Pilot Project Responsible Finance Rating (RFR) AMT Investors Fair Accra October 13 2011

1. Pilot Project Responsible Finance Rating (RFR) AMT InvestorsFair Accra October 13 2011

2. Context for the RFR • Impact of global financialcrisis has heightened the need for greater focus on social performance and impact • Events in Andhra Pradesh have reinforcedthisat the microfinancelevel • Specificityof microfinanceas a double bottom line sector • For the Rating Initiative, it has been decided to refocus efforts on contributingtowards the development of the supplyside of the rating market

3. The RFR pilot project in a nutshell • Based on the feedback frominvestors and otherstakeholders (SPTF), the Rating Initiative in collaboration with Ford Foundation, decided to launch a pilot project in 2011 for: • A full financial rating whichincludes a selection of key social factors

4. Progress to date • Step 1 – Feedback loop • March 2011: Conference call with a roundtable of 12 investors for theirinitial impressions on the pilot project/RFR • April/May 2011: Second round of investor feedback on the type of social dimensions & indicators to beincluded in the RFR • Step 2 – 1st round of pilot ratings + workshop • Finalisation of first 4 pilot ratings and feedback workshop (SPTF conference) • Step 3–2nd round of pilot ratings +workshop • Finalisation of last round of pilot ratings, workshop and conclusion of pilot project

5. Future role of the RI • The Rating Initiative iscurrentlyconsideringwhether to launch a 2nd phase • However: • If continued, co-fundingwillbeatreducedlevels • Only the RFR and possibly social ratings willbesupported • Greater focus on outreach and awarenessraisingat the investorlevel • Coordination withprofessional associations atmicrofinance networks at the MFI level for promotion • Final decisionwillbetaken on the 4th Novemberduring the European Microfinance Week

6. Responsible Finance Rating Aspects and methodology

7. Objectives of RFR • How well the MFI is able to achieve mission while ensuring expansion and sustainability? • To evaluate its ability to balance the expectations of various stakeholders (clients, shareholders, debt provides, staff, society) which may be conflicting at times • Reduce costs and time by integrating financial and social in place of two ratings • In some countries , we see lenders insisting on double bottom line product which covers regulators policy guidelines

8. Objectives of RFR • Integrate key issues of social performance in typical financial rating • Include all elements of the existing financial rating (or performance rating) • Core aspects of social performance management • Assessment of MFI’s compliance with client protection principles • Not a full social rating – institutions interested for a full social assessment can undertake social rating

9. Additional aspects covered in the pilot Governance & Strategy Focus of Board in Social performance Mission – Clarity & Communication Mission drift and reputational risk management Operational strategy – social dimensions Model & Services Client profile (rural/urban/gender/poverty) Products and Services- basis & appropriateness Client retention, exit analysis Non Financial services- linkages with mf, scale and fit

10. Additional aspects……. Client Protection Principles In-depth coverage of each of the principles covered as a separate section in the report Responsibility to Staff Staff compensation & facilities % of women staff at various levels Analysis of incentive system Policies to prevent gender discrimination Management CEO compensation & base level salary Capture of social aspects in MIS & use Audit focus on social aspects Client awareness of services Training to staff on SPM

11. Changes in the process • At the HO : additional discussion with the BoD, managers including the CEO on social goals, systems to ensure their achievements and social performance tracking • Review of minutes of the Board and its sub-committee meetings to see discussions on social performance • Discussions with managers and operations staff on client protection principles • At the branches : discussions on mission orientation, client selection processes, observation of practices from the point of view of client protection principles • Visiting the clients : observing all costs to the clients, effective implementation of client selection and protection practices and level of client awareness on products, policies and grievance redressal mechanisms

12. Future product range Once Responsible Finance Rating product is launched, which products will be chosen by the market? • Responsible Finance Rating • Financial Rating • Social rating with client survey • Standard social rating

13. THANK YOU !