Social Performance Report - Incofin

Incofin IM 

Social Performance Report

3 Incofin IM Social Performance Report 

Table of contents 

‘Committed Beyond Investment’ is more than a slogan............................................4 

Social Performance at the heart of Incofin’s approach.............................................6 

Social Performance Management in the investment process...................................8 

1. Selection........................................................................................................................ 8 

2. Evaluation (ECHOS©)................................................................................................... 9 

3. Disbursement............................................................................................................... 11 

Technical Assistance.................................................................................................16 

Technical Assistance (TA) strategy................................................................................ 16 

TA implementation......................................................................................................... 16 

Towards an SPM-focused TA.......................................................................................... 18 

SPM and governance................................................................................................22 

Social Balanced Scorecard.......................................................................................... 22 

Self-assessment tool for Board of Directors.................................................................. 23 

Preventing over-indebtedness...................................................................................24 

Incofin IM’s three step strategy to combat over-indebtedness in India.................. 24 

A study on over-indebtedness in Cambodia.............................................................. 25 

The Working Group ‘Over-indebtedness in Kyrgyzstan’............................................. 27 

Promoting transparent and responsible pricing ......................................................28 

Active involvement in SPM initiatives........................................................................30 

Incofin IM within the Social Performance Task Force................................................. 30 

The Working Group on Reasonable Covenants......................................................... 31 

The Working Group for Tier II and Tier III MFIs............................................................... 32 

Principles for Investors in Inclusive Finance (PIIF)......................................................... 33 

Key goals for 2012.....................................................................................................36

Incofin IM Social Performance Report 4 

‘Committed 

Beyond Investment’ 

is more than 

a slogan 

At Incofin 

Investment 

Management (Incofin 

IM), we do not believe 

that microfinance is 

by nature ethically 

good, simply because 

it is about ‘working 

with people at the 

bottom of the pyramid’. 

We believe that 

microfinance can only 

be ‘socially responsible’ 

if it explicitly includes a ‘double bottom line 

approach’ which truly combines financial and 

social targets. 

The ‘double bottom line approach’ is the only way 

for microfinance to provide a fair and sustainable 

financial and social return. In an ideal world, a 

positive outcome for the poor will only be achieved 

through this double bottom line. 

Our approach is based on the following convictions 

and observations: 

·· 

Microfinance institutions (MFIs) serve clients 

who are fragile and easy to take advantage 

of; as a result, a great deal of responsibility 

lies with actors in the microfinance chain 

(investors in microfinance funds, fund 

managers, MFIs); 

·· 

In order to make an impact on the lives of the 

poor, microfinance services should not only 

make finance more accessible but also aim 

at positive social effects that will benefit the 

final clients. This aim should be built into the 

design of the microfinance services offered. 

Microfinance investors should be aware of 

the complex environment in which MFIs and 

their microfinance clients operate, and should 

refrain from making one-dimensional demands 

for financial return. At Incofin IM, we think 

microfinance is not about ‘profit first ‘or ‘social first’ 

but about finding a balance between the two. 

Unfortunately, in recent years we have observed 

that this balance has not always been respected. 

When excessive emphasis is placed on financial 

return, this can be very counter-productive and 

can be the cause of a great deal of damage to the 

poor, e.g. by creating regional pockets of overindebtedness 

among microfinance clients. 

The ‘double bottom line approach’ embodies the 

essence of Incofin IM’s mission and vision. It is 

part of our identity and of our corporate DNA. We 

promote it both internally, among our staff, and 

externally, among the microfinance chain actors, 

especially among our investors and investees. 

For us, promoting the double bottom line is not 

about spouting slogans. Instead we do it through 

research, discussion and challenging the relevant 

actors in the microfinance chain. Our goal is to 

develop systems and methodologies that will 

measure and improve social performance and that 

will also improve the double bottom line return for 

our investors. 

Incofin IM has always been a frontrunner in the 

area of ‘Social Performance Management’ (SPM), 

which is a dimension that we have been piloting 

and integrating into our approach for many years. 

We have also published articles on specific topics 

related to SPM. This is our first comprehensive SPM


Report, and it includes the results 

of years of internal reflection and 

experience in the field. It covers a 

wide range of topics and approaches. 

Since we believe that the future of 

the microfinance industry belongs 

to those who integrate SPM in their 

actions, we are convinced that our 

SPM Report will be the first in a long 

series of future reports. 

Loïc De Cannière 

Managing Director Incofin IM 

The ‘double 

bottom line 

approach’ is 

part of our 

identity and of 

our corporate 

DNA.


Social Performance 

at the heart of 

Incofin’s approach 

Incofin IM’s 

approach to SPM 

in microfinance 

demonstrates its desire 

to help build up MFIs 

that develop a healthy 

balance between social 

and commercial goals. 

Our MFI partners are 

situated on a broad 

scale ranging from 

those focusing on 

highly social goals 

to those that are predominantly commercial in 

orientation. In each and every case, we strive to 

bring the right balance to the business. We consider 

this to be the most important commitment with 

regard to our investors. 

The year 2011 started off with a landmark event. 

On January 27th Incofin IM was a founding 

signatory to the Principles for Investing in Inclusive 

Finance (PIIF – http://www.unpri.org/piif/), a 

framework supported from the outset by Her Royal 

Highness Princess Máxima, the UN Secretary- 

General’s Special Advocate for Inclusive Finance 

for Development. These constitute an overarching 

framework that covers a number of aspects of 

SPM, such as transparency, client data protection 

and the setting of standards. In doing so, the PIIF 

are broadly addressing the concerns of investors 

wanting to develop an inclusive financial services 

industry that keeps the interests of its low-income 

clients at the core of its own interests. True to its 

mission and DNA, and after discussion in the 

Incofin IM Board, our company quickly went 

on to create an implementation plan designed 

to incorporate the PIIF into its operations. All 

other aspects of SPM discussed below have been 

integrated in this plan in one way or another. Not 

only that, Incofin IM also decided to sponsor the 

PIIF Secretariat. 

Incofin IM has recently finished redesigning its 

ECHOS tool, which is an SPM assessment and 

monitoring methodology which since its earliest 

versions has set standards for the industry. We 

now work with the third generation ECHOS tool. 

Several years after it was first introduced, Incofin 

IM can now count on a comprehensive database of 

SPM assessments which is without parallel and is 

increasingly attracting the attention of researchers. 

Perfecting our SPM tools and methodologies and 

training our staff to work with them will be high 

on our list. We believe that, in order to serve the 

best interest of our investors, we need to question 

everything we do along the way, step by step. 

To improve customer orientation, and to integrate 

SPM even further in our work, we have significantly 

modified the templates used for entering into 

financing agreements with MFIs. For example, loan 

agreements now contain a set of social covenants 

while shareholders agreements detail provisions 

to safeguard principles of good governance. Other 

relevant practices, such as the creation of an 

SPM committee at board level, have also been 

introduced. 

Incofin IM is increasingly including an SPM 

component in its technical assistance support 

packages. As a result, we are able to engage more 

proactively with our MFI investees on SPM matters. 

The steep increase in TA budgets for 2012 and


future years, in combination with this focus on 

SPM, provides significant leverage on practices at 

MFI level. 

Looking ahead at the prospects of 2012, it goes 

without saying that Incofin IM will continue to 

emphasize the importance of rural outreach. We 

expect that 2012 will lead to a number of new 

partnerships in view of stimulating financial 

possibilities for poorer people in rural areas. 

Incofin IM also intends to keep playing a proactive 

role in the industry, for example, by leading the 

Social Performace Task Force’s discussions for 

setting a benchmark for reasonable covenants and 

looking for ways to avoid or overcome defaults. 

We aim to achieve full implementation of PIIF 

before the end of 2012 and to have the progress of 

this implementation evaluated externally. We are 

already looking forward to bringing you our next 

SPM report with an update on the accomplishment 

of our hopes and goals! 

Geert Peetermans 

Chief Investment Officer Incofin IM 

For Incofin IM, 

SPM means 

helping MFIs 

develop 

a healthy 

balance 

between 

social and 

commercial 

goals.


SPM in the 

investment 

process 

1. Selection 

Social indicators indicated in the application form 

From the first contact with potential microfinance institution 

(MFI) partners, Incofin IM intends to ensure that the MFI’s 

social profile clearly matches Incofin IM’s social investor 

mandate. 

That is why Incofin IM’s application form requests MFIs to 

provide both financial and social indicators, classified in 

different categories: 

·· 

Social transparency: We ask applicants whether they have 

already endorsed the Smart Campaign and whether they 

report frequently on their social indicators to the MIX 

Market. 

·· 

Human Resources: As we believe that good staff treatment 

is key to good client services, we ask our applicants to share 

with us their level of staff turnover. 

·· 

Lending profile: In order to check the percentage of loans 

going to productive investments, we ask for a breakdown 

of the MFI’s portfolio per sector of activities. If there is a 

high level of consumption loans, we ask for a more specific 

breakdown under headings such as health, education, 

housing, and so on. 

·· 

Rural lending: Because we are convinced that financial 

exclusion (lack of access to financial services) is higher 

in rural areas, Incofin IM has developed a ‘rural scoring’ 

tool which investigates the location of an MFI’s branches 

according to the size of the population of the city where it is 

based. This provides us with a good indication on whether 

the MFI’s clients are indeed located in rural areas.


