Report on Roundtable

8/8/2019 Report on Roundtable

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Contents

Preface i

Summary v

Participants vi

1 Objectives of the Round Table 1

2 Microfinance in India: A Sector Perspective 2

3 Social Performance Reporting in Microfinance 4

4 Warning Signals: Kolar and elsewhere? 6

5 Emerging initiatives networks, lenders 86 Planning next steps 11

Annex: Social performance framework elements and tools 12


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Summary

The Michael & Susan Dell Foundation and EDA Rural Systems invited a group of around 35 people

from within the Indian microfinance sector, representing lenders, investors, practitioners, networks,and TA providers to initiate discussions on establishing the way forward on addressing the abovequestions.

The primary purpose of this roundtable was twofold:(i) to gain an understanding of existing different initiatives in India on the social performance

front, as well as(ii) to establish a representative body that would discuss the relevance of these initiatives and

agree on an action plan for adoption of an agreed set of metrics and the reporting on thesemetrics by Indian MFIs as the basis for the interface with regulatory and other bodies.

The starting point for the discussions was a review of the work already done internationally (by theSocial Performance Task Force and the MiX) to develop a common set of social performance metrics,with different initiatives around consumer protection, microfinance transparency, povertyassessment and social rating directly aligned within the same framework for understanding differentaspects of social performance.

The discussions covered a range of issues that revolved around: The relatively high growth of the microfinance industry in India Evidence of MFI competition Multiple lending and over indebtedness in southern Karnataka and elsewhere Key risks and concerns that have been heard from regulators Current developments towards self regulation within the sector

As part of the wrap up, there was agreement that the sector should try to move towards a uniformand standardized approach on reporting on responsible lending, so as to develop benchmarks androbust evidence for responsible financial inclusion in Indian microfinance. It was suggested thatIndia needs core task force of its own, which can gain consensus on key indicators from networks,apex agencies, and key lenders. EDA was proposed to be the core agency which would facilitatethe development of social performance metrics for this taskforce, building upon the existinginternational work. The taskforce will work through the networks in the adoption of these metrics,and enable any Technical Assistance support as relevant and required.

V

The Round Table sought to begin the process of answering the following questions:

Have scale and commercial viability in microfinance taken precedence over clientsinterest? How do we ensure and balance client focus?

Does Indian microfinance today truly qualify as a double bottom line industry? Doesit warrant concessions and less regulation? If so, how do we showcase this?

As responsible stakeholders can we avoid different reporting metrics and formats todifferent lenders, networks and investors?


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Participants in the Round TableType of Institution (#) Organization Name DesignationMicrofinance Arohan Rabin Das General Manager

Practitioners (10) BASIX Vijay Mahajan Founder and Chairman

BASIX Rama K Group Vice President (OB)

( 12 Participants) Grama Vidiyal Arjun Muralidharan Senior VP

Grameen Koota Suresh Krishna Chief Executive Officer

Samhita Praseeda Kunam Chief Executive Officer

SKS Mamta Bharadwaj Relations manager

Sonata Abhay Singh DVP Training

Sonata Brahmanand DVP Accounts

SPANDANA Nitin Agarwal Manager (Risk)

Swadhaar Veena Mankar Managing Director

Janalakshmi Radhakrishnan V. S. Chief Executive OfficerInvestors (2) Caspian Luv Jhangimal Associate, Investor Relations

Caspian Mona Kachhwaha Director, Investments

(5 Participants) Caspian R. Venkatram Reddy Principal, Investments

Unitus Capital Eric Savage President

Unitus (Non Profit) Rahul Badki Manager, Advisory Services

Banks (2) Citigroup Alok Prasad Global Head, Microfinance

Standard Chartered Gauri Shankar Global Head, Microfinance

Networks (6) ACCESS Brij Mohan Chairman

ACCESS Vipin Sharma Managing Director

(9 Participants)ACCION International Robin Ratcliffe Director, The Smart

Campaign, Center forFinancial Inclusion, ACCIONInternational

ACCION International Siddhartha Chowdhury Country Manager, India

FWWB Pinaki Mitra Regional Manager, Credit

MFIN(Basix, Grameen Koota listed above)

