IFC Evaluations in Access to Finance (A2F): Piloting a Social Performance Approach

1. FMFB-A EvaluationAfghanistan IFC Evaluations in Access to Finance (A2F):Piloting a Social Performance Approach Gilles Galludec Principal, Access To Finance Advisory Services IFC Presented in Berlin, Germany December 3, 2008

2. In emerging markets, roughly two-thirds of the population remain unbanked and underserved 231 projects active in over 90 countries worth over $310m at FY08 64% of FY08 approvals in IDA countries; 14% of projects in conflict affected countries Access to Finance Mission: Increase access to responsible finance in developing countries by building capacity of financial infrastructure, financial markets and financial institutions 2

3. M&E for A2F: Two-pronged approach including independent evaluations Ongoing Monitoring Progress AMSME client reporting tool going live • A2F standard indicators • Plus additional performance and outreach indicators • Program level impact assessments by external evaluators • Rigorous methods using control groups and randomized experiments Independent Evaluation Progress AMSME bank surveys ongoing

4. Sector/Practice Area Outcome Indicators Standard Outcome Supply of credit (Number of clients, number and US$ value of outstanding § Indicators loans, number and US$ value of all loans disbursed, number of active women clients, where relevant) Quality of po rtfolio (US$ value of loans> 90 days overdue) § SME Banking, All of the standard outcome indicators plus Microfinance Savings mobilization: Number and US$ value of new deposit accounts opened § Leasing All of the standard outcome indicators. Housing Finan ce All of the standard outcome indicators plus Supply of Credit: Number and US$ value of housing transactions completed for § specific target segments Sustainable All of the standard outcome indicators plus Finance/Energy Supply of Credit : Number and US$ value of sustainability or energy efficiency § Efficiency Finance finance transactions completed by Financial Institution Credit Bureaus Strengthening credit information infrastructure: Number of bureaus created § and/or significantly improved, Number of fin ancial institutions/lenders participating in bureau, Number of individuals/firms covered by bureau, Number of credit reports sold by credit bureau Strengthening quality of Credit Bureaus: Score on Doing Business Credit § Information Index, Score on Private Credit Bureau Coverage Insurance Supply of insurance: Number of insurance contracts § Institution building: Nb of qualified key professionals – actuaries, risk § adjusters etc, Nb of insurance providers with reliable financial reporting Mob ile Banking/Next All of the standard outcome indicators plus Generation Finance Number of clients using the new technology for banking services § US$ value of transactions using new technology vehicles § A strong focus on monitoring outreach results. Evaluate the benefits for the end users.

5. Financing facilitated (US$b)1 SME Banking $24.6 Credit Bureaus $17.0 Housing Finance $2.5 Leasing $1.7 Microfinance $1.6 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 Number of people / entities reached2 175,221 SMEs SME Banking 34.7 m inquiries3 Credit Bureaus 69,588 homeowners Housing Finance 19,715 MSMEs Leasing 2.1 m micro enterprises Microfinance A2F results in FY08 Notes: 1. Outcomes as of end-December 2007, based on value (US$) loans outstanding data received from IFC stand-alone AS and investment related AS clients. 2. Ibid., based on number of loans outstanding data received. 3 Data from 10 bureaus with approximately 26 MM individual records according to DB 08.

6. IFC’s first impact evaluation in a conflict- affected country: The First Microfinance Bank of Afghanistan (FMFB-A) Objective: create sustainable A2F to underserved, incl. women; help develop/ promote best practice standards, including CG, anti-money laundering, social and env.standards Business model: TA + investment to provide comprehensive, three-year capacity building effort to build commercially viable institution Strategic partner: Aga Khan Fund for Economic Development (AKFED), broad strategy in country and region Funding:$4m 3-years (EU,Japan, KfW, Netherlands, Norway, USAID, IFC) • Outputs achieved • The first of its kind - opened May 2004 as the first licensed microfinance institution in Kabul • Management team set-up, local staff trained, including women • New MIS procedures / processes implemented • AML/CFT policies and procedures were developed; environmental training completed • Group lending a new product in 2007, with gender strategy to increase outreach to women Outcomes achieved • Outreach increased with 13 branches • Over 27,000 borrowers, over 13,000 savers • Portfolio quality: PAR 1.33% • Efficiency: OER 15%, Cost per loan $179 • Productivity: caseload 101 per loan officer • Profitability: ROI 29.4%, ROA 3%, ROE 5%, OSS 124%

