Quality Audit Tool for Managing Social Performance

Quality AuditToolfor Managing SocialPerformance

Acronyms Used • QAT – Quality Audit Tool • ECA – region of Eastern Europe and Central Asia • MFI – microfinance institution (MF Banks, non-banking financial institutions, non-governmental organizations) • SP – Social Performance • SPM – Social Performance Management • SR – social responsibility MFC Quality Audit Tool

Agenda • QAT Overview • QAT Process • QAT Attributes • QAT vs. Other Tools • QAT Implementation MFC Quality Audit Tool

Rationale: ECA Region Context Social Performance reality Market trends Context • Since beginning in 1997 focus and pressure on MFIs’ self-sustainability • Withdrawal of donors to less developed countries • New comers – commercial investors (i.e. Deutche Bank, Raiffaisen Bank) • Post – soviet negative connotation of ‘social’ = for free • Commercialization of MFIs • Mission drift observed • Still huge interest in impact, but no resources to measure • Difficulties in promoting Social Performance • No commitment to social goals at the level of operations • Interest in easy and effective tool bringing quick measurable results MFC Quality Audit Tool

Assessing status and effectiveness of systems in managing SP Helping MFI realize its strengths and weaknesses in SPM Helping MFI prioritize actions for improvement of their SPM Ensuring institution-wide understanding and buy-in To ensure MFI is on track: ‘how effective are your systems in aiming at achieving your mission?’ To optimize resource investment: ‘build on what you have and invest in what you really need’ To prevent MFI from doing everything at once and burn out shortly – ‘let’s improve step by step and look for quick wins’ To create enabling environment for change; to prevent SPM be one person ‘project’ QAT Purpose … in order to: QAT aims at… MFC Quality Audit Tool

QAT Target Markets • MFIs concerned about their Social Performance and quality of their management systems for SP • MFIs planning social rating exercise and willing to prepare themselves • Donors / Investors / Partners willing to support their partnering institutions in improving their SPM MFC Quality Audit Tool

SP Dimensions Assessed by QAT Intent and design SP information system Management systems MFC Quality Audit Tool

SPTF Dimensions in QAT MFC Quality Audit Tool

QAT Uses for MFI Manager • To check if an MFI is at right track towards their mission achievement • To identify strengths supporting their SPM • To identify weakness: gaps and areas for improving their SPM • To use prioritized initiatives for developing action plan for improvement, allowing step by step SPM institutionalization • To buy in staff at all levels; to build understanding SPM is overarching theme rather than project or tool • To monitor progress in SPM institutionalization (in case of repeated audit) • To prepare for social rating MFC Quality Audit Tool

Horizonti QAT lessons learnt: „This was very important for we did the audit before implementing anything: conducting the audit we knew the gaps – where we need to pay more attention. One of the outcomes – we do know what we are doing, we are targeting the right people and doing a good job, but we need to work on systems to support this. We saw that the MIS cannot support performance, so we will have a new one improved. We collect a lot of information which can be used for SP indicators.” ED, Horizonti, Macedonia Zene za Zene QAT next steps: Define more specific objectives for better understanding what it means for the terms of SP? To experiment with MIS reports content To improve internal communication To measure drop-outs To use client satisfaction form across the institution SPM Champion, Zene za Zene, B&H QAT Uses for MFI Manager - Examples MFC Quality Audit Tool

QAT Uses for Donor / Investor / Partner • To help MFI improve in SPM through diagnosing strengths and weaknesses and developing action plan • To optimize its support through financing or helping implement the initiatives from action plan • To better understand the institution, its mission orientation and rational behind its translation to action • To monitor progress in SPM institutionalization (in case of repeated audit) MFC Quality Audit Tool

QAT Desired Impact: MFI Level • Outcome - setting the stage for change process Clearer operational understanding of SPM Clear understanding by staff of what needs to be done to improve SPM Internal champion and sponsor identified – infrastructure for change established Better communication of social orientation and required support to stakeholders Quick wins implemented • Short term impact Process of SPM improvement kick-off Consistent effort of MFI to improve SPM in a manageable steps There is on-going buy-in of staff, leadership of champion and support of senior management and board for implemented changes • Medium term impact Internal systems are improved to be better aligned with double bottom line goals • Long term impact – expected Institution gets all aligned to double bottom line and results are improved MFC Quality Audit Tool

QAT Impact: Examples From MFIs CARD, the Philippines Gap: description of the target group was vague and mixed with eligibility criteria for the loan Quick win: through a series of half day workshops defines what is meant by saying „we want to reach economically and socially challenged families” and comes up with the indicators based on housing materials, asset base, etc. Moznosti, Macedonia Gap: At fast growth, new staff don’t understand and commit to mission Quick win: re-design of training program for newly hired staff to ensure mission perspective incorporation Micro Development Fund, Serbia Gap: collects lot of information, which is not used later on Quick win: review the new set of MIX SP indicators to see which information they can start using immediately More examples of MFIs’ quick wins in MFC Newsletter Issue 1/2008 MFC Quality Audit Tool

