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Planet Rating, a Rating Agency for Microfinance
Development

• MFC Bucharest - May 2005
• Minh-Huy Lai

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Table of Contents

• Planet Rating
• Why standardize?
• Saving ratios a work-in-progress

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Planet Rating
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Presentation

• Department of the international NGO PlaNet
  Finance (www.planetfinance.org). To anticipate
  conflict of interest, Planet Rating will spin off
  from PlaNet Finance in June 2005.
• Our objectives
• Promote communication and transparency
• Attract new sources of financing and
• Build capacity for MFI self-evaluation.
• Our team
• 6 analysts
• Paris and Mexico.
• Opening an office in Senegal.
• Co-financing if approved by the CGAP Rating
  Fund, our services may be co-financed.

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Our Services
INV. F
Information
INVESTOR FAIRS
CREDIT RATING
Rating
Social Indicators
GIRAFE
GIRAFE
Rating Pro Forma
Evaluation
PF
PV
Process Validation
Certification
SUPERVISION TOOL
GIRAFE TRAINING
Training
Small MFIs
Mature MFIs
Networks Central Banks
NGOs
Donors
Investors
CURRENT
Under dev.
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Our achievements, March 2005

• 6 years of experience in microfinance
• More than 140 evaluations missions in more than
  45 countries
• Training sessions reaching more than 300 people
  in 7 countries
• Dissemination of reports

ECA
MENA
ASIA
AFRICA
LA
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Experience in MFC areas

• Around 20 missions in Eastern Europe, Russia and
  NIS
• Armenia Aregak (G3), MDF Kamurj (G4)
• Bosnia EKI (A-), Mi Bospo (A), Mikrofin (A),
  Partner (A), Prizma (A-)
• Georgia Constanta (B)
• Moldova MicroInvest (private rating)
• Mongolia XacBank (A-)
• Russia RWMN (B)
• Serbia Montenegro AgroInvest (A-)

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Our Strengths

• To provide you with these services, Planet Rating
  employs the following tools
• Comprehensive methodology GIRAFE is not based
  only on financial analysis the fundamental
  focus of the mission consists of de la mission
  consists of understanding the organization and
  its systems more than 50 of the final rating
  is determined by an analysis of governance,
  internal mechanisms and methodologies.
• Detailed reports our 30-40 page reports provide
  MFIs with a detailed evaluation of its
  performance in the various areas.
• Resumes for investors Ten page resumes of our
  reports synthesize all of the information most
  necessary and relevant for investors.
• Onsite mission visits to multiple agents to
  better understand the operations of the
  institution.
• Contextualization of the rating our report
  section Rating Plus offers details regarding
  difficulties encountered by the institution
  environmental difficulties, young age and lack of
  experience, difficult target market etc.
• International experience We have conducted
  missions in every region of the world
• Flexibility of our services Classic rating
  mission / Evaluation ordered by a group of
  potential donors / New regulation implementation
  / Identification of MFIs technical assistance
  needs pro forma rating

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Why standardize?
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Why standardize?

• 6 years ago
• MFIs did not adopt the same financial statements
  standards and financial reporting guidelines
• A CGAP survey indicated that more than 150
  different formulas were used for Return on Assets
  and Return on Equity alone
• Information was not organized in the same way,
  many ratios were computed differently.
• Impact on rating services
• Rating agencies financial analysis were not
  comparable
• Direct comparison and benchmarking among MFIs
  were not possible
• Since our evaluation use benchmarks to identify
  well performing institutions, our work was made
  difficult because many noted areas rely on ratio
  data.
• Our methodology would not be applicable on a
  global scale without standardized definitions and
  ratios.

• Standardizing financial definitions and ratio
  formulas became necessary for common
  understanding and rating credibility among
  stakeholders.

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The long road

• 1999 2005 Field knowledge by visiting so many
  MFIs, we were
• able to test our ratios, discuss them with
  MFIs, and know what kind of information they
  were able to provide
• 2000 2005 African Evaluation Forum work on
  ratios for specific ratios for deposit taking
  MFIs
• 2002 Partnership with MBB/MixMarket to work on
  ratios formulas.
• 2002 2004 Working group  round table 
  working group, gathering MF networks, MFIs,
  donors and rating agencies. SEEP is finalizing
  the work of this working group.

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Saving ratios a work-in-progress
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Standardizing ratios for deposit taking MFIs

• Challenges
• Efficiency and productivity ratios do not account
  for saving activity since their denominators are
  based on loan portfolio elements (number of
  active clients, loans outstandingetc.)
• The objective was to choose new ratios to
  complete the financial analysis.
• Working Group
• About 15 rated African MFIs (several of them
  taking deposits), 3 rating agencies, MBB and ADA
  as facilitators.
• Work Focus
• List of ratios that are relevant for
  deposit-takers
• Field testing with participating MFIs
• Review and analysis

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Outcomes

• Identification of ratios where deposits have most
  impact
• Operating Expense Ratio, Financial Expense
  Ratio, Productivity and Liquidity Ratios.
• Conclusions
• We should monitor other ratios for productivity
  (taking into account depositors and not only
  borrowers)
• It is very difficult to identify a relevant new
  denominator for the operating expense ratio we
  tried with (total loans total savings) and
  (total assets) but they all have drawbacks.
• The link between expense and profitability ratios
  is very difficult to make. Differences among
  deposit taking MFIs and others, on all these
  ratios, were not significant. In the sample under
  review, deposit taking MFIs were even better
  performing than the others (refer to graph on the
  next slide).
• Benchmarks may be more useful than new ratios
• The Forum decided to go further and ask MFIs to
  collect more information on deposits (time spent
  by cashiers, etc.) to help us understand the
  small differences between deposit taking MFIs and
  others.

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? The operating expense ratio based on average
loan portfolio is correlated with the one based
on portfolio and deposits combined.
Efficiency of Deposit-Taking MFIs vs. Other MFIs
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The Way Ahead

• Make sure everybody knows about the new
  definitions and ratios
• Collect more data following these standards to
  develop benchmarks based on a significant number
  of MFIs.

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Contacts

• More information? You may find more information
  on our services in the document entitled
   Planet Rating, Presentation of Our
  Activities .
• Planet Rating 13 rue Dieumegard 93400 Saint
  Ouen - France
• Tel. [phone]
• Fax [phone]
• http//www.planetrating.org
• Minh-Huy Lai Director
• mlai_at_planetfinance.org