7. Impact evaluation results: positive impact on micro, small businesses and households

8. Impact evaluation results: positive impact on poverty but can improve outreach to women, promote savings products • Gender outreach only 18%, as compared to other MFIs with strong intent to reach women which achieved higher outreach results • With introduction of group loans in 2007, outreach to women should increase • Lesson: FMFB-A had no explicit gender focus (outreach mechanisms, product offerings) at the outset FMFB-A reached MSME segment with current op. systems, outreach channels & products; began group lending in 2007, which is expected to help it go downmarket to further reach women, poor. Lesson: FMFB-A success with MSMEs provides opportunity to further expand savings product offering. • Expand IFC’s core A2F indicators to measure and report on SP – go beyond measuring outreach or outcome results of the MFI itself to achieve greater depth and quality of impact results, i.e. impact on gender, poor • Promote SP approach/reporting among selected access to finance clients, focus initially on IFC MF projects • Align M&E framework with best practice standards in microfinance, namely standards developed over the last 3 years by the Social Performance Task Force

9. Objectives of PBGI program and fit with social performance approach • PBGI Program for A2F • Provides funding for access to finance (A2F) projects within a results oriented, performance based framework • Promotes innovative business models to broaden the range of financial services • Expands financial servicesto underserved segments • Signals to the private sector to go down-market, contribute to the reduction of poverty • Faciliates initiatives to scale upIFC’s frontier country strategy • Provides incentives to financial institutions to gobeyond traditional zones of comfort Social Performance Approach Effective translation of social goals into practice in line with accepted social values; includes sustainably serving increasing numbers of excluded people, improving quality and appropriateness of financial services, improving economic and social conditions of clients, ensuring social responsibility to clients, employees and the community they serve. Source: Social Performance Task Force. See also CGAP, Focus Note No. 41, “Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions”, May 2007.

10. A2F Performance Based Grant Initiative(PBGI) • Afghanistan leasing • Armenia housing; SMEs (Inecobank) • Pakistan microfinance (NRSP, FMBP, Pak Om); housing (FMBP) • Yemen microfinance (Tamkeen MF); leasing* • Tajikistan microfinance (Tajik Access LFS) • Bosnia leasing & EE • Syria microfinance (AKAM) • West Bank microfinance; low income housing (Al Rafah); leasing* • China microfinance (VTB/Accion) & leasing (JFLC) • Tunisia Housing & Microfinance (ENDA) • Morocco microfinance (Alamana) • Algeria microfinance (Advans Microcred*). Housing (Banque Numide)*. • Bangladesh housing and Leasing • Senegal microfinance (FIDES, Microcred) • Aga Kan West Africa • India low income housing • Cambodia microinsurance • Lao (ACLEDA) • NE Brazil Microfinance • Guyana small business banking • Ethiopia leasing (Access) • Madagascar leasing (Mada Finance) • Nigeria microfinance (Access Bank), housing* • Liberia (Access Bank) • Maldives housing (HDFC) • Sri Lanka microfinance, microleasing, housing • Tanzania microfinance (Access Bank) • DRC microfinance (Advans). Leasing (Alios Finance) • Rwanda Leasing (CIM Leasing) • Zambia Leasing (Madison Group) Approved by PBGI Committee A2F Performance Based Grant Initiative Program Status at Nov 11, 2008 For approval by PBGI Committee * Note: indicates countries with projects in the pipeline that are also of medium/low probability.

11. Measuring Grants Benefits for The End Users • Leverage: New loans generated with PBGI funding/PBGI contribution: (Portfolio growth/PBGI funding) should be > X 100 (TBD) • Efficient Business Model: Total cost per client to be determined for each sub business line (Microfinance around $70-$80) • Client Contribution: PBGI Contribution/Total project cost should be <50% • Pef Focus: PB disbursements/seed grant (output) TBD (max 30%).

