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VI National Conference 'Microfinance in Russia: Building an All-Inclusive Financial System' ... How to use Rating Assessments for you Benefit ... – PowerPoint PPT presentation

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Title: Pitchbook US template


1
VI National Conference Microfinance in Russia
Building an All-Inclusive Financial System
November  2007
INDEPENDENCE OBJECTIVITY - EXCELLENCE
Presented by Gema Perez, Senior Analyst, Planet
Rating gperez_at_planetrating
.com
S T R I C T L Y   P R I V A T E   A N D 
 C O N F I D E N T I A L
Business breakfast with Planet Rating How to
use Rating Assessments for you Benefit
2
Planet Rating 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 North Africa Middle
    East
  • Most diversified rating team in the industry
  • Multicultural American, Canadian, Colombian,
    Dutch, French, Lebanese, Senegalese, Spanish,
    Ugandan, Peruvian, Vietnamese citizens
  • Multilingual Arabic, Dutch, Italian, English,
    French, Lugandan, 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

3
Global Recognition Global Experience
In 2007, Planet Rating is ranked
  • 1 microfinance rating agency in Middle East
    North Africa
  • 1 microfinance rating agency in Africa
  • 2 microfinance rating agency in Eastern and
    Central Europe NIS
  • 2 microfinance rating agency in Latin America
    and 1 in Brazil
  • 3 microfinance rating agency in Asia-Pacific

and holds a strong rating experience of various
types of microfinance organizations
  • Our rating team has developed its expertise
    through missions within
  • Mature regulated MFIs, such as Mikrofin (Bosnia
    Herzegovina)
  • Smaller unregulated MFIs, such as Ugafode
    (Uganda)
  • Deposit-taking institutions and cooperatives,
    such as Kafo Jiginew (Mali)
  • Banking institutions, such as Socremo Bank
    (Mozambique), XacBank (Mongolia), Banco de
    Desarollo (Chile) and Ecofuturo (Bolivia)
  • International organizations and donors have
    trusted us to evaluate their partner MFIs
  • USAID in Mali
  • EU/SUFFICE and DFID/FDSU in Uganda
  • Luxemburg cooperation agency in Senegal
  • Islamic Development Bank in Palestine

4
Our Rating Experience in Eastern and Central
Europe and NIS
Planet Rating is one of the most experienced
microfinance rating agencies in the region
  • We have rated MFIs of all sizes, types, legal
    statuses and stages of development
  • Bosnia and Herzegovina Mikrofin, EKI, Partner,
    Sunrise, LOK micro, MI BOSPO, Benefit, Prizma
  • Russia FFECCC, RWMN, VRFSBS
  • Armenia Aregak, MDF Kamurj
  • Mongolia Khan Bank, Xac Bank
  • Moldova MicroInvest
  • Serbia AgroInvest
  • Georgia Constanta
  • Kosovo KEP

5
Why to perform a rating?
  • Obtain debt funding
  • Understand how my institution is doing compared
    to others
  • Count on a self-evaluation tool

6
Do Russian MFIs need a rating?
Competitive disadvantages of Russian MFIs
  • High interest rates 39 nominal portfolio yield
    Vs. 30.5 CECA although real portfolio yield is
    23 for both, due to higher Russian inflation
    rates
  • Total expense ratio of 34,4 Vs. 24,1 CECA
  • Idem operating costs, but much higher financial
    expenses (15,1 Vs. 6,3 CECA)
  • Much lower productivity 36 borrowers per staff
    member Vs. 80 CECA

But also, positive competitive advantages
  • Highest saving mobilization capacity.
  • Reaching the poorest populations Average Loan
    Balance per Borrower/GNI per Capita of 50,9 Vs.
    73,1 in ECA.
  • Deepening the Russian financial sector is in the
    interest of many foreign investors.

7
Yes, they do and funds need you
Would you be the next investment?
  • There is a huge universe of investment funds in
    microfinance
  • There are more than a billion USD available on
    the market
  • Investment funds are only using half of their
    budgets on average
  • Investment funds need an institutional rating and
    an social rating

The rating debunks the myth of too many suitors
chasing the same girlfriend
8
more myths to debunk about ratings
How to take the most of the rating experience?
  • A rating is too costly
  • Doing a rating takes a lot of time
  •  A rating might be too subjective
  • A low grade closes the doors of funding
  • Rating end with the final grade

9
A rating is an investment
A rating is too costly
  • A rating saves investors part of the due
    diligence process, which allows them to decrease
    interest rates.
  • Knowing the risk they are bearing, investors do
    not have to charge additional spreads to account
    for the incertitude.
  • For instance, on a loan of 500,000 EUR a spread
    of 5 in the interest rate represents a total
    saving of twice the cost of a rating.