2. Evaluation 

ECHOS©: An in-depth social 

performance evaluation for a 

double bottom line investment 

In line with its social investor’s 

mandate, Incofin IM never makes 

an investment decision without first 

conducting a detailed analysis of the 

social performance of its potential 

investee. This investigation is given 

the same level of importance as 

the analysis of the MFI’s financial 

performance. 

Incofin IM’s Investment Managers 

make sure that, during each of their 

due diligence 1 investigations, they are 

1 Due diligence is an on-site evaluation of a potential partner 

MFI conducted by Incofin IM’s Investment Managers. 

SPM grades scored by MFIs in 

the Incofin portfolio 

spending as much time researching 

information on, for example, MFIs’ 

current client retention rates, use 

of poverty targeting tools, client 

satisfaction levels, human resources 

management, policies on prevention 

of over-indebtedness, as they are 

spending time investigating financial 

aspects such as liquidity ratio, cash 

flow analysis, return on assets and 

operational self-sufficiency. 

Social Performance is now a clearly 

defined concept. It is based on 

traceable quantitative and qualitative 

indicators which can be used to 

benchmark institutions against 

international best practices. It is 

not possible nowadays for any 

microfinance practitioner to call itself 

Grade SPM level Number of MFIs 

91 - 100 Advanced level of social performance 0 

81 - 90 Very good social performance 12 

71 - 80 Good social performance 29 

55 - 70 Fair social performance 46 

50 - 55 Low social performance 2 

‘social’ if it is unable to demonstrate 

measures, quantitative achievements 

and implementation of clear socially 

responsible practices. 

Incofin IM was one of the first 

Microfinance Investment Vehicles 

(MIV) to develop a social scorecard 

Incofin IM was one of the initial 

movers in the measurement of social 

performance, and developed its 

own proprietary social scorecard 

(ECHOS) as early as 2007. The 

ECHOS tool has since undergone 

three rounds of revision to ensure 

that it always remains in line with 

the latest guidelines and principles 

representing international best 

practices in social performance. 

One of the biggest challenges of 

social performance evaluation is the 

avoidance of subjectivity. Throughout 

2011, Incofin IM has worked hard 

to identify indicators that can be 

verified objectively. This often means 

that the process of testing and then 

adjustment has to be done again 

and again to ensure true objectivity 

as well as consistency with new 

developments in the sector. 

Data from 100 MFI from the period 01-2009 till 06-2011


47% 

Gender Incofin Investment 

Management staff - worldwide 

53% 

Some examples of revisions carried 

out in 2011 

Client Protection Principles 

In the previous version of Incofin 

IM’s ECHOS, there was no specific 

question relating to the protection of 

client information privacy. Today, in 

line with the definition of the Client 

Protection Principles (CPPs) by the 

Smart Campaign 2 , Incofin IM has 

inserted a specific question per CPP 

with detailed options of answers. 

Client information privacy is usually 

taken for granted, although ‘peer-topeer’ 

lending is still developing and 

there are instances of client stories 

being disseminated through websites, 

reports and marketing documents 

2 The Smart Campaign is a global effort to unite microfinance 

leaders around a common goal: to keep clients at the driving 

force of the industry. www.smartcampaign.org 

without prior permission from these 

clients. 

Excerpt from ECHOS 

Does the MFI ensure sufficient respect 

of client privacy 

·· 

Yes, loan contracts include a 

clause on privacy of data, credit 

bureau checks require written 

agreements by clients, client files 

are stored in secured places away 

from public access, originals are 

kept in a safe (5 points) 

·· 

Partially, loan contracts 

include a clause on privacy of 

data, client files are stored in 

secured places away from public 

access, originals are kept in a 

safe, but credit bureau checks 

are conducted without written 

agreements by clients, 

(2.5 points) 

·· 

No (0 points) 

Human Resources Management 

It cannot be denied that pushing 

field staff to achieve fast growth 

and a high collection rate while not 

necessarily offering fair remuneration 

schemes to ensure correct treatment 

of clients could be dangerous. This 

fact has made the industry realize 

how important it is to ensure a fair 

and socially responsible treatment of 

staff. With this in view, Incofin IM 

has revamped the human resources 

dimension of its social scorecard to 

include detailed questions on staff 

incentive schemes, remuneration and 

training opportunities. 

Excerpt from ECHOS 

Does the MFI have an incentive 

scheme that takes into account social 

indicators and reward staff good social 

performance 

SPM score on each ECHOS dimension 

according to the MFI's legal status 

Human resources (over 5 points) 

Quality of services (over 5 points) 

Outreach & Access (over 5 points) 

Social mission management (over 5 points) 

Environment, CSR, and Impact (over 5 points) 

SPM score on each ECHOS dimension 

per region 

Human resources (over 5 points) 

Quality of services (over 5 points) 

Outreach & Access (over 5 points) 

Social mission management (over 5 points) 

Environment, CSR, and Impact (over 5 points) 

4.3 

4.0 

3.7 

3.1 

4.2 4.2 

3.7 

3.5 

4.0 

3.9 

3.5 

3.4 

4.1 4.1 

3.6 

3.4 

4.1 

4.2 4.2 

3.6 

3 

4 

4.1 

3.7 

3.5 

4.3 

3.7 

4.3 

3.9 

3.2 

4.2 

3.4 3.4 3.4 

3.7 3.7 3.5 

2.8 

2.6 

2.1 

2.5 

2.3 

2.1 

2.4 

1.7 

BANK 

NBFI 

NGO 

TOTAL AVERAGE 

East Asia 

and Pacific 

Europe 

and Central 

America 

LAC 

South 

Asia 

Sub Saharan 

Africa

·· 

Yes, in addition to the Porfolio 

At Risk (PAR) 3 and outreach, 

the incentive scheme takes into 

account other social indicators 

(clients’ socio-economic profiles, 

client retention rate, client 

satisfaction) (5 points) 

·· 

Partially, the incentive scheme 

takes into account broad social 

indicators (mainly PAR and 

outreach) and it is directly linked 

to staff social performance 

(2.5 points) 

·· 

No (0 points) 

3 Measurement of the total outstanding balance of loans past 

due divided by the active portfolio. 

3. Disbursement 

Since the end of 2011, all Incofin’s 

loan agreements now comprise two 

social representations aiming to 

promote transparency and client 

protection. 

The first representation asks MFIs 

partners to report their social 

performance indicators to the Mix 

Market on an annual basis, while 

the second one requests for each 

MFI borrower to endorse the SMART 

Campaign and implement the client 

protection principles in a reasonable 

timeframe. Incofin Investment 

Managers are in charge of monitoring 

the implementation of these two 

social covenants during their annual 

monitoring visit. 

Gloria Bustos, 

CEO of Contactar, 

explains social 

performance 

management 

I am always asked why a psychologist 

heads a microfinance 

company that has to be responsible 

for the management of large 

sums of money from national and 

international institutions. I respond 

jokingly that I prefer to work with 

people’s productivity, rather than 

with their traumas and social dissatisfaction. 

The capacity to generate income 

makes humans useful to their families 

as well as to society, and allows 

them to improve their quality of life. 

Mr. Mario Hernández, a leather 

goods entrepreneur in Colombia, 

recently wrote: “The primary 

characteristic of those whose businesses 

go from good to excellent 

is that they began by looking after 

the people and then the strategy, 

combining genuine personal 

humility with intense professional 

determination.” This is the 

approach which Contactar takes. 

Our core social objective is to 

implement Social Management 

aligned with the financial results. 

Number of MFIs 

Classification of MFIs according to 

their average disbursed loan size 

10 

1 

- 

200 

EUR 

16 

200 

- 

500 

EUR 

26 

500 

- 

1000 

EUR 

30 

1000 

- 

2000 

EUR 

15 

2000 

- 

5000 

EUR 

2 

5000 

- 

10000 

EUR 

0 

10000 

- 

20000 

EUR 

1 

20000 

- 

50000 

EUR 

(Average disbursed 

loan size / GNI per 

capita) depending on 

the MFI’s legal status 

100% 

47% 

43% 

BANK NBFI NGO 

NGOs and Non Banking Financial Insititutions 

(NBFI) tend to have a deeper poverty outreach 

with average loan sizes accounting for less than 

half of the national GNI per capita. 

The role of social investors 

The promotion of this type of program 

requires, of course, resources. 

Contactar dedicates a percentage 

of its surpluses to the program and 

establishes alliances with other 

development actors to execute it. 

Although our activities are social in 

nature, they are derived from financial 

profitability: more productive 

clients are responsible about their 

commitments, are able to manage 

their business themselves and can 

act jointly and ethically. It is crucial 

to understand that only a holistic 

approach to reducing poverty can 

have a positive impact on people’s 

living standards. A commitment 

to making human development 

sustainable is indispensable 

when doing microfinance.


