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Developing a Country Wide Approach to Social Performance Measurement
AM� FA Proposal
2Social Performance Proposal for AM� FA
Table of Contents
Executive Summary3
The Need For Market Information6
The Benefits of Consolidating Information 9
Example of SPA Market Analytics 11
The SPA for Individual MFI 16
SPA Development 20
The SPA Grading Scale 22
The SPA Delivery 28
3Social Performance Proposal for AM� FA
About Moody’s Corporation
» Leading global provider of credit rating opinions, insight and tools for credit risk measurement and management» Founded in 1900» Approximately 6,100 employees worldwide» Presence in 28 countries» Revenue in 2011: $2.3 billion» Publicly listed (NYSE: MCO) » Largest shareholder: Berkshire Hathaway Inc.
» Independent provider of credit rating opinions and related information for over 100 years
» Ratings and analysis covering more than:
− 110 countries
− 11,000 corporate issuers
− 22,000 public finance issuers
− 94,000 structured finance obligations
» MIS’s published research and investor briefings draw thousands of attendees each year
Moody’s Investor Services (MIS)
» Research, data and software for financial risk analysis and related professional services
» Main areas of expertise: credit research and risk measurement, economic and consumer credit analytics, enterprise risk management, professional services, and structured analytics and valuation
» Client base includes leading asset managers, banks, corporates and insurers
» Outsourced research and analytical services arm – Copal Partners
Moody’s Analytics
» Largest third party provider of research and analytics for financial institutions
» Founded in 2002
» Approximately 1,700 highly educated and qualified employees worldwide
» Offices in 7 countries
» Support across major Asian and European countries
Copal Partners
4Social Performance Proposal for AM� FA
Executive Summary
Issue: The microfinance industry is lacking both quality social performance data to be able to properly assess its performance and an effective means of communicating this information with regulators, investors, customers and other stakeholders.
Moody’s Analytics Social Performance Group’s Objective:To use the Social Performance Assessment (SPA) as a research tool to create a consolidated social performance database that can be used to help find solutions for issues regarding the effectiveness of microfinance in reducing poverty, identifying which social metrics imply better performance for specific social issues, and identifying which social indicators are relevant to financial risk.
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Executive Summary
The Benefits to the Microfinance Market of Working with Moody’s on Social Assessments:
Communicate with InvestorsConduct Self EvaluationsCommunicate with Regulators
» Reduce MFIs’ Reporting Burden MA can provide custom social performance reports to investors to meet their reporting demands
» Track/Share SP Data Show incremental improvement in social performance over time as well as specific social performance factors and indicator metrics
» Attract Funding Transparent, user-friendly and easily shareable social performance metrics help attract social investment funding
» Roadmap for Improving Performance Identify MFA members’ areas of relative strengths and limitations to be used as a template for improving social performance management within the region
» Benchmarking SPA grades, granular scorecard-implied scores, and SPA sub-factor tables allow MFAs and members to easily compare their performance against peers
» Track Important Links for Research Track links between indicators, social outcomes, SPA grades, and financial performance
» Minimize Risks of Inappropriate Regulation Use of consolidated data from an MFA’s members reported by a globally recognized, independent third-party can demonstrate current social performance practices and trends to regulators
» Present the Social Performance of the Industry Moody’s Analytics (MA) can consolidate MFI data by region and country (where available) to highlight the social performance achievements of MFAs and members
6Social Performance Proposal for AM� FA
Executive Summary
Why work With Moody’s Analytics to Develop the Analysis?
» Moody’s Corporation has an international reputation built over the past 100 years
» Moody’s Analytics has the internal resources to build consortia
» Moody’s Analytics has the internal resources to conduct in-depth research and provide a platform to move the microfinance industry toward more empirical methods of data analysis
» By working with Moody’s Analytics new players may be attracted to the market
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The SPA for Individual MFIs
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Key Features of the SPA for Individual MFIs
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Key Features of the SPA for Individual MFIs
SPA Grade Snapshot: MFIs are graded on a scale of SP1 to SP5 and are also given a numerical grade from 0 to 100. By using both techniques the SPA allows an MFI to easily compare its current performance with that of its peers and its own past performance.