10
Prepare in advance
A rating takes a lot of time
Preparation of documents
On-site mission
Debriefing session
MFI comments
Draft report
Final report
Interviews HQ management team, accountants Two
to three branches loan officers, branch
managers, clients Board of directors
members Auditor, regulators, financial partners,
competitors Information verification Financial
operational data Administrative manuals and
documents Legal documents
Rating Committee
Report dissemination
1 month
3 to 7 business days
4 weeks for institutional rating 2 weeks for
mini-rating
11
A rigorous approach to evaluation
A rating might be too subjective
  • Analysts conduct participatory on-site missions
    of 3 to 7 business days or more depending on the
    context
  • All evaluations are based on the proven
    CGAP-accredited GIRAFE methodology
  • Analysts provide a comprehensive debriefing
    session at the end of the on-site missions
  • All reports are made investor-friendly
  • Analysts can discuss the report with investors,
    donors and/or regulators upon request
  • The grade is assigned by an independent Rating
    Committee that includes external members

12
Know how you will be rated
Highlights
A low grade closes the doors of funding"
  • There are funds willing to take on more risk at a
    higher price.
  • To get a good grade and reduce the price, it is
    important to be familiar with best practice
    standards.
  • Know what is usually needed to obtain a good
    grade.
  • Choose a transparent methodology and feel ready
    for the process.

Rating Domains Rating Domains Weight
G overnance 20
I nformation 12
R isk management 12
A ctivities 25
F unding and liquidity 7
E fficiency and profitability 24
Rating Domains Rating Domains Weight
G overnance 20
I nformation 12
R isk management 12
A ctivities 25
F unding and liquidity 7
E fficiency and profitability 24
Rating Domains Rating Domains Weight
G overnance 20
I nformation 12
R isk management 12
A ctivities 25
F unding and liquidity 7
E fficiency and profitability 24
Rating Domains Rating Domains Weight
G overnance 20
I nformation 12
R isk management 12
A ctivities 25
F unding and liquidity 7
E fficiency and profitability 24
Rating Domains Rating Domains Weight
G overnance 20
I nformation 12
R isk management 12
A ctivities 25
F unding and liquidity 7
E fficiency and profitability 24
Rating Domains Rating Domains Weight
G overnance 20
I nformation 12
R isk management 12
A ctivities 25
F unding and liquidity 7
E fficiency and profitability 24
Qualitative domains
Qualitative domains
Qualitative domains
Quantitative domains
Quantitative domains
Quantitative domains
Quantitative domains
13
GIRAFE Rating Domains
GIRAFE is a comprehensive rating methodology
  • Governance and Decision Making 20
  • The evaluation of governance is used to analyze
    the effectiveness of the ownership structure,
    the relevance of the MFIs strategy, and the
    coherence between the strategic vision and
    operations. We also assess the skills of the
    management team and the entire staff, including
    an evaluation of the human resource management
    system. To evaluate this critical area, we
    interview members of the Board of Directors and
    management as well as review statues and meeting
    minutes for all governing bodies. Meetings with
    other local actors regarding the regulatory
    environment and the state of the local
    microfinance sector are included in this
    analysis.
  •  
  • 4 rating factors Decision making Planning
    Management team Human Resource management
  • Information and Systems 12
  • Adequate information is critical to the success
    of any organization. MFIs typically have two key
    information systems an accounting system and a
    loan/savings tracking system. In this area we
    evaluate the availability and accuracy of
    information as well as system security and
    appropriateness. We analyze the information flow
    to asses the quality of the information and
    perform a mini-audit of the portfolio. We
    complement our analysis by interviewing the
    external auditor regarding the methods used and
    the findings.
  •  
  • 3 rating factors MIS and equipment Information
    on activities Accounting information and
    financial analysis

14
GIRAFE Rating Domains
GIRAFE is a comprehensive rating methodology
  • Risks 12
  • In this area we evaluate the quality of risk
    management within the MFI to determine whether
    the directors, internal auditor, and all other
    key personnel have adequately identified the
    risks related to their work. Furthermore, we
    assess whether there are controls in place to
    cover these risks. We review the internal
    procedures, the internal audit process, and the
    overall approach to risk management via
    interviews with staff, the IA and field visits.
  •  
  • 2 rating factors Procedures and internal
    controls Internal audit
  • Activities 25
  • MFIs disburse loans and potentially mobilize
    savings. We evaluate the quality of the
    management of these services as well as the
    health of the loan portfolio. This analysis
    includes a review of credit procedures as well as
    the application of those procedures in the field
    via client file reviews and interviews with loan
    officers and clients.
  •  
  • 4 rating factors Portfolio management Portfolio
    at risk (PAR) Write-off ratio Credit risk
    coverage