ECHOS© tool 

1 

5 

2 

50 

100 

1 Social mission management 

2 Outreach and access 

3 Quality of customer services and respect of Client Protection Principles 

4 Human resources 

5 Environment, corporate social responsibility and impact 

4 

3 

Dimensions and their weight 

1 

social mission 

management 

15% 

2 

Outreach and access 

20% 

3 

Quality of customer 

services and respect 

of Client Protection 

Principles 

30% 

4 

Human resources 

20% 

5 

Environment, corporate 

social responsibility and 

impact 

15% 

Social mission 

• Clear social objectives 

• Measurable indicators 

• Different stakeholders 

Social governance and SPM 

• Social goals included in the 

business plan 

• BoD Committee on SPM 

• Building of SPM awareness 

Social transparency 

• Social reporting to MIX 

• Social rating/audit 

Breadth of outreach 

• MFI clientele growth rate past 

3y & forecast 

Reached profiles 

• Compliance of client target 

with the one defined in the 

social mission 

• High rural outreach 

• High share of ‘exclusive’ clients* 

• High share of agricultural 

activities financing 

• Low minimum & average 

loan size 

Enabling of financial access 

• Proximity 

• Feasible requirements on 

collateral, deposit of savings 

and following of training 

• Non-discrimination 

Quality of customer service 

• Client satisfaction & attrition 

Products and Services Offering 

• Variety of credit products 

• Presence of other financial 

products 

• Duration of loan application 

process 


• Endorsement of CPP/SMART 

Campaign 

• Protection from overindebtedness 

• Transparent & responsible 

pricing 

• Ethical staff behaviour 

• Client privacy 

• Complaint handling 

HR organization and corporate 

culture 

• Formalization of HR 

department 

• Delegation and 

communication 

• Non-discrimination of 

staff, code of ethics; social 

behaviour incentives 

Staff development and 

compensation 

• Competitive compensation 

• Performance measurement & 

feedback mechanisms 

• Equal and numerous training 

opportunities given to staff 

• Internal promotions career 

development perspective 

Labour climate 

• Staff rotation & satisfaction 

Environmental & social 

practices 

• Financing exclusion list and E&S 

criteria in credit evaluation 

• Internal E&S policies 

• Financial products to support 

environment 

Corporate Social Responsibility 

• Allocation of budget to 

financing of community 

development activities 

• Facilitate linkage of clients with 

non financial service providers 

Responsable finance, social 

change, social impact 

• Financing of activities that 

generate income 

• MFI expansion without 

exclusion of clients 

• Conduction of impact studies 

Notes (*) Clients only benefiting from one loan


Promotion of client protection principles 

deep outreach to 

finance productive activities 

understanding clients’ 

financial needs to serve them better 

88% 

97% 

84% 

of Incofin’s MFI partners have fair 

and uncoercive collection policies 

and practices in place, among 

which 51% is currently enhancing 

its policy on ethical staff behavior 

and appropriate debt collection 

through additional trainings, 

while 37% of MFIs have already 

a formalized policy in place, 

including training of staff, detailed 

written code of ethics and 

compliance checks conducted 

by the internal audit. 

84% 

of Incofin’s MFI partners have at 

least one loan product whose 

minimum average loan size is 

below 20% of the Gross National 

Income (GNI) per capita. 

80% 

of Incofin’s MFI partners have 

more than 80% of their total 

outstanding loan portfolio invested 

in loans for income generating 

activities. 

of Incofin’s MFI partners assess 

their clients’ satisfaction with 

different levels of formalization, 

including comprehensive 

anonymous satisfaction surveys, 

focus groups and exit surveys. 

83% 

of Incofin’s MFI partners have 

enhanced their credit process so 

that they can disburse loans in less 

than one week. 

of Incofin’s MFI partners have put 

in place some precise policies 

to prevent over-indebtedness 

including credit bureau checks 

when such national bureau exists, 

and calculation of debt service 

ratios for all loan applications. 

81% 

of Incofin’s MFI partners have a 

written code of ethics.


Crystal makes financial language 

understandable for clients 

MFO Crystal’s head office is based in Kutaisi, a city 

in Central Georgia. Since its creation in 2004, this 

MFI has grown strongly to a portfolio of 11 million 

USD outstanding, currently making it the 5th largest 

MFI in Georgia. Crystal has a strong rural presence 

in western Georgia with 14 outlets and characterizes 

itself with flexible agricultural loans in local 

currency. These include flexible grace periods 

adjusted to client’s cash flow developments. 

Loan officers only take a maximum of 60% of the 

disposable income to be used for the repayment 

of the Crystal loan, which leaves enough room for 

unforeseen events. 

In 2010 Crystal received a Social Rating by Planet 

Rating. It has always been an active promoter 

of the Smart campaign. In October 2010 they 

received a Silver medal on transparency by MIX 

Market. 

At the start of 2011 the Smart Campaign for Client 

Protection in microfinance recognized Crystal for 

its outstanding efforts to ensure that clients fully 

understand the terms of their loan contract. As 

such MFO Crystal became Tool Winner in the Smart 

Campaign’s ‘Call for Tools: Plain Language Loan 

Contracts’. 

‘The Smart Campaign asked MFIs to send in 

examples of their ‘plain language loan contracts’,’ 

said Smart Campaign Tool Development Specialist 

Leah Nedderman. ‘Crystal won our Call for Tools 

because their contract is a great example of how 

to make complex financial obligations understandable 

for clients, and it most clearly embodies our 

second Client Protection Principle.’ 

‘Crystal’s contract for clients seeking small business 

credit is succinct, written in plain language, and 

uses very little jargon,’ said Nedderman. ‘It details 

loan terms, fees, and penalties, and importantly, 

spells out the rights and responsibilities of both 

parties.’ 

12,317 clients 

814 EUR - 1,057 USD average outstanding loan 

(31/12/11)

15 Incofin IM Social Performance Report


Technical 

Assistance 

Technical Assistance (TA) strategy 

As of January 2012, the total TA funds available for investees 

from Rural Impulse Funds I and II and Incofin cvso investees 

amount to 3.7 million EUR. In 2011, 1.2 million EUR was 

allocated to 20 investees to implement tailor-made TA 

interventions based on rigorous needs assessments conducted by 

Incofin IM’s Investment Managers during due diligence. In terms 

of regions, 60% of the investees benefiting from TA support 

are located in African countries, 21% in Latin America and 

Caribbean countries, 12% in Asia and 7% in Central Asia and 

Newly Independent States. 

33% of the projects were designed with incorporation of an SPMfocus. 

TA implementation 

Through its newly developed TA department, Incofin IM ensures 

its coordinating role in the provision of TA (i) in partnership 

with Investment Managers for project sourcing, design and 

evaluation, (ii) in close collaboration with MFIs for selection 

of adequate TA providers, securing of contracts, financial 

management, reporting and monitoring and (iii) in constant 

communication with external TA funders such as FMO (the 

Dutch Fund for enterprises) or the European Investment Bank. 

The following coordination services are provided by Incofin IM 

through all its TA implementations: 

·· 

Project sourcing: The flow of TA projects is mainly 

generated through Investment Managers who carry out 

regular missions in developing countries to monitor existing 

investments.


Fusion’s Small Ticket Vehicle Loan product 

·· 

Project design: In close 

collaboration with the MFI and 

the responsible Investment 

Manager, the TA Coordinator 

draws up a TA proposal that 

needs to be approved by the TA 

funder. 

·· 

Selection of consultants: The 

TA Coordinator is involved in 

the selection and validation 

of TA service provider(s). His 

aim is to ensure proper quality 

and performance in the 

implementation of TA projects 

and to maximize project benefits 

and their impact on the MFI. 

·· 

Legal documents: For each TA 

project Incofin IM secures a 

TA project agreement with the 

MFI and TA service provider(s) 

covering all terms and conditions 

of the TA project. Detailed TA 

project agreements are prepared 

by Incofin IM’s Legal Officer in 

Fusion is an equity partner of Incofin IM based in India. Through a 

grant funding from FMO, Incofin deployed a comprehensive Technical 

Assistance which included Development of specialised training modules 

on life-skill training, household and livelihood cash-flow analysis; 

development of Social Performance Management tool, development 

of a Risk Management matrix and new product development to reduce 

risk associated with singular product in order to reach the niche target 

segments that are left-out of financial inclusion 

In June 2011, Fusion launched a Small Ticket Vehicle Loan product 

(STVL) as its first step towards creating a sustainable, diversified and 

resilient product base for the underserved segment in India. This 

product was mainly offered to the underserved class of society who are 

predominantly linked to the Agri and rural logistics space. The average 

loan size stands at around USD 5,000 with 36 months tenure and a 27% 

(declining basis) product yield. 


137 EUR - 183 USD average outstanding loan 

(30/09/11) 

close collaboration with the TA 

Coordinator. 

·· 

Financial management and 

disbursements: Incofin IM’s 

Financial Officer ensures the 

transfer of the TA grant to 

the MFI or to the TA service 

provider(s). 

·· 

Monitoring and reporting/ 

Evaluation: The TA Coordinator 

monitors and evaluates the 

TA assignment. His evaluation 

is based on development and 

impact indicators, reports 

and on-site monitoring and 

evaluation inspections. 

The TA cycle generally 

implemented by Incofin IM 

Investment 

Manager 

TA needs 

assessment 

Internal TA 

Pipeline 

Committee 

Internal 

allocation 

of TA funds 

Investment 

Manager/ 

TA Coordinator/ 

MFI 

Project 

design 

Relevant 

entity depending 

on type 

of facility 

Project 

approval 

1. Selection of consultants 

2. Legal documents 

3. Financial management 

4. Coordination of monitoring 

and reporting 

5. Evaluation 

Project cycle 

implementation


Incofin IM relief action for 

Horn of Africa 

In 2011 the Horn of Africa was affected by 

the worst drought in the last 60 years, which 

caused more than 12 million people in 

Somalia, Kenya, and Ethiopia to suffer from 

famine. As a social investor and rural microfinance 

specialist, Incofin IM was deeply 

preoccupied with the crisis and launched 

a relief action with the French NGO ACTED. 

