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

Microfinance for Decent Work:
Improving the Working Environment
and Addressing Child Labour
Experiences from
ESAF, NWTF and Pride Microfinance Limited under an ILO experiment
October 10, 2013

What do we want to do in this session?
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Introduction of panellists
Guided questions and answers
Opened questions and answers
Poster session

Panellists
• Manuel Margate, Head Client Services Department, Negros
Women for Tomorrow Foundation, NWTF, Philippines
• Veronicah Namagembe, Managing Director, PRIDE
Microfinance Limited, Uganda
• Paul Thomas, Founder and Manager Director, ESAF
Microfinance and Investments Ltd., India
• Pia Naima Unte, Research Fellow, Chair for Econometrics,
University of Mannheim, Germany
• Craig Churchill, Chief, Social Finance Programme,
International Labour Organisation, Switzerland

Guiding Questions
1)
2)
3)
4)
5)
6)
7)
8)

How did the project come about, what were its objectives?
Why did you get involved?
What was the research strategy?
What innovation did you implement, why did you choose that
particular innovation?
What challenges did you encounter in implementing your
innovation?
What was the impact of that innovation on the livelihoods of
your clients?
What challenges did you encounter in carrying out the
research work?
How do you want to take this forward?

Q1: How did the project come about and
what were the project’s objectives?

Q1: How did the project come about…?
 Clients of microfinance institutions must cope with serious work
challenges:

Child Labour

Occupational
Safety and Health

…and
• vulnerability to income shocks
• overindebtedness

Informality

Q1: How did the project come about…?
Findings from a diagnostic survey showed that:
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)

Q1: …what were the project’s objectives?
IMMEDIATE GOAL:
To measure the impact of innovations on the
welfare of microfinance clients
Action Research Programme
Timeframe: 2008-12
16 partner-MFIs worldwide

Q2: Why did you get involved?
 Pride’s mission - ‘To provide financial solutions to
micro, small, medium, and upscale entrepreneurs in
rural and urban areas through sustainable operations
that promote social and economic growth of Pride’s
customers’.
 MF4DW presented a good opportunity for Pride;
• To identify the most pressing work-related challenges
faced by our customers (which was overindebtedness)
• Develop an appropriate innovation to address the
challenge.

 ESAF believed that most of its entrepreneur clients who
lacked information and know-how to formalize their
business could not grow further or expand their
business.
 Specific BDS aimed at „formalizing‟ the business would
ensure better reach in marketing the products and also
get linked to the firms, associations that would support
them in enhancing their business.
 Strategy, if successful, could be replicated in other
branches where „growth oriented‟ clients are in need of
such services.

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

 BUT diagnostic study showed that:
4% of NWTF sample clients could not cover HH expenses
4% could not cover business expenses by business income
17% had experienced difficulties in loan repayment
19% of NWTF sample clients had already had late payments
35% used loan from other sources (most common: other MFIs
(47%), cooperatives (25%) and moneylenders (12%)
• Among the clients that took loans from other providers, 12%
said they used the loan to pay back another loan
• 50% of client businesses were not registered
• 50% had been confronted with a large unforeseen expense in
the past year (accident/ illness (75%), catastrophes/typhoon
(13%) and death/burial (6%))
•
•
•
•
•

Q3: What was the research strategy?

Quantitative impact evaluation:
Why is it important?
 Create knowledge on what innovations work for
which purposes and which clients.
 Also learn about unintended side effects.
 Quantify innovations‟ impact.
 Oppose costs and benefits of innovations.
 Inform decision makers, give decision guidance for
improving future innovations.
 Show results for public spending.

Quantitative impact evaluation: What
are the methodological approaches?
Type of Experiment

Methodology

Experimental:

Randomized Control Trial
(RCT)

Quasi-experimental:

Differences-in-Differences
(DiD)

Propensity Score Matching
(PSM)
Regression Discontinuity
Design (RDD)

Instrumental Variables (IV)

Quantitative impact evaluation: How
to learn from empirical evidence?
MF4DW Financial Education/Entrepreneurship
TYM

NWTF AMK VCF

Financial attitude

+

o

+

o

Financial behavior

+

o

o

+

Asset building

o

+

+

+

Over-indebtedness

o

+

o

o

Vulnerability

o

o

o

o

Quantitative impact Evaluation: Basic facts
on evaluation for MF4DW Action Research.
• Control and target group.
• Panel data: Baseline with up to four follow-up surveys.
• Data sources: Questionnaires (clients) and Management
Information Systems.
• Assignment of innovation at branch level (Number of
branches in samples: 2 to 29).
• Typical evaluation methodology: DiD (sometimes
supported by PSM).
• 2 main assumptions: no contamination,
common trend in outcomes

