The Social Dimensions of
Development Banking
International Labour Organisation (ILO) knowledge
and tools for social finance
10th International CEO Forum
Kuala Lumpur, Malaysia
Patricia Richter
November 4, 2014
Overview
• Sustainable Finance  Social Finance
• Background to ILO and Social Finance
– What is ILO’s mandate in development?
– What is ILO’s mandate in Social Finance?
• Three Social Finance examples
– Building capacity for social compliance and impact in
agri finance
– Microfinance for Decent Work
– Impact Insurance
• Collaboration proposal
Sustainable Development (1)
"Sustainable development is
development that meets the needs of
the present without compromising the
ability of future generations to meet
their own needs”.
(Brundtland, 1987)
Sustainable Development (2)
Economic
Social
Environment
Sustainable Finance
Sustainable Finance
“Finance is our contribution to sustainable
development being an association of development
finance institutions”
Octavio B. Peralta,
Secretary General ADFIAP
 Sustainable finance implies making sustainable
development a central concern for the financial
system. Thus, it has a substance and a process
dimension.
Sustainable Development Goals
•
Goal 1: End poverty
…by 2030, ensure that all men and women… have access to… financial
services including microfinance
•
Goal 2: End hunger
…by 2030, double agri productivity and incomes of small-scale food
producers… through… access to…financial services
•
Goal 8: Inclusive and sustainable economic growth, full and
productive employment and decent work for all
…promote development-oriented policies that support… decent job creation,
entrepreneurship… SME… including through access to financial services
•
Goal 9: Build resilient infrastructure
…increase access of small-scale industrial and other enterprises… to financial
services including affordable credit
•
Goal 10: Reduce inequality
…improve regulation and monitoring of global financial markets and institutions
and strengthen implementation of such regulation
Social side of sustainable
development (1)
Social
Economic
Social
Environment
Sustainable
Finance
• Rights at work
• Employment and income
• Social protection
• Social dialogue
Social side of sustainable
development (2)
Rights at work
Employment & income
•
•
•
•
•
•
•
•
•
•
•
•
Child labour
Forced labour and human
trafficking
Gender equality and nondiscrimination
Freedom of association
International labour standards
Enterprise development
Green jobs
Local development
Cooperative development
Corporate social responsibility
Employment-intensive investment
Skills development, vocational
training
Social protection
Social dialogue
•
•
•
•
•
•
Social security
Occupational safety and health
and working conditions
International labour migration
HIV and AIDS
•
•
Labour inspection
Labour dispute prevention and
resolution
Social dialogue, industrial relations
Labour administration
The ILO and its mandate
 Established in 1919 by the Treaty of Versailles
 (First) Specialised UN agency that seeks
“the promotion of social justice and
internationally recognised human and labour
rights”
 Constitution 1919, Declaration of Philidelphia 1944
 Formulates international labour standards through
Conventions and Recommendations
 Provides technical assistance
 Promotes development of independent social partners
and provides them with training and advisory services
Quiz…
Q How many Conventions has
ILO passed in its almost 100
years of history?
ILO headquarters, Geneva
Q How many countries have
ratified the Convention on
the Elimination of the
Worst Forms of Child
Labour (C182)?
ILO Mandate in Social Finance…
“It is the responsibility of the ILO to examine and
consider all international economic and financial
policies and measures in the light of social
justice.”
- ILO Constitution -
…and ILO’s structural response
“The Social Finance Programme serves as the focal point
to analyze, evaluate and disseminate financial sector
issues relevant for employment and social justice.”
ILO 2005: Microfinance and Decent Work
ILO Social Finance Programme
How?
With whom?
What?
Mission
• Support the development and adoption of financial
services and policies for social justice
Better
employment
• Create jobs and improve the quality of employment, particularly for
workers in the informal economy, through innovative financial
services and conducive policies
Less
vulnerability
• Reduce the vulnerability of the working poor through improved access
to appropriate risk-managing financial services, including savings,
insurance, emergency loans and remittances
Constituents
• Workers
• Employers
• Governments
1) Innovate,
experiment, test
Office
External partners
• Social Finance Network
• Focal Point function
2) Analyze,
document and
develop tools
• Financial sector players
• Networks, associations
• Donors
3) Disseminate
4) Promote: a)
policy dialogue,
and b) capacity
building
Q&A: Do you have any questions?
Overview
• Sustainable Finance  Social Finance
• Background to ILO and Social Finance
– What is ILO’s mandate in development?
– What is ILO’s mandate in Social Finance?
• Three Social Finance examples
– Building capacity for social compliance and impact in
agri finance
– Microfinance for Decent Work
– Impact Insurance
• Collaboration proposal
Example one
BUILDING CAPACITY FOR
SOCIAL COMPLIANCE AND
IMPACT IN AGRI FINANCE
Capacity gap for social compliance
and impact in agri finance (1)
• Rural areas underserved by financial service
providers
• Benchmarks exist (e.g. Equator Principles, UNPRI,
IFC PS)
• Evidence shows that social concerns are often not
fully incorporated in funding decisions and delivery
of services (compliance)
• Financial service providers that wish to invest in a
socially responsible manner lack the capacity to
evaluate social impact of investments
Capacity gap for social compliance
and impact in agri finance (2)
If…
 Comprehensive methodology for social
assessments,
 Comprehensive related training existed, and
 Trainings covered how to measure S&E effects and
how to improve social aspects
… great steps could be made towards a financial
system that contributes to social, economic, and
environmental gains.
=> ILO collaboration with a Fund investing in
African agriculture
Details of collaboration partner
Target region
Key data

