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Truelift Milestone Institution Case Study196850021272500Small Enterprise Foundation (SEF)Written by:Jeff Nelson and the Truelift SecretariatFebruary 2014Truelift is the first Microfinance support organization to prioritize pro-poor methodology. By placing a premium on data-driven decision making, Truelift’s three pro-poor principles hinge upon outreach, services, and measurement. Truelift Assessment identifies best practices at a variety of institutional levels. Correspondingly, the Truelift Milestone recognitions acknowledge that social performance management is a dynamic spectrum rather than a fixed accomplishment. Complementing other analytical tools and MFI support networks, Truelift’s Milestone awards focus a lens on positive and enduring change for people living in poverty. -6985012001500At the 2013 Microcredit summit in Manila, Truelift announced the inaugural Milestone MFI recipients. These MFIs demonstrated their commitment to poverty-focused microfinance and have been recognized by Truelift for the milestones they have reached. By providing Social Rating evidence and transparent analysis, the Milestone MFIs exhibited transparency and met qualifying standards for financial sustainability, Client Protection Principles (CPP), and the Universal Standards for Social Performance Management (USSPM).As a 2013 Achiever Milestone MFI, Small Enterprise Foundation (SEF) has distinguished itself as quantifiably committed to targeting poor to very poor clients, to providing them with responsible services, and to tracking the outcomes of those services in an attempt to alleviate poverty. SEF’s experience in pro-poor targeting, services, and measurement can serve as a roadmap for microfinance organizations to develop models that lead to enduring change in clients’ lives. Using the Truelift Pro-poor principles as an outline, this case study provide a summary of existing research, and an overview of why and how SEF implemented pro-poor principles in tailoring its products, services, and strategy. 3213100248285SEF at a glanceHistory: Started in 1992 as a poor-focused NGO; attained financial sustainability in 2005Status: Fully financially-sustainable, not-for-profit, microfinance institutionActive clients: 96,469Loan portfolio (USD): $16,707,225.97 Financial Products and Services: two credit programs, and savings facilitationNon-Financial Products and Services: entrepreneurship training services, HIV00SEF at a glanceHistory: Started in 1992 as a poor-focused NGO; attained financial sustainability in 2005Status: Fully financially-sustainable, not-for-profit, microfinance institutionActive clients: 96,469Loan portfolio (USD): $16,707,225.97 Financial Products and Services: two credit programs, and savings facilitationNon-Financial Products and Services: entrepreneurship training services, HIV013398500Small Enterprise Foundation (SEF): MFI ProfileReceiving the highest Truelift Assessment score in 2013, Small Enterprise Foundation (SEF) provides microcredit services for self-employment to over 95,000 clients in South Africa. SEF’s services focus on women in the Limpopo province of South Africa, which has the highest proportion of people living in poverty (74.2% below the national poverty line). SEF has an exemplary record of poverty-focused micro-enterprise finance in the country and has an almost entirely female client base. “SEF has successfully targeted poorer clients where they have not traditionally been reached by mainstream microfinance programs. They have tailored their services and have seen improvements in various social indicators at a faster pace than among less poor clients. Moreover, [these pro-poor services] have not come at a significant cost to the institution. The clients achieve strong portfolio qualities, and over time, do not represent a higher cost to serve.” (Grameen Foundation, 2012) Principle 1: Purposeful Outreach to People Living in PovertyIn 1996, SEF strategically refocused on its mission to eradicate poverty and has seen significant improvement in its outreach to poor to very poor clients. Today, SEF has successfully targeted 77% of clients as those living with incomes below US$2 a day at purchasing power parity, and 52% below US1$ a day. For a national comparison, an institutional average is estimated at ~30% below US$2 a day and 11% below US1$ a day. (M-Cril, 2009) Furthermore, SEF has enhanced its data-gathering and census approach by integrating the PPI into all operations, replacing and complementing the PWR as its client targeting and poverty-tracking tool.Principle 2: Services Meet the Needs of People Living in PovertySEF attains its financial and social bottom-line through two primary loan programs, the Micro Credit Program (MCP) and T?homi?ano (“working together”) Credit Program (TCP). The TCP program was piloted in 1996 exclusively for very poor female clients- those living in the bottom 30% of the provincial population. After an internal analysis revealed inadequate outreach to clients below the national poverty line, SEF spearheaded the TCP initiative with great results and international recognition for their pro-poor methodology. As of 2009, the TCP program represents nearly ? of SEF’s portfolio. (Grameen Foundation, 2012)Principle 3: Tracking Progress of People Living in PovertyTo benchmark their data on national and international poverty standards, SEF management refined the poverty wealth ranking (PWR) methodology to extend beyond pro-poor targeting to poverty-progress measurement. By identifying