatisincludedinAPR?Nominalinterestrate,calculationmethod,ongoingfees,upfrontfees,taxes,insurance,andmandatorydeposits.
• IsTieraselectioncriteriaforcomparingresultsinthedatabase?Whileincludedinthedatabase,Tierisnownotoneoftheselectioncriteria(scaleis)butcanbeincluded.
• Canselectionofcriteriaforcomparison/benchmarkbemultiple?(e.g.,morethanjustaregion)?Yes,itwillbepossible.
• Whatisthecolor-coding?It’sthesameastheSPI4(colorsvarybydimension,standards,essentialpractices,andindicators).
• Modulesavailabletocomparedatawillincludesocialperformance,green,gender,etc.
• Mostorganizationsintheroommightagreethatthereisvalueinhavingthedataplatform,butmightnotbeabletofullysupportthebudgetoftheplatform.Willsomepartofthecostbecoveredfromtop-down/subsidizedbydonors?WhilesomefundingcouldbeprovidedbyDFIs,Microfinanzawantstoensurethattheplatformissustainedovertime.Also,themoresubscribersthatjoin,thelowertheshared-cost.
• Haveyouconsideredopen-sourcedplatformswhereraterscanallenterdataandbringcostdown?Technologyisnotwhatiscostly,whatiscostlyismakingsuredataisofhighquality,comparable,havingeducationavailableforusers.
• Whatwouldsubscriptioncostbe?Rangefrom$2-20kdependingoncoverage(country,region)andtypeofdata.
• Mostallinvestorsintheroomshowedhighinterestincontinuingtheconversation.
Nextsteps:• Feedbackfrominvestorsintermsoftheusabilityofplatformandwillingness
oforganizationstobecomesubscribers.Ifviable,platformwillmovefrompilottoexecution.
• Luciaaskedforfeedbacktobeprovidedwithinthenextthreemonths.6. Discussiononcapturingthevoiceofthestakeholdersthroughoutthe
investmentprocessLeticiaEmme(SPTF)providedanoverviewoftheworkSPTFisengagedinwiththeWorldEconomicFoum(WEF).In2017theWEFlaunchedanactionagendatohelpaccelerateimpactmeasurementandmanagement.Forthis,sevenactiongroupswereidentified.Giventheexperienceofthefinancialinclusionsector,SPTF,isleadingtheworkofoneoftheseactiongroupswhichisActionGroup3andwhichfocusesoncapturingthevoiceofstakeholdersaspartoftheimpactinvestment/intervention.Theworkbeingdonebyallthesegroupsisbeingcoordinatedandwillbecomplementary.TheworkofotherinitiativessuchastheImpactManagementProject(facilitatedbyBridgesImpact+),NavigatingImpact(GIIN),OECD,andUNPRIisalsocoordinatedwiththiswork.GiventheexperienceofSPTFanditsmembersinfinancialinclusion,oneofthebiggestsectorsof“impactinvesting”,wehavebeentappedtobeinvolvedinthiswork.Ourobjectiveistobringtheexperienceoffinancialinclusion,andthecollaborationthathasbeenachievedwhereweestablishedandimplementedstandards,commonassessment
tools,andoutcomesmanagementguidelinesandindicators,tothebroaderimpactinvestingsector.
• Astheimpactinvestingsectorcontinuestogrow,withnewinvestorsandfundsflowingin,thereisasignificantneedtoprovideclarityandguidancefornewinvestors.Thisiskeytoavoid“impact-washing”.
• Gatheringthevoiceofthestakeholderaspartoftheimpactinvestmenthelpsensurethattheinvestment/interventioncreatesvaluefortheaffectedstakeholdersandalsohelpsunderstandanyun-intendedeffectsoftheinvestment.
• Manyinvestorsacknowledgethattheydon’tknowhowtoorwhattorequirefromtheirinvestmentmanagersintermsofgatheringthevoiceofstakeholders.Hence,thereisaneedtoprovideguidanceforeachinvestortothentakealong,acknowledgingthateachwillbeindifferentpartsoftheimpactinvestmentjourney.
• SPTFcanbringtheexperienceoffinancialinclusiontohelpinvestorsunderstandthekeyaspectsofthesector(whicharedifferenttootherimpactinvestingsectors)andhelpbuildprocessesthatcapturethevoiceofthestakeholder(aswedidwiththestandardsandoutcomeswork).Wealsowanttohighlightthepracticesandexperienceofourinvestormemberswhohavesignificantexperiencetosharewithotherinvestors/sectors.Theexampleoffinancialinclusioncannotonlyhelpattractmoreresponsibleinvestmenttothesector,butalsohelppavethewaytothedevelopmentofotherless-maturesectorsofimpactinvesting.