Through its microfinance network OXUS, 

ACTED has been working with Incofin IM for 

several years. ACTED has been operating in 

the region for 5 years now and focuses on 

catastrophe prevention and providing access 

to drinking water, mainly in desolated 

areas. With the money raised, ACTED helped 

out people who live in regions that are 

not served by other NGOs in North Eastern 

Kenya and South Somalia. 

Towards an 

SPM-focused TA 

·· 

In Kyrgyzstan, Rural Impulse 

Fund I (RIF I) assisted the MFI 

Kompanion to implement client 

protection principles, preventing 

over-indebtedness through client 

training and supporting sector 

initiatives such as building 

capacities of the national 

network and credit bureau. 

·· 

In Guatemala, RIF I supported 

the MFI Fundea in its social 

performance assessment, 

monitoring and management. 

This included market focused, 

product development through 

the assessment, design and 

adaptation of products and 

services taking into account 

client target group financial 

needs, and also the development 

of non-financial services 

designed to enhance local 

Location of the investees 

benefiting from TA support 

Africa Latin America and Caribbean Asia 

Central Asia and Newly Independent States 

21% 

12% 

7% 

60% 

development entrepreneurship 

by meeting the needs of target 

client groups. 

·· 

In Haiti, a TA project was 

implemented with the MFI 

ACME to focus on capacity 

building for staff and delivery 

of training modules to credit 

managers. Emphasis was also 

placed on providing financial 

education to clients. 

·· 

In Colombia, the MFI Crezcamos 

was supported by a TA project 

launched in the framework of 

the RIF I TA Facility in 2011. 

The project’s aim was to extend 

the MFI’s activities to rural 

areas and to improve its offer 

of microfinance products and 

services to rural people. After 

some market research the project 

identified potential rural markets 

for Crezcamos’ expansion 

between 2011 and 2014. An 

accompanying feasibility study 

was carried out to investigate 

its rural outreach, its credit 

methodology for these areas and 

its competitive positioning. 

Sinapi Aba Trust 

Sinapi Aba Trust (SAT) is an MFI founded 

in 1994. Since then, it has been based 

in Kumasi, in the Ashanti region of 

Ghana. SAT has always stayed true 

to its commitment to serve the most 

disadvantaged populations and is now 

the leading MFI in Ghana by number of 

borrowers (more than 124,000), mostly 

in rural areas, served through a network 

of 46 branches. 

SAT aims at a ‘transformational’ impact 

on clients’ lives and now scores 74% 

(Good level) on Incofin IM’s ECHOS. 

The institution is currently finalizing its 

first social scorecard. In a competitive 

Ghanaian market, it puts a strong focus 

on designing efficient products built on 

customer feedback and ensuring highquality 

service. 

One of SAT’s most exciting social 

outreach initiatives is their Youth 

Apprenticeship Program. This program 

consists in providing professional training 

(carpentry, hairdressing, etc.) to selected 

unemployed young Ghanaians, under the 

supervision of a Trade Master (often a SAT 

client). Once their training is completed, 

the trainees are provided with relevant 

tools and a small start-up loan. So far, 

1,000 young Ghanaians have benefited 

from the program, and another 1,000 are 

in training. Some of the initial trainees 

have become Trade Masters themselves, 

thereby closing the loop. 

Incofin IM is currently supporting SAT’s 

growth and improvement through a


Technical Assistance mission performed 

by the Frankfurt School of Finance, 

under the European Investment Bank TA 

funding provided to Incofin IM’s Rural 

Impulse Fund II. 



(30/09/11) 

TA-support for SEED 

In February 2012, Incofin IM provided a 

loan of 1,000,000 USD to the Philippine 

wholesale fund SEED through the Rural 

Impulse Fund I. Thanks to the financial 

support of FMO, SEED also received a 

technical assistance grant to strengthen 

its Social Performance Management. By 

means of a ‘Social Mission & Strategy 

Realignment Workshop’ the Board of 

Directors identified precise social goals 

– with corresponding measurable social 

indicators and social targets. In a next step, 

Crezcamos and the Progress out of 

Poverty Index 

SEED’s regional and provincial Investment 

Managers will be taught how to assess 

the social performance of SEED’s MFI 

partners and how to help them define 

an SPM action plan. Eventually SEED’s 

staff will also learn how to implement a 

PPI poverty tracking tool developed by 

Grameen Foundation, the Progress out 

of Poverty Index (PPI), into practice. This 

index allows them to track data about the 

poverty profile of microfinance clients in a 

more efficient way. 

Incofin IM supports Hope with 

TA-programme 

HOPE is an Indian non-banking finance 

company that has been carved out of 

the HOPE Foundation. HOPE has a 

base of 98,000 clients spread across 49 

branches. In January and February 2011, 

an assessment exercise was carried out 

to establish the institution’s needs on 

The Progress out of Poverty Index (PPI) is a tool which allows to measure 

poverty levels of groups and individuals, taking into account a country’s 

most representative income and the sum which households on average 

spend. The end result is a ‘tailored’ questionnaire per country, with a list 

of questions that are correlated with the likelihood of being ‘poor’. 

both the organizational and the client 

level. By the end of the assessment, it 

was clear that HOPE needed a number of 

capacity building activities which would 

help to enhance both its operational and 

financial performance. A Management 

Information System was introduced, and 

all staff members received a training 

on how to use it efficiently. HOPE’s 

approach in terms of risk management 

was improved and an adequate human 

resources policy was installed. An 

important part of the programme was 

also dedicated to the introduction of 

a Social Performance Management 

tool, which offers specific indicators 

and guidelines to the institution’s 

management. 

RIF II supported the funding of a social 

performance assessment as well as 

awareness trainings, on SPM principles 

at all levels of the organization and 

eventually the implementation of the 

PPI. Emphasis was also placed on client 

capacity building through organizing 

sessions of business planning and 

financial literacy training for clients. 



(31/12/11) 

Crezcamos is the first Colombian MFI to pilot and implement the PPI. It 

uses the information which is gathered through this survey to develop 

products and services tailored to the clients’ needs. For example, the PPI 

results on the education levels of Crezcamos’ clients open a potential 

product development opportunity for the company: they show that 

products which allow clients to increase their educational levels, such 

as school loans and educational microinsurance, might be meeting 

their clients’ needs. 



(30/09/11)


Credit Mongol introduces Green Loan to reduce 

air pollution from Yurt 

As the leading non-banking financial institution in Mongolia in terms of 

outstanding portfolio and financial performance, Credit Mongol is the 

successor to the Mongolian Small Business Fund, an NGO founded in 

1999. 

Credit Mongol has a strong experience and expertise in lending and 

methodologies in line with international best practices. Micro and 

SME loans make up 65% of Credit Mongol’s portfolio. Its loan products 

are flexible and include seasonal repayment schedules and a sound 

analysis of the customer’s repayment capacity which aims at preventing 

over-indebtedness. This has resulted in an excellent portfolio quality 

with PAR30 below 1%. Credit Mongol continues to improve its clients’, 

employees’ and stakeholders’ satisfaction by updating its loan products, 

increasing outreach (especially in rural areas), providing donations 

to vulnerable classes of society, and providing free trainings and free 

medical check-ups for the staff through its Social Development Fund. 

The institution recently launched a ‘Green Loan’ to contribute to reducing 

air pollution in Mongolia. 

As Credit Mongol grows, social performance is attracting increasing 

attention from its management and shareholders. Measuring and 

reporting on social performance is a key way for Credit Mongol to 

achieve social value creation. Therefore the MFI wants to develop and 

implement a comprehensive framework for measuring and managing 

social performance in the course of 2012 through a dedicated technical 

assistance project supported by Incofin IM. 

In 2011 Credit Mongol endorsed the Smart Campaign and updated its 

loan policies and manuals by adding a special section in compliance 

with the Client Protection Principles. Credit Mongol considers defining, 

assessing and implementing specific tools for social performance its 

main challenge for 2012. 

2,598 clients 

2,643 EUR - 3,546 USD average outstanding loan 

(30/09/11)



SPM and 

governance 

When it comes to governance, the role of social investors in 

the social management performance of MFIs is crucial. 

This is mainly the case when investors are also active in equity 

investments and participate actively in the shareholder structure 

of the MFIs concerned. The relationship between investors and 

MFIs is different when investors are part of the capital as against 

when they are lenders. 

Since Incofin IM is active in the field of equity investment, its 

involvement in different initiatives at governance level is a 

central element of its SPM. Two of these initiatives have direct 

links with SPM and are explained in more detail below. 

Banco FIE supports 

the ‘microjustice’ project 

As a part of its Corporate Social Responsibilitypolicy, 

the Bolivian MFI Banco FIE supports the ‘microjustice’ 

project. According to this program, the 

poorest in many societies do not have access to 

lawyers, courts or government services. This means 

that they cannot enjoy even the most basic rights 

such as obtaining correct identity papers, legal 

proof of land ownership or basic legal assistance. 

In order to have a real impact, the microjustice 

project created alliances with important parties 

that are in contact with people at the base of the 

pyramid. 

With its network of more than 100 branches all over 

the country and its close contact with more than 

400,000 people, Banco FIE is considered as an important 

ally to the project. By making its branches 

available as a space to consult the legal advisors’ 

team, paying salaries for the legal advisors and 

publicizing brochures explaining basic legal rights, 

Banco FIE has already helped many poor people 

to exercise their rights as citizens. 