Sub-Factor Scores: Assessment tables provide a detailed analysis of an MFI’s factor and sub-factor scores. They focus on specific areas where an MFI performs well and where it needs improvement.
Global and Regional Benchmarking: Global and regional benchmarks allow an MFI to easily compare its social performance with that of its peers. Benchmarks are provided for the overall SPA grade and the six main factors.
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Key Features of the SPA for Individual MFIs
Relative Contribution » Relative contribution charts show how each factor contributes both positively and negatively to an MFI’s final SPA score. It allows the MFI to focus on the areas that will have the most impact on its overall SPA grade.
» The relative contribution analysis is presented at both factor and sub-factor levels to make the tool more useful for management , reporting and self evaluation.
11Social Performance Proposal for AM� FA
SPA Development
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SPA Building Phases
• Phase 1 • Determining the key factors to include in a scorecard
• Development of a high-level scorecard
• Phase 2 • Determining the key indicators to be used for the different factors
• Development of a detailed scorecard
• Phase 3 • Converting the scorecard into an assessment grade
• Testing the results of the research
• Phase 4 • Delivery process for the SPA
• Global development and local delivery
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Phase 1 Survey Development and Analysis
» Survey requires constituents of the microfinance industry to respond to a questionnaire on social performance
» Part 1 - Consortium :– Social Performance Task Force, Grameen Foundation, Women’s World Banking, Blue
Orchard, The Microfinance Information Exchange (MIX), Deutsche Bank, ImpAct
» Part 2 - Organizations – 74 Institutions
Type of Institution Total
Development Agency 6
For-Profit Investors (GP/LP) 36
MFIs 25
Not-For-Profit Funders 4
Other 3
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SPA Factor and Sub-factor Weights
SCORECARD FACTORS WEIGHTS (%)
Social Mission 18Strategy and Leadership 23
Management quality 33Experience Professionalism Turnover Key worker risk Firm history/Product history Availability and quality of training Management transparency
Governance 27Board composition Meetings Association with other groups
Outreach and access 24Number of clients Depth of outreach Range of products offered Proximity to clients Community involvement
Administrative setup 16
Customer Relationship 20Customer protection 58
Pricing transparency 18Debt collection practices 15Policies 13Customer complaints / Litigation history 13Product suitability process 16Household debt burden 25
Customer service Products and services Speed of transaction Customer retention history Staff qualifications and credentials Timeliness and quality of reports
Measurement of Social Impact 15
Participation in social outcome or impact studies Explicit tool to measure social outcome or impact Frequency of data collected on social outcome or impact Transparency
Human Resources 15Organization and facilities Code of ethics Hiring policies (gender and anti-discrimination policies) Culture of delegation Fair compensation Staff skills and training Promotion and retention Staff incentives and audit
Environmental Performance 9
Example of indicator weights
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Phase 2 SPA Survey
MFIs or MFI networks 7
For-profit investors 5
Not for profit funders 3
Development agencies 1
Total 16
Questionnaire consisted of 139 questions including: • 36 pair wise comparison questions
• 56 importance questions • 29 fill-in questions
• 9 relative importance questions • 9 relative weighting questions
Questionnaire Layout Expert Panel
In Phase 2 an extensive literature search was done to determine the key indicators to the factors that were established in Phase 1. These practices were then vetted
with MFIs, investors and microfinance networks. The results were collated in a questionnaire that was presented to a selected expert panel. The details of the
questionnaire and the panel are below:
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Phase 3 - Development of Assessment Grades
1. Defining the meaning of each assessment grade
2. Mapping MFIs to an assessment category
» Working with raw MIX data
» Matching MIX data to Moody’s data points– 349 MFIs mapped to Moody’s scorecard factors
– Check robustness of MIX data by creating distributions
3. Creating assessment grade cut-offs
» Based on “blind” assessments of subset of 349 MFIs
» Cut-offs occurred where assessments switched to a different grade
» Tested cut-off robustness by analyzing the number of MFIs that fell out of each category
