mix microcredit summit campaign presentation

The Premier Source for Microfinance Data and Analysis

This presentation is the proprietary and/or confidential information of MIX, and all rights are reserved by MIX. Any dissemination, distribution or copying of this presentation without MIX’s prior written permission is strictly prohibited.

Microfinance Information Exchange

Balancing the Double Bottom LineSynergies and Trade-offs Between Performance Types

17th Microcredit Summit Mérida, Mexico September 5, 2014


2

Goals of MIX’s study

Test industry consensus about the value of social performance management (SPM) and its interaction with financial performance

Continue to build business case for robust SPM

Explore MIX’s combined data set and identify areas for deeper analysis

Follow up to a 2010 MIX study* (“Synergies and Trade-offs”) because MIX’s SP dataset has grown significantly

* Based on 2008 data


3

MIX/SPTF SP indicator categories

INDICATOR CATEGORY WHAT THE INDICATORS MEASURE

Mission and social goals The MFI’s stated commitment to its social mission, its target market, and development objectives

Governance The board of directors’ (BoD) level of engagement with SPM

Range of products and services Financial and nonfinancial products and services offered by the MFI

Client outreach by lending methodology Number of active borrowers by lending methodologyBorrower retention The MFI’s borrower retention rate

Social responsibility to clients MFI implementation of the Smart Campaign Client Protection Principles

Transparency of costs of services to clients How the MFI states its lending interest rate(s)

Human resources and staff incentivesThe MFI's policies regarding social responsibility to staff, staff gender composition, staff turnover rate, and staff incentives linked to social performance goals

Employment creation and enterprises financed Business development and job creation outcomes

Social responsibility to the environmentMFI policies and initiatives in place to promote environmentally friendly practices and mitigate environmental impacts of financed enterprises

Poverty outreach Client poverty level outcomes


4

Current goals versus outcome reporting

0%20%40%60%80%

100%

Percent of MFIs citing goal Percent of MFIs citing goal and reporting outcomes

* Proxy outcome indicators

Outcome data is FY12 except poverty data which is FY10–12; n = 965


5

Study methodology

Overall sample of 974 MFIs but no. of obs. varies by indicator Quantitative data mostly FY11 but occasionally

supplemented with prior years where no. of obs. was too small (e.g. client poverty data)

Quantitative data from FY12 was also used in a very small number of instances

13 social performance and 12 financial performance variables were analyzed Various correlation methods used due to

heterogeneity of data and type of relationship observed


6

MFI sample characteristics

38%

33%

17%

7%

3% 3%

NGONBFICredit Union / Co-operativeBankRural BankOther

29%

20%

20%

19%

10% 3%

Latin America and The CaribbeanEastern Europe and Central AsiaSouth AsiaAfricaEast Asia and the PacificMiddle East and North Africa

MFI SAMPLE BY LEGAL STATUS

• Mostly NGOs and NBFIs (70%)• Banks and rural banks make up around 10% total

MFI SAMPLE BY REGION

• LAC slightly overrepresented• EAP slightly underrepresented• MENA very underrepresented


7

Select findings: staff incentives

Research question:Is there a correlation between the existence of specific HR

staff incentives and other process or performance indicators?

Hypothesis:MFIs with staff incentives tied to specific performance areas

will show better performance in these areas relative to MFIs without such incentives


8

Summary of SP-FP correlations

Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)

Productivity (borrowers per loan officer)

Portfolio quality (PAR30 and PAR90)

Efficiency (operating cost as % of portfolio)

Synergy Trade-off Inconclusive

?


9

Select findings: staff incentives

Research question:Is there a correlation between the existence of specific HR

staff incentives and other process or performance indicators?

Synergies:• Portfolio quality incentives correlated with lower PAR30 (average 3.2% lower)• Client retention incentives correlated with better client retention (average 4.3% higher)

Trade-offs:• Growth incentives (“attract new clients from target market”) correlated with fewer borrowers per loan officer (average 66 fewer borrowers per loan officer)

Hypothesis:MFIs with staff incentives tied to specific performance areas

will show better performance in these areas relative to MFIs without such incentives


10


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+




11

Select findings: staff turnover

Research question:Is staff turnover correlated with efficiency indicators?

Hypothesis:MFIs with higher rates of staff turnover will show higher

operating expense ratios and lower borrower retention (previous MIX finding)


12


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+



?


13

Select findings: staff turnover

Research question:Is staff turnover correlated with efficiency indicators?

Synergies:• Staff turnover negatively correlated with borrower retention• Staff turnover positively correlated with PAR30 and PAR90

Trade-offs:• Staff turnover negatively correlated with average staff salary

Hypothesis:MFIs with higher rates of staff turnover will show higher

operating expense ratios and lower borrower retention (previous MIX finding)


14


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+ +


-*


* Staff turnover rate is negatively correlated with average salary.


15

Select findings: borrower retention

Research question:Is borrower retention correlated with efficiency or risk

indicators?

Hypothesis:MFIs with higher borrower retention will have lower risk

profiles and have lower rates of staff turnover (previous MIX finding)


16


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+ +


-*


* Staff turnover rate is negatively correlated with average salary.

?


17

Select findings: borrower retention

Research question:Is borrower retention correlated with efficiency or risk

indicators?

Synergies:• Borrower retention negatively correlated with staff turnover• No significant relationship found between borrower retention and PAR30 or PAR90

Trade-offs:• Borrower retention positively correlated with average staff salary (likely via staff turnover)

Hypothesis:MFIs with higher borrower retention will have lower risk

profiles and have lower rates of staff turnover (previous MIX finding)


18


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+ +


-* +*


* Staff turnover rate is negatively correlated with average salary and borrower retention rate is positively correlated with average salary.