Theobjectiveofgroupistoprovideguidanceonbestwaystogetstakeholderinputinordertopromoteresourceallocationdecisionsthatwouldbeendorsedbyallthosewhomaybeaffectedbyimpactinvestment/intervention.Thegroupisplanningtwodeliverablesbytheendof2017(topilottestin2018)andothertwodeliverablesfor2018(fundingpermitting).Coredeliverables(readybyendof2017tobepilottested)
1. Outlineoftheidealprocesstoengagestakeholders--withtheobjectivetohelpmoveinvestorsclosertotheideal
2. Developaself-assessmentchecklistorrubricforinvestorstoassesstheextenttowhichtheyachievetheideal.
Additionalrecommendeddeliverables(iffundingallows,developmentin2018)
3. Developadocumentthatprovidesguidanceforimprovement4. Definethebusinesscasefortheimpactinvestor–explainwhyengagingand
understandingallstakeholdersinthedesignandthroughoutaninterventioniskeytodeliveringimpact.
Discussionwithparticipants
Whatareyoucurrentlydoingintermsofgatheringstakeholderinput?Inwhatstagesofyourinvestmentdoyouconsiderit?
• Thereseemedtobeagreementthatinvestorsengagedwithafewend-clientsattheduediligencestageoftheinvestment(e.g.,conductinginterviewsto3clientstounderstandlevelofsatisfactionwithproducts/servicesprovidedbytheFPS).
• Achallengeinvestorsfindintermsofgatheringstakeholderinputishavingarepresentativesampleaswellascostandresources/timesrequired.
• ManyinvestorsrelyontheFSP(andontheirimplementationofthestandards)toensurethatpracticesareclient-centered,andjustasktheFPSifwhattypeoffeedbackloopstheyhavewithend-clientstoensuresatisfaction/usage(e.g.,“doyouhaveafeedbacklookwithclients?”,“whatdoesitlooklike”?)
• Someinvestorswhogatheroutcomedata,measuretheeffectinthelivesofthestakeholdersthatway(butnotnecessarilydefinetheoutcomeswiththestakeholderdirectly,justwiththeFSP).
• Therewasagreementbyseveralinvestorsthathavingan“idealprocess”andchecklistwouldbeveryhelpful,eveniftheydonotnecessarilycanyetaligntoallthestepsoftheidealprocess.
• Theneedforabusinesscase–toconvinceinvestorsontheneedforengagingstakeholders-wasnotedbyafewinvestors.
• GlobalPartnershipsnotedtheimportanceofhavingtherightmethodforengagingstakeholders(e.g.,havinglocalwomenfromacommunityaskquestionstoothercommunitymembershasbeenmoreeffectivethanusinganoutsider)
Nextsteps:AnyinvestormemberinterestedintakingpartoftheActionGrouptoletLeticiaEmmeknow.
7. Thefutureofmicrofinance–theroleofinvestorsgiventheemergenceandgrowthofdigitalfinancialservices.
Grassrootsprovidedtheirperspectiveasinvestor.Theydefineinvestmentsindigitalfinancialservices(DFS)asMFIsprovidingdigitalservices,sometimesinconjunctionwithfintechproviders(MNOs).IntermsofDFSadoption,theyseelessadoptionintheirLatinAmericaportfoliothanintheirportfolioinIndia.GrassrootsbelievesthatMFIsarethebestpositionedtoprovidedigitalservices(vs.fintechproviders)givenstrongergovernanceandwhathasbeenlearnedovertheyearsinfinancialinclusion.TheyseeDFSasscomplementnotareplacementofMFIbusinessmodels,withkeepingcustomersatthecenterasakeytoprovidevalueforclients.Intermsoftheroleoftheinvestors,thefollowingpracticesweresuggested:providingguidanceandlong-termviewintermsofcapitalforinvestmentsinnewtechnologies,productsandservices,askingtherightquestionsattheboardlevel(forexample,whatdoestheorganizationplantodowiththetime/resourcessavedfromDFS?),monitoringfintechrisksandprotectingclients.