Social Balanced Scorecard 

Social performance assessments generally rely on a predefined 

set of indicators which evaluate a wide range of process 

indicators, practices and results that are related to the MFI’s 

social mission. However, when social performance is integrated 

into governance, it is necessary to monitor a smaller number of 

indicators, which are relevant to the MFI’s social mission. These 

are prioritized according to the MFI’s specific goals and strategy, 

context and its Management Information System (MIS). 

In this context, Incofin IM has actively participated in the process 

of designing, testing and implementing social performance 

dashboards for its partners. These dashboards aim to provide 

timely and relevant information to board members in terms of 

managing social performance. Thanks to the use of this Social 

Balanced Scorecard, the board is able to monitor effectively 

whether or not the MFI’s mission is indeed being fulfilled. 



(30/09/11)


Self-assessment 

tool for MFIs’ Board 

of Directors 

One of the key roles of social equity 

investors is to be active at governance 

level in the institution. That is 

why Incofin IM aims primarily 

to strengthen the governance of 

these institutions. Two of the key 

responsibilities of the Board of 

Directors are to define and uphold 

the mission and purpose of the MFI 

and to evaluate its own performance 

and commit to improving that 

performance. 

This tool is designed to be employed 

once a year during a Board meeting 

which specifically focuses on selfassessment. 

The tool has been used for four years 

by the Bolivian MFI Banco FIE and 

is gradually being rolled out to other 

Latin American Incofin IM partners 

in which the fund has equity stakes. 

The goal is to introduce it to Incofin 

IM partners worldwide. 

Self-assessment tool 

4 

1 

0 

3 

50 

100 

2 

In order to help the Board of 

Directors meet these objectives, 

Incofin IM has developed a selfassessment 

tool for boards. Its most 

important objective is to oblige 

members to examine their own 

decision-making mechanisms, and 

to foster discussion and analysis 

amongst board members rather than 

grade staff members. The tool covers 

four dimensions of good corporate 

governance: 

Governance score 

1 Board responsibilities 

2 Board composition 

3 Board meetings organization 

4 Ethical principles and 

conflicts of interest 

Grade ranges 

91 - 100 Excellent performance 

81 - 90 Very good performance 

71 - 80 Good performance 

55 - 70 Fair performance 

< 55 Insufficient 

1. Fulfilment of board 

responsibilities, 

2. Board composition, 

3. Organization of board meetings, 

4. Observance of ethical principles 

and the management of conflicts 

of interest.


Preventing 

over-indebtedness 

Incofin IM is highly concerned with the risks that are involved 

in over-indebtedness (OID), and actively participates in 

industry wide discussions on the risks involved. Incofin IM is 

currently participating in a study of OID in Cambodia and is an 

active member of the working group which focuses on OID in 

Kyrgyzstan. 

In addition to the promotion of transparent and responsible 

pricing in all investment decisions in order to avoid OID, 

Incofin IM has already proactively implemented a number 

of internal new practices. In the cases of MFIs operating in 

highly penetrated markets characterized by rising risks of 

over-indebtedness, it has added specific covenants in its loan 

agreements. These agreements concern: 

1. ceiling on the number of parallel loans, 

2. the compulsory and systematic consultation of a credit 

bureau before loan disbursements to end clients. 

Incofin IM’s three step strategy to 

combat over-indebtedness in India 

In January 2010, when Incofin IM was contemplating an 

accelerated expansion plan in India, the point was explicitly 

raised that the market in this country was growing too rapidly. 

This meant that there would be many money-chasing MFIs and 

clients in the states with highly matured markets such as Tamil 

Nadu, Karnatka, Andhra Pradesh, West Bengal and Orissa. The 

Incofin IM team decided that a more prudent approach was 

necessary and so it formulated a three step strategy: 

1. to focus on states where penetration is less and where the 

microfinance infrastructure is not yet fully developed;


2. to invest in companies which 

focus on rural areas, rather than 

in most of the others that were 

focusing on urban models; 

3. to back promoters who focus on 

governance and who intend to 

build up a strong second-line 

professional team. 

Following the above strategy, the 

Investment team made investments 

in three MFIs: Fusion Microfinance 

(May 2010), Hope Microcredit 

(December 2010) and Arman 

Financial Services (December 2011). 

In all three companies, Incofin IM 

entered as a Series A investor. The 

investment team worked alongside 

the promoter group and management 

team to build a solid governance 

structure as well as a professional 

team. Together with these MFIs, 

Incofin IM has been able to establish 

a positive relationship with the 

local state governments – which 

has enabled the smooth running of 

operations on the ground. 

The technical assistance support 

provided by Incofin IM and its donor 

partners has significantly helped 

the MFIs to achieve their mission. 

The investee MFIs have diligently 

made use of the technical assistance 

resources to build internal capacities, 

to conduct financial literacy 

programmes, social welfare activities, 

healthcare camps and many more 

activities. 

Today, these MFIs carry considerable 

positive weight within the lender 

community and the microfinance 

stakeholders. They are also pegged 

to become the regional leaders in 

the states or regions in which they 

operate. 

A study on overindebtedness 

in 

Cambodia 

The Cambodian microfinance sector 

has grown tremendously over the 

past decade. From just 3 million USD 

of outstanding loans and 50,000 

borrowers in 1995, it has surged to a 

remarkable 300 million USD in 2010. 

More than 800,000 Cambodian 

people now have the opportunity 

to access financial services, develop 

their businesses and improve their 

living standards. While this has 

been an incredible achievement, 

there are concerns about too rapid 

growth, instances of multiple lending, 

and the underlying risk of overindebtedness 

in the industry. 

It is clear that the socially responsible 

Cambodian MFIs are aware of this 

issue, as most of them have decided 

to revise their growth projection 

targets downwards. It is also 

encouraging to see that the national 

Cambodian Microfinance Association 

(CMA) has begun to address this 

issue as well, through collecting data 


employees: 

committed beyond 

investment 

Elien Egaña, 

Legal Counsel 

“After obtaining my master degree 

in Law and following an additional 

master in international relations 

and diplomacy, there were plenty 

of paths to choose from for my first 

venture into professional life. During 

my law studies I chose economic 

law as my major and combined 

this with a thesis in human rights. 

In my search for a first job, I knew 

I wanted an occupation which 

would impact the lives of people 

in a positive way by creating 

opportunities for them.” 

“When I found out that Incofin 

creates both social and economic 

perspectives by providing financial 

services to people in developing 

countries all over the world, I 

immediately knew that I wanted 

to be part of this international and 

socially committed team. A choice 

I haven’t regretted ever since.”


Incofin IM supports Haitian MFI 

ACME after earthquake 

After the devastating earthquake 

of January 12, 2010 in Haiti, Incofin 

IM made a special effort to help 

microfinance institution ACME. Thanks 

to donations paid into its special account, 

Incofin IM was able to donate 

EUR 171,000 to ACME’s customers. Most 

of ACME’s customers lived in the poor 

neighborhoods of the capital Port-au- 

Prince, which are precisely those areas 

that were very badly hit by the quake. 

Many of them lost all they had and 

tried to regain control of their lives and 

restart their business with the help of 

ACME. ACME’s management decided 

to help these customers in a number 

of ways, including with money raised 

through the Incofin IM donations 

account. 

and organizing informal data sharing 

on villages’ credit history to prevent 

any overlapping in operations. 

Kompanion promotes client 

empowerment through community 

development activities 

Kompanion is a community development financial 

institution established by Mercy Corps Kyrgyzstan in 

2004. This MFI is represented in all oblasts and regions 

of Kyrgyzstan with 105 outlets, providing services to 

more than 130,000 customers and is the second largest 

financial institution in Kyrgyzstan as measured by the 

number of customers. 

Kompanion offers a range of group loan products, 

mainly supporting rural promoters: farmers and 

agricultural producers. Clients very much appreciate 

Kompanion’s client oriented services, which is proven 

by the high retention rate of 85%. Kompanion maintains 

close relationships with them, thanks to its community 

development activities: 

·· 

Eco-Garden initiative: improving food security and 

enhance household incomes from home gardens. 

·· 

Greenhouse initiative: low-cost technologies for 

growing crops that are traditionally not planted in the 

region. 

·· 

Cellar initiative: promoting effective and safe methods 

of agricultural product storage. 

·· 

Livestock Management: stimulating citizens’ responsibility 

for maintaining the environment. 

·· 

Eco-Homestead: helping rural communities to decrease 

soil and water contamination. 

·· 

Energy Saving Stoves Initiative: establishing contact 

with specialists in energy efficient stove construction. 

·· 

Apple project: regular festivals help villagers to find 

potential buyers for their apple harvest. 

In November 2011 the MFI registered the subsidiary 

‘Kompanion Invest’ to launch its new Islamic Banking 

product. The main rationale for this new loan product 

is that Muslim population prefers loans with Sharia 

standards rather than traditional financial products and 

services. 



(30/09/11) 

The repayment rate for the industry 

remains high (around 95%), and the 

upcoming credit bureau will certainly 

provide greater transparency and 

information to the sector. Incofin 

IM, BlueOrchard Finance SA and 

Oikocredit have decided to allocate 

time, effort and resources to conduct 

a research study on understanding 

the drivers of over-indebtedness of 

microfinance clients in Cambodia. 

The three parties have finalized the 

design of the study. Benefiting from 

the great support and insightful input 

of eight leading Cambodian MFIs, the 

sampling method and final terms of 

reference have now been drafted and 

the study is to be published by the 

end of 2012. 

AMK: a perfect example 

of the double bottom line-MFI 

For AMK, the largest MFI in Cambodia, 

growth and excellent financial 

performance have never caused a 

deviation from its social mission. 

