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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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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 • 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.
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
Step 1. Satisfy Bank-wide Criteria The EAGLE Rating Process
Step 2. Satisfy MF-Specific Criteria The EAGLE Rating Process
Step 2. Satisfy MF-Specific Criteria (contd.) The EAGLE Rating Process • With MIS capability to produce PAR reports with portfolio ageing • Has been reporting to MABS for at least one year • Has Operations Manual
Step 3. Submit various required reports to MABS The EAGLE Rating Process • 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
Step 3. Submit various required reports to MABS • MABS Performance Monitoring System (MPMS) reports EAGLE Computation and Validation INFORMATION REQUIRED FROM BANKS DRAWN FROM THE MPMS: Number of active borrowers outstanding Loan Portfolio Balance Number of microfinance field staff Portfolio at risk more than 7 days Portfolio at risk more than 30 days Total financial income Total financial expenses Total direct operating expenses
Step 3. Submit various required reports to MABS CSOC/BS EAGLE Computation and Validation
Step 3. Submit various required reports to MABS CSIE/IS EAGLE Computation and Validation
Sched of MF Loans Outstanding EAGLE Computation and Validation
RB Form 3A.1 EAGLE Computation and Validation
Schedule 5, RB Form 2A EAGLE Computation and Validation
The EAGLE Components E – Efficiency – 30% A – Asset quality – 30% G – Growth – 10% L– Liabilitystructure – 10% E – Earnings – 20%
The EAGLE Components Efficiency (30%) Cost Efficiency (10%) - Highlights personnel and administrative expenses relative to the loan portfolio Loan Officer Productivity* (20%) • Measures the average number of borrowers managed by each account officer. Breakdown into: • Individual loan minimum of 150 borrowers = 10 % • Group Loan minimum of 300 borrowers = 10 %
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 /Write-off Ratio (5%) - Indicates the level of actual and adjusted write-off over ave. loan outstanding.
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
The EAGLE Components Liability Structure (10%) • Deposit to Loan Ratio (10%) • Looks at the ability of the bank in terms of liquidity management.
Total Bank-wide Deposit Liabilities = • Bank-wide Gross Loan Portfolio
The EAGLE Components Earnings (20%) Loan Portfolio Profitability (20%) - measures the bank’s ability to generate earnings with a given asset base.
* 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 =
A component score is computed by getting the sum of the weighted scores of each component’s underlying indicators. Computing for the EAGLE Grade 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.
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
Annual Assessment January – December 2010 • 50banks were evaluated • 4 scored AA; 2 are qualified for the • EAGLE Award • 14 scored A • 21 scored B • 11 No grade
Result: Growth – No. of Borrowers Sub-Indicator: Year on Year Growth (Dec2009 – Dec 2010)
Result: Growth – Loan Portfolio Sub-Indicator: Year on Year Growth (Dec2009 – Dec 2010)
SOME BANKS HAVE BEEN USING THE EAGLE SCORING SYSTEM TO ASSESS THEIR MICROFINANCE PERFORMANCE & EVALUATE THE AO AND BRANCH PERFORMANCE.
And… EAGLE WINNER SEVERAL TIMES. BANGKO KABAYAN IS AN EAGLE USER ….