Fund Target Countries:
All African countries

Beneficiaries:
Small, medium and large scale
agricultural companies, financed
directly or indirectly by AATIF

Direct Investments:
Cooperatives, outgrower schemes,
commercial farms, processing
companies, i.e. along the entire
value chain

Indirect Investments: Local financial institutions or
other intermediaries (such as
agribusinesses) which on-lend to
the agricultural sector

Interest Rate/Return: AATIF provides financing at
market rates
Investment Size:
5-30m USD
(other currencies possible)

Fund Size:

Technical Assistance: Projects with a measurable
positive impact on local
populations may benefit from a
technical assistance facility (e.g.
training measures or grants that
improve food security, household
income or working and living
quality)

Fund Launch
USD 100-180m, growing over time
Partners




Multilateral Agencies, Development Banks
and NGOs
Input providers and Off-takers
Risk insurers and
Local financial institutions
Launched in 8/2011,
18
Organisational Set-up
Role of Compliance Advisor
• Revision of Social and Environmental Safeguard
Guidelines
• Development and testing of social and
environmental assessment method
• Implementation of S&E studies
• Technical backstopping of development impact
evaluations
• Provision of small-scale technical assistance
• Development of training materials
Examplary covenants for financial
institutions
• Development and implemenation of formal Social and
Environmental Management System
• Development of S&E Policy covering:
– objectives for engagement in environmental and social
management,
– standards with which projects have to comply,
– responsibilities for policy implementation, and
• Development of inhouse training on S&E risk identification
and management
• Introduction / updating of exclusion list
• Re-classification of business activities financed
• Commitment to sustainable development in strategic plans
Q&A: Do you have any questions?
Collaboration proposal
Nov 2014 March 2015
Analysis of existing DFI S&E
Policies and Procedures
April 2015
Presentation of identified
strengths and weaknesses
June 2015
Joint elaboration of
improvement strategy
If you would like to participate in this collaborative effort to analyse the Social
and Environmental Policies and Procedures of Development Finance
Institutions, please fill in the contact sheet.
Overview
• Sustainable Finance  Social Finance
• Background to ILO and Social Finance
– What is ILO’s mandate in development?
– What is ILO’s mandate in Social Finance?
• Three Social Finance examples
– Building capacity for social compliance and impact in
agri finance
– Microfinance for Decent Work
– Impact Insurance
• Collaboration proposal
Example two
MICROFINANCE FOR DECENT
WORK
Microfinance for Decent Work in a
nutshell...
Action Research Programme
Timeframe: 2008-12
16 partner-MFIs worldwide
GOAL:
To measure the impact of innovations on the welfare
of microfinance clients
Clients of microfinance institutions
must cope with serious work
challenges
Child Labour
…and
Occupational Safety
and Health
• vulnerability to income shocks
• overindebtedness
Informality
Quiz
• What percentage of total employment created was child
labour (5-14 years)?
• What percentage of clients reported dangerous working
conditions or injuries?
• What percentage of clients operated informal businesses
activities?
• What percentage of clients had a large unforeseen expense
in preceding year?
• What percentage of clients used insurance to cover
unforeseen expenses
Findings from the Diagnostic Phase
• Child labour (5-14 years) constituted 5% of total
employment created
• 11% reported dangerous working conditions or injuries
• 54% of client’s business activities informal, 41% paid
taxes