Its ongoing social commitment 

was confirmed in 2011, when the 

microfinance rating agency MicroFinanza 

rewarded AMK with an outstanding 

social performance grading of ‘AA-‘. Just 

like Incofin IM, AMK operates on the 

basis of a double bottom line approach, 

which includes both social and financial 

performance. For example, the MFI 

has developed a social performance 

management framework which serves 

as a key decision making tool for AMK’s


2010 CGAP MIV ESG AWARD for Rural Impulse Fund I 

Rural Impulse Fund I received in 2010 the CGAP MIV ESG Award. 

RIF I was recognized as being ‘best in class’ for commitment to 

environmental, social and governance (ESG) issues in its investment 

decisions. The Consultative Group to Assist the Poor (CGAP) received 

applications from more than one-third of the 90 MIVs. Together, they 

manage more than 7 billion USD and form a vital pool of financing 

that supports microfinance institutions around the world. A review 

board comprising representatives from CGAP, UN PRI, and LuxFLAG 

considered the applications and judged them against four criteria: 

transparency of ESG reporting; integration and enforcement of ESG 

principles; comprehensiveness of the ESG framework; and engagement 

and innovation. RIF I was explicitly mentioned as leader in 

reporting and transparency. 

management and Board of Directors. It 

has also taken steps in the prevention 

of over-indebtedness, for instance by 

introducing a ‘no multiple loan’ policy, 

and has developed several new individual 

loan products for business expansion and 

seasonal/agricultural investment. 



(30/09/11) 

The Working Group 

‘Over-indebtedness in 

Kyrgyzstan’ 

In Kyrgyzstan, a working group 

of several investors was set up to 

discuss over-indebtedness and its 

impact on the Kyrgyz microfinance 

market. The group has been working 

on drawing up new measures to help 

MFIs prevent over-indebtedness. 

Working through conference calls 

every quarter since May 2011, the 

group held its first meeting at the 

Microfinance Center Conference in 

Prague. 

A dozen MIVs regularly participate 

in these calls. Their main concerns 

centre on multiple borrowings 

and the aggressive growth of loan 

portfolios in the Kyrgyz market, 

while the credit bureau remain 

relatively weak. In general, there is 

a lack of product diversification in 

the market, with the largest MFIs 

offering very similar products, which 

are predominantly very small (and 

therefore expensive) group loans. As 

a result, borrowers may be taking 

out multiple loans to meet their 

needs, while they could also achieve 

the same objective through a single, 

more flexible loan product. There is 

a general lack of information about 

the point where multiple borrowing 

crosses over into over-indebtedness 

and whether this is happening in 

the Kyrgyz microfinance sector. The 

working group aims to gain deeper 

understanding of this process and 

to investigate how the problem of 

over-indebtedness can be prevented. 

In this respect, the working group 

members are trying to include 

covenants and guidelines in their 

loan agreements regarding the 

prevention of over-indebtedness. 


employees: 


investment 

Alexander Vuylsteke, 

Business Development 

Associate 

“I joined Incofin in August 2011, as 

the result of a decision to work in 

an industry that targets the double 

bottom line. This decision was 

based on a strong belief that there 

are many cases where social and 

financial performance reinforce 

each other. Why work to address 

only one of these objectives and 

compromise on the other if both 

can be combined That would 

not make sense to me. Moreover, 

I simply find it very interesting to 

address economic, social and 

environmental issues in developing 

countries. Compared with 

mainstream industries, the impact 

investing industry is very dynamic 

in nature and has a lot more 

potential to create considerable 

change in the lives of people who 

need it most.” 

“At Incofin I have found a dynamic 

team of colleagues that are intrinsically 

motivated and truly committed 

to social performance. This 

culture creates a very stimulating 

environment. In my role of fund 

structuring and fund raising at 

Incofin, I find it great to set up new 

ventures in the impact investing industry 

and promote them among 

the investor community!”


Promoting 

transparent 

and responsible 

pricing 

Incofin IM wants to promote responsible pricing in all its 

investment decisions. We are very much aware that at the 

present time it is not easy for institutions to operate with low 

interest rates due to the high operating expenses, the low average 

loan size they offer, and the costs of funding and credit risk that 

have to be taken into account. Nevertheless, we also believe 

that once an institution has reached a stable level of financial 

maturity, its goal must be to look at its pricing structure in 

order to reach a clear decision on how to serve its clients in a 

more affordable manner. In fact, there are a number of mature 

microfinance markets where MFIs have devoted major efforts 

to streamlining operations in order to reduce costs, control 

their portfolio quality and train their staff in time management. 

These MFIs have now proved that lowering the levels of effective 

interest rate (EIR) is possible. 

As a result, Incofin IM has decided to enhance its responsible 

pricing analysis in its ECHOS tool by asking Investment 

Managers when conducting due diligences to answer questions 

like: 

Does the MFI offer responsible pricing 

·· 

Yes, the EIR is less than 20% (5 points) 

·· 

The EIR is between 20 and 30% (4 points) 

·· 


·· 


·· 

The EIR is between 50 and 60% (1 point) 

·· 

The EIR is over 60% (no points) 

Of course, in order to answer these questions, the pricing offered 

by the MFI’s market competitors needs to be taken into account. 

This is why Incofin IM also asks its Investment Managers to 

conduct a comparative assessment of the MFI’s pricing, by 

collecting and comparing EIRs where available. Another option 

is to compare the portfolio yield (used as a proxy of EIR) of the 

prospect MFI with at least four other MFIs operating in the same 

market.

Preliminary research on 

the Trade-off Theory 

The relationship between outreach 

and financial sustainability of microfinance 

institutions: An investigation 

of the trade-off theory (Nik Stoop) 

In 2011, Incofin IM decided to partner 

with Nik Stoop a student of the Master 

in Advanced Studies in Economics 

from the University of Leuven (Belgium). 

He made use of Incofin IM’s database 

to investigate a well-known topic in 

the microfinance industry, the trade-off 

theory. 

Methodology 4 

A key issue in the investigation of 

this subject is the lack of commonly 

agreed indicators for MFI performance. 

We dealt with this problem by using 

a Confirmatory Factor Analysis (CFA) 

to create artificial indices for MFI 

outreach and financial sustainability 5 . 

Based on previous research we chose 

the following six variables to construct 

our indices: 

∙ % of female borrowers 

∙ average loan size as a % of GNI/ 

capita 

∙ availability of policy targeting the 

poor (dummy) 

∙ return on equity (ROE) 

∙ return on assets (ROA) 

∙ operational self-sufficiency (OSS) 

Next, for each MFI, we estimated socalled 

factor scores on our artificially 

constructed measures for outreach 

and financial sustainability. These were 

subsequently used as the dependent 

variables in a Seemingly Unrelated 

Regression (SUR) model to analyse 

the determinants of MFI performance. 

Finally, we used an Ordinary Least 

Squares (OLS) model to assess the 

occurrence of mission drift among the 

MFIs in our sample. 

Results 

First of all, our results provide correlational 

evidence against the trade-off 

theory. Using Incofin’s social and 

financial performance measurement 

tools we find a positive and significant 

correlation of 0.40 between financial 

and social performance. Hence, a 

strong focus on social performance 

does not necessarily need to come at 

a cost of financial performance. In fact, 

synergies may exist. 

Next, based on our SUR-estimates, 

we found that a higher score on the 

outreach dimension seems to be 

linked to lower profitability and lower 

cost efficiency. Hence, there appears 

to be a trade-off between outreach 

and certain dimension of financial 

performance (profitability and cost 

efficiency). In contrast, we found a 

positive relationship between outreach 

and portfolio quality. 

This result is in line with the finding 

of Morduch 6 that most MFIs remain 

substantially subsidized, especially 

those with explicit social objectives. It 

could be argued that these findings 

consolidate the importance of “social 

investors” such as Incofin. 

Finally, consistent with Cull & Morduch 7 , 

our OLS estimates seem to indicate 

that individual based lending institutions 

are more susceptible to mission 

drift than solidarity-group lenders and 

village banks. Specifically, individual 

based MFIs appear to decrease their 

focus on outreach as they mature. Nevertheless 

further research is required to 

distinguish between the effects of mission 

drift and MFIs who increase their 

loan size in order to meet the growing 

financial needs of their mature clients. 

Future Research 

Investigating the relationship between 

outreach and financial sustainability of 

MFIs remains a challenge for at least 

two important reasons: First, there is a 

lack of high-quality and representative 

databases. Secondly, there are 

no commonly agreed upon ways 

to measure social performance and 

social impact of MFIs. 

To address these issues, and to 

further deepen the knowledge of the 

relationship between financial and 

social performance of MFIs, Incofin 

has planned a collective research 

effort with other relevant stake-holders. 

Participants include CERISE/Oikocredit, 

Microfinanza Rating, Blue Orchard, 

Triple Jump and MIX. 

Financial and social 

performances per region 

Social score (over 100 points) 

Financial score (over 100 points) 

72 73 71 72 73 73 78 

72 

East Asia 

and Pacific 

Europe 

and Central 

America 

LAC 

South 

Asia 

66 70 

Sub Saharan 

Africa 

4 Due to the short nature of this article, the technicalities related to the econometric approach are left out. 

5 In doing so, we follow recent contributions to the literature including: Luzzi, F.G., and S. Weber (2007): ”Measuring the per-formance of MFIs: 

An application of factor analysis,” Microfinance and Public Policy: Outreach, Performance and Efficiency. Ed. Bernd Balkenhol. London: 

Palgrave MacMillan, 153-169. 