12. PBGI’s social performance approach looks at the entire process by which impact is created: proposed indicators STRATEGIES & SYSTEM ACHIEVEMENT OF SOCIAL GOALS • What is the mission statement of your institution? with a list of social goals explicitly included: outreach to very poor, poor, low income, SME, underserved areas, women, employment creation, socially marginalized. • In the governance: do you have linkage between executive compensation and achievement of social performance goals? • Does the institution have policies for client protection? for social responsibility to staff, to community, to environment? INTENT & DESIGN • Range of services provided: financial and non financial • Methodologies used and conditions: collateral, min savings threshold, min loan size • Staff incentives related to social performance goals • Client satisfaction assessment • Measuring Client Retention: drop out rates • Social responsibilities to clients: disclosure of cost of effective interest in clear and understandable way, training on customer's rights and duties, collection process, safeguard of clients' privacy, policy to avoid over-indebtedness • Geographic outreach: % urban, % semi urban % rural, % women • Poverty outreach: Number of clients under national poverty line • Average loan size/ % of GDP Source: Social Performance Task Force.

13. Social performance to be piloted with selected PBGI clients in early 2009 • Maldives – low income housing • Tajikistan – greenfield microfinance institution • Ethiopia – leasing for MSMEs

14. IFC’s A2F M&E going forward: applying lessons learned to improve impact results • Require social performance strategy and implementation plan from IFC clients participating in PBGI funded programs • Collaborate with key members of Social Performance Task Force to support and provide technical expertise to help IFC clients implement social performance approach • Coordinate within IFC/WBG to promote social performance approach and reporting, with initial focus on microfinance portfolio • Promote reporting and/or benchmarking through MIX on SP indicators to be implemented by PBGI and microfinance clients • Participate in future workshops to assess and share lessons from IFC’s preliminary experience with social performance

15. Annex Annex

16. Impact results: summary of a recent evaluation completed by IFC Monitoring & Evaluation Framework Outputs / Outcomes Benchmarking Inputs • Excellent performance in Afghanistan • Excellent performance among conflict affected countries • Good TA overall • Strong investment • High leverage • More TA coordination • Excellent financials • Positive client impact • Market leader; best practice standards • Not possible to look at client impact • Coherent & broad • Evolved since investment • Improving, needs more depth; recommend applying new industry standards: social performance indicators • Need shift to demand driven approach given market changes • Some organizational improvements neeeded

17. Social performance tools are used to focus on different steps in the process Source: CGAP, Focus Note No. 41, “Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions”, May 2007.

18. Results Measurement and Specific PB features Client’s strategy should include Social Performance Impact-SPI Effective translation of social goals into practice in line with accepted social values; includes sustainably serving increasing numbers of excluded people, improving quality and appropriateness of financial services, improving economic and social conditions of clients, ensuring social responsibility to clients, employees and the community they serve.

19. Impact Indicators - collected only for selected programs, where proxies can be validated; otherwise not collected for every A2F project LT results, reflecting where outcomes should bring IFC at the end of the project. Only one indicator (see point 2 below). (1) Dropped in FY08 (replaced with impact evaluations as per FMFB-A): Nb people positively affected: use Multiplier to calculate the nb of Households affected for the BLs. For sub-loans through SME Banks and other NBFI: total nber borrowers x nb employees/borrower type x average household size. The term borrower can be substituted for lessee or insured. Nb employees varies per borrower type. Based on conservative estimates from the IEG report: Small Borrowers: 20 employees / Medium Borrowers: 100 employees 3 are conservatively assumed to be the average household/family size For MFIs, Housing Finance and sub-BLs where primary beneficiaries are predominantly households, calculation only accounts for impact on households: Total nb borrowers x average household size of 3. For CBs, proxy used is nb individual records in CBs that were set up/improved by IFC x 3. 3 are assumed to be the average family size Nb of records data from Doing Business 2007, where available (2) Selectively collected FY08 (as noted above): Investment/financing enabled (US$):Value of investment/financing mobilized for the overall project, includes IFC and other contributions from co-investors/sponsors. Exception is CBs where proxies used to calculate investment/financing enabled is based on aggregate nb inquiries from bureaus set up/improved by IFC. Calculation: Aggregate nb inquiries from bureaus set up/improved by IFC x 50% acceptance rate x average loan size of $1000. 􀂃 Acceptance rates vary up to 70% depending on country and lending environment, 50% assumed as a conservative estimate. 􀂃 Average loan size of $1000 based on average size of loans given by IFC's investee clients that receive TA and provide micro, consumer and housing loan. Note additional factors (securitizations, deposits mobilized) may be included as relevant to the sub-BL, but will not be added at this stage as core impact indicators by the BL until these indicators have been further defined per sub-BL.