FundacionGenesisEmpresarialsharedtheirexperienceasproviderabouttolaunchaDFSpilot.ForGenesis,itallstartswithsegmentation,understandingtheevolutionofcustomersandproducts.Theystartwithasegmentationmatrix,followedbyasocialevaluationofcustomers(lookingathousing,education,familysize,etc).Whenthesetwomodelsarecrossed,theyidentifycustomersbysegments.Thissegmentationhelpsthemunderstandareaswheretheyarelackingproduct,aswellasareaswherecustomersareusingproductsthatarenotbest-servedforthem.Genesislooksathelpingcustomersevolveintheirjourney,notjustprovidingloans.Segmentationhasalsobeenkeyindevelopingdigitalfinancialservices.Theyhavea“creditfactory”thatevaluatescreditscores,psychometricscores,andsegmentation(toensurepreventionofover-indebtedness).Basedonthat,theydesigntheappropriateproductsandchannelsandclientscanchosewhichproductstheywant(basedonwhatisavailableforthem).Thecreditfactorythenevaluatescreditpolicesandverifiesrequirements,andthenthecreditisfinallydeliveredtotheclient.ThepilotforDFSwillbelaunchedwithinthissummer,withanonlineplatformforcustomerstofillapplicationsforonlinecreditupto$50.CGAPsharedtheirpointofview.ThewayCGAPseesDFSasanenhancementandevolutiontohelpincreasescaleinamoreefficientway.Technologyisbeingusedatdifferentpointsofthebusinessmodel.CGAPhasateamworkingon“digitalfinancefrontiers”.Theyarelookingat6digitalattributes:1)digitaldatatrails,2)leveragingsocialnetworkstoincreaseaccesstoDFS,3)smartphonesandrichuserinterfaces,4)real-timecustomerinteraction,5)Identification,6)Tailoringfinancialservices.Alloftheseattributeshaveaclient-centricangle,whichisveryimportanttoCGAP.They’velearnedthatforproduct-designtobesuccessfulacomprehensiveapproachwasneededthatlookedatwhatend-customersneedbutalsothatisbackedbystaffandmanagement.TheSmartCampaignsharedanupdateonwhatthey’vebeendoinginDFSandfintech.WhenlookingatresponsibleDFS,SmartisnotjustlookingatMFIsbutalsoatotheractorssuchasMNOs.TherehasbeenalotofhypeintermsofDFS,butthereisalsogrowingrecognitionthatDFSpresentshighrisksforclientsandcountries.TheSmartCampaignwantstoworktowardsmoreconsensusinguidanceandpractice.Theyareworkingondigitalcreditandresponsibleagentmanagement.TheyhavefoundthatwhiletherearemanyongoingeffortsonresearchandexamplesofDFS,thereisnotalotofeffortyetonbuildingacommunitytosetthebarforgoodpractices,testdraftstandards,androlloutinassessmentandcertificationprograms.Theyaredevelopingbriefsonresponsiblemobilecredittoarticulaterisksandprovokeconversation,developcasestudiesongoodpractice,anddevelopacommunityofpracticewithfintechproviders.Finally,theynotedthatstandardsforthisareawillnotberushed,firstthereisaneedtoidentifyrisks,guidance,andacommunityofpractice.HowareinvestorsadaptingtoDFS?
• SofarintheLatinAmericaregion,DFSisinearlystages.Ithasnotreacheddigitalmassasforsomeinvestorstochangeduediligenceorunderwritingprocedures.
• Investorsareappraisingchannelsingeneral,notDFSinparticular.• TherewaswideacknowledgmentthatengagementwithDFSislowinLatin
Americabutthatitwillgrowfastinthemediumterm.• Clientprotectionisveryimportant,butsoisinvestorrisk.DFScande-
personalizethecredit,whichcanincreaselackofpay-backmorality.• OpportunityInternationalhaspartneredwithafintechprovided(notan
investment,apartnership).Theydiddoaduediligencebeforeengagingonthepartnership.Itsnotjustinvestorswhohaveademandforbestpractices.Thisisneededfornetworksaswell.
AreinvestorsintheroomlookingatinvestmentsinMNOs?
• EngagingwithMNOsdidnotseemtobearealityyetforinvestorsintheroom.Atthispointtheyareatastageofbetterunderstandingthedynamicsandrisks.
• SomeMNOsinAfricashowsignificantlackoftransparency,whichisasignificantrisk.
WhatroleshouldSPTFplayinthedevelopmentofguidelinesandstandardsforFinTech?Isthereneedtodevelopguidancebeyondclientprotection?
