Download pdf - Microfinance for decent work improving the working environment and addressing child labor

Microfinance for Decent Work:

Improving the Working Environment

and Addressing Child Labour

Experiences from

ESAF, NWTF and Pride Microfinance Limited under an ILO experiment

October 10, 2013

Introduction of panellists

Guided questions and answers

Opened questions and answers

Poster session

What do we want to do in this session?

Panellists

• Manuel Margate, Head Client Services Department, Negros

Women for Tomorrow Foundation, NWTF, Philippines

• Veronicah Namagembe, Managing Director, PRIDE

Microfinance Limited, Uganda

• Paul Thomas, Founder and Manager Director, ESAF

Microfinance and Investments Ltd., India

• Pia Naima Unte, Research Fellow, Chair for Econometrics,

University of Mannheim, Germany

• Craig Churchill, Chief, Social Finance Programme,

International Labour Organisation, Switzerland

1) How did the project come about, what were its objectives?

2) Why did you get involved?

3) What was the research strategy?

4) What innovation did you implement, why did you choose that

particular innovation?

5) What challenges did you encounter in implementing your

innovation?

6) What was the impact of that innovation on the livelihoods of

your clients?

7) What challenges did you encounter in carrying out the

research work?

8) How do you want to take this forward?

Guiding Questions

Q1: How did the project come about and

what were the project’s objectives?

Clients of microfinance institutions must cope with serious work

challenges:

Child Labour Occupational

Safety and Health

Informality

…and • vulnerability to income shocks

• overindebtedness

Q1: How did the project come about…?

http://www.ilo.org/dyn/media/mediasearch.highres?p_lang=en&p_id=7911

http://www.ilo.org/dyn/media/mediasearch.highres?p_lang=en&p_id=7737

Q1: How did the project come about…?

Findings from a diagnostic survey showed that:

Child labour (5-14 years) constituted 5% of total employmentcreated

11% reported dangerous working conditions or injuries

54% of client’s business activities informal, 41% paid taxes

8% reported cross-borrowing and 14% had repayment issues

43% reported large unforeseen expense in preceding year (main reason: accident, illness)

Only 2-3% used a form of insurance to cover unforeseen expenses

(N= 4748)

IMMEDIATE GOAL:

To measure the impact of innovations on the welfare of microfinance clients

Action Research Programme

Timeframe: 2008-12

16 partner-MFIs worldwide

Q1: …what were the project’s objectives?

Q2: Why did you get involved?


Pride’s mission - ‘To provide financial solutions to micro, small, medium, and upscale entrepreneurs in rural and urban areas through sustainable operations that promote social and economic growth of Pride’s customers’.

MF4DW presented a good opportunity for Pride;

• To identify the most pressing work-related challenges faced by our customers (which was over-indebtedness)

• Develop an appropriate innovation to address the challenge.


ESAF believed that most of its entrepreneur clients who

lacked information and know-how to formalize their

business could not grow further or expand their

business.

Specific BDS aimed at „formalizing‟ the business would

ensure better reach in marketing the products and also

get linked to the firms, associations that would support

them in enhancing their business.

Strategy, if successful, could be replicated in other

branches where „growth oriented‟ clients are in need of

such services.


Assumption: clients continuously access loans so they are doing well and have improved their living conditions

BUT diagnostic study showed that:• 4% of NWTF sample clients could not cover HH expenses

• 4% could not cover business expenses by business income

• 17% had experienced difficulties in loan repayment

• 19% of NWTF sample clients had already had late payments

• 35% used loan from other sources (most common: other MFIs (47%), cooperatives (25%) and moneylenders (12%)

• Among the clients that took loans from other providers, 12% said they used the loan to pay back another loan

• 50% of client businesses were not registered

• 50% had been confronted with a large unforeseen expense in the past year (accident/ illness (75%), catastrophes/typhoon (13%) and death/burial (6%))

Q3: What was the research strategy?

Create knowledge on what innovations work for

which purposes and which clients.

Also learn about unintended side effects.

Quantify innovations‟ impact.

Oppose costs and benefits of innovations.

Inform decision makers, give decision guidance for

improving future innovations.

Show results for public spending.

Quantitative impact evaluation:

Why is it important?

Quantitative impact evaluation: What

are the methodological approaches?

Type of Experiment Methodology

Experimental: Randomized Control Trial(RCT)

Quasi-experimental: Differences-in-Differences (DiD)

Propensity Score Matching(PSM)

Regression Discontinuity Design (RDD)

Instrumental Variables (IV)

Quantitative impact evaluation: How

to learn from empirical evidence?

MF4DW Financial Education/Entrepreneurship

TYM NWTF AMK VCF

Financial attitude + o + o

Financial behavior + o o +

Asset building o + + +

Over-indebtedness o + o o

Vulnerability o o o o

Quantitative impact Evaluation: Basic facts

on evaluation for MF4DW Action Research.