SaDhan Achala Savyasachi Vice PresidentSaDhan Prabhakara.S. Manager, Sector

representation & policyadvocacy

SaDhan Thomas Mehwald ManagerWorld Bank Niraj Verma Senior Financial Specialist

Technical Assistance/ Grameen Foundation Chandni Ohri Manager, South Asia

Support/rating (5 ) Intellecap Anand B. Engagement Manager

Intellecap Richa Jain Senior Associate

(6 Participants) M CRIL Sanjay Sinha Managing Director

Microsave Matt Leonard Analyst South

Consultant N. Srinivasan Independent Consultant

Institutions: 25 (excluding MSDF and EDA)Participants: 34

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1 Objectives of the Round Table

[Michael and Susan Dell Foundation, EDA]

____________________________________________________________

Adopting a uniform, considered approach to Responsible Finance in India.

As the microfinance sector (in India and internationally) reaches new heights in terms of outreach,growth rates, and begins to attract mainstream capital, it is important to demonstrate with robust,objective, and comparable data the double bottom line of the industry. This becomes increasinglyrelevant in the current context when concerns are being raised on the increasing incidence of multiple borrowing coupled with high levels of profitability and valuations of MicrofinanceInstitutions (MFIs). The same concerns are being voiced in India by several important stakeholders.

The international movement in the Social Performance (SP) space seeks to address these issues andthere has been significant development in the process of identifying tools to measure povertyoutreach, transparency, and adherence to mission among others. There are clear advantages inbuilding upon the international social performance work and tailoring it to the Indian microfinancesector, and to begin the process of driving the adoption of these tools by Indian MFIs in ordereffectively to address existing concerns and potential future ones, as well as to move towards theactive management of social performance to ultimately serve our clients better.

Some of the industry efforts that have gathered momentum include a set of SP metrics for reportingto the MIX, poverty assessment tools (by the Grameen Foundation and IRIS), the SMART campaign

for client protection (AccionCentre for Financial Inclusion), integrating SP into policies, planning andprocedures ( Imp Act consortium, EDA, MicroSave), social rating (M CRIL and the specialist ratingagencies) and social audits (CERISE). Social Investors (such as Unitus, Dia Vikas Capital) are beginningto build these tools into their investment partnerships with MFIs. This is by no means an all inclusivelist of all efforts, but only indicates the extent of interest that has been generated and theimportance of making the appropriate selection of metrics and tools by the industry/networks/MFIs. These metrics will become relevant only if we can objectively compare and benchmark dataacross different MFIs or clusters, which in turn require a critical mass of MFIs to begin reporting onthe metrics.

Placing these developments in the context of the Indian microfinance industry, we believe it is

important for various stakeholders to discuss the relevance of some of these initiatives to India, andagree on common tools that are relevant to the Indian market, both from the perspective of the MFclients in India and also the concerns and matters of critical importance to the policy makers. Thisbecomes even more relevant considering some of the ground realities and reputation risk thatemerged in AP in 2006, and have been repeated in southern Karnataka in early 2009. These issuesare emerging elsewhere in India and other countries and are an indication of the value of incorporating principles of social performance as a sector.

This was our invitation to the Round Table to key stakeholders in the Indian microfinance sector withthe aim to:

Kick start the process towards building uniform standards and metrics for responsible finance

Review current developments and concerns in Indian microfinance

Understand what different initiatives are doing and how they can fit together.


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2 Microfinance in India: A Sector Perspective

[Brij Mohan, Access/M CRIL; Vijay Mahajan, Basix/MFIN]

___________________________________________________________

Adverse publicityThere are significant concerns around the recent rapid growth of microfinance in India. Do theincreasing numbers of microfinance clients mean that poor people are benefiting from financialinclusion? Hard evidence of the fact remains to be seen. What we do have is the glare of adversepublicity in the media which has picked up on MFIs as the modern day gold diggers of Kolar. Thiswas on the front page of the national daily the Economic Times on 8 March, just eleven days beforethe Round Table (nine days before the recently held Sa Dhan conference on Responsible andInclusive Microfinance). Even if it is a few MFIs that are stoking the adverse publicity, this is what

the media highlights, and it can trigger a political backlash, leading to increasing control by theregulators. There are lessons here for the sector. We must address these concerns. As Vijayemphasised, the sector is beginning to lose the respect of the young.