15
GIRAFE Rating Domains
GIRAFE is a comprehensive rating methodology
  • Financing and Liquidity 7
  • This area includes an analysis of an MFIs
    capital structure, financing strategy, and the
    appropriateness of the asset liability management
    given its risk exposure (interest rate, currency,
    and maturity). Special attention is placed on
    liquidity management, including the security of
    cash, the management of short-term investments
    and cash flow projections.
  •  
  • 2 rating factors Funding strategy Liquidity
    management
  • Efficiency and Profitability 24
  • The analysis determines whether the MFI is
    sustainable in the long term without subsidies.
    An evaluation of this area is necessary
    whether or not the MFI seeks to be profitable, as
    an MFIs efficiency determines its capacity for
    outreach and the quality of its services.
    Standard adjustments are performed to account for
    various types of subsidies and hidden costs.
  •  
  • 4 rating factors Productivity ROA before
    adjustments Operating expense ratio Financial
    self-sufficiency

16
GIRAFE Rating System
GIRAFE is a comprehensive rating methodology
  • Rating Committee
  • Following the evaluation mission in the field,
    the institutions that provided sufficient
    information will be rated using the system
    described below. The rating is assigned by an
    independent committee composed of both Planet
    Rating analysts and independent parties who have
    no relationship, material or otherwise, with the
    microfinance institutions being rated.
  • Two tiered rating system
  • The rating system has two levels. It includes 6
    rating areas which are scored on a range from e
    (lowest) to a (highest). The scores of each
    area are weighted and combined to calculate the
    global rating.
  •  
  •  

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 monitored.
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.
C, C, C- Minimum required Procedures are functional but with certain failings. There are risks in the medium term for operations.
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.
E Immediate risk of default or very insufficient There are immediate or underlying risks for operations or an unacceptable under performance.
Trend The Rating Committee rates an MFI based on current performance and assigns a trend evaluation based on the future prospects as positive, stable, or negative. An uncertain trend will be assigned if there are sufficient uncertainties regarding performance over the next year.
17
GIRAFE Rating System
GIRAFE is a comprehensive rating methodology
  • Trend
  • The Rating Committee rates an MFI based on
    current performance and assigns a trend
    evaluation based on the future prospects as
    positive, stable, or negative. An uncertain trend
    will be assigned if there are sufficient
    uncertainties regarding performance over the next
    year.
  • Circle graph
  • The scores for the 6 factors are represented in a
    circle graph, as illustrated below. The grey area
    represents the maximum score and the dark red
    area represents the factor scores for the MFI.
    The darker the graph, the stronger the MFIs
    performance. 
  • Reading a rating
  • The first page of our reports provides the rating
    results at a glance on different levels.

Description of the institution
GIRAFE Rating - Grade - Trend - Date
Rating highlights
Circle graph
Outlook
Performance indicators
18
Maximize the benefits of the rating
The rating ends with the final grade
  • The rating service includes the added value of
    public dissemination
  • Our reports are distributed to all 85
    microfinance funds and to numerous donors such as
    development banks and bilateral agencies
  • We can call specific investors to discuss the
    details of a rating if requested by the MFI
  • The benefits of public dissemination are
    enormous being invisible to the eyes of
    investors, does not get you far anyways.
  • If there is not an obligation to make the report
    public, the MFI has the choice not to publish.