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The Need For Market Information
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Key concerns of Microfinance Associations (MFAs): Government Regulation/Interference and Social Performance
Source: SEEP report - Market Outlook 2012: Perspectives of Microfinance Association Leaders
» Social performance issues and the threat of government interference to deal with those issues is greater than ever before
» With the microfinance industry being heavily scrutinized by regulators, researchers and the media, microfinance associations must effectively communicate their association members’ social performance with external parties
Role of Microfinance Associations in Addressing Key Concerns
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Role of Microfinance Associations in Addressing Key Concerns
Source: SEEP report - Market Outlook 2012: Perspectives of Microfinance Association Leaders
MFAs do not believe they are adequately prepared for the risks
» A consolidated effort by MFAs to provide quantitative metrics on the social performance of its members can mitigate some of the risks of inappropriate regulation and political interference
» Independent, third party social performance analysis from a globally recognized institution will better prepare MFAs to handle the growing risk trends
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The Benefits of Consolidating Information
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Using the Moody’s Analytics Social Performance Assessment
MFI
MFI
MFI
MFI ConsolidatedMoody’s Analytics
SPA Analysis
SPA
SPA
SPA
SPA
Reduce MFIs’ Reporting Burden
Attract Funding from Investors
Tool to Communicate with Public
Roadmap for Improving Social
Performance
Track/Share/Monitor MFA Members’
Social Performance
Help Prevent Inappropriate
Regulation
Benefits to Individual MFIs in Using the SPAThe SPA is a state-of-the-art analytical tool MFIs can use
to manage social risks and communicate with stakeholders
Benefits to Global Adoption of the SPAThe global adoption of the SPA would enable Moody’s
Analytics to create a research database that would provide the market with needed information
Communicate with Stakeholders
Tool to Answer Key Questions Facing the
Industry
Increase the Effectiveness of Research
Move Industry to more Empirical
Methods of Analysis
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Example of Consolidating Individual SPA Information and Conducting Market
Analytics
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Analysis of the AZ Market Compared to the World/Region
Source: 2009 MIX social data mapped to MA’s SPA scorecard
SPA Factors AZ World ECASocial Mission 71 79 78
Strategy and Leadership 30 38 33Customer Relationship 51 52 54
Measurement of Social Outcome or Impact 49 55 53Human Resources 57 64 63
Environmental Performance 23 42 33
Mean SPA Score 48 55 53
» The MA SPA can be used to gather data on a market and compare that market’s performance against different peer groups. The following analysis is based on 349 MFIs, including 17 from Azerbaijan, that were analyzed using the MA SPA scorecard
» This is one example of how the SPA can help an MFA consolidate its social performance data and communicate it to regulators, investors and the public
» Customized consolidated analysis can be done on any and all SPA factors or sub-factors to highlight MFAs’ social performance strengths
» Customized analysis can help MFAs focus on the social performance issues that its members need the most assistance with
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Analysis of the AZ Market Compared to the World/Region
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Analysis of the AZ Market Compared to the World/Region
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The SPA Grading Scale
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The SPA Grading Scale
GRADE EXPLANATION DEFINITIONS SPA SCORE RANGE
SP1 Excellent
An SP1 grade indicates that an MFI’s infrastructure and processes are consistent with a very high likelihood of operating in the best interests of its customers, that this is among its highest priorities and that the risk of causing adverse effect to its customers and other stakeholders is very low. An SP1 grade is consistent with an MFI that:
78–100» has a highly coordinated and strategic operation in
order to accomplish its social mission» adheres to best practice across all of the key SPA factors and most of the sub-factors
» demonstrates it has well-established and reliable information systems, internal controls and procedures relating to the information provided for the SPA
» maintains the highest standards in terms of customer over-indebtedness and debt collection practices.