Current growth rates are not sustainable nor do they represent a client focused approachMr Brij Mohan commented on the high rates of expansion by MFIs that have become quite

common place: even start ups quickly move to half a million clients. This is neither sustainable, norresponsible, when it leads to aggressive competition between MFIs and cases of multiple lending inthe same areas to the same clients. Aggressively rapid growth ispartially the result of rolling out a single type of product. Large

numbers of microfinance clients with a single standard type of product indicates a gap in understanding the market. Growthneeds to be in response to a genuine understanding of differentmarket demands for microfinance services.

The entry of private equity and investors (both social and commercial)looking for relatively short term returns, has contributed to the pushfor growth. Rapid and aggressive expansion is undermining the sectorand is not sustainable.

Issues facing the sector and the need for responsible practices

Recent negative publicity, even of a few MFIs, is affecting the entire microfinance sector inIndia. As the sector expands, there are emerging issues in managing competition,providing relevant services for financial inclusion, and providing those services in aresponsible way. It is time to introspect and not lose the hard work of the past ten yearsin building microfinance.

Both Brij Mohan and Vijay highlighted the current concerns, and identified some core

questions.


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Profit for whom?Vijay highlighted three questions that have been raised atthe Ministry of Finance:

1 Interest rates what are the costs to clients? Is theinterest rate level compatible with Priority SectorLending? With economies of scale reducing the coststo MFIs, is this being passed on in reduced charges toclients? MFIs need to announce when they bringdown the interest rates to clients.

2 Advent of private equity It has become essential tothe growth of the top 10 MFIs does it lead tosupernormal profits? What is a normal level of

profit?

3 Governance particularly the level of CEO salaries is under the spotlight, when there is talk of some MFI CEOs earning more than the heads of the largest private banks. Also there arequestions about the Mutual Benefit Trusts of clients do they genuinely support clientownership of the MFIs and a share in the profits?

Bridging the transparency deficitMr Brij Mohan emphasised the need to capture the good that is happening in microfinance.Transparency at all levels will help to counter the examples of disrepute. MFIs now regularly report

on their growth and portfolio figures. The social reporting is missing. MFIs need to respond to thequestions being asked and regularly report on their social performance. There should ideally be aset of core indicators that are mandatory for reporting in microfinance. Some MFIs are beginning toreport on social performance indicators.

Some MFIs are reporting the change that takes place for their clients based on a small sample,capturing the client profile at entry and following up after 3 5 years. An example is the CASHPORstudy conducted in 2009 with support from ABN AMRO Bank. If this could be replicated across MFIsand the findings verified as part of social performance reporting, that would provide sector wideevidence of what microfinance can achieve.

Social and EnvironmentalLet the double bottom line be at the heart of microfinance. Vijay emphasised this as the triplebottom line. Although social performance does include environmental responsibility, it is necessaryto state this. He highlighted the fact that there can be adverse environmental effects contributing toclimate change, from even the micro enterprises that are financed with micro credit, MFIs can thinkof ways to mitigate such effects. One example, related to dairying, is to promote biogas plants (thatwould reduce methane emissions from dung used as fuel, at the same time as reducing dependenceon wood and other conventional fuels).


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3

Social Performance Reporting in Microfinance

[Frances Sinha, EDA/Social Performance Task Force] ____________________________________________________________

Building on the work that is already there

The Social Performance Task Force

When the Nobel Peace Prize was awarded to Mohammed Yunus and the Grameen Bank of Bangladesh in 2006, questions were already being asked about whether microfinance was living upto its promise of serving poor people effectively? Some impact assessments had been carried out atconsiderable cost, but with complex, even inconclusive, results (arguably this is the nature of impactassessment). The alternatives available were in anecdotal stories (and photographs) that could bevery positive, or the reverse and remain anecdotal; or in the use of financial indicators as proxies

for social returns: growth of portfolio (to reflect financialaccess), small average loan size (toreflect poverty outreach) and highrepayment rates (to reflectappropriate products). Somestakeholders in the industry werealready looking for moremeaningful indicators and thissearch is even more relevant today

when there are questions abouthow growth is managed,governance and client protection.