• 8% reported cross-borrowing and 14% had repayment
issues
• 43% reported large unforeseen expense in preceding
year (main reason: accident, illness)
• Only 2-3% used a form of insurance to cover
unforeseen expenses
(N= 4748)
Innovations
Formalization
•Awareness raising and client sensitisation to benefits
•Business development services
Occupational
Safety and
Health
•Client training on good working conditions and agreement
on improvement plan
•Specific loan product for work improvements
Job Creation/
Women
Empowerment
•Organisational restructuring: new SME lending window
•Client training on women‘s empowerment
Risk
Management/
Overindebtedness
•Insurance products: multi-risk for business loan clients,
health, credit life
•Leasing product
•Financial education
•Client risk management training
•Entrepreneurship training
Child Labour
•Modification of existing microinsurance product
•Awareness campaign
•Client training to increase production productivity
Results: Child Labour
Innovation:
Extended micro-insurance coverage to HH
members
• Upgrade of health and accident insurance product available to
all non-nuclear family members between 18 and 65 in the
client HH
• Increased awareness of loan officers on microinsurance
product and informal coaching of clients on its use.
Results:
• Increased coverage at individual level and increase usage
• 7% decrease in child labour
• 5-6% lower risk of children involved in hazardous occupations
• Average hours worked reduced 2.5 to 3.5 hours per week
• No effect on child schooling
Results: Risk Management (1)
Innovation:
Entrepreneurship training
Results:
• Attitude towards entrepreneurship improved through 13%
decrease in perception of barriers
• Business profit increased by PHP 2’000 (approx. USD 50)
which was almost double the baseline profit
• Ownership of motorized vehicles increased by 3.5% (positive
impact on asset building)
• Incidents of late repayment decreased by 4%, taking out a
loan to repay another loan decreased by 10% (positive
impact on overindebtedness)
• 5% increase in use of microinsurance to cover unforeseen
expenses (positive impact on risk management)
Results: Risk Management (2)
Innovation:
Financial Education Programme
• Trained field staff in better position to advise clients,
through group and individual counseling, on financial matters
including risk management and over-indebtedness
Results:
• Strongest impact on repayment behaviour of clients:
reduction of late payments 3.4%
• Significant and positive impact on asset building through
10% increase of insurance uptake
• Significant and positive impact on clients’ association of
savings and security, handling of debt, attitude towards
borrowing (financial attitude)
How to take this further?
 Scale-up
Collaboration Proposal
• Dissemination of
andon
keys
results
• lessons
Business learnt
case study
linking
financial
with non-financial
• Promotion of effective
strategies
service provision
• Capacity building of microfinance stakeholders
 Additional research
www.ilo.org/socialfinance
Q&A: Do you have any questions?
Overview
• Sustainable Finance  Social Finance
• Background to ILO and Social Finance
– What is ILO’s mandate in development?
– What is ILO’s mandate in Social Finance?
• Three Social Finance examples
– Building capacity for social compliance and impact in
agri finance
– Microfinance for Decent Work
– Impact Insurance
• Collaboration proposal
Example three
IMPACT INSURANCE
Access to insurance matters
“Vulnerability and poverty go hand in
hand, but microinsurance holds out the
promise of breaking a part of the cycle
that ties them together.”
Jonathan Morduch, Economist, New York University
 Insurance
drives social
and
economic
inclusion
 Insurance  Indispensable
contributes to
element of