the needs of the poorer population, SEF targets and tracks the development of women entrepreneurs designated as “vulnerable” and in turn measurably achieves its mission to serve poor and very poor people in South Africa. (Imp-ACT Consortium, 2007) More recently SEF has adopted the Grameen Foundation’s Progress out of Poverty Index (PPI) where data is used to monitor and track poverty levels on all incoming and existing clients. By developing the PWR and implementing the PPI throughout field operations, SEF now compares institutional, national, and international data as measureable indicators for all clients. (SEF Website, 2014) SEF in Action: Principle 1: Purposeful Outreach to People Living in PovertyAs pioneers in purposeful outreach to poor people, SEF has exhibited institutional commitment to tailoring its services to clients’ needs since its inception. In 1996, an internal evaluation revealed that very few of their clients were living below 50% of the national poverty line or statistically “very poor.” Despite successful financial results by then industry standards, SEF founder, John de Wit and the SEF team recognized this gap in their clientele demographics and outreach. When scanning a typical village in Limpopo, John de Wit identified individuals in greater need than SEF clients and asked himself, “why are these people who look like they are in even more serious poverty than our clients not joining our program?” CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013)Many institutions would have been content with financial results, but SEF demonstrated their enduring pro-poor commitment by immediately experimenting with a poverty targeting methodology as an extension of their founding principles. When reflecting on SEF’s historical mission and vision, de Wit insisted that, “Right from the beginning, [socially responsible microfinance] was the purpose… we never worked on our pro-poor focus to achieve institutional or financial improvement. We did it because we wanted to reach the poorest people we could and we wanted to use microfinance (with all of its limitations) as a means to provide the very poor with the opportunity to change their lives.” Through this piloting process, SEF developed both the T?homi?ano Credit Program (TCP) and the still widely used Participatory Wealth Ranking methodology (PWR). CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013)After significant testing, research, and development, the TCP program was implemented in 2000 and now composes nearly 75% of their lending portfolio. As an integral part of the TCP targeting process, the PWR tool identifies and targets the poorest households in a community. Similar to the Cashpor Housing Index, the PWR mechanism has accumulated years of poverty profiling data and analysis, by which SEF refines a targeted outreach to vulnerable people in South African communities. The PWR score ranges from 0 to 100, with higher scores indicating a deeper level of poverty. SEF has further broken down scoring under five categories to measure impact by poverty bracket, segmenting households with a score of 90 to 100 as worst off and ‘have nothing,’ while households scoring 35 or less are the best off and considered ‘well off.’ (Grameen Foundation, 2012)The results of poverty targeting have been truly inspiring. John de Wit soon began to see that, “Yes – we really were getting poorer clients if we used the targeting approach.” Thanks to the community engagement from loan officers promoted by PWR outreach, those very poor non-SEF community members with whom John de Wit was concerned began to join the program. CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013) Various case studies have confirmed that the PWR methodology has increased the depth of poverty outreach for SEF in the TCP program. The TCP poverty profiles indicate that SEF is reaching the poorest people and point to the success of the targeting mechanism (PWR) in encouraging poorer people to join the program. (van de Ruit, May and B. Roberts (2001) Furthermore, external analysis by means of the PPI tool in 2007 revealed that more than half of SEF’s clients were living below US $1/day PPP and 81% were living below US $2/day. It has been clear that as SEF expanded the TCP program and PWR methodology, its outreach to poor individuals has increased. (Grameen Foundation, 2012)When compared to SEF’s mainline MCP lending program, “There is a striking contrast between poverty profiles of these two programs. The clients in the poverty targeted program [TCP] are overwhelmingly situated in the poorest category, while the majority of clients in the non poverty targeted scheme [MCP] are found in the least poor category.” (Grameen Foundation, 2012)-41910095313500According to Esido Mushwana, SEF’s Research & Development Manager,” [the PWR] helped us to see who are the people to actually target.” Most recently, SEF has adopted use of Grameen Foundation’s Progress out of Poverty Index (PPI) for their purposeful outreach to people living in conditions of poverty. This again illustrates SEF’s commitment to tailoring its outreach, services, and measurement to the needs of its poorest populations. CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013) (PWR TARGETING PROCESS) CITATION Cam12 \n \l 1033 (Serving the Very Poor: Participatory Wealth Ranking, 2012)SEF in Action: Principle 2: Services Meet the Needs of People Living in PovertySince the development of the PWR targeting tool, SEF has significantly increased their outreach to poor clients in South Africa. SEF