In 2005, the Social PerformanceTask Force (SPTF) brought togetherkey representatives of the globalmicrofinance industry. Themandate was to build consensuson social values in microfinance,

and to coordinate initiativesaround these common values. The definition of social performance (see Box) includes core values

A number of social performance initiatives are now developing globally. These includereporting metrics, rating and management systems for a triple bottom line microfinancesector.

Various initiatives support the different dimensions of social performance, and Indian

microfinance can benefit from these and get more involved.

Social Performance is defined as the effectivetranslation of mission into practice, in line withaccepted social values, which include:

serving poor/low income, excluded people,

improving the quality and appropriateness of services,

supporting enterprise and employment,

improving the economic and social conditions of

clients, and

being socially responsible to: clients, staff,community and environment.

This definition is important because it reflectsagreement on values in microfinance, whatever thedelivery model. It reflects goals of inclusive andresponsible finance.

Putting values into practice Implies: look at governanceand management processes, as well as client levelresults.


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that apply to all models of microfinance, and underlie contemporary concerns for inclusive andresponsible finance.

The work of the SPTF has led to the development of a conceptual framework that covers multipleaspects of social performance: not restricted to client level results (outreach, effective services) but

the organisational systems that need to be in place to achieve those results (related to governanceand management systems).

The Annex presents the social performance framework along its different dimensions, showing howcurrent initiatives and tools for example, the SMART campaign for client protection, MicrofinanceTransparency, the Progress out of Poverty Index fit and relate to one another.

Social Metrics, a systematic process of development

The social performance framework is the basis for the development of social performance reportingmetrics that were introduced by the MiX in 2009. These metrics have been developed through asystematic and participatory process beginning in 2007. The process involved engagement withother reporting systems (such as the Global Reporting Initiative GRI as applied to the financialservices sector) as well as metrics under development for social rating by the specialist ratingagencies.

An initial questionnaire was prepared and reviewed in 2007 by SPTF members, and the revisedquestionnaire was piloted with 57 MFIs during 2007/8. Based on the pilot, the MiX introduced a setof Social Performance Reporting Standards during 2009. Over 200 MFIs reported on these standardsto the MIX in 2009. There were only eleven MFIs who reported from India. (In comparison 10 MFIsreported from Pakistan, largely through the support of the Pakistan Microfinance Network).

Practical and meaningful indicators

The discussion highlighted the following:

The available indicators are useful for external reporting. Even more important is theirrelevance for internal reflection and application by an MFI. I.e. this should be not just areporting requirement for ticking the boxes, but a serious process that is taken up within themanagement process, with full understanding of implications for the MFI within its context.

As for financial reporting, social reporting will become cost effective when data reports can beregularly generated.

Social metrics include HR issues, such as training and incentives relevant to ethnical businesspractices

Tracking the client household profile at entry (new clients) shows which markets the MFI isserving and also provides a baseline for tracking change after 3 or 5 years (as a substitute forimpact assessment).

There are cost implications for MFIs staff time, adapting the MIS. Will MFIs pay for this? Why

should profitable MFIs not pay?


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4

Warning Signals: Kolar and elsewhere

[Sanjay Sinha, M CRIL/EDA and N. Srinivasan, Author, State of the Sector Report] ___________________________________________________________

Rapid expansion of microfinance, with inadequate systemsMass defaults occurred one after the other in the towns of Kolar, Sidlaghatta, Ramnagaram andMysore, from February up to May 2009. The Muslim community was involved in all these areas. TheEDA/CGAP survey and the IFMR study covered in the State of the Sector Report reveal that theissues lie less in religion and more in aggressive microfinance expansion practices:

There is multiple lending (clients with more than one loan from different MFIs) for at least 14%of clients, in these and other areas (and probably more, since not all the MFIs have shared theirdata); multiple lending in itself may not be a problem but the risk lies in MFIs lending beyond a

customers capacity, whether to service the overall loan or to manage the weekly repaymentinstallments.

