Using Social Performance Management for Managing

Institutional risks

Sa-DhanTERI

Insititutional Risks for MFIs

Reputation Risk

“The worth of reputation is not realized till it is lost”

Mission Drift

“Walking the talk”

Reputation Risk is…

Risk associated with the perception that different, influential people (- stakeholders) have of a company and its ability to perform the services it offers.

Stake holders include – shareholders, staff, clients,

suppliers, competitors and regulators…

By Bob Kniep and Ulrich Binninger

Reputation is

A long term issue An emotional association of the stakeholders

to the institution Implementation of institution’s adopted values Putting in place best practice arrangements –

governance, health, safety, policies, code of ethics, grievance redressal….

Sources of Reputation Risk

Un-ethical behavior Disgruntled Employees Dis-satisfied customers Unhappy Suppliers (e.g. wholesale lenders) Non-compliance Event driven influence (fraud, fire, law suit…)

Symptoms of Reputation Risk

High Staff turnover High Client Drop out High Portfolio at risk Lawsuits Poor feedback mechanisms from

stakeholders Police case Fraud

Symptoms of Reputation Risk

Breach of contract with suppliers or no renewal of services

Ineffective communication between line staff and management

Problems with unions Poor external rating Lack of evidence on claims made through

annual reports, external communication….

Mission is what an institution stands for and

describes the purpose or reason for the existence of the MFI.

provides the strategic orientation for the MFI. communicates to stakeholders where the

MFI is going

It tells us ….. the MFI’s contribution and commitment to its

stakeholders

Key questions derived from Mission

Who are your clients? Are you meeting their needs in line with their

capacities while being socially responsible? Are you making the desired change in their

lives? And finally are you functioning in line with

accepted social values?

Mission drift is

Taking a path not intended in the mission

And could cause dissonance within and outside the MFI

Meaning not following the “script” and could affect “reputation”

Mitigating Risks

Using Social Performance Management

What is social? – health, education, non- financial services…..

Social Performance is

Translating your Organisation’s mission into practice in line with accepted social values

Social Performance Task Force

Social values in mf relate to

reaching larger numbers of poor/excluded people; supporting enterprises and employment; creating benefits for clients and their

households; being socially responsible Promoting gender equity

Social responsibility relates to

Clients Staff Community Environment

Social Performance Management is

The process of translating mission and values into practice, including setting social objectives, tracking their achievement, and using information to align systems and improve practice

Context of MF industry

Increasingly commercial approach to microfinance

Professionalization of the sector Are MFIs professional set of “moneylenders Focus on Social Performance:

Has it been lost? Is it taken for granted/ assumed? Is there “mission drift”?

M-Cril Data on social performance – Reaching the unreached

Data from 12 MFIs

% of recent client households:

Range (%) Avg (%) All India population*

(%)

< $1/day at PPP 13 - 68 30 39

SC/ST 15 - 57 33 25

With savings in bank or post office

19 - 39 26 36

With bank loan in previous 3 years

2 - 21 12

With client in other MFI or SHG

2 - 13 6

M-CRIL data on Client Awareness

% who know: Range (%) Avg (%)

Notional interest on credit and repayment instalments

60 - 98 78

Interest on savings deposits 55 - 91 77

More details of costs (EIR, declining interest, break-up of loan fees)

31 - 90 52

Details of loan insurance 30 - 89 49

M-CRIL data on Gender related indicators

% of recent women clients: Range (%) Avg (%)

Have completed primary school or above

14 - 63 35

Are women heads of households with no adult male earner

3 - 10 4

Manage credit supported enterprise:

Yes – by herself 12 -72 22

Yes – jointly with husband/son 25 - 44 40

No – husband/son manages (loan pass)

3 - 45 38

Social Performance Pathway

2.2b

2.2c

Social Performance Pathway:

Strategy and Operations

2.2d

Social Performance Pathway

Learning Points Social Performance is defined in terms of both processes and results

Translating mission into practice is a deliberate and intentional process

Serving target clients and desired change in the lives of clients is the end result of this process, it is not automatic

2.3a

1. Developing social goals and objectives

2. Monitoring and assessment from a social perspective

3. Aligning systems and improving operations

Just like we manage financial performance…..

Social Performance

Management Components

Using SPM to mitigate risk requires

Tone from the top Profiling clients- knowing who you are

serving - PPI Market Research to identify their

requirements Communication strategy for stakeholders

especially clients – transparency about EIR ... Code of conduct for staff

How SP differ from Impact Assessment?

Social Performance pathway

• Deliberate management process focused on improving impact.

It is an ongoing process aligning all the organisational systems for achieving social objectives.

Existence of SP processes can be good predictor for impact.

Impact assessment• change that can be

attributed to the intervention

Costly, complex, post facto research exercise

Focus on proving impactResults are often disputed

on account of attribution problem

Using SPM to mitigate Risks

Sensitive HR policies Effective Feedback mechanism from staff,

client Grievance redressal mechanism for staff Tracking who leaves and why Appropriate loan collection practices Reporting on social performance Using Internal audit to ensure adherence

Finally….

The way to gain a good reputation is to endeavor to be what you desire to appear

By Socrates