is convinced that their financial stability is directly connected to their pro-poor targeting methodology. Vulnerable client indicators from the PWR have been reliably used by SEF for years to mitigate financial risk and tailor non-financial services to the needs of a given community. SEF’s poverty targeting model offers added value for clients while at the same time makes the institution more focused and efficient in operations. SEF continually improves their pro-poor services by balancing financial and social returns. (Grameen Foundation, 2012), CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013).Financial ServicesUsing a Grameen-style solidarity group-lending model, SEF’s loan options are tailored to the needs of the client through a business evaluation and verification process that stems from their PWR poverty-targeting outreach. In their two credit programs (MCP and TCP), SEF offers five customized variations on their primary lending model that include flexible loan periods, flexible loan sizes, and a flexible number of installments. Since implementing a direct targeting approach in the PWR model and opening a pro-poor lending program in TCP, SEF reached financial sustainability in 2005 and currently holds a positive profitability trend that projects 6% ROA by 2017. CITATION Mic09 \l 1033 (M-CRIL, 2009)In their two credit programs (MCP and TCP), SEF offers a variety of services and safeguards for clients like facilitating savings groups, and piloting a micro-insurance program. In the pro-poor TCP model, these financial services include performing vulnerable client visits, business evaluations, progress meetings with groups, and loan utilization checks. “In many ways, TCP now mirrors MCP with the additional steps of actively identifying the poorest women in its target areas through a rigorous selection process and providing intensive mentoring and motivational support.“ (Grameen Foundation, 2012). SEF identifies potential problems among clients by using the poverty-targeting data and offers support to those clients in greatest risk. Based upon the same data, loan officers are trained and equipped to monitor important indicators such as weak businesses, poor savings, poor attendance, and loan payment arrears. SEF hedges these risks and subsequently performs well on their double-bottom line because they are committed to making their pro-poor mission tangible in everyday practice. The TCP program has shown strong developmental effects for the poorest populations in food security, housing quality, business growth, and incremental loan portfolio growth. TCP branches, once fully operational and institutionally mature, have been shown to be just as profitable as SEF’s MCP branches. When comparing MCP branches to TCP branches that had been open for at least five years by the end of FY 2010, TCP clients maintained consistently lower dropout rates than MCP clients and studies found that TCP [loans are not only profitable, but are actually within range of a product [MCP] that has never been targeted to ultra-poor clients]…TCP branches have been shown to have better retention rates, better productivity, equal profitability for mature branches, and only marginally lower financial performance (income per client, net operating income) than MCP on the whole. According to the Grameen Foundation case study, “In all, it seems that the social bottom line for serving poorer clients through the TCP methodology helps SEF achieve its social mission, while making little difference in terms of its financial performance when compared to its mainstream MCP program. (Grameen Foundation, 2012)Moreover poverty-focused TCP program has consistently produced better client satisfaction, and financial performance data than the original program. The Grameen Foundation case study demonstrated that TCP and MCP programs had nearly identical retention rates. Furthermore, client satisfaction and client recommendations have paralleled SEF’s institutional growth. “[Clients] know about us,” explains Eshido Mushwana. “They know the reputation of SEF. Clients even go out and encourage other people in the villages to come and join SEF because they know it helps.” CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013). As shown by the Grameen Foundation case study, SEF’s data on client drop-out rates, which may serve as a proxy for client retention rates, showed that TCP clients are less likely to leave the program than MCP clients…In addition, rates of delinquency were the same or better for TCP clients, which shows that when targeted well and served with a product that meets their needs, very poor clients can participate productively in a microfinance program. (Grameen Foundation, 2012)These results reveal that SEF has developed appropriate financial services for South Africa’s poor to very poor population.SEF’s future growth strategy is to focus on growing the TCP portfolio without adding more MCP clients in the near future. As such, there are currently seven branches operating the MCP methodology; the remaining 31 branches operate the TCP methodology... Between 1992 and 2001, SEF opened seven branches that offer MCP loans and has not opened new MCP branches since then. Since 2004, SEF merged MCP and TCP into common branches in order to comprehensively reach both very poor and poorest markets. The resulting mixed portfolios allow SEF to manage portfolios that are large enough to attain self-sufficiency without overburdening its staff and clients. “For SEF, the cost to serve is not an issue, as they