the SDGs
financial
inclusion
agenda
Impact Insurance Facility
 Launched as
Microinsurance Innovation
Facility in 2008
 Housed at the
International Labour
Organization based on the
work of the
Microinsurance Network
 US$34 million grant from
the Bill & Melinda Gates
Foundation
 Additional support
provided by Zurich,
AusAID, Munich Re
Foundation and the World
Bank Group
Beliefs
“We believe in the power
of insurance to change
people’s lives, to protect
their health and their
assets, and to give them
peace of mind to make
investments for the future”
Mission
“Our mission is to
increase the availability of
quality insurance for the
developing world’s lowincome families to help
them guard against risk
and overcome poverty”
Work 2008-2013
• Tested innovations and providing capacity building for leading
microinsurance providers
• Shared insights from this work extensively with the global
microinsurance community.
Major progress in microinsurance…
 Growth: microinsurance now covers 0.5 billion risks, up
from 135 million in 2009. In 2011, 33 of the world’s largest
insurance companies offered MI, up from just 7 in 2005.
 New delivery channels: retailers, utility, cell phone
companies, cooperatives and labour unions.
 Demonstrated business case: microinsurance can be
profitable, but under certain circumstances.
 Loyalty and incentives: insurance is used by financial
institutions and cell phone companies to reward customer
loyalty and/or increase usage.
 Impact: demonstration of a positive impact of MI on the
lives of the poor and in their communities.
… but challenges remain
Patchy progress: microinsurance is developing rapidly in
countries such as India, South Africa and the Philippines;
still, outreach in many developing countries remains
meagre.
Limited innovation: significant scope to provide quality
insurance at scale, even in mature markets.
Reinventing the wheel: lessons and experiences from
mature markets are slow to reach practitioners elsewhere.
Regulation and policy: in many countries it is hard to
accommodate
innovative
distribution channels.
products
or
alternative
Specialized expertise: more skilled professionals who
understand the needs of the working poor are needed.
Financial literacy: necessary to help the poor appreciate
the value of insurance.
10 key lessons for
creating client value
FUNDAMENTALS
ENHANCEMENTS
• Start simple with partial,
single, mandatory cover
• Boost access and
understanding
• Ensure great client
experience through
claims and servicing
• Offer complenentary
solutions
• Bundle insurance with
other fin services
• Include value-added
services
• Use technology without
loosing client touch
• Expand benefits
• Provide choice through
voluntary options
• Offer multi-risk products
Impact Insurance: 5 research &
innovation themes
CLIENT VALUE
Delivering value to clients to ensure
that microinsurance delivers on its
social promise
BALANCE
Overcoming shortterm trade-offs and
following long-term
strategies
VIABLE BUSINESS
Reaching scale, increasing efficiency and
facilitating new business models
through game changing solutions in
HEALTH insurance
PPPs & subsidies,
supplementary health
insurance, primary care,
bundling with health services
AGRICULTURE insurance
Messo-level PPPs, bundling with
agriculture services, livestock
insurance
MOBILE services
Mobile for all functions, safe
payments, telemedicine &
agriculture advisory, ‘paid’ mobile
insurance
Alternative
DISTRIBUTION
‘one-stop shops’, bundling with nonfinancial services, sales force &
agent network development
BUNDLING with other
financial services
Savings, cash transfers /
remittances, bundling for SMEs
For further information:
www.ilo.org/impactinsurance
Q&A: Do you have any questions?
Thank you!
Patricia Richter
richter@ilo.org