Over indebtedness of a few was the trigger leading to delinquency; loan liabilities of Rs30,000 50,000 from multiple borrowing, even by a few members, breaks the earlier norms of collectivegroup liability in case some members cannot make their repayments.

MFIs have given their staff high loan disbursementtargets and at the same time look for full repaymentof loans. If clients cannot pay the installment, staff putpressure on the group as part of a culture of zerotolerance of delinquency. A rule of no refinancing orrescheduling of repayment compounds the problem,leading to collection practices that put the reputationof MFIs at risk

The root cause lies in the drive for rapid growth inmicrofinance, with MFIs expanding in the same areasand serving the same clients (the low hanging fruiteasy to serve, especially if already trained by anotherMFI); in south Karnataka, intense competition

The high rate of non repayment of micro credit loans in four urban districts in SouthernKarnataka in early 2009 is a warning signal for Indian microfinance. Similar warnings arebeginning to be heard in other parts of India.

A study commissioned by AKMI (Association of Karnataka MFIs) from EDA and CGAP revealsthe downsides of MFI expansion. The State of the Sector Report in 2009 also reflected onthe implications for Indian microfinance.


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between MFIs and multiple lending created an environment of easy money leading totinderbox conditions.

Ambitions for growth were not matched by adequate systems, including training staff (traineesshould not be training trainees), attention to the MIS, comprehensive control systems, andtracking client feedback and adequacy of products.

With coverage of around 20 million clients, MFIs can make an important contribution to financialinclusion. But responsible financial inclusion needs controlled growth with adherence to socialmission and values. Not the pursuit of quick profits and short term share valuations.

What MFIs can (and should) do N. Srinivasan talked of lending rather than dumping . Sanjay emphasised the need for relationshiplending . What they are referring to includes:

At the product level, MFIs need to review their loan sizes: to finance customers adequately(avoiding the need for multiple lending), fitting the product to household income flows; andensuring that the loan appraisal includes information on extent and sources of existing debt,and repayment instalment loads; study the behavioural side of borrowing to identify aspirational loan limits meaning

At the institutional level, MFIs need

a policy in place on branch location and business expansion insuper heated areas, including independent audit and

portfolio review systems for competitive locations

a sound MIS and intelligence that encourages information(including bad news) to flow upwards;

to have credit manuals in the local language, emphasizing key issues in loan size and creditappraisal

to avoid having local agents to push credit,

to revisit staff incentives (that currently emphasise growth and repayments); building

microfinance as a service sector, with sensitivity to local cultural factors

rescheduling of loans as a legitimate part of a financial institutions work, depending onhaving clear information about the circumstances

recovery policies that are realistic (100% may not be)

At the industry level, MFI exchange of hot loan lists till credit bureaus become functional,positive information (all loans not just delinquent loans) sharing through credit bureaus; a codeof conduct especially for fair competition and enforcement against wayward conduct; and acustomer education initiative as an industry campaign, to build customer expectations.


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5

Emerging Initiatives Networks/Lenders

[Robin Ratcliffe, the SMART campaign; Achala Savayasachi, Sa Dhan; Vijay Mahajan, MFINNiraj Verma, the World Bank]

_______________________________________________________________________________

The SMART Campaign client centred microfinanceThe SMART Campaign is a global industry wide effort at awareness raising and implementationaiming for microfinance to: Put the interests of clients first Provide transparent, respectful and prudent financial

services, and Distinguish microfinance as leader in responsible

finance

There are six client protection principles:

(1) Avoid over indebtedness(2) Transparent and responsible pricing(3) appropriate collections practices,(4) Ethical staff behavior(5) Mechanisms for redress of client grievances(6) Privacy of client data.

The SMART Campaign is already linked into the SocialPerformance Task Force, including indicators on the sixprinciples as part of SP reporting to the MiX. Thecampaign is also working specialised microfinance raters (such as M CRIL), regional networks andcountry associations.

