SPECIAL REPORT: Your Comment Requested on Draft: “Assessments of Social and Environmental Performance of Small, Medium-sized Enterprise (SME) Finance Institutions;” by Lucia Spaggiari

This is a summary of a draft paper by Lucia Spaggiari, published by the European Microfinance Platform (e-MFP) and the Social Performance Task Force (SPTF), May 2018, 18 pages, available at: https://sptf.info/images/ES_performance_of_SME_finance_institutions_Draft_May_2018.pdf.

The draft report lays out the following steps for investors to gauge and help improve the environmental and social (E&S) performance of financial institutions that serve small and medium-sized enterprises (SMEs):

1. Identify the SMEs: The definition of an SME can be based on national norms, sector type, or metrics specific to the SME finance institutions under consideration.

2. Identify the SME finance institutions: The approach to defining what lenders qualify as SME finance institutions can be the same across an investor’s portfolio or tailored case-by-case.

3. Classify each SME finance institution by E&S category: Establish E&S risk categories warranting more or less scrutiny based on the investee’s portfolio. Key considerations include: (a) the risk level of the sectors the SME finance institution is active in; and (b) the sectors in which it has placed its larger loans.

4. Assess each SME finance institution’s level of “sustainable performance” using tools commensurate to its E&S risk category. Ms Spaggiari offers an adaptation of the “Universal Standards” that is specific to SMEs. The adapted elements, which may be customized as needed, cover the following aspects of SME finance institutions: E&S management systems, client protection, management commitment, governance, product quality, responsible treatment of employees, and balance of financial and sustainable performance. The metrics for evaluating the E&S management system cover the classification of loans by E&S risk category, assessment of E&S risks and opportunities, management of E&S risks and opportunities, monitoring progress, and reporting and analyzing E&S status.

5. Promote the improvement of the SME finance institutions’ systems.

6. Monitor ongoing performance.

Comments on the draft are welcome via info[at]sptf.info.

This post is part of a sponsored series on European Microfinance Week, which will be held in Luxembourg from November 14 through November 16, 2018. MicroCapital has been engaged to promote and cover the event on-site.

Sources and Additional Resources

SPECIAL REPORT: Lucia Spaggiari, Laura Foose on Sustainable Performance Management for SME Lenders
https://www.microcapital.org/special-report-lucia-spaggiari-laura-foose-on-sustainable-performance-management-for-sme-lenders/

European Microfinance Week
http://www.e-mfp.eu/microfinance-week

MicroCapital Coverage of European Microfinance Week Since 2012
https://www.microcapital.org/category/european-microfinance-week/