The due diligence process: A key process in assessing the sustainability of an institution, main challenges and opportunities

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1 The due diligence process: A key process in assessing the sustainability of an institution, main challenges and opportunities Aldo Moauro MicroFinanza Rating Luxembourg, 14 th of November 2013

ABOUT US MicroFinanza Rating Private and independent international rating agency specialized in microfinance and rural finance First MiRA licensed by a central bank (Ecuador in 2007) and now also in

2 ABOUT US MicroFinanza Rating Private and independent international rating agency specialized in microfinance and rural finance First MiRA licensed by a central bank (Ecuador in 2007) and now also in Bolivia and the Philippines Headquarters are in Milan (Italy) with 6 offices in 4 continents Italy: Headquarters Ecuador: covering Latin America Bolivia: for regulated local mkt Mexico: for Mexican and CA MFIs Kenya: covering Africa Kyrgyz Republic: covering NIS and Central Asia Philippines: covering South-East Asia 2

3 MARKET COVERAGE MicroFinanza Rating More than 850 evaluations in 80 countries MicroFinanza Rating has pioneered the social rating for microfinance institutions, developing an innovative methodology which includes the direct collection of client-level data (150 SR conducted so far). 3

4 SERVICES MicroFinanza Rating Pre-Rating Assessments Institutional Diagnostic Assessments Identification and opinion on the main internal weaknesses/external threats alongside existing opportunities for the institution. Microfinance Institutional Ratings MFR PLUS Provide an opinion on the long term sustainability and creditworthiness of an MFI. It measures the probability that an MFI continues to operate, despite unexpected events. Social Ratings Standard Comprehensive Opinion on the capacity of an MFI to put its social mission into practice and to achieve its social goals. 4

Map Commit Implement Demonstrate Responsible governance Client

social strategy, HR alignment to the mission Results: Financial

MIR (Microfinance Rating PLUS) Social Rating Client Protection

Governance USSPM systems Truelift Poverty focus: systems + results +

5 Map Commit Implement Demonstrate Responsible governance Client Protection Responsible finance Systems: capacity to achieve mission, social strategy, HR alignment to the mission Results: Financial inclusion, Poverty outreach, client satisfaction Client Protection MIR (Microfinance Rating PLUS) Social Rating Client Protection Certification Creditworthiness Long term Sustainability Management Governance USSPM systems Truelift Poverty focus: systems + results + outcomes Adequate standards of care with regard to client protection Deeper analysis 5

MIR Framework PERFORMANCE REPUTATION GOVERNANCE Mission, governance and

strategy Financial structure and management Financial and operational results

structure and quality MARKET Financial structure and management OPERATION

6 MIR Framework PERFORMANCE REPUTATION GOVERNANCE Mission, governance and strategy FINANCIAL SOCIAL BUSINESS POSITION LIQUIDITY Mission, governance and strategy Financial structure and management Financial and operational results Responsible governance; Client protection; Responsible finance CREDIT Assets structure and quality MARKET Financial structure and management OPERATION Organization and operations CAPITAL ADEQUACY EXTERNAL CONTEXT: ECONOMIC, INDUSTRY AND REPUTATION 6

7 Social Rating Framework 7

Social Rating Areas of analysis Systems Results 1 2 SOCIAL PERFORMANCE MANAGEMENT SYSTEM CLIENT PROTECTION AND SOCIAL RESPONSIBILITY -Mission, Governance and Strategy -Tracking and monitoring system

8 Social Rating Areas of analysis Systems Results 1 2 SOCIAL PERFORMANCE MANAGEMENT SYSTEM CLIENT PROTECTION AND SOCIAL RESPONSIBILITY -Mission, Governance and Strategy -Tracking and monitoring system -HR alignment -Client protection -Social Responsibility (SR) towards staff -SR towards community/environment 3 OUTREACH -Area of operation -Profile of clients reached 4 QUALITY OF THE SERVICE -Variety of the service -Adequacy of the services 8

9 MIR & Social Rating Process Desk review Preliminary analysis of data and documents 1 week Visit Interviews with staff, management, directors Debriefing 1-2 week(s) Rating Committee review and grade Final report Feedbacks review Report finalization 1 week Draft report Draft report MFI feedback 3 weeks 9

10 Investment process and ratings Investment process Identification of potential borrower-mfis Due diligence Credit decision Monitoring Potential Role of Ratings Info provided by ratings as precious dealsourcing Ratings can enhance investor s due diligence Second opinion to balance Investment officer Ratings can enhance or substitue monitoring visits Financial synergies expected from an optimal combination Higher/more informed deal flow Lower credit risk Lower credit risk Decreased cost of monitoring

11 Expertise for Transparency in Microfinance MF Rating HQ Via Rigola, 7, Milan Italy. Tel: Thank you! MF Rating Latin America Calle Pasaje El Jardín #152 y Avenida 6 de Diciembre, Quito Ecuador. Tel.: MF Rating Mexico Av. Patriotismo 229Piso8, Ciudad de México DF, CP Tel Tel MF Rating Central Asia 231 Tynystanova Str., apt , Bishkek, Kyrgyz Republic. Tel: MF Rating Africa Royal Offices, Mogotio Road, Westlands, Nairobi Kenya Mob: MF Rating South East Asia Unit 34 Cattleya Gardens, 111 C. Palanca St., Makati City, Metro Manila, Philippines. Tel: info@microfinanzarating.com

Training services proposal. Financial and Social Rating. Evaluation of Microfinance Institutions. Mongolian NBFI's Association

Training services proposal. Financial and Social Rating. Evaluation of Microfinance Institutions. Mongolian NBFI's Association MF Rating HQ Via Rigola, 7 20159 Milan Italy Tel: +39-02-3656.5019 MF Rating South America CallePasaje El Jardín #152 y Avenida 6 de Diciembre Quito Ecuador Tel.: +593-2-3333.234 MF Rating Mexico Av. Patriotismo