Pitchbook US template

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Microfinance with a Mission Learning Together
Meeting the Challenge of Assessing Social
Performance of MFIs
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JUNE 2 0 0 6
INDEPENDENCE OBJECTIVITY - EXCELLENCE
Presented by Minh Huy LAI, Managing Director,
Planet Rating
Social Performance Rating Planet Ratings
Experience
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Planet Rating SAS The Global Microfinance Rating
Agency
Created in 1999 and became a private independent
rating firm in June 2005

• Planet Rating has the most extensive global
  coverage
• Paris HQ covering Eastern Europe Asia
• Lima Office covering Latin America the
  Caribbean
• Dakar Office covering West Central Africa
• Kampala Office covering East Southern Africa
• Beirut Office covering the Middle East
• Most diversified rating team in the industry
• Multicultural American, Canadian, Colombian,
  French, Lebanese, Senegalese, Spanish, Ugandan,
  Peruvian, Vietnamese citizens
• Multilingual Arabic, Italian, English, French,
  Spanish, Portuguese, Vietnamese, Wolof speakers
• Qualified experienced team
• Planet Ratings Managing Director is the only
  head of rating agencies that has operational
  microfinance experience he was former General
  Manager of SPBD Samoas largest MFI
• Each senior analyst has conducted at least 12
  rating missions on 3 different continents
• Analyst backgrounds investment banking,
  management consulting, non-profit, microfinance

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Overview of the CERISE Tool
Planet Rating is a technical partner of CERISE
tool

• CERISE is a consortium which groups 4 French
  microfinance support organizations IRAM, CIDR,
  GRET and CIRAD.
• Objective share information on microfinance
  experiences in order to improve the practices in
  this sector.
• The SPI Social Performance Indicator- Initiative
  was launched in 2001 this tool is articulated
  around a comprehensive questionnaire that
  evaluates the social performance of the MFI
  according to its social mission and objectives.
• MFI's social mission and social strategy
• SPI Tool analyzes in 4 dimensions
• Outreach to the poor and the excluded
• Adaptation of the services and products to the
  target clients
• Improving clients' social and political capital
• Social responsibility of the MFI.
• Brief presentation of the MFI's financial
  performance.

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Overview of the AMAP Tool
Planet Rating is a technical partner of
Chemonics AMAP social rating tool

• The AMAP tool (called SPSA) was developed by
  Chemonics (Dr. Gary Woller) with USAID funding
  under the AMAP project
• A simple and low cost tool to measure social
  performance for microfinance institutions
• The SPSA tool includes two components
• A social performance scorecard which assesses
  social performance using a set of simple
  indicators falling under one of seven dimensions
  of outreach. It assigns a social performance
  score in each of the seven dimensions as well as
  an overall score.
• A social audit which assesses an MFIs internal
  processes and the extent to which they align its
  performance with its social mission.
• The scorecard and audit results are combined to
  assign the MFI an overall social rating using a
  standardized rating scale.

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Planet Rating Social Performance Rating Experience
Tests of two social performance assessment tools
have been conducted

• Test Rating reports based on CERISE Social
  Performance Indicators
• ENDA (Tunisia), PRIZMA (Bosnia), EDPYME
  Alternativa (Peru), FINADEV (Benin), DESPENO
  (Mexico), DIACONIA (Bolivia)
• Test Rating reports based on AMAP Social
  Performance Scorecard and Audit developed by
  Chemonics with USAID funding
• A joint rating mission conducted in ANED
  (Bolivia) with Gary Woller (Chemonics)
• Tool to be used in at least two other missions
  (CEADE Brasil and ECLOF Philippines)
• Main differences
• AMAP is a quantitative-oriented tool measured by
  a scorecard leading to quick comparable rating,
  but needs more qualitative assessments to be
  complete
• CERISE covers the same areas, but is a more
  process-oriented tool aimed at internal
  improvements