• Control and target group.

• Panel data: Baseline with up to four follow-up surveys.

• Data sources: Questionnaires (clients) and Management

Information Systems.

• Assignment of innovation at branch level (Number of

branches in samples: 2 to 29).

• Typical evaluation methodology: DiD (sometimes

supported by PSM).

• 2 main assumptions: no contamination,

common trend in outcomes

“The percentage of clients with repayment difficulties in the target group reduced by 3 percent as compared to the control group after the innovation.”

Quantitative impact Evaluation:

Basic idea of the DiD approach.

Example: Clients with repayment difficulties (in %)

Target group Control group

(1) (2) (1)-(2)

After (A) 12 13 -1

Before (B) 15 13 2

(A)-(B) -3 0 =-3

Q4: What innovation did you implement,

why did you choose that particular

innovation?


and why?

WHAT:

ESAF chose to work on „formalisation‟ of the business enterprises of “ready-to-grow” clients.

ESAF introduced awareness raising campaigns on the registration and formalisation processes and targeted Business Development Services (BDS) to its clients.

WHY:

To facilitate access to government support schemes, access to bank loans, membership in business associations and access to markets.

The long-term objective: to improve the social and economic performance of ESAF clients, which will lead to their economic and social empowerment.

WHAT:

Individual Emergency Fund (IEF)

Modifications to Individual Emergency Fund (= savings account for emergency situations)

Entrepreneurship Training

Entrepreneurship training of clients using ILO training modules “Generate and Start Your Business”

WHY:

To answer to challenges in clients’ risk management strategies and overindebtedness


and why?


and why?

WHAT

Introduction of a micro-leasing product - “Mortgage & Asset

Financing Loan”

Aim: reducing customers‟ over-indebtedness by financing

them to acquire income generating assets

WHY

Because the diagnostic study

showed that:61% of the customers had been confronted with a large unforeseen expense

38.7% took a loan to pay another loan therefore diverting loan money into other things not meant for the loan.

Formalization •Awareness raising and client sensitisation to benefits

•Business development services

Occupational

Safety and Health

•Client training on good working conditions and agreement on

improvement plan

•Specific loan product for work improvements

Job Creation/

Women

Empowerment

•Organisational restructuring: new SME lending window

•Client training on women„s empowerment

Risk Management/

Overindebted-

ness

•Insurance products: multi-risk for business loan clients, health,

credit life

•Leasing product

•Financial education

•Client risk management training

Child Labour •Awareness campaign

•Client training to increase production productivity

Other MF4DW innovations…

Q5: What challenges did you encounter

in implementing your innovation?



Individual Emergency Fund

High transaction costs for clients for withdrawals (only possibly at office)

Branch manager authorising withdrawal lead to neglecting other tasks

Entrepreneurship Training

Selecting eligible clients

Loan officers offering training lead to backlog of otherwork

Consequences of “Andhra Pradesh Crisis”:

• Speculations about impact of microfinance and effects on the

lives of clients

• Restricted funding

• Reducing of loans => need to answer to clients WHY

• Sudden increase in dropouts among clients

Quick transition back to normality: many loyal and old

clients retained their association and continued with ESAF

More than 90% of the clients participated in the programs

conducted under this action research from beginning to end





Suppliers were not forthcoming in signing agreements to

supply assets to the borrowers.

There was a slow buy-in process from staff who in-turn

convinced customers to take on other loan products.

The extra processes involved in evaluating the micro-

leasing product (i.e. transfer of property title into the

borrowers name & inspection of asset) affected turnaround

time. Purchase of land cases were the worst due to Uganda‟s

land laws. This demoralized both the COs and clients.

Marketing/sensitization of the product was under-budgeted

and yet it is crucial for client take-up.

External factors: regulation

Internal buy-in

Time required for new product uptake

Time required when an external partner is involved

Transmitting new concepts to staff and clients (formalisation, occupational safety and health)

Staff turnover

• contact person/team in MFI,

• MFI staff implementing innovation (training)

Other challenges…

Q6: What was the impact of the innovation on

the livelihoods of your clients?

“I am pretty sure that the GYB and SYB training was very timely for me and it was a need. The training benefitted me a lot. I just hope more training like these will come in the future.”

Mildred bought the right to operate a small lot for salt making which can produce > 750 sacks of salt in one year valued at (U$D 2,616). She and her husband also acquired on instalment a motorcycle that her husband uses in their bread selling/delivery business.

Q5: What was the impact on the

livelihoods of your clients?