have streamlined their approach such that both of their loan products are profitable, thus ensuring overall organizational profitability. (Grameen Foundation, 2012)Non-financial ServicesBy carefully managing poverty-targeting data, SEF responsively coordinates their non-financial services, operational guidelines, and Client Protection SMART objectives as well. SEF facilitates client group trainings on debt management, savings, business skills, and financial education with the curriculum development help of Freedom from Hunger. Using regular group meetings as a platform, this 8-10 module training is closely monitored for client participation, satisfaction, and both qualitative and quantitative outcomes. CITATION Mic09 \l 1033 (M-CRIL, 2009).Furthermore, SEF is committed to integrating their financial education training into contextually relevant issues such as HIV prevention and mobilization strategies. For instance, the IMAGE Program, which addresses poverty and gender inequality as key determinants in the South African HIV epidemic (the highest concentration of HIV infection globally), has been implemented in collaboration with SEF and seen a statistically robust correlation between economic improvements and greater autonomy (ex. Gender empowerment, decreased domestic violence, and positive shifts in HIV risk behavior). Thus by monitoring vulnerable client data through poverty-targeting tools, SEF has been able to strategically shape its services to meet the most pressing issues of South African communities. CITATION Mic09 \l 1033 (M-CRIL, 2009)SEF in Action: Principle 3: Tracking Progress of People Living in Poverty SEF equips clients to make long-term strides against poverty by means of self-employment. This theory of change hinges upon SEF’s strategic tracking of poverty indicators, business value, food security, housing quality, and the outcomes of successive small-enterprise loans. SEF is one of very few MFIs that have invested so heavily in tracking changes in the lives of their poor clients – which is one of the reasons they received such high Achiever level recognition from Truelift. CITATION Mic09 \l 1033 (M-CRIL, 2009).SEF’s Participatory Wealth Ranking (PWR) was effective at measuring poverty levels of incoming clients, but it was also a labor-intensive and resource-heavy tool. In the words of John de Wit, “it [took] a good deal of training for the staff to be able to do it well.” As SEF grew as an organization, the need to aggregate branch data and benchmark outcomes to national and international poverty measures prompted a poverty-tracking methodology change. CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013)In 2012, SEF implemented the Progress Out of Poverty Index? (PPI?), a poverty measurement tool developed by Grameen Foundation. The PPI is used today in more than 45 countries helping organizations like SEF understand clients’ poverty conditions and changes to those conditions over time. The PPI is a ten-indicator composite index that is statistically sound and simple to use. CITATION Fou08 \n \l 1033 (NWTF PPI Case Study, 2008). Based upon client survey results, the PPI produces estimates of individuals’ poverty likelihoods based upon poverty benchmarks and a household’s characteristics and asset ownership. Over time, the organization tracks changes in those poverty likelihoods using a model that is linked to Statistics South Africa’s Income and Expenditure Report). The PPI is also linked to international poverty lines, which allows SEF to benchmark and measure the poverty gap for their clients—an increasingly important statistic for poverty-focused MFIs.John de Wit explains that the switch from the PWR to the PPI was closely linked to SEF’s success and growth: “When institutions are small, you tend to be able really motivate staff… Everybody is around the same mission. But as organizations get bigger and bigger, people get further and further away from the core leadership. And you find much more that you have to have a systems approach.” The PPI, explains de Wit, allows for auditing of the poverty data collected across branches. SEF refined its data-gathering approach by reviewing every new and existing client at every loan cycle, giving it comprehensive results to analyze, a task very difficult with previous PWR data. CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013). Since 2012, SEF staff has been trained on proper use of the tool with the PPI being rolled out in 40 of SEF’s 46 branches. Quality assurance officers and operations managers assure data quality and consistency while administering PPI surveys to all new clients. With this PPI data, SEF analyses client needs and institutional outcomes by product and by region. By tracking this data over time, SEF staff is better prepared to learn from changes in clients’ poverty profiles. In 2013, SEF received Advanced Certification from the Grameen Bank for its use of the PPI and hopes to leverage this international recognition to influence the industry towards more institutional transparency and more responsible pro-poor practices. Furthermore, the implementation of the PPI model draws international attention and accreditation for socially driven investors. As the PPI implementation phase nears its completion in 2014, SEF is excited to track changes in their clients’ wellbeing and base their strategic decision-making on reliable, systematized PPI data. CITATION Joh13 \n \l 1033 (Truelift Achiever Milestone Interview, 2013) ................
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