With a dedicated team in India, the campaign aims toestablish network partnerships (MFIN, Access Alliance, Sa Dhan and SIDBI), to undertake assessments with EDA/M CRIL and other partners and conduct workshops, webinarsand training. Two representatives from India are on theAdvisory Board of the SMART campaign: Vipin Sharma of Access Indiam, and Samit Ghosh of Ujjivan (MFIN). Robinunderlined the role of Networks and Associations, to:endorse the campaign, incorporate the client protectionprinciples into implementation, underwrite and conduct

client education, help develop certification tools and processes, and use this as a basis for interfacingwith regulators.

At the International level, the SMART campaign has worked to define core principles of clientprotection. Within India, Sa Dhan and MFIN are working to develop a code of conduct fortheir members. And the World Bank has initiated a lenders forum with SIDBI and otherBanks.

What has been developed so far? Can we move towards one code for the sector? What willbe the mechanisms for implementation, monitoring and reporting?

How does the Campaign Work?

Communications and Outreach Endorsements, partnerships,

working with networks and

investors

Research & Development of Tools Assessments, Workshops,

Training, Toolkits, Smart notes

Evolution of Principles & certification Steering committee/task forces


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SaDhan (member of the global SPTF) code of conduct and reportingAs the leading network of MFIs and community development finance institutions in India, Sa Dhan isconcerned about the growingevidence of multiple lending, and theneed to promote dialogue and

ethical standards in the sector.

In 2007, Sa Dhan went through aparticipatory process with itsmembers to evolve a code of conduct in microfinance. The codedrew on various codes that werethen under development andemerged as one of the first nationalcodes. However, although theBoards of MFI members may have

endorsed the code, this did not leadto implementation. Implementationrequires follow up through effectivegovernance and management withinthe organisation, and externalenforcement and reporting.

The Sa Dhan code of conduct hasbeen reviewed in 2010, and Sa Dhanis now building in an enforcementmechanism, with reporting

indicators to monitorimplementation and setting up acomplaint redressal mechanism.

In the Bharat Microfinance Report,recently released at theMicrofinance Summit (held just before this Round Table) Sa Dhan presented the SocIal PerformanceStandards for reporting to the MiX. The report argues for the relevance of the main indicators toIndian microfinance and Sa Dhan is requesting its members to use the MiX format for reporting for2009 2010.

Achala emphasised that all players need to coordinate to enforce a code of conduct: networks,bankers, investors [rating and TA providers]. Client education also has to be part of the effort, sothat customers too are informed.

MFIN Microfinance institutions NetworkMFIN is the response of NBFC (non banking financial company) MFIs in the country to concerns of overborrowing by clients and unregulated credit practices in the microfinance sector. The network isintended to develop as a self regulatory organisation that aims to work with regulators to promotemicrofinance to achieve larger financial inclusion goals. Recently established in December 2009,MFIN members collectively represent almost 80 per cent of the MFI sector in the country.

MFIN is developing a code of conduct, which in addition to the regulatory coverage of the RBI (whichcovers all NBFCs), focuses on fair practices with borrowers including promoting transparency, fixing

SaDhan

Association of Community Development FinanceInstitutions

Established: 1999

Members: 234 Members with diversified legal forms(NBFCs, Sec 25 Companies, Trusts, Societies, Companies,LAB, Cooperatives & Banks) and different deliverymodels( SHG, JLG and individual),smaller networks, andssupport institutions (Capacity Building Organisations,Technical Service Providers, Bulk Lenders, SHG promotingorganizations) Rating Agencies etc.

Activities: Policy advocacy, sector representation throughinterface with government, regulators and otherstakeholders, conferences, evolving financial and non financial standards including Code of Conduct,implementation of Code Conduct among its membership,advisory services, capacity building through workshopsand training, collecting and reporting on data of MFIsthrough its Bharat Microfinance Reports etc.

Currently Sa Dhan works through three task forces of membership, (1) NBFC (for profit), (2) Not for profit and(3) SHG. The three thematic teams: (1) SectorRepresentation and Policy Advocacy, (2) MemberDevelopment and Standards and (3) Research andCommunication within Sa Dhan take up the issues fromthe above mentioned three task forces.