6 Morduch, J. (2000): “The Microfinance Schism,” World Development, vol.28 (4), pp.617-629. 

7 Cull, R., A. Demirgüç-Kunt and J. Morduch (2007): “Financial Performance and outreach: a global analysis of leading micro-banks,” Economic 

Journal, Royal Economic Society, vol.117 (517), p F107-F133.


Active 

involvement 

in SPM 

initiatives 

Incofin IM within the Social 

Performance Task Force 

The Social Performance Task Force (‘SPTF’) 

was established in March 2005 by the 

Consultative Group to Assist the Poor (CGAP), the 

Argidius Foundation, and the Ford Foundation. 

They brought together different microfinance 

stakeholders (MFIs, networks, investors) to agree 

on a common social performance framework 

and to develop an action plan to move social 

performance forward. Since that time, the SPTF 

has emerged as the key dialogue platform for the 

promotion of social performance in microfinance. 

Incofin IM joined the SPTF in 2007. Since then, it 

has been an active supporter of SPTF’s activities. 

Incofin IM has been very active at the Governance 

level of the SPTF: a representative of Incofin (David 

Dewez) has been elected by peer members from 

the Investors Group to represent investors at the 

SPTF Steering Committee, along with Oikocredit. 

The committee acts as the governing and advisory 

body of the platform and its members include 

representatives of different stakeholders from the 

microfinance sector. 

As co-leaders of the Social Investors Group, Incofin 

has been playing a very active role in coordinating 

the “Investors Group”. This group, representing 

both private and public investors, discuss 

important issues related to SPM and Investments. 

The agenda of the Investors Group includes


yearly meetings at the occasion of 

the annual SPTF meeting and the 

creation of several working groups to 

coordinate efforts among investors in 

areas that are considered relevant to 

SPM. The working groups created by 

the Investors Group are: 

·· 

the Working Group for 

reasonable covenants, led by 

Dina Pons from Incofin IM, 

·· 

the working Group on the 

implementation of the Principles 

for Investment in Inclusive 

Finance (PIIFs), 

·· 

the Working Group on overindebtedness, 

·· 

the Working Group on 

harmonization of due diligence 

tools. 

For more information on the SPTF, 

visit www.sptf.com. 


for Reasonable 

Covenants 

Arnur Credit promotes financial inclusion in 

rural areas 

As a socially responsible 

microfinance investor, 

Incofin IM is committed to 

promoting Responsible Finance 

and to implementing it in its daily 

operations and practices. This is the 

reason why, in June 2011, Incofin IM 

as member of the Social Investors 

Group (under the umbrella of the 

Social Performance Task Force) 

Arnur Credit is the leading microcredit organization in South Kazakhstan, 

covering all regions in the southern part of the country through 

39 offices. It occupies a very strong position in rural areas and focuses 

on providing credit to the largely underserved agricultural sector, accounting 

for 42% of its loan book. The institution does not belong to any 

network but in the last years has managed to extend its international 

exposure and attract several foreign investors. The gross outstanding 

portfolio has recovered from the 2008-2009 financial crisis and it is currently 

steadily growing in the number of active borrowers: 74% in 2010 

and 64% in 2011. 

In April 2011 Arnur Credit received its first social rating and got a ‘BB’ 

Stable rating from Microfinanza Social Rating. The overall social responsibility 

towards its staff is adequate. Personnel enjoys a good working 

climate, adequate training opportunity and a transparent career path. 

Recently a bonus system and approved code of ethics were introduced. 

The MFI offers a range of loan products with flexible repayment 

conditions fit to meet different clients’ needs, including loan products 

with credit lines over three years. This helps the borrower to cut down administration 

expenses in obtaining a loan. The cost of service is transparent 

since neither commissions nor hidden costs are charged. The depth 

of outreach is good with operations concentrated in one of the poorest 

regions of the country. 

5,199 clients 


(30/09/11) 

took the initiative of creating 

and moderating a working group 

‘Defining Reasonable Covenants 

in Debt and Equity investments in 

microfinance’. 

Incofin IM decided to lead this 

project because we believe that it is 

our responsibility to define covenants 

that protect our investees and prevent 

them from adopting aggressive 

behaviour which could be harmful to 

themselves and to their clients. 

For 2012, the 13 like-minded 

international microfinance 

investment funds (MIVs) of the 

working group will be working 

to align the financial and social 

covenants in loan agreements of 

MIVs. To achieve this, they plan to 

come up with a list of core financial 

and social indicators, with agreed 

calculation methods, preferred levels 

(maximum and minimum), and 

justifications for adjustments when 

needed. This list should simplify the 

legal and monitoring formalities that 

our MFI partners have to complete 

when dealing with different investors. 

Through this working group Incofin 

IM has also initiated a discussion 

on how to define common language 

and proceedings regarding ‘Lenders’ 

attitude’ in cases of breach of 

covenants (including waivers, 

information sharing, communication, 

coordination, etc). The goal is to 

use this common language as a 

guideline for MIVs when drafting 

their respective loan agreements. 

Ultimately it should be incorporated 

in their loan agreement templates.


Excellent M-CRIL rating for 

Incofin IM funds 

In 2010 M-Cril, a leading rating agency in 

the microfinance sector, has given Incofin 

cvso and Rural Impulse Fund I the highest 

possible rating (‘highly recommended’) 

for both financial and social performance. 

The Working Group members keep 

in touch through monthly calls and 

will submit a proposal to the rest of 

the investment community at the 

Social Performance Annual meeting 

in June 2012. In a second phase, 

this Working Group will focus on 

equity investments by looking at the 

alignment of shareholder agreements, 

financial covenants and social 

representations of MIVs. They will 

use the same method as that used for 

debt investments. 


for Tier II and Tier III 

MFIs 

In June 2011, Incofin IM as a 

European Microfinance Platform 

member and along with other 

international MIVs such as GCAMF, 

LMDF, Alterfin, Etimos, PlaNISresponsAbility, 

SIDI, Cordaid, Triple 

Jump, Oikocredit, and NMI formed 

a working group to identify common 

challenges and to collaborate in 

supporting Tier II and Tier III MFIs. 

In particular, they wanted to come 

up with a standardized definition 

for Tier II and III institutions, 

FINCA DRC: SPM in a challenging environment 

FINCA DRC has been present in Congo DRC since 2003, starting right 

after the end of the civil war. In spite of the difficult post-conflict environment 

in which it operates, FINCA DRC has managed to grow to over 

77,000 borrowers and more than 18 million USD in portfolio, while still 

maintaining its focus on the very base of the borrower pyramid as 

evidenced by the average loan size of 238 USD. 

In DRC, FINCA is one of the only MFIs that cater to both groups and 

individuals thanks to a strong and reliable lending methodology 

implemented by skilled and dedicated staff. The institution has set up 

transparent and fair HR procedures to ensure a good staff satisfaction 

– thus showing that social performance is an internal, as well as an 

external focus. FINCA DRC reports its indicators to the MIX Market and 

has endorsed the Smart campaign. It implements the Client Protection 

Principles, delivering well-designed products with a sense of customer 

service. FINCA plans to take new innovative steps to show its commitment 

so Social Performance: deepening their outreach by launching 

mobile points of sale to get closer to their clients and save them precious 

time. A board-level SPM committee will be looking at new SPM 

indicators now integrated in their reporting. The example of FINCA DRC 

shows that even in an extremely challenging environment, a committed, 

professional institution can make genuine efforts in Social Performance 

Management – scoring a social performance indicator of 67% on 

Incofin IM’s ECHOS tool. 

build a directory of Tier II and III 

investors, reflect on foreign exchange 

hedging and small transaction sizes, 

and figure out how to coordinate 

technical assistance more efficiently. 

A second meeting took place during 

the European Microfinance Week in 

November 2011. 

In this regard, Incofin IM has already 

started building partnerships with 

several Tier II MFIs in East Asia, 

including one cooperative and 

one venture capital institution in 

Indonesia. The challenge of this 

type of partnership is first to avoid 

overflowing the MFI with money 

when it is not needed. This requires 

a reassessment of the MFI’s financial 

projections and a careful planning 

of the disbursement. Secondly, 

regarding technical assistance, it 

is very important to ensure full 

ownership of the MFI. For this 

reason, the production of the TA 

need assessment must happen 

in conjunction with the MFI’s 

management team and the managers 

should be involved in the selection 

of consultants. Thirdly, the format 

of technical assistance is a challenge 

as well. Traditional class trainings 

usually do not bear long term fruits; 

one to one coaching is usually more 

time consuming but is likely to have 

a greater impact on the institution. 

In 2012, Incofin will further develop 

guidelines in order to formalize a 

proper policy regarding partnerships 

with Tier II and Tier III MFIs. 



(31/12/11)


It assessed the two funds by looking at its 

management and the underlying details of 

the investments. Incofin cvso and RIF I 

scored high on financial indicators due 

to strong management, the diversity of 

its portfolio and their optimal use of risk 

management instruments. They received a 

high score for social performance thanks to, 

amongst others, the systematic screening 

of MFIs according to an in-house social 

performance evalution tool (ECHOS), 

the constant monitoring of investments 

and a high degree of transparency. 

‘Principles for 

Investors in Inclusive 

Finance’ (PIIF) 

In January 2011, Incofin IM was 

a signatory of the ‘Principles for 

Investors in Inclusive Finance’ (PIIF), 

and made a financial contribution of 

2,500 EUR. 

