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Understanding Microfinance Performance of Rural Banks through the MABS EAGLE Standard and Rating System. Presentation Outline. Background on the EAGLE Rating System The EAGLE Rating Process The EAGLE Components The EAGLE Grades Performance. Background.

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Presentation Outline

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  1. Understanding Microfinance Performance of Rural Banks through the MABS EAGLE Standard and Rating System

  2. Presentation Outline • Background on the EAGLE Rating System • The EAGLE Rating Process • The EAGLE Components • The EAGLE Grades • Performance

  3. Background • The EAGLE Rating System assesses the • performance of the micro-enterprise finance • portfolio; • A management tool for rural banks for • monitoring and evaluating factors affecting • its microfinance operations.

  4. 1. Satisfy Bank-Wide Minimum Criteria 2. Satisfy Microfinance-specific Minimum Criteria Bank 3. Submit Various Bank Reports to MABS for Computation of EAGLE Rating 4. Compute Initial EAGLE rating 5. Conduct EAGLE Validation 6. Compute Final EAGLE Rating EAGLE Rating Process

  5. The EAGLE Rating Process Step 1. Satisfy Bank-wide Criteria

  6. The EAGLE Rating Process Step 2. Satisfy MF-Specific Criteria

  7. The EAGLE Rating Process Step 2. Satisfy MF-Specific Criteria (contd.) • With MIS capability to produce PAR reports with portfolio ageing • Has been reporting to MABS for at least one year • Has Operations Manual

  8. The EAGLE Rating Process Step 3. Submit various required reports to MABS • a. MABS Performance Monitoring System (MPMS) reports • b. Other bank reports, such as: • CSOC • CSIE • Schedule of Microfinance Loans • CSIE on Microfinance Program • Schedule of Deposit Liabilities, By Size of Accounts

  9. The EAGLE Components E – Efficiency – 30% A – Asset quality – 30% G – Growth – 10% L– Liabilitystructure – 10% E – Earnings – 20%

  10. The EAGLE Components Efficiency (30%) Cost Efficiency (10%) - Highlights personnel and administrative expenses relative to the loan portfolio Loan Officer Productivity* (10%) - Measures the average number of borrowers managed by each account officer Cost Per Active Borrower* (10%) - Average no. of active borrowers for the year/Average no. of microfinance account officer for the year * Separate computation for Individual and Group loans

  11. The EAGLE Components Asset Quality (30%) PAR > 7 days (10%) and PAR > 30 days (10%) - Show the degree of risk of the total microfinance portfolio Loan Loss Reserve Ratio (5%) - Indicates the degree of protection of the bank against expected losses due to delinquency Loan Loss Rate (5%) - Indicates the level of actual and adjusted write-off over ave. loan outstanding.

  12. The EAGLE Components Growth (10%) • Growth in active clients (5%) • Active borrowers as of end of period vs. active borrowers as of end of previous period • Growth in loan portfolio outstanding (5%) • Loan portfolio as of end of period vs. loan portfolio as of end of previous period

  13. The EAGLE Components Liability Structure (10%) • Deposit to Loan Ratio (10%) • Looks at the ability of the bank in terms of liquidity management.

  14. Total Bank-wide Deposit Liabilities = • Bank-wide Gross Loan Portfolio

  15. The EAGLE Components Earnings (20%) Loan Portfolio Profitability (20%) - measures the bank’s ability to generate earnings with a given asset base.

  16. * Data culled from MPMS based on bank’s submission: Total financial income Less: Total financial expense Total direct operating expense Required Loan Loss Provision per BSP Circular 409 Net MF Operating Income Loan Portfolio Profitability (20%) Net MF Operating Income* Average outstanding microloan portfolio for the Year being rated =

  17. EAGLE Standard

  18. EAGLE Standard

  19. Performance Indicators & Corresponding Formula

  20. Performance Indicators & Corresponding Formula

  21. Performance Indicators & Corresponding Formula

  22. Computing for the EAGLE Grade A component score is computed by getting the sum of the weighted scores of each component’s underlying indicators. The component score is then weighted to arrive at a weighted component score. All weighted component scores are then added to get the overall weighted score. EAGLE grade is finally derived based on the computed overall weighted score.

