by the MicroCapital Team - Investment Funds, Risks, South Asia, East Asia and Pacific, Transparency -

SPECIAL REPORT: Pratibha Singh of Agents for Impact, Arunkumar Padmanabhan of Svasti Discuss the AFISAR Rating, Microfinance, Impact and Much More!

This is part of a series of features sponsored by Agents for Impact (AFI), a German impact investing firm whose products include the AFI Sustainability Alignment Rating (AFISAR©) tool. AFISAR© is a trust mark – in microfinance and other forms of social business – signifying a commitment to positive and enduring change for people and the planet, based on the UN Sustainable Development Goal (SDG) framework.

AFISAR© helps MFIs leverage the market’s growing focus on sustainability performance to raise capital from international investors and, particularly, impact investors. The rating helps investors and social businesses understand their strengths and weaknesses and devise effective strategies to minimize negative impact and maximize positive impact to the benefit of the organization – its employees, clients and other stakeholders – as well as the environment.

The conversation below outlines the AFISAR© rating process carried out in the “direct partnership” format by a leading MFI like Svasti Microfinance. Direct partnership offers a conti­nu­ous and immersive experience to facilitate sustain­able transi­tions. The active dialogue and engagement embedded in the AFISAR© process enable the MFI as well as asset mana­gers to embark on a journey that leads to long-term sustainable develop­ment. AFI highly values long-term partnerships with organizations sharing our mission of achieving the UN SDGs. We take this so serious­ly that a rating above the sustain­ability threshold is required for the disbursement funds.

To date, AFI has used AFISAR© to rate 35+ microfinance and SME finance institutions in Asia, East Africa and Eastern Europe, helping the institutions demonstrate their SDG competency and alignment.

Pratibha Singh (pictured): How did you become interested in microfinance?
Arunkumar Padmanabhan: I was a lawyer and had worked for some years with ICICI Bank. Based on that experience, I wanted to set up a com­mercial business in the social impact space. We started in the slums of Mum­bai, and now we have expan­ded to eight states in India with 220,000 borrow­ers across 120 branches.

PS: What makes the Svasti model unique?
AP: The key to success in this field is based on three aspects: people, process and technology. Our vision follows the “people-first” approach. Tech­nology and innovation are driving forces as well, and we have built all of our systems from the ground up. That gives us a signifi­cant competitive advantage. Meanwhile, we have focussed on client protection and social impact from a very early stage in our develop­ment. With AFISAR©, we have become one of the few companies that is measuring its perfor­mance based on the SDGs. Constantly trying to improve in impact-driven areas is of great strategic importance.

PS: What is at stake for an MFI like Svasti when it comes to the SDGs, and how does the MFI contribute to these goals? AP: Our business – even in the absence of the SDG framework – is naturally aligned with its elements, so for us to make the transition was easy. By holding ourselves account­able in this manner, we can get better at what we already do.

PS: Svasti chose the direct partnership route for the AFISAR© process, scoring 71 percent on the SDG portion and a B+ AFISAR© rating. How did the process unfold?
AP: The AFISAR© process was good through and through. We needed guidance at various stages from the AFI team, and we received it. Although we already were contributing to some of the goals, putting this into a framework and measuring it against various parameters such as client protection, governance, etc is something we never had done before. This exercise gave us some fruitful insights on how to approach our work in an outcome-oriented manner. We also learned a great deal about how to organize and present information that showcases our im­pact. Now we are in the process of making some changes to our systems that we are sure will make the AFISAR© process easier next time.

PS: Please share a story of Svasti’s impact.
AP: Right from the beginning, we have designed our processes and strategies in a manner that positively contributes to the customer ex­perience. Some institutions focus on operating efficiencies or portfolio quality. They let the customer experience take a back seat because they feel the socio-economic background of their customers makes them unde­serving of being the center of their company’s decisions. Cus­tomers come to us for a better experi­ence, and it makes them feel better to get access to a range of appropriate financial choices. Things worked differently 20 to 30 years ago in India, when there was no concept of pri­oritizing customers. Now things are changing. I believe our customer-centric approach ties in very well with many of the SDG elements.

PS: How have you navigated the challenges of the past two years, and what are your plans to prepare for future uncertainty?
AP: The COVID-19 pandemic was a once-in-a-lifetime event that impacted us and our customers in ways that we never could have foreseen. We are used to having 99?percent collection effi­ciency, and we have had some setbacks before, like the demoneti­zation process, when collection effi­ciency dropped to 80 percent before working its way back up in a matter of months. We always had plans in place to deal with what we thought would be the worst-case scenarios, but that was the worst that we had seen. With the onset of the COVID-19 pan­demic, collection efficiency dropped to zero. Nobody had modelled how to deal with a situation like this, and it was a drastic event for us – our company, staff and the custo­mers. For months, our customers did not have a source of income. The plight of the ven­dors, auto-rickshaw dri­vers and others was dramatic. But once incomes started improving gradually, so did the repayment rate.

This was an adverse situation for all sides. We had to re-evaluate all our processes from the ground up. As the waves of the pandemic have con­tinued, however, we have found that the customer segment we work with is vul­nerable but resilient, with high levels of integrity. As a company, we got to work on a very challen­ging and complex problem, and we worked on it from the three angles I mentioned before: people, processes and technology. It has made us much better at our work and gave us a lot of confidence.

PS: What is your advice to other MFIs that have not yet embarked on the sustain­ability pathway or chosen the AFISAR© tool?
AP: As I mentioned before, MFIs are doing a lot of work that is natur­ally aligned with the SDGs – so why not benefit from it? We are work­ing with the low-income population and pro­viding people access to finance, so there is a general incli­nation towards the SDGs. It’s main­ly a question of measuring the work in a coherent manner. It’s im­pos­sible to ignore the SDG frame­work, as it will play a significant role both for the MFI’s reputation as well as its fund­raising. I encourage all MFIs to work toward achieving these goals.

The Rating Team at AFI has extensive experi­ence in impact measurement, regu­lation and microfinance – both exhaustive practical (on-site) experience as well as the necessary aca­demic / theoretical background – and is, there­fore, highly equipped to analyse a rated company’s strengths and weaknesses. For further details on the AFISAR© tool, please contact pratibha.singh@agentsforimpact.com.

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