• Fintechistoobroad—tolookatapplicabilityofstandardsSPTFshouldnarrowthescope,e.g.,lookatMNOs.
• LookingatSmartCampaigntohelpidentifytherisks.• UniversalStandardsareenoughintermsofDFS.• Itwouldbegoodtohaveacommunityofpractice/discussion.Itistooearly
forstandards,butsharingexperiencesandlearningfromeachotherindifferenttopicswouldbevaluable.
8. DiscussiononSPTFmembershipmodelJurgenintroducedthediscussiononSPTFintroducingamembership/feemodelwherefundingcomesbothfromfunders/donorsbutalsofrommembershipfees.
• PakistanMicrofinanceNetworkwentthroughasimilarexercisetoassesslong-termsustainability.Theyrecommendationsincluded:
o Firstunderstandbudgetandbudgetgapo Ifworkdoneovertheyearsisconsideredvaluable,peopleshouldbe
willingtopay–thisshouldbeaveryconvincingargumentforanybodytopay.
o Diversifymembershiptoincludethosewhoarenotcurrentlymembersbutneedtheinformationandwouldbewillingtopay.
• Thevaluethatisprovidedtoinvestorsisalsorelatedtotheinvestororganization.Forexample,MIVswhoarenotverysocially-mindedwillbelesslikelytocontribute.
• ThereisatrendofMIVsbecomingmoresociallyconscious.• OikocreditwilllikelybesupportiveoftheSPTFasawhole.Needtogetmore
detailsofthefees,structure,valueproposition.• MFIswouldbewillingtopayamembershipfeetobepartofanetworkthat
helpslearn,share,andexchange.SPTFhoweverisnotknownoutsideofthemicrofinanceworld.CouldSPTFprovideconsultingservices?
• SPTFshouldthinkofbroadeningmembershipbase–forexample,includeregulators.(JurgennotedthatthishascomeupinthepastandthereasonwhySPTFhasnotengagedregulatorsisgivenbudgetandthelargeeffortthatengagingregulatorswouldentail.InsteadSPTFhasengagedwithregulatorsonaone-to-onebasiswhenspecificallyapproachedbythem,e.g.,inNicaragua).
• DeutscheBanksharedOikocredit’sperspective.TheworkdonewithSPI,outcomes,hasbeenveryvaluabletoDB.Theywouldbewillingtosupportthewholeorganization.
• Desjardinsalsosharedtheviewofsupportingthewholeorganization.Tostayrelevant,weneedthecross-stakeholdervoice.Theysuggestedamixed-feestructure,dependingonthetypeofmember(capacitytopay).
• Grassrootsechoedothersintermsofthevaluetothewholeorganization.Suggestedabundledapproach(e.g.,includedataplatform).
Nextstep:InvestorstoprovidefeedbackonthevaluepropositionthatSPTFwouldsendtotheirorganizations
Listofparticipants Organization FullName(Last,FirstMiddle)1 CERISE Lapenu,Cecile2 CGAP Seltzer,Yanina
3
CompañíaEspañoladeFinanciacióndelDesarrollo,COFIDES,S.A.S.M.E. Rabadán,Julia
4DéveloppementInternationalDesjardins Quirion,Marisol
5 DeutscheAssetManagement Howe,Sarah6 EAConsultants Magnoni,Barbara7 FundacionGenesisEmpresarial Perez,Edgardo8 GlobalPartnerships Murphy,Tara
9GrammenCreditAgricoleFoundation Hammer,Jurgen
10GrassrootsCapitalManagementPBC Hamilton,AnnaKanze
11 Incofin Liv,DannetLinarin12 LOCFUND/BIM Céspedes,VerónicaSusana13 MicroFinanzaRating Spaggiari,Lucia14 MicrofinanzaRatingsrl Moauro,Aldo15 Oikocredit Dominguez,AndreaInés16 OpportunityInternational Scott,Calum
17SmartCampaign@CenterforFinancialInclusion Samuels,Sarah
18
SolidaritéInternationalepourleDéveloppementetl'Investissement Orliange,Gabrielle
19 Symbiotics Rosales,Anne20 TripleJump Bochatay,Christophe21 TripleJump China,Cristopher22 TripleJump Pérez,Gabriela23 TripleJump Rojas,Claudia24 TripleJump DeVlaam,Dirk25 WorldBank Arbab,AmjadAli