QAT Desired Impact • Investor / Donor / Supporter level: Increased number of partners refocus from assessing SP to improving SPM  more supportive and longer term cooperation on SPM improvement More informed partners make better decision in selecting more likeminded partners More efficient allocation of resources to likeminded MFIs and activities that can bring greatest value in improving SPM at MFI • Industry level More MFIs aware of their SPM status and effectiveness More MFIs improve in their SPM Less mission drift Better public image of Microfinance MFC Quality Audit Tool

QAT Benefits for Various Stakeholders • MFI Managers: Clear current picture of SPM systems quality Good basis for effective implementation plan Efforts oriented on mission acknowledged Staff understands better and is bought-in through discussion about SPM Allows improving before future social rating • MFI staff Better understanding of how their tasks fit into social goals and strategy • Donors / investors / supporters Better understanding of MFI’s commitment to mission and its translation into practice Assessment of MFI’s SPM quality Effective identification of MFI’s needs in terms of supporting their SPM institutionalization MFC Quality Audit Tool

QAT Uses – Extracts from 5th SPM Working Group Meeting Minutes In March 2008, the representatives of 10 organizations – members of MFC facilitated SPM Working Group, met in Warsaw to discuss lessons learnt in SPM institutionalization. Among other subjects they discussed QAT uses: • „It can be used before the process of SPM implementation – it is nice to have gaps • Could be used for process evaluation – a good diagnostic tool • Could be useful for taking on board those who were not directly involved – e.g. IT people • Gives an understanding where the gaps are and what actions need to be taken • The format is very useful – the SPM team might be biased – but through interviews one gets more objective information • Could be used multiple times – especially before the strategic planning • Provides awareness of different opinions and perceptions • Stimulates additional discussions at the institutions on SPM • Gives better understanding of HR needs – where there are gaps in assumed and actual way the processes work • Remind and refresh the mission and social objectives • Reveals information flow bottlenecks MFC Quality Audit Tool

4 Steps in QAT 0,5 day 1 day 1-2 days 2 - 3 days 0,5 day 1 day Preparation Gap analysis Follow up interviews Analysis & draft report Audit panel Final report • ED • Senior management (Finance, Operations, HR, Marketing, ) • Board • Senior management • Internal auditor • MIS staff • Research staff • Regional level • Branch level • LO • Clients • All Staff participating Total time: from 6 up to 8 days MFC Quality Audit Tool

External & Internal Assessor QAT is implemented by the team of two people: external and internal assessor: MFC Quality Audit Tool

QAT Implementation Steps (1) • Gap analysis: presents detailed questions which are used to assess SPM; sets up a base for more in-depth follow-up Source: ED and senior management • In-depth follow-up: gathers more detailed information to verify and better understand gap analysis; checks status and effectiveness of systems Source: Interviews with senior management, staff & clients; review of documents and internal reports; and information flows. MFC Quality Audit Tool

QAT Implementation Steps (2) • Analysis and draft report: combine information and draft report highlighting strengths and weaknesses of issues in gap analysis; it captures perspectives of different stakeholders to be discussed during audit panel. Analysis include: Qualitative data analysis using triangulation of different information sources (interviews with different staff, focus groups with clients, review of written documents) Tally sheet is used to identify common themes and divergences around strengths and weaknesses of MFI systems, notes from the interviews are reviewed for evidence and rationale behind emerging themes Draft report is written addressing strengths, weaknesses, evidence and issues to further discuss/explore that serve as basis for discussion with representatives of different stakeholders during an audit panel. MFC Quality Audit Tool

QAT Implementation Steps (3) • Audit panel: Presentation of findings to key organizational stakeholders, including staff from all levels of organization and clients, where appropriate. Audit panel allows for further verification of the audit results and finalize the report The initiatives for addressing gaps are identified and prioritized in order to develop action plan for SPM improvement • Final report: finalized based on audit panel discussion Includes prioritized activities to be undertaken by MFI in order to improve SPM by addressing the identified gaps and by building on identified strengths MFC Quality Audit Tool

Source of Information and its Validation MFC Quality Audit Tool

Data Collection Methodology • Gap analysis questions: basic set of questions defining the framework of SPM assessment i.e.: do you seek to be socially responsible organization in relation to your target clients? • Status questions: questions validating the status of SPM components: their presence in the institution Asked to Loan Officer: How do you communicate interest rate to clients? How do you ensure they understand? • Effectiveness questions Asked to clients: How do you learn about interest rate? How do you know what is it? MFC Quality Audit Tool