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Our Rating Will Be Aligned With The Common
Framework
Outreach
Social Performance Management
Outputs
Mission definition
Processes
Changes
Adaptation of services

• Social responsibility
• to clients
• to community
• to staff

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Planet Ratings Approach to Social Rating Tools

• Outreach Base our analysis on existing
  information or create information ?
• We will stick to information available in the MFI
• Creating information is not the role of raters
  who will check the validity of the data we might
  produce ?
• Verify the reliability of the information
• One to two additional days of branch visits
  depending on the volume of client data
  available
• During social rating missions, we will promote /
  bring the word about tools available to increase
  MFI knowledge
• Any multilingual presentation, leaflet website of
  existing tools will be very useful to us
• We will try client surveys
• In order to understand the tools and technical
  constraints and limitations so that we can be
  better assessors of their reliability when we
  find them in the MFIs

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Planet Ratings Approach to Social Rating Tools

• Outreach Provide a grade on this dimension ?
• Does a MFI that targets the poorest have a higher
  social impact than a MFI targeting SMEs (both of
  them being excluded from the classic financial
  services) ?
• Impact studies do not provide strong evidence of
  that fact
• We will remain neutral on that aspect
• Provide information on the outreach to usually
  targeted populations (poor, women, vulnerable,
  rural, SME ?), but no grade
• We will provide a grade on the outreach to the
  target clientele of the MFI (if it has a specific
  one) when the necessary information will be
  available.

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Institutional Social Ratings What are the
relationships?

• Items assessed in institutional rating are
  important components of social performance
  (Governance, MIS reliability, Internal controls,
  Financial performance)
• Social performance ratings should be done in
  combination with an institutional rating or
  incorporate an institutional assessment
• Poor institutional performance (for instance a
  rating of D or E, meaning that the future of the
  institution is at high risk) is a strong
  limitation to social performance
• Social ratings is likely to be capped by our
  institutional ratings for bad performers
• Social ratings and institutional ratings to be
  performed during the same mission
• Synergies between the two processes are important

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Efforts Needed for Social Ratings
Preparation of documents
On-site mission
Debriefing session
Interviews HQ management team (specifically ED,
marketing/ research manager, and operations
manager) Two to three branches loan officers,
branch managers, clients Board of directors
members Information verification Clients surveys
data, loan database Impact studies, surveys,
research Loan documentation
Rating Committee
Report dissemination
Institutional rating
2 days
1014 man-days
610 man-days (spread over 4weeks)
½ man-day
2 to 4 man-days
3 man-days
Social rating
Price range 2,500 USD to 4,000 EUR
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Remaining Work

• Next Development Steps
• Define the stakes and the ideal situations, in
  qualitative terms
• Determine which indicators (one or two) can be
  sufficiently robust to be used a quantitative
  indicators (while other indicators can be used to
  support the analysis but not necessarily be rated
  as such)
• Define the weighing of each factor / indicator
• Reduce the number of quantitative Indicators
• First ratings will come out without an overall
  grade
• Next Field Tests
• Six social ratings in Mali for medium sized
  institutions
• First update of a social rating (enda-inter
  arabe, Tunisia)
• Inclusion of client friendliness section in our
  Mini-Ratings in Uganda
• Social responsibility to the client
• Adaptation of services to clients needs

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Remaining Work An Example

• Cost of the service will be rated direct costs
  as well as other transaction and opportunity
  costs
• Test of the AMAP approach
• The Zakoura Foundation and Al Amana are given the
  same grade on that dimension
• But Al Amana has lower interest rates that the
  Zakoura Foundation
• Repayment and disbursement procedures are more
  efficient at Al Amana
• Keep first two ones (interest rate) as a
  quantitative indicator
• Optimization of other transaction / opportunity
  costs as a qualitative indicator

Real portfolio yield
Yield / prime lending rate
Days to disburse a loan
loans with social collateral
transactions at clients home