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Socially Responsible and Sustainble Investment

BlueOrchard is committed to monitor and report on the social impact of its investment activities.
 
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Measuring the social performance of commercial microfinance investments

The purpose of microfinance
BlueOrchard invests in microfinance to improve the lives of poor and marginalised populations by granting them access to financial services. Most notoriously, this will mean giving access to credit, i.e. the possibility to borrow small sums at reasonable interest rates, often without collateral, to allow the self-employed market vendor, seamstress, taxi driver, farmer, etc., to invest in their activity, increase their income, and thereby improve their family’s standard of living. As these small businesses grow, they often offer employment to other members of the community.

The multiple services to the community of MFIs 
Other services by microfinance institutions (MFIs) include micro-insurances, which provide a financial cushion in case of sickness, death or disaster. Savings accounts are also extremely important, providing a secure place for clients to save money to cover emergencies, to build better homes or to educate their children. Many MFIs also propose non-financial services, such as health care, childcare, business development training, legal support, etc., or facilitate contacts with organizations in the community that offer such services.
 
The effects of financial inclusion
What's more, the provision of microfinance services empowers clients, increasing their self-esteem and independence. The positive effects of microfinance investments can be observed through a multitude of individual success stories. However, in order to demonstrate the socio-economic progress of the final beneficiaries of BlueOrchard’s loans and to link this development to our activities, we need to collect and analyse data that will generate relevant outputs without over-burdening our partners and our staff. 
  
BlueOrchard’s approach
In addition to the financial and operational analyes and monitoring that BlueOrchard does of its investments, social performance measurement is an area of increasing importance for us. We have leveraged the work being done through industry-wide initiatives to create a social performance due diligence tool being implemented with the MFIs in our portfolio. Our findings will be increasingly used in our investment decision-making processes and reporting to investors and other stakeholders. We focus on the following elements to assess social performance:
  • Intent : Does the MFI aim to contribute to the socio-economic well-being of its clients? How well is its proclaimed mission integrated in its activities and approach?
  • Outreach : Who are the MFI’s target clients? Who does the MFI reach? 
  • Client protection : How does the MFI ensure that its clients are treated fairly and respectfully? How does it ensure that clients do not get into excessive debt?
  • Community and environmental impact : How does the MFI impact the community in which it operates? Does it take environmental issues into account in its business?
  • Being a good employer: How does the MFI treat its staff and support the career development of its employees? Does the MFI charge rates that are reasonable within the market context? How does it use its profits?
  • Measuring social impact : Does the MFI take part in studies to assess the social impact of its work? Has it engaged in evaluations or ratings of its social performance?

 

Challenges in measuring and assessing social performance 
Gathering evidence to assess on the social performance of microfinance investment vehicles raises a range of questions that need to be addressed to ensure that the reporting is significant and relevant, among which, importantly:
 
-         What indicators should we gather and what do they demonstrate?
 
-         Are the data that we decide to gather readily available with our partner MFIs or at least with a sufficiently representative part of our MFI portfolio? And if not, do we press them to gather it and possibly offer support so they can do it?
 
-         How do we demonstrate the link between our activities, our partners’ activities and the socio-economic progress achieved in the communities that receive funding from our partner MFIs?
 
To address the above challenges, BlueOrchard is involved in several projects with its peers, notably in the Social Performance Task Force (SPTF), in order to elaborate reporting standards on social performance in microfinance and to ensure the quality, relevance, standardization and comparability of such reporting.

Success stories

Cali Colombia making sweets.jpg

Since 13 years Rubiela Sanchez and her husband have been making and selling their famous manjar blanco and other sweets throughout Cali, notably at bus stations

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Publications

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Practicing what we preach

BlueOrchard has been a signatory of the Principles for Responsible Investment (PRI) since December 2008, a set of global best-practices for responsible investment established by the United Nations in partnership with actors of the private corporate and financial world. By adhering to the PRI, BlueOrchard demonstrates its commitment to sustainable and responsible investment practices and to contribute to their promotion in the wider investment community.

    

BlueOrchard signed up to the Smart Campaign in December 2008, a microfinance industry-wide initiative coordinated by CGAP, Accion and others which aims to promote the  Client Protection Principles (CPP ) to ensure that low-income clients are treated fairly and protected from potentially harmful financial products. By endorsing the principles, investment managers like BlueOrchard encourage compliance by their MFIs partners and provide positive incentives for good behavior and treatment of clients.

Since early 2009, BlueOrchard has been a member of the Steering Committee of the Microfinance Rating and Assessment Initiative (formerly Global Rating Subsidy Service or GRASS). This rating co-funding service aims to develop the microfinance rating market through a 4-year project designed to encourage at least 800 new MFIs to obtain regular financial and social ratings on a regular basis. The funds from the initiative will help MFIs to overcome the initial cost barrier that many of them face, particularly for social ratings and underserved regions which have not yet fully engaged in the rating processes.

BlueOrchard is a member of the European Social Investment Forum (Eurosif), a pan-European group whose mission is to address sustainability through financial markets. Recognised as the premier European forum for sustainable investment, Eurosif’s affiliates are drawn from leading pension funds, asset managers, non-governmental organisations (NGOs), trade unions, academic institutes and research providers, together representing assets totalling over EUR 1 trillion. Eurosif produces ground-breaking research, facilitates EU interfacing and European-wide initiatives that integrate environmental, social and governance issues into the financial services sector.

As a member of the Social Performance Task Force , BlueOrchard has joined 350 leaders from around the world from every microfinance stakeholder group: practitioners, donors and investors (multilateral, bilateral and private), national and regional networks, technical assistance providers, rating agencies, academics and researchers in working towards developing standards and guidelines for social performance, advocating the value, importance and imperative of social performance in the microfinance industry, and communicating information about global activities related to social performance.