SP2 Good
An SP2 grade indicates that an MFI’s infrastructure and processes are consistent with a high likelihood of operating in the best interests of its customers, that this is among its highest priorities and that the risk of causing adverse effect to its customers and other stakeholders is low. An SP2 grade is consistent with an MFI that:
65–77» coordinates strategic operations to accomplish its
social mission» adheres to best practice on almost all of the key SPA factors
» demonstrates that it has reliable information systems, internal controls and procedures relating to the information provided for the SPA
» maintains good standards in terms of customer over-indebtedness and debt collection practices.
GRADE EXPLANATION DEFINITIONS SPA SCORE RANGE
SP3 Adequate
An SP3 grade indicates that an MFI’s infrastructure and processes are consistent with a good likelihood of operating in the best interests of its customers, that this is among its high priorities and that it attempts to manage the risk of causing adverse effect to its customers and other stakeholders. An SP3 grade is consistent with an MFI that: 50–64» adheres to good practice on most of the key SPA factors» demonstrates that it has adequate information systems,
internal controls and procedures relating to the information provided for the SPA
» maintains reasonable standards in terms of customer protection.
SP4 Weak
An SP4 grade indicates that an MFI’s infrastructure and processes show some adherence to operating in the best interests of its customers, and that this is among its priorities. An SP4 grade is consistent with an MFI that:
30–49» adheres to good practice on some of the key SPA Factors» has weak information systems, internal controls and
procedures relating to the information provided for the SPA
» maintains some standards in terms of customer protection.
SP5 Poor
An SP5 grade indicates that an MFI’s infrastructure and processes do not show evidence of being in the best interests of its customers, and that this may not be among its priorities. An SP5 grade is consistent with an MFI that: 0–29» has no or inadequate information systems, internal
controls and procedures relating to the information provided for the SPA
» maintains no standards in terms of customer protection.
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The SPA Delivery
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Delivery of the SPA
Document request Moody’s sends data and document
request to MFI
Desk research Data/documents review, identify
information gaps
Telephone interviews Telephone /Skype interviews with
senior, middle and branch managers
Scheduling and logistics Schedule on-site visit and logistics
Interviews with senior, middle and branch management Review of operational processes, management information systems,
and implementation
Interviews with branch employees and loan officers
Customer surveys Awareness and transparency
verification, validation of customer feedback and MFI procedures
On-site visit Off-site data collection
and scheduling
Analysis, report writing Analysis of primary and secondary
information, verification of information with MFI, drafting of
final report
Completion of SPA scorecard
Draft report sent to assessment committee
Analysis and report writing
Review and report finalisation
SPA grade review Report and assessment rationale
reviewed by assessment committee
Draft sent to MFI for comments
Incorporating comments MFI’s comments, if relevant, are
incorporated
Report finalization Report is finalized by assessment
committee and sent to MFI
Assessment committee Teams from MA, Copal Partners and local affiliate take part in an assessment committee to decide SPA grades
Term of the SPA Once completed the SPA grade is monitored over the course of the year. After one year the SPA must be renewed or the
SPA grade is withdrawn and is no longer valid
Initiation Completion6 – 8 weeks
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Global Reach
The SPA will be delivered by a global team of analysts that combines the oversight of MA, the local delivery by Moody’s affiliate relationships, and the analytical abilities of MA’s subsidiary, Copal Partners
Together these three entities deliver vertically-integrated, state-of-the-art analytics combined with local country knowledge to ensure the highest quality analysis of social performance
Moody’s Analytics Methodology and Oversight
Copal Partners
Administration and Analytics Eastern
EuropeCentral
Asia
Sub Saharan
Africa
Local Deliveryby affiliates
Latin America
Middle EastNorth Africa
Global Developmentby Moody’s Analytics and Copal Partners
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Contact Information
Alan BonillaAssistant Vice President7 World Trade Center, New York, NY 10007W: (212) 553-1314E: [email protected]
Jody RaschSenior Vice President7 World Trade Center, New York, NY 10007W: (212) 553-3797E: [email protected]
Michael RauenhorstVice President7 World Trade Center, New York, NY 10007W: (212) 553-2866E: [email protected]
www.moodysanalytics.com/microfinance
32Social Performance Proposal for AM� FA
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