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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…?
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?
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.
Q2: Why did you get involved?
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.
Q2: Why did you get involved?
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?
Q4: What innovation did you implement,
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
Q4: What innovation did you implement,
and why?
Q4: What innovation did you implement,
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?
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
Q5: What challenges did you encounter
in implementing your innovation?
Q6: What challenges did you encounter
in implementing your innovation?
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%
Q5: What was the impact on the
livelihoods of your clients?
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
Q5: What was the impact on the
livelihoods of your clients?
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.
Other impacts: Child Labour (2)Health and Accident Insurance
0
.05
.1.1
5
Ha
za
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us o
ccu
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tion
0 1 2 3 4Wave
Treatment Control
Example: Hazardous Occupations (5 – 17)
Other impacts: Child Labour (3)Health and Accident Insurance
Q7: What challenges did you encounter
in carrying out the research work?
Q7: What challenges did you encounter
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.
Q7: What challenges did you encounter
in carrying out the research work?
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
Q7: What challenges did you encounter
in carrying out the research work?
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
Q7: What challenges did you encounter
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
Q7: What challenges did you encounter
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”
Q8: How do you want to take this
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
Q8: How do you want to take this
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
Q8: How do you want to take this
forward?
Q&A
Do you have any
general questions
to the panellists?
…Poster Session…