European Microfinance Week 2014

PRESENTATIONS

Scott BROWN opened this session by thanking the audience for showing interest with their presence and he introduced the panellists by briefly explaining their involvement with the sector.

Julie PEACHEY from Grameen Foundation talked about social performance measurement, data quality and analysis. She mentioned that many international development organisations are using data as an accounting function, but not in order to improve their programs, educate themselves about the lives of the people they are trying to engage or to deliver customized services. Peachey explained how the Progress out of Poverty Index (PPI) tool addresses the need for MFIs to understand their customers as well as their outreach to poor clients. The PPI is a simple, cost-effective method allowing MFIs and other organizations to measure the poverty level of their clients and provides estimates of whether a certain household lives below recognized poverty lines.

The PPI is most commonly used to report on the poverty outreach of an organization or program. Organizations with a mission to serve the poor can prove they are doing so by publishing the poverty rate of their client base. In addition, the PPI can be used to: target or screen clients and areas of operations, track poverty movement over time, evaluate the effectiveness of programs vis-à-vis one another, develop products through customer research by poverty levels, and discover the behaviour and needs of clients across poverty levels. Peachey emphasized that the PPI is relevant to any organization or program that works with the poor.

Although there are now hundreds of organizations using the PPI across different sectors, many of them are not yet able to use the data meaningfully. This may be due to insufficient capacity in the organization, challenges with the management information system (MIS) systems, and lack of commitment from leadership or follow through on using results when data is collected and analysed. Development organisations should understand that there is a business case for collecting and using poverty data. Data brings value to the organizations and at the end of the day positively impacts the bottom line. The better you understand your clients, the more effectively an organisation can serve them, the better it will perform financially.

Peachey closed her presentation with a call for action warning that the sector is at risk of losing the PPI. If investors, lenders, and donors do not demand a data-driven approach to decision making and business management, and if there is no support given to MFIs to collect, analyse and use the data, then the momentum will be lost. The PPI requires continuous updating in order to remain accurate and relevant. However, the PPI is a public good and there is a risk that funding will not be continued.

Aldo MOAURO supported Peachey's views and warned against reputational risk for those organizations aiming to reach the poor but who cannot track their evolution. He pointed out that organizations first need to understand their capacity if they want to put their mission into practice. According to Moauro, social ratings are important as they give an opinion about the capacity of an MFI to reach its social goals. Moauro presented the findings of a comprehensive social rating of a sample of MFIs which was carried out in the period 2009-2013. According to these findings, only 20% of the total clientele of these MFIs were below the 2$PPP/day poverty line, showing that outreach in depth is limited. Moauro mentioned that this offers a transparency opportunity, as the poverty outreach message communicated by the industry may not always be reflected in reality. Deeper outreach results are achieved by poverty oriented MFIs.

Moauro concluded his presentation by suggesting actions based on these findings. There is a need to improve the capacity of MFIs on measuring and tracking poverty level. In order to minimize and manage reputational risk, the sector needs to introduce effective incentives to collect and analyse and use the data. This can be done for example through regulations, investment covenants, or self-regulation by networks. Finally consolidation on specific industry norms and standards, like the PPI and Truelift is important.

JD BERGERON opened his presentation by stating that social businesses need to be accountable for their actions. To date we have tracked financial accountability in great detail but the social side is often measured by a few stories and some photos. This is relevant for marketing purposes but not for stakeholders.

He explained Truelift's framework which is based on three Pro-Poor Principles: 1) Purposeful outreach to people living in poverty, 2) Design of products and services that meet the needs of poor clients, 3) Tracking progress of poor clients. He emphasized that being robust and consistent on how you measure and collect data is a good start but it is not enough. This needs to be coupled with useful analysis that leads to lessons learned and change. Social data should be considered as critical as monetary data. Client satisfaction and feedback reports are equally important to capture information on the results achieved.

He concluded his presentation by stating that through the use of data and conclusions drawn from it, the MFI is able to monitor the progress of poor clients, and think strategically about further adding value. Findings should be used to: assist board and senior management make specific decisions; plan and respond to any weaknesses found; improve specific products; add skills and services.

DISCUSSION

The first question from the audience challenged the capability of PPI to measure poverty. Poverty is dynamic, i.e. people move in and out of poverty, while PPI is a static tool. Peachey talked about how some organizations, such as Vision Fund, are tracking changes in poverty likelihoods of the same clients over period of time. Peachey also emphasized that the PPI could be used together with other tools
to measure various aspects of poverty.

Another discussion point revolved around economic activities of the MFI clients and whether the MFIs should focus on measuring it. Brown explained that people below the 2$PPP/day poverty line earn income from trade that could not be done before becoming an MFI client. If we are not measuring job creation for the poor then perhaps MFIs are missing out on reporting some of the impact of microfinance. Patricia Richter stated that according to research by ILO, self-employed clients of MFIs create on
average two jobs in their businesses.

Brown concluded by summarizing its main outcomes. PPI is proven to be successful in helping target and track poverty impact. Analysis and decision making should be based on the findings. Having a strategy of social performance is not enough; organizations should be able to measure its evolution. Management should be informed of the outcomes of social data and ready to make decisions.