Quantitative impact Evaluation:
Basic idea of the DiD approach.
Example: Clients with repayment difficulties (in %)
Target group

Control group

(1)

(2)

(1)-(2)

After (A)

12

13

-1

Before (B)

15

13

2

(A)-(B)

-3

0

=-3

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

Q4: What innovation did you implement,
why did you choose that particular
innovation?

and why?
WHAT:
 ESAF chose to work on „formalisation‟ of the business enterprises
of “ready-to-grow” clients.
 ESAF introduced awareness raising campaigns on the registration
and formalisation processes and targeted Business Development
Services (BDS) to its clients.
WHY:
 To facilitate access to government support schemes, access to
bank loans, membership in business associations and access to
markets.
 The long-term objective: to improve the social and economic
performance of ESAF clients, which will lead to their economic and
social empowerment.

and why?
WHAT:
 Individual Emergency Fund (IEF)
Modifications to Individual Emergency Fund (= savings
account for emergency situations)
 Entrepreneurship Training
Entrepreneurship training of clients using ILO training
modules “Generate and Start Your Business”
WHY:
 To answer to challenges in clients’ risk management
strategies and overindebtedness

and why?
WHAT
 Introduction of a micro-leasing product - “Mortgage & Asset
Financing Loan”
Aim: reducing customers‟ over-indebtedness by financing
them to acquire income generating assets
WHY
 Because the diagnostic study
showed that:

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

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

Other MF4DW 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

Child Labour

•Awareness campaign
•Client training to increase production productivity

Q5: What challenges did you encounter
in implementing your innovation?

 Individual Emergency Fund
 High transaction costs for clients for withdrawals (only
possibly at office)
 Branch manager authorising withdrawal lead to
neglecting other tasks

 Entrepreneurship Training
 Selecting eligible clients
 Loan officers offering training lead to backlog of other
work

 Consequences of “Andhra Pradesh Crisis”:
•
•
•
•

Speculations about impact of microfinance and effects on the
lives of clients
Restricted funding
Reducing of loans => need to answer to clients WHY
Sudden increase in dropouts among clients

 Quick transition back to normality: many loyal and old
clients retained their association and continued with ESAF
 More than 90% of the clients participated in the programs
conducted under this action research from beginning to end

 Suppliers were not forthcoming in signing agreements to
supply assets to the borrowers.
 There was a slow buy-in process from staff who in-turn
convinced customers to take on other loan products.
 The extra processes involved in evaluating the microleasing product (i.e. transfer of property title into the
borrowers name & inspection of asset) affected turnaround
time. Purchase of land cases were the worst due to Uganda‟s
land laws. This demoralized both the COs and clients.
 Marketing/sensitization of the product was under-budgeted
and yet it is crucial for client take-up.

Other challenges…
 External factors: regulation





Internal buy-in
Time required for new product uptake
Time required when an external partner is involved
Transmitting new concepts to staff and clients
(formalisation, occupational safety and health)
 Staff turnover
• contact person/team in MFI,
• MFI staff implementing innovation (training)

Q6: What was the impact of the innovation on
the livelihoods of your clients?

Q5: What was the impact on the
livelihoods of your clients?
“I am pretty sure that the GYB and SYB training
was very timely for me and it was a need. The
training benefitted me a lot. I just hope more
training like these will come in the future.”
Mildred bought the right to operate a small lot
for salt making which can produce > 750
sacks of salt in one year valued at (U$D
2,616). She and her husband also acquired on
instalment a motorcycle that her husband
uses in their bread selling/delivery business.

Impact Results:
NWTF Entrepreneurship Training
Strongest results:
• Business profit increased by PHP 2‟000, ownership of
motorized vehicles increased by 3.5% (positive impact on
asset building)
• Incidents of late repayment decreased by 4%, take out a loan
to repay another loan decreased by 10% (positive impact on
overindebtedness)
• 5% increase in use of microinsurance to cover unforeseen
expenses (positive impact on risk management)
Inconclusive results:
• Debt- and precaution-related financial attitudes
• Financial behaviour/risk management

Impact Results:
NWTF Individual Emergency Fund (1)

Impact Results:
NWTF Individual Emergency Fund (2)
Example: Some loan and repayment indicators
Impact
Borrow informal

