MicroScoreA scanning tool for assessment of

graduation performance in connection to MFI capacity development

Joost de la Rive Box

26 November 2009

MicroScore tool

Purpose of the tool

• MFOs; to assess and measure the success of MFI capacity building support

• MFOs (external); to justify the use of public funds for MFI capacity building

• MFO (internal/PO); to see whether identified weaknesses have been addressed and performance improved performance based portfolio management

• MFI; to better understand the ‘path ahead’ in order to graduate towards maturity status

Methodological challenges

• To align the rating methodologies along one measuring rod

• To get a more universal framework for measuring graduation

• To develop a more transparent rating/scoring in which observations are linked to recommendations and preferably to agreed action points (MFO-MFI partnership).

Score 1-9

• Emerging MFIs: 1-3 (no best practice yet, limited service scope & outreach, poor efficiency & financial performance)

• Developing MFIs: 4-6 (implementing best practice standards, improving service scope & outreach, reasonable efficiency & financial performance)

• Mature: 7-9 (full compliance to best practice standards, excellent service scope & outreach, excellent efficiency & financial performance)

Development of the average scores for the portfolio

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1,00

2,00

3,00

4,00

5,00

6,00

1 2 3 4 5

Scan

Score evolution

Financial Performance

Services & SPM

Institutional aspects

Governance

Scoring range:1-3 = Emerging4-6 = Developing7-9 = Mature

MicroScore tool

• 5 scans (e.g. five year period)• Score (rating) for:

– Governance (4 score items)– Institutional (8 score items)– Services and SPM (3 score items)– Financial performance (4 score items)

• Extensive help functions; key questions, characteristics of maturity stages, frequently observed weaknesses)

• Ready reports – per scan and 5Y overview

Preconditions for application of MicroScore

• MFI or program must be gradable, i.e. SMART business plans & reports

• Documentation must be available (problem decentralized operations)

• MFI Status must be clear;– MF versus promotion/social

services/innovation research– Retail, wholesale, multi-tier network– Cooperative network v.s. informal

SACCO networking and promotion

Let’s see…..

Similarities with “rating”

Scan- Score

M-CRIL

Planet Rating ACCION CAMEL

Emerging 1 γ - gamma

Highest risk, poor systems

E - Immediate risk of default or very insufficient: There are immediate or underlying risks for operations or an unacceptable under-performance.

“NC” (not rated) category classification is given where it becomes impossible to assess the institution

2 γ+ gamma plus Substantial risk, poor systems

D - Insufficient: Procedures are in place, but with failings, and certain problems are only partially addressed. There are medium-term, and possibly short-term risks for operations.

“D” category classification indicates an MFI that should not be operating a credit program. It is highly likely that the institution is suffering severe losses and requires a fundamental change in management

3 β− beta minus Significant risk, poor to moderate systems

C, C- Minimum required: Procedures are functional but with certain failings. There are risks in the medium term for operations.

“C” category classification generally indicates an MFI experiencing fundamental problems administering its credit program, with basic weaknesses in various key indicators.

Developing 4 β beta

Moderate safety, moderate systems handle large volumes

C+ Minimum required: Procedures are functional but with certain failings. There are risks in the medium term for operations.

B An institution experiencing basic problems in the management of its financial resources and in its growth and efficiency.

5 β+ beta plus Reasonable safety, reasonable systems

BB An institution that is weak in financial administration and operational efficiency, areas which are correctable within the normal development of business.

6 α− alpha minus Reasonable safety, good systems

B+, B, B Good: Procedures are well developed, effective, and incorporate a long-term perspective. Medium-term and long-term risks exist but are identified by the institution. Some improvements could be made to efficiency and risk management.

BBB An MFI that needs to make certain adjustments in the management of its resources without which a risk is posed to its long-term financial performance.

Maturing

7 α alpha High safety, good systems

A Good institution with some minor weaknesses that lower the score.

8 α+ Alpha single plus Very high safety, good systems

AA An institution that, in general terms, is considered excellent, but scored lower in some variables.

9

α++ Alpha double / triple plus Highest safety, very good - excellent systems

A+, A, A Excellent: The institution excels in the evaluation area and is a model for the sector. There is a long-term vision for continual improvement. There are no risks in the short and medium term for operations. Long-term risks are well managed and monitored.

AAA An MFI that exhibits superior performance in every area examined. It is resistant to the peaks and valleys of the business cycle and the impact of unforeseen circumstances.

• An absolute score is applied (= different from a relative score; i.e. relative to the stage of development)

• Comprehensive:– Governance– Institutional aspects– Services and SPM– Financial performance

• ≈ Same number of score grades

Applications

• Annual monitoring instrument for PO’s (scan report)

• Annual ‘rating’ instrument for local consultants or local staff (scan report)

• Graduation performance assessment after 3 – 5 years by MFO

• Portfolio assessment - 5 years historic (requires compilation tool)

Development of the average scores for the portfolio

0,00

1,00

2,00

3,00

4,00

5,00

6,00

1 2 3 4 5

Scan

Score evolution

Financial Performance

Services & SPM

Institutional aspects

Governance

Scoring range:1-3 = Emerging4-6 = Developing7-9 = Mature

Number of borrowers (target and actual)

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

1 2 3 4 5

Target number of borrow ers

Actual number of borrow ers

Operational Self Sufficiency

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

120,00%

140,00%

1 2 3 4 5

Cost effectiveness of capacity building & seed capital investments

Three types of ‘returns’ (HIVOS):• Increase in outreach during the seed capital

period has been 28,000 clients per MFI, out of which some 7,000 clients (25%) can be attributed to HIVOS.

• The increase in maturity level is a good 2 points on the rating scale: graduation from an emerging to a developing MFI

• As most rated MFI scored 4 or above, the majority have become eligible for debt funding.

These “returns” were generated with an average HIVOS investment in seed capital amounting to US$ 240,000.

Range: $2 - $2000 / client

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50

100

150

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300

1 2 3 4 5

Year of implementation

US

$ p

er c

lien

tCum. grant per client served in US$

Loan per client in US$

Thank You