The PIIF constitute a sub-set of 

principles incorporated in the 

broader ‘Principles for Responsible 

Investment’ (PRI) which are in 

turn backed by the United Nations. 

The PRI reflect the view that 

environmental, social and corporate 

governance (ESG) issues affect the 

performance of investment portfolios 

and therefore must be taken into 

consideration by investors calling 

themselves socially responsible. 

asked to join an advisory group to 

provide feedback on the content of 

the Reporting Framework that the 

PIIF secretariat is currently designing. 

Incofin IM used its own expertise 

gained through developing the 

ECHOS tool to provide guidance on 

types of indicators and information 

to be included in the PIIF. 

By sharing its current activities in 

the field of ‘transparency’, Incofin IM 

has also contributed to a publication 

that compiles best practices for 

implementation of PIIF. 

Incofin has also been drawing up an 

action plan on PIIF implementation 

which has been published on the PIIF 

intranet. Only three microfinance 

MIVs have published an action plan 

so far: SNS, Triodos and Incofin IM. 

Given Incofin IM’s social 

commitment and its use of its 

social performance evaluation 

tool (ECHOS) for each investment 

decision, the endorsement of such 

principles seems logical and in 

line with Incofin IM’s core double 

bottom line mandate. The Principles 

provide a framework of practices and 

indicators which all investors can 

use to incorporate ESG items into 

their decision-making and ownership 

practices. This way, they are able to 

ensure a true double bottom line 

investment strategy. 

PIIF 

Investors 

(direct and indirect) 

PRI 

PIIF 

Direct investors 

Microfinance 

institutions 


MFI Transparency 

CGAP MIV Disclosure 

Guidelines and SMTP 

Because of its long term expertise 

in ESG inclusion in investment 

decisions, Incofin IM has been 

IRIS


VisionFund Cambodia prioritizes 

social performance 

As of December 2011, VisionFund Cambodia (VFC) has around 700 

staff with a gross loan portfolio of 37.5 million USD serving more than 

130,000 clients, including HIV/AIDS affected families, child laborers and 

widowed households. The institution has received outstanding awards 

for its achievements such as: Financial Transparency Award from CGAP, 

Social performance award from MIX Market, and Gold Award for its 

social reporting in 2010. VFC got 4- in a social rating conducted by Planet 

Rating in 2011. 

The vision and social mission of VFC are shared among the BOD, 

management, and staff during specific SPM trainings conducted during 

orientation sessions, annual retreats, and weekly devotions. Furthermore, 

VFC takes into account its social mission in all major decisions such as 

branch opening, based on poverty level and saturation of the area. 

The field staff incentive system is tied with social performance indicators 

(average loan size, % of CB loans, % of women clients, % of client 

retention) and is emphasized in the semi and annual evaluations. 

VFC targets the poor regardless of their religious beliefs, gender, or 

ethnic background. Generally, VFC clients are excluded from traditional 

financial services. Its target clientele is mainly composed of women and 

people living in rural areas. All clients benefit from credit life insurance 

and financial education. Client satisfaction surveys are conducted 

annually in selected branches, collecting feedback from clients 

about interest rate, ease in accessing products and services, and staff 

professionalism, among others. Client exit surveys are also conducted 

annually. 

Eventually there are also evaluation and supervision of SPM 

implementation. The branch offices are regularly evaluated by the 

Internal Audit and Evaluation Department on their social performance 

management. A Social Performance Management Committee is in 

place and meets regularly to discuss about the social performance 

management issues. 



(31/12/11)



Moving 

forward 

to 2012 

Incofin IM has always firmly believed that 

the alignment of financial sustainability 

and social impact is not only possible but 

essential. Incofin IM’s view has always 

been that investing in microfinance alone 

does not provide sufficient proof of social 

motivation. Because we are aware that belief 

needs to be brought face to face with reality, 

Incofin IM has since its creation been one 

of the most proactive developers of social 

performance standards among microfinance 

investors. 

Since the emergence of the concept 

of ‘social performance management’, 

Incofin IM’s concern has been to develop 

social standards and to integrate the 

corresponding measurable social indicators 

into its investment policies and procedures. 

As a result, Incofin IM’s due diligence 

evaluation takes both financial and social 

performances into account in each and 

every investment decision its makes. 

As early as 2007, when many microfinance 

practitioners were still questioning 

the added value of the newly emerged 

concept of ‘social performance’, Incofin 

IM developed its own social performance 

scorecard (ECHOS). Since that time, social 

performance has remained at the heart 

of our practices and at the core of our 

strategy. From revising our original social 

scorecard to evaluating our MFI partners 

and supporting them in deploying SPM 

in their operations through offering free 

technical assistance, Incofin IM has shown 

itself to be a social investor. We train our 

staff in SPM principles and we report on 

SPM achievements to our Board. We do not 

only include clauses on social representation 

in our legal documents, but also advocate 

social performance in the sector. Incofin 

IM wants to be both a socially responsible 

and a social pioneer. This means going 

beyond compliance with minimum social 

benchmarks to relentlessly pushing out 

the boundaries of best practice in social 

performance. We are striving to constantly 

and consistently promote social standards 

in all our investment work, and are trying 

to provide constant support to all our MFI 

partners in their efforts to implement SPM 

practices. 

While the years behind us have been intense 

and rich in debates, initiatives and concrete 

actions in the field of social performance, we 

are dedicated to making 2012 and the years 

to come a time of even greater vibrancy. 

In 2012, we will adapt our MIS system so 

as to track our social performance more 

systematically. This will allow everyone, 

from field staff to board members, from 

our back-office team to our front-line 

Investment Managers, to see if we are on 

track for achieving our social mission. 

In 2012, we will further enhance our 

current promotion of the Client Protection 

Principles (CPPs). As well as requesting all 

our partner MFIs to endorse the industry’s 

Smart Campaign, we will also develop a 

tool to track progress in implementation of 

the CPPs by our partner MFIs. But simply


tracking is not enough. We will 

continue to train our Investment 

Managers in CPPs to ensure that, in 

each of their interactions with MFIs 

in the field, they are fully equipped 

and capable of providing guidance, 

support and capacity building on the 

implementation of CPPs. 

In 2012, we will also continue to 

provide debt in local currencies in 

order to protect our most fragile 

partners from foreign exchange risks. 

We will also include SPM-related 

targets in the overall annual targets 

of the individual staff members, 

promoting mini-training modules on 

SPM to Tier II MFIs. 

In 2012, we feel it is our duty not 

only to report to the PIIF principles 

body, but also to contribute to its 

design of an external evaluation tool 

which could be used to evaluate true 

compliance of all investors calling 

themselves ‘social’. 

In 2012, we will expand our technical 

assistance facility in order to support 

our MFI partners and help them 

strengthen their institutional and 

social performance. 

In 2012, we will continue to 

champion SPM practices in all 

institutions where we actively 

participate at governance level with 

a Board seat. We will implement 

the use of the self-assessment tool 

for board members, and promote 

the integration of indicators for 

board members to monitor social 

performance (Social Balanced 

Scorecard). With these scorecards, 

every MFI will be able to track the 

achievement of its social mission. 

In addition, Incofin IM plans to 

continue its strong commitment to 

supporting the social performance 

task force and its various activities. 

We look forward to sharing our 

future progress with you, and to 

contributing – all of us together – to 

the development of a sound and 

socially responsible microfinance 

sector! 

Dina Pons 

Investment Manager 

David Dewez 

Regional Director Latin America 

& the Caribbean 


employees: 


investment 

Thomas Adank, 

Investment Manager 

“After years in the financial sector 

in Switzerland, I was ready for a 

change. I wanted to do something 

different, contribute to the world 

in a meaningful way. This is 

why I volunteered at an MFI in 

Colombia’s rural area for several 

months. Along with all the new 

experiences, I got to know Incofin’s 

work and their definition of the 

Double Bottom Line Approach. I 

was bitten by the microfinance 

bug and wanted to combine 

finance, which I know, with social 

impact, which I care about.” 

“Incofin offered me this opportunity 

and now I am a member of 

its Bogota team. It is exciting to 

work with an international team 

of highly motivated people that 

explore new markets, that care 

about long term sustainability and 

that spread prosperity to remote 

corners of the world.”

Incofin IM wants 

to be a social pioneer. 

This means going 

beyond compliance 

with minimum 

social benchmarks, 

to relentlessly push 

the boundaries 

of best practice in 

social performance.

IMPRINT 

Responsible editor 

Kaat Van Bosstraeten, 

Communications Manager, 

Incofin Investment 

Management 

incofin Investment Management 

Design, layout, 

copywriting and 

coordination 

Cantilis (www.cantilis.be) 

ECHOS© 

ECHOS is a proprietary 

tool developed by Incofin 

Investment Management. 

BelgiUM 

Sneeuwbeslaan 20 

2610 Antwerp 

T: +32 3 829 25 36 

F: +32 3 740 78 28 

info@incofin.com 

Colombia 

Incofin Americas SaS 

Carrera 9 No. 74 - 08 

Edificio Profinanzas 

Oficina 1004 

Bogotá 

T: +57 742 59 33 

F: +57 1742 5949 

info@incofin.com 

India 

TVH Lumbini Square 

Flat # 5063, 5th Block, 

6th Floor, 

127-A, Bricklin Road 

Purasawalkam 

Chennai – 600007 

Tamil Nadu 

T +91 44 26 91 66 24 

info@incofin.com

Social Performance Report - Incofin

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