19
Selected Investors Testimonies Comments
Planet Rating is a well-known rating agency for
microfinance investors
  • 1. What Investors said about our rating
    methodology
  • Thanks a lot It has been a great learning
    experience about your rating methodology
    Marcelle Ayo, Senior Risk Analyst, Citigroup
    Microfinance Group, London, Dec. 2006
  • Planet Rating has developed recognized skills in
    the rating of microfinance institutions
    Abderrahman El Slaoui, Senior Projects Officer,
    Islamic Development Bank, Jeddah, Nov. 2006
  • I want to thank you very much for your training
    that was highly appreciated by our team.
    Jean-Philippe de Schrevel, CEO Co-Founder, Blue
    Orchard Finance, Geneva, Oct. 2006
  • 2. What Investors said about our rating reports
  • We appreciate the quality and professionalism
    of Planet Rating's work and, whenever
    available, we take into account the findings and
    conclusions of your rating reports as part of our
    investment decisions. Guillermo Salcedo, Manager
    Microfinance, Oikocredit, Holland, Oct. 2006
  • of course your ratings are highly useful, and
    we have PR ratings for a good 15 of the
    investments. Hugh Sinclair, Senior Consultant,
    Triple Jump Fund, Holland, Sept. 2006
  • I really want to congratulate you and your
    teamThe ratings are great, and they have
    improved a lot during the years. Johanna Posada,
    Manager, Unitus Investment Fund, USA, Jul. 2006

20
Selected Clients Testimonies Comments
Planet Rating has numerous satisfied clients
  • What MFIs said about our work
  • I would like to express our thanks for your
    valuable work rendered to our company as the
    Planet Rating expert. But, above all, we thank
    you for your attitude and expertise. Igor
    Gudumac, Marketing Fundraising Dept.,
    MicroInvest, Moldova, Dec. 2006
  • Thanks. It was a very good exercise for us and I
    am sure we will want you to come back and do it
    again next year. J. Peter Morrow, CEO, Khan
    Bank, Mongolia, Nov. 2006
  • Thank you and your team for your work to provide
    us with this useful report and an upgrade in our
    rating. I look forward to doing business with you
    in the future. Chuluun Ganhuyag CEO, XacBank,
    Mongolia, Jun. 2006
  • We thank you for your openness and
    professionalism during the rating process.
    Roxana Mercado Rodas, General Director, CRECER,
    Bolivia, Jun. 2006
  • I have reviewed these reports and I do believe
    that you have done an excellent job. I will be
    recommending having Planet Rating do a full
    rating exercise next year for these MFIs in order
    to see how much progress has been done Nabil
    Abudiab, Director General, Banks Association of
    Palestine, Palestinian Territories, Apr. 2006
  • In our opinion the report is objective,
    realistic and we do not have any substantial
    remarks (this was expected since the Planet
    Rating is a company preparing the reports in an
    extremely professional manner). Mira Nenadic,
    Program Director, Benefit, Bosnia Herzegovina,
    Dec. 2005

21
Talk to other institutions
Some of Planet Ratings clients
22
We Strive For Excellence
  • Planet Ratings commitment to microfinance
    institutions
  • Increase investment in MFIs with comprehensive
    analysis
  • Place MFIs on the global stage through high
    profile ratings
  • Control any potential conflict of interest
  • Increase transparency while protecting non-public
    information
  • Planet Ratings commitment to investors
  • Maintain trademark quality and consistency in
    rating reports
  • Enhance positioning as the global microfinance
    rating agency
  • Innovate with credit and social ratings
  • Provide critical post-rating and customized
    services
  • This presentation was prepared exclusively for
    the benefit and internal use of the Planet Rating
    SAS client to whom it is directly addressed and
    delivered in order to assist the client in
    evaluating, on a preliminary basis, the
    feasibility of a rating and does not carry any
    right of publication or disclosure, in whole or
    in part, to any other party. This presentation
    is for discussion purposes only and is incomplete
    without reference to, and should be viewed solely
    in conjunction with, the oral briefing provided
    by Planet Rating SAS. Neither this presentation
    nor any of its contents may be disclosed or used
    for any other purpose without the prior written
    consent of Planet Rating SAS.
  • Planet Rating SAS policies prohibit employees
    from offering, directly or indirectly, a
    favorable rating or specific rating target, or
    offering to change a rating or rating target, to
    a client as consideration or inducement for the
    receipt of business or for compensation. Planet
    Rating SAS also prohibits its rating analysts
    from being compensated for involvement in
    technical assistance or financing transactions
    under any circumstances.
  • Planet Rating SAS and the GIRAFE are the
    exclusive marketing names/brands of Planet Rating
    SAS and its subsidiaries worldwide. Planet Rating
    SAS is the sole legal owner and user of the
    GIRAFE rating methodology on commercial basis.
  • Planet Rating
  • 13 rue Dieumegard
  • 93400 Saint-Ouen Paris
  • France
  • Tel 33 1 49 21 26 30
  • Fax 33 1 49 21 26 27
  • rating_at_planetrating.com

SAS (Société par Actions Simplifiée) with
authorized capital of 580,000 EUR. Registration
number 483 538 369 RCS Bobigny
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