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overall lending limits at client level (maximum three loans, and Rs50,000), data sharing (including acredit bureau to be established) and recruitment practices. There is considerable attention beingpaid to the need for an effective enforcement mechanism, including whistle blowing throughwritten complaint to a 3 member enforcement committee, followed by investigation, a cascading setof warnings and penalties.

MFINs approach may include 6 monthly meetings with Bankers, and field visits for members of thepress, in different regions.

The World BankThe World Bank is also seeking to respond to the real risks in the sector, by working with SIDBI andother banks, recognising the role that lenders can play in microfinance (lenders affect lenders). Keyconcerns relate to:

Developing a single code of conduct

Implementing such a code

Controlling growth, and

Coordinating information.

Niraj Verma mentioned the possibility of setting up a MiX India to coordinate data collection, inplace of the dispersed set of publications currently produced. And the potential use of heat mapsto track areas that have high numbers of MFI clients relative to local population.

The discussion and questions included:General agreement on the need for a standard code.Vipin (Access India, a support network with 130 members, and already part of the SmartCampaign) emphasised a Client First approach, the role for a single code to inform howmicrofinance works as a sector in India, and the need to put financial and human resources intothe effort. Eric Savage (Unitus) also supported the approach, underlining the need for appraisaland reporting.

A code of conduct relates to all levels of microfinance from relations with clients toaccountability at the governance level. It is essential to get the code of conduct sweepingdown the organisation.

The SMART campaign has developed a process tool for individual lending. This needs to be donefor group lending.

At MFI level, there may be a process to assess credit absorption capacity for individual clients.Does this need to be developed for group level clients? How can this be done? What are theskills required at field staff level?

Engaging with the lenders has to be part of the strategy, to monitor and enforce.

Managing growth with a client focus has implications for productivity and profitability.

What is a reasonable expectation of financial returns from investing in microfinance? How areprofits allocated? (a financial indicator with a social/responsibility value).

Is there a concern to serve poor people or is the poverty outreach goal of microfinance being

superceded by the current emphasis on client protection?


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6

Planning Next Steps _______________________________________________________

Following on the precedingdiscussions, with substantialagreement on the concerns facingthe Indian microfinance sector, andsome consensus on the scope totake the issues forward with auniform approach to a code of

conduct and supporting metrics,Geeta Goel (MSDF) concluded theRound Table with a proposal to setup a working group to take theinitiative forward.

The objectives of this working group are to: Consolidate feedback from this roundtable on key thematic areas of responsible finance,

and from practitioners that have rolled out existing tools and metrics Draft a set of metrics for the Indian MF sector which is practical, systematic and comparable,

and aligned with international initiatives Build consensus with different stakeholders Present to the RBI Prepare for the roll out of metrics with TA and other support, and plans for verification and

validation

The composition of the working group is yet to be finalized, but it is expected that the networks andapex institutions will play a key role in a core group, liaising with the wider group of otherstakeholders. EDA will play the pivotal role of providing a technical lead and developing the actionplan, building upon the experience with responsible lending and social performance in India.

The starting point today

What isalready there

Understand Build on it

Indianmicrofinance

Adapt Build buy in

Use synergies

Networks Banks Investors Rating

agency TA providers


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ANNEX

Social Performance Framework ELEMENTS & TOOLS

Outputs OutreachPPI/PAT client householdsat entry

Client profiling market

segments/excluded ;employment self/hired baseline data

Businessplanning

Market research forproduct development,client satisfaction, exitsurveys

Staff training, appraisaland incentives

MIS tracking outreach totarget areas and clients;retention, dropout,product access, genderdisaggregation

SMART campaign clientprotection

Microfinance Transparency costs to clients

HR policy/manual

FMO Health, Safety andEnvironment check

Strategy Policies &Compliance

Achievementof social goals

[PROCESS ] [RESULTS]

Outputs Outreach/outcomesPPI/PAT client householdsafter 3/5 yearsTracking other profileindicators over timeClient exit rate (dropout orgraduation?)

Intent Internalsystems/activities

Outputs Outcomes Impact

Documents

Report on Roundtable