QAT questions examples Source: QAT Handbook MFC Quality Audit Tool

QAT Report Structure (1) • Report is divided according to dimensions and/or sub-dimensions • Each dimension / sub-dimension includes: [to be discussed during audit panel:] List of institutional strengths supported by evidence List of institutional weaknesses supported by evidence Points for discussion: when there are different and not coherent opinions and evidence, they can be clarified and agreed during audit panel [after audit panel:] key elements of the action plan MFC Quality Audit Tool

QAT Report Structure (2) MFC Quality Audit Tool

QAT Attributes - Time • Preparation (documents review) • Gap analysis • Individual interviews • Focus Group Discussions with Loan Officers and Clients • Analysis • Audit panel • Final report • 1 – 2 days • 0,5 day • 1,5 – 2 days • 1 day • 0,5 -1 day • 0,5 days • 1 day Duration Process steps • Depends on skills and experience of assessor • With external facilitator the process is more intensive and shorter • Internal Assessor can adjust duration to the internal dynamics TOTAL: 6 – 8 days MFC Quality Audit Tool

QAT Attributes: Cost • Staff time Internal Assessor Staff in interviews Staff in audit panel • Travel to branches for FGDs • Snacks for FGDs • Includes: 6 – 8 days 1,5 h per person 3 h per person • Travel costs • Costs of drinks and snacks External facilitator time Lodging Travel 6 days * daily rate 6 nights * daily allowance Cost of plane ticket MFI costs External facilitator MFC estimated cost for external assessment: 6000 USD + staff time cost MFC Quality Audit Tool

QAT Attributes: Breadth of Functionality MFC Quality Audit Tool

QAT Attributes: Infrastructure and Resource Requirement • Resources required: Staff time Funding for external facilitator budget • Infrastructure required: Computer for assessors, recorder Separate room for conducting interviews (preventing noise, securing proper concentration) Convenient room for 2 FGDs (with Clients and Loan Officers) Transportation to branch (if needed) Conference room for holding audit panel (including: LCD projector, flipcharts, markers) MFC Quality Audit Tool

QAT Attributes: Ease of Use • In case of external assessment: MFI needs only to set up logistics and select internal assessor Additional benefit: MFI is trained on how to conduct the assessment to do it independently next time Challenge: securing the funding • In case of self-assessment: Pre-assessment training is required Timing adjusted to the internal dynamics of MFI Challenge: the selection of internal assessor must be more careful MFC Quality Audit Tool

QAT Attributes: Customer Satisfaction • Assessing both strengths and weaknesses makes the audience appreciate the objective assessment: they are motivated to improve as their up to date efforts to achieve the mission are acknowledged • Involvement of many stakeholders into process and allowing them commenting during audit panel make them owe the findings in opposite to external findings (external assessor becomes perceived rather as facilitator) • Developed action plan reflects the real needs and does not irrationally overburden staff • Clear and easy to follow structure of the report makes it a handy document for further work MFC Quality Audit Tool

QAT Attributes: Customer Satisfaction in Citations • I am pleasantly surprised how everything is now clear – the role and the goals of SPM • External assistance in the audit is very helpful. I wonder whether to us people would say what the external auditor found out. I have a feeling they tell us what they think we want to hear. • It was good that loan officers and branch staff were included in this audit. They gave a needed perspective for the understanding of the issues they face in their work. The fact that all staff was included means we will have full support for the changes • I am the SPM team member. During this week it became clear that we did a lot of stuff, discussed and decided on many points. I now see what will be the result of the entire SPM effort. • Social audit made me realize that we are already working on many aspects of SP in our organization, but have not given it the right emphasis • I am now better aware of the importance of the right loan for the client. I will pay more attention to how I do my work, how the loan is used and whether the client is advancing. This is giving me an encouragement for my future work Partner, Bosnia and Herzegovina In our case, this tool revealed many weak points in the systems and management processes and resulted in creating an institutional strategy with a holistic approach AgroInvest, Montenegro, Serbia MFC Quality Audit Tool

QAT vs. Other Tools (1) Compliance audits: social accounting by Social Audit Network (UK) Social Performance Audit Tool (SPA) by USAID MFC Quality Audit Tool

QAT vs. Other Tools (2) SOCIAL Tool by ACCION Social Performance Indicators by CERISE MFC Quality Audit Tool

MFIs Implementing QAT Worldwide • ECA region AgroInvest and MDF, Serbia Aregak, Armenia FinDev, AzerCredit and Viator, Azerbaijan Horizonti and Moznosti, Macedonia Partner and Zene za Zene, Bosnia and Herzegovina • The Philippines ASHI, CARD • MENA Region Tamweelcom and DEF, Jordan Till end of 2008: ARDI and AMOS, Morocco MFC Quality Audit Tool

Contact Details For more information on QAT, please contact: Ewa Bankowska, Project Coordinator E-mail: Ewa@mfc.org.pl Phone: +48 22 622 34 65 Skype: bankowska MFC Quality Audit Tool

Quality Audit Tool for Managing Social Performance