Impact Results:

NWTF Entrepreneurship Training

Strongest results:

• Business profit increased by PHP 2‟000, ownership of

motorized vehicles increased by 3.5% (positive impact on

asset building)

• Incidents of late repayment decreased by 4%, take out a loan

to repay another loan decreased by 10% (positive impact on

overindebtedness)

• 5% increase in use of microinsurance to cover unforeseen

expenses (positive impact on risk management)

Inconclusive results:

• Debt- and precaution-related financial attitudes

• Financial behaviour/risk management

Impact Results:

NWTF Individual Emergency Fund (1)

Example: Some loan and repayment indicators

Impact

Borrow informal -0.068***

Borrow other formal

-0.150***

Took loan repay other loan

-0.222***

Repayment difficulties

-0.068***

Impact Results:

NWTF Individual Emergency Fund (2)

Increased Asset Base to enhance business growth.

-se of landownership from 64% to 76% used for agriculture etc

-se of motorcycle ownership from 47% to 61% used in transport business

Increased Business Revenues & Reduced Business Failures.

-se in people that covered their business expenses from 31% to 60%

Increased household incomes

-se in people that covered HH expenses from 47% to 66%

-slight se in repayment difficulties from 8% to 12%



Strongest results:

Increased formalised status of microenterprise by 70%

Improved access to benefits, e.g. government schemes and subsidies

Improved social security coverage for clients and employees

Increased number of employees

Better marketing and delivery of products

Improved use and management of financial services (repayment of loans, ownership

of separated bank accounts, new financial products)

Improved business management practices (accounting, invest.) 15 % increase

Increased business profit, household income and assets

Little/ no impact:

No impact on annual turnover nor on investments in machinery

Access to electricity improved but not significantly



High demand for voluntary insurance

Claim frequency and amount higher in the innovation area

Possible sustainable financial product found that may reduce child labour while being financial attractive

Decrease in % of child labour and % of children in hazardous labour

Other impacts: Child Labour (1)Health and Accident Insurance

Strongest results:

• Reduction in child labour variables– Child labour incidence reduced by 3 to 7 percent.

– Average hours worked reduced by 2.5 to 3.5 hours per week.

– Hazardous occupation reduced by 5.7 to 6.5 percent.

– Monthly earning through child labour reduced.

– Reduction for incidence of child labour and hours worked stronger for boys than for girls (however, child labour clearly more common among boys)

Inconclusive results:

• Schooling: There is no evidence that schooling increased.


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Treatment Control

Example: Hazardous Occupations (5 – 17)



in carrying out the research work?



External interviewers neither familiar with

microfinance operations nor locations of clients

Interviews only took place when loan officers present

=> change of interviewer to loan officers

Questionnaire not translated in local dialect which

double interview time

The action research suffered from a drastic reduction

in the sample base in both control and target groups,

with higher drop out observed in the target group due

to the Andhra Pradesh crisis.

Reduction in sample size made it difficult to observe

significant differences between control and target

group in:

• income levels,

• number of employees, or

• financial improvement in client businesses.



Questionnaires were too longResearch assistants and customers

became impatient

High turnover of Research Assistants

Increased errors in interviews and data entry

more time spent in retraining new staff.

Too many research interviewsCustomers became

uncomfortable

Thought Pride was bothering them too many

times

A few customers with repayment problems Hide/refused to talk to Pride



Criteria for credible evaluation: (not always met)

Enough clients in target and control group

Baseline and follow-up surveys

Several follow-up surveys

Enough target /control clusters for randomization

Data of sufficient quality


in carrying out the research work (1)?

Researchers not involved from the very beginning

Problems with individual identifiers

Attrition in panel data

Not all important questions included at baseline


in carrying out the research work (2)?

Understanding of research design

• Concept of target and control group

• Sampling

• Interviewing the same clients over time

• Business case

Staff turnover: research staff

External factors (political unrest, natural disasters...)

Client drop-out

MIS

Other challenges…

Q8: How do you want to take this forward?

Developing a sustainable BDS model which supports the

ready to grow clients in other branches of ESAF who

have shown readiness to formalize their business and

also expand and diversify

The strategy shall be put into action along with the

element of research so that the impact could be

studied.

Other entities of ESAF such as the producer company,

Retails as well as the SHG federation shall play a key

role in the new model.

Q8: How do you want to take this

forward?

Rolled out the product to all Pride branches and PAR

was at 3.9% as at end of August 2013. It will be

integrated with the branchless banking channels still

under development.

Monitor and modify it according to market needs

without losing the objective of “reducing customers’

over-indebtedness”


forward?

Entrepreneurships training

NWTF has decided to incorporate the GYB into the

Compulsory Group Training to ensure that all clients

upon entry must have business ideas. The SYB may

be conducted only to clients who have concrete

products that require a Business Plan.

Individual Emergency Fund

Follow-up research with University of Mannheim


forward?

Scale-up

• Dissemination of lessons learnt and keys results

• Promotion of effective strategies

• Capacity building of MF stakeholders

Additional research

www.ilo.org/socialfinance


forward?

Q&A

Do you have any

general questions

to the panellists?

…Poster Session…