  23. AA: Overall weighted score of 4.25 and above and no zero score for any individual component; To be qualified for an EAGLE Award, a candidate bank should have at least 500 average active borrowers over the last 3 months of the year. A: (i) Overall weighted score between 3.5 and 4.24; (ii) a bank with score of 4.25 and over but less than 500 ave. active borrowers over last 3 months B: Overall weighted score between 2.5 and 3.49 No grade: Overall weighted score less than 2.49. Excellent microenterprise finance performance Very good Average Below average performance The EAGLE Grades

  24. The EAGLE Grades Distribution of Banks by EAGLE Grade (46 PBs, 2005)

  25. The EAGLE Grades - Efficiency Cost Efficiency, Group 1, Dec 2005 Pilot 2nd Rollout MABS 1st Rollout

  26. The EAGLE Grades - Efficiency Cost Efficiency, Group 2, Dec 2005 MABS 3rd Rollout 4th Rollout 5th Rollout

  27. The EAGLE Grades - Efficiency Cost Efficiency, Group 3, Dec 2005 MABS 7th Rollout

  28. The EAGLE Grades - Efficiency Loan Officer Productivity – Individual LoansGroup 1, As of Dec 2005 MABS Pilot 1st Rollout 2nd Rollout

  29. The EAGLE Grades - Efficiency Loan Officer Productivity – Individual LoansGroup 2, As of Dec 2005 MABS 3rd Rollout 4th Rollout 5th Rollout

  30. The EAGLE Grades - Efficiency Loan Officer Productivity – Individual LoansGroup 3, As of Dec 2005 MABS 7th Rollout

  31. The EAGLE Grades – Asset Quality PAR > 7 days, Group 1, 2005 MABS Pilot 1st Rollout 2nd Rollout

  32. The EAGLE Grades – Asset Quality PAR > 7 days, Group 2, 2005 MABS 3rd Rollout 5th Rollout 4th Rollout

  33. The EAGLE Grades – Asset Quality PAR > 7 days, Group 3, 2005 MABS 7th Rollout

  34. The EAGLE Grades – Asset Quality Banks by PAR > 30 days Group 1, 2005 MABS Pilot 1st Rollout 2nd Rollout

  35. The EAGLE Grades – Asset Quality Banks by PAR > 30 days Group 2, 2005 MABS 3rd Rollout 5th Rollout 4th Rollout

  36. The EAGLE Grades – Asset Quality Banks by PAR > 30 days Group 3, 2005 MABS 7th Rollout

  37. The EAGLE Grades – Growth Growth in Active Borrowers and Loan Portfolio, Group 1, 2005 Growth in Active Borrowers Growth in Loan Portfolio

  38. The EAGLE Grades – Growth Growth in Active Borrowers and Loan Portfolio, Group 2, 2005 Growth in Active Borrowers Growth in Loan Portfolio

  39. The EAGLE Grades – Growth Growth in Active Borrowers and Loan Portfolio, Group 3, 2005 Growth in Active Borrowers Growth in Loan Portfolio

  40. The EAGLE Grades – Liabilities Deposit to Loan Ratio, Group 1, Dec 2005 Pilot 2nd Rollout 1st Rollout

  41. The EAGLE Grades - Liabilities Deposit to Loan Ratio, Group 2, Dec 2005 3rd Rollout 4th Rollout 5th Rollout

  42. The EAGLE Grades - Liabilities Deposit to Loan Ratio, Group 3, Dec 2005 7th Rollout

  43. The EAGLE Grades – Earnings Microfinance Earnings, Group 1, 2005 2nd Rollout Pilot 1st Rollout

  44. The EAGLE Grades – Earnings Microfinance Earnings, Group 1, 2005 Microfinance Earnings, Group 2, 2005 5th Rollout 3rd Rollout 4th Rollout

  45. The EAGLE Grades – Earnings Microfinance Earnings, Group 3, 2005 7th Rollout

  46. The EAGLE Grades – Asset Quality Distribution of Banks byPAR > 7 days (47 PBs, 2005)

  47. The EAGLE Grades – Asset Quality Distribution of Banks byPAR > 30 days (47 PBs, 2005)

  48. The EAGLE Grades – Growth Distribution of Banks by Growth in Active Borrowers and Loan Portfolio, 2005

  49. Distribution of Banks by Deposit to Loan Ratio, 2005

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