-0.068***

Borrow other
formal

-0.150***

Took loan repay
other loan

-0.222***

Repayment
difficulties

-0.068***

Increased Asset Base to enhance business growth.
-se of landownership from 64% to 76% used for
agriculture etc

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

Increased Business Revenues & Reduced
Business Failures.
-se in people that covered their business
expenses from 31% to 60%
Increased household incomes
-se in people that covered HH expenses from 47%
to 66%
-slight se in repayment difficulties from 8% to 12%

Strongest results:
 Increased formalised status of microenterprise by 70%
 Improved access to benefits, e.g. government schemes and subsidies
 Improved social security coverage for clients and employees
 Increased number of employees
 Better marketing and delivery of products
 Improved use and management of financial services (repayment of loans, ownership
of separated bank accounts, new financial products)
 Improved business management practices (accounting, invest.) 15 % increase
 Increased business profit, household income and assets
Little/ no impact:
 No impact on annual turnover nor on investments in machinery
 Access to electricity improved but not significantly

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

 High demand for voluntary insurance
 Claim frequency and amount higher in the
innovation area
 Possible sustainable financial product found that
may reduce child labour while being financial
attractive
 Decrease in % of child labour and % of children in
hazardous labour


Strongest results:
• Reduction in child labour variables
–
–
–
–
–

Child labour incidence reduced by 3 to 7 percent.
Average hours worked reduced by 2.5 to 3.5 hours per week.
Hazardous occupation reduced by 5.7 to 6.5 percent.
Monthly earning through child labour reduced.
Reduction for incidence of child labour and hours worked stronger for boys than
for girls (however, child labour clearly more common among boys)

Inconclusive results:
• Schooling: There is no evidence that schooling increased.


.15
.1
0

.05

Hazardous occupation

Example: Hazardous Occupations (5 – 17)

0

1

2
Wave
Treatment

3
Control

4

in carrying out the research work?

 External interviewers neither familiar with
microfinance operations nor locations of clients

 Interviews only took place when loan officers present
=> change of interviewer to loan officers
 Questionnaire not translated in local dialect which
double interview time

 The action research suffered from a drastic reduction
in the sample base in both control and target groups,
with higher drop out observed in the target group due
to the Andhra Pradesh crisis.
 Reduction in sample size made it difficult to observe
significant differences between control and target
group in:
• income levels,
• number of employees, or
• financial improvement in client businesses.

Research assistants and customers
became impatient

Questionnaires were too long

High turnover of Research
Assistants

Too many research interviews

Increased errors in
interviews and data entry
Customers became
uncomfortable

A few customers with repayment problems

more time spent in
retraining new staff.
Thought Pride was
bothering them too many
times

Hide/refused to talk to Pride

in carrying out the research work (1)?
Criteria for credible evaluation: (not always met)
 Enough clients in target and control group
 Baseline and follow-up surveys
 Several follow-up surveys
 Enough target /control clusters for randomization
 Data of sufficient quality

in carrying out the research work (2)?
 Researchers not involved from the very beginning

 Problems with individual identifiers
 Attrition in panel data
 Not all important questions included at baseline

Other challenges…
 Understanding of research design
• Concept of target and control group
• Sampling
• Interviewing the same clients over time
• Business case
 Staff turnover: research staff
 External factors (political unrest, natural disasters...)
 Client drop-out
 MIS

Q8: How do you want to take this forward?

Q8: How do you want to take this
forward?
 Developing a sustainable BDS model which supports the
ready to grow clients in other branches of ESAF who
have shown readiness to formalize their business and
also expand and diversify
 The strategy shall be put into action along with the
element of research so that the impact could be
studied.
 Other entities of ESAF such as the producer company,
Retails as well as the SHG federation shall play a key
role in the new model.

forward?
 Rolled out the product to all Pride branches and PAR
was at 3.9% as at end of August 2013. It will be
integrated with the branchless banking channels still
under development.
 Monitor and modify it according to market needs
without losing the objective of “reducing customers’
over-indebtedness”

forward?
 Entrepreneurships training
NWTF has decided to incorporate the GYB into the
Compulsory Group Training to ensure that all clients
upon entry must have business ideas. The SYB may
be conducted only to clients who have concrete
products that require a Business Plan.

 Individual Emergency Fund
Follow-up research with University of Mannheim

forward?
 Scale-up
• Dissemination of lessons learnt and keys results
• Promotion of effective strategies
• Capacity building of MF stakeholders

 Additional research
www.ilo.org/socialfinance

Q&A
Do you have any
general questions
to the panellists?

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