19

Select findings: gender balance of management/board

Research question:Do equality HR policies promote gender balance within an

organization? (Are higher proportions of female board/staff correlated with gender differences in social or financial performance?)

Hypothesis:MFIs with equality HR policies will have greater proportions of

female board/staff. MFIs with more female board/staff will show better gender performance.


20

Summary of SP-SP correlations

Staff incentives Staff turnover Presence of

female staff

Borrower retention rate + -

Equality in HR policy

Women’s outreach


?


21

Select findings: gender balance of management/board

Research question:Do equality HR policies promote gender balance within an

organization? (Are higher proportions of female board/staff correlated with gender differences in social or financial performance?)

Synergies:• No significant relationship found between equality HR policies and gender balance• Weak positive correlation between female staff and women borrower outreach (LAC only)

Trade-offs:[none]

Hypothesis:MFIs with equality HR policies will have greater proportions of

female board/staff. MFIs with more female board/staff will show better gender performance.


22

Summary of SP-SP correlations

Staff incentives Staff turnover Presence of

female staff

Borrower retention rate + -

Equality in HR policy

Women’s outreach +*

* Weak positive correlation between presence of women in staff/board and higher women borrower outreach for LAC dataset only. We are currently performing this analysis for the global dataset.



23

Select findings: poverty targeting

Research question: Is there a correlation between (1) poverty reduction as a goal,

(2) MFIs offering products designed specifically for the poor, (3) ability to report poverty data, (4) number of clients below poverty, and (5) provision of consumption loans? (What about with other financial/operational indicators?)

Hypothesis: (1), (2), (3), and (4) will be positively correlated with each

other and negatively correlated with (5).


24


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+ +


-* +*



?


25

Select findings: poverty targeting

Research question: Is there a correlation between (1) poverty reduction as a goal,

(2) MFIs offering products designed specifically for the poor, (3) ability to report poverty data, (4) number of clients below poverty, and (5) provision of consumption loans? (What about with other financial/operational indicators?)

Synergies:• MFIs with a specific poverty target have lower PAR30 (average 2.5% lower)

Trade-offs:• Reporting poverty levels negatively correlated with consumption loans• MFIs without a specific poverty focus are more efficient (average operating expenses/GLP 7% lower) and higher ROA (average 2.2% higher)

Hypothesis: (1), (2), (3), and (4) will be positively correlated with each

other and negatively correlated with (5).


26


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+ + -


-* +* +**



** MFIs without a specific poverty focus exhibit a higher level of efficiency.


27

Select findings: governance

Research question:Do MFIs with a stronger level of board commitment to SPM

demonstrate differences in process or performance indicators?

Hypothesis:MFIs with standing SP committees on their board will show

higher levels of SP outcome reporting.


28


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


-


+ + -


-* +* +**




?


29

Select findings: governance

Research question:Do MFIs with a stronger level of board commitment to SPM

demonstrate differences in process or performance indicators?

Synergies:• Standing SP committees are positively correlated with borrowers per loan officer (average of 75 more clients)*

Trade-offs:[none]

* MIX’s desk review experience leads us to think that this difference is probably due more to the presence of an SP champion at the board level.

Hypothesis:MFIs with standing SP committees on their board will show

higher levels of SP outcome reporting.


30


Staff incentives

Staff turnover

Borrower retention

rate

Poverty targeting

SP committee

(SP champion)


- +


+ + -


-* +* +**





31

Key findings

Human resources:• Staff incentives linked to portfolio quality and borrower retention

associated with better outcomes in those areas• Higher staff turnover associated with higher risk (PAR30 and

PAR90), with lower borrower retention, and with higher operating expense (average salary)

Poverty targeting:• Poverty targeting associated with lower risk (PAR30)• Poverty targeting associated with lower efficiency/ROA• Client poverty reporting associated with not providing consumer

loans

Governance:• Strong board commitment to SP associated with better

productivity (borrowers per loan officer)


32

MIX partners with a dedicated group of industry leaders:

MIX Global and Project Partners


33

Visit us on the Web:

www.themix.org www.mixmarket.org

Contact us: [email protected]

Interested in learning more about MIX? Sign up to receive our free e-mail

newsletters!

Find us on Facebook Follow us on Twitter: @mix_market

Regional Offices:

Baku, Azerbaijan 44 J. Jabbarli st. Caspian Plaza I, 5th Floor,

Baku, Azerbaijan

Lima, Peru Jirón León Velarde 333 Lince, Lima 14, Perú

Dakar, SenegalVilla n°4, rue YF-632, cité Ablaye Thiam

Ouest-Foire, Dakar-Sénégal

Hyderabad, IndiaRoad #12, Landmark Building, 5th Floor,Banjara Hills, Hyderabad 500034, India

Microfinance Information Exchange

Headquarters:

1901 Pennsylvania Ave., NW, Suite 307

Washington, D.C. 20006 USA

http://www.themix.org/

http://www.mixmarket.org/

mailto:[email protected]

http://visitor.constantcontact.com/manage/optin?v=0018aaLHdu4GfRtrNCnjDPG4J_SWyYV39ZY

https://www.facebook.com/MicrofinanceInformationExchange

https://www.facebook.com/MicrofinanceInformationExchange

http://twitter.com/

mix microcredit summit campaign presentation

Economy & Finance

mix study

mixs prior written permission

mixs combined data set

social goalsthe mfis

performance indicators

updevelopmentpercent

toheterogeneity of data

analysisthis presentation