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  1. APRIL2006 INDEPENDENCE – OBJECTIVITY - EXCELLENCE Presented by: Emmanuelle Javoy, Director, Planet Rating SAS Pilots of social performance evaluation: Planet rating’s experience

  2. Why would a rating agency get involved in social performance evaluation ? Usual outcomes of an institutional rating are complemented by social performance evaluation Help attract new sources of MFI financing Help MFIs to build up self-evaluation capacity Promote communication and transparency MF-specialized funders take social performance into account when performing their due diligence MFI teams have to take into account their social performance when defining and evaluating their strategy MF sector will always want more information on the social performance

  3. Planet Rating Social Performance Assessment experience Tests of two social performance assessment methods have been conducted • Test Rating reports based on CERISE Social Performance Indicators : • ENDA (Tunisia), PRIZMA (Bosnia), EDPYME Alternativa (Peru), FINADEV (Benin), DESPENO (Mexico), DIACONIA (Bolivia) • Test Rating reports based on AMAP Social Performance Scorecard and Audit developed by Chemonics with USAID funding • A joint rating mission conducted in ANED (Bolivia) with Gary Woller (Chemonics) • Tool to be used in at least two other missions (CEADE Brasil and ECLOF Philippines)

  4. What do “social ratings” rate ? • MFI usually have a social goal which is to create a social impact such as “alleviate poverty” or “participate in the economic development” or contribute to “women empowerment” • Their social mission is to provide microfinance services (efficient and adapted financial services offered to those that are excluded by the traditional financial sector) to a target clientele as a tool to reach that goal • Rating constraints rule out the rating of the social impact dimension (understood as the effects of microfinance on clients’ living conditions) of social performance • But rating can provide an opinion on “the likelihood that the MFI produces significant social impact both now and in the future” (AMAP definition). • Our ratings will not evaluate whether the MFI has reached its social goal, but whether it is likely to do so because it has implemented its social mission in a satisfactory way. • Is it offering good microfinance services? • It is serving its target clientele ?

  5. Our rating framework will be aligned with the common framework Outreach Social Performance Management Outputs Mission definition Processes Changes Adaptation of services Social responsibility • to clients • to community • to staff

  6. Main differences remaining between social rating frameworks • Outreach : Base our analysis on existing information or create information ? • We will stick to information available in the MFI • Creating information is not the role of raters; who will check the validity of the data we might produce ? • Verify the reliability of the information • One to two additional days of branch visits depending on the volume of “client” data available • During social rating missions, we will promote / bring the word about tools available to increase MFI knowledge • Any multilingual presentation, leaflet website of existing tools will be very useful to us • We will try “client surveys” • In order to understand the tools and technical constraints and limitations so that we can be better assessors of their reliability when we find them in the MFIs

  7. Main differences remaining between social rating frameworks • Outreach: provide a grade on that dimension ? • Does a MFI that targets the poorest have a higher social impact than a MFI targeting SMEs (both of them being excluded from the classic financial services) ? • Impact studies do not provide strong evidence of that fact • We will remain neutral on that aspect • Provide information on the outreach to usually targeted populations (poor, women, vulnerable, rural, SME ?), but no grade • We will provide a grade on the outreach to the target clientele of the MFI (if it has a specific one) – when the necessary information will be available.

  8. Institutional and social ratings : What are the relationships ? • Items assessed in institutional rating are important components of social performance (Governance, MIS reliability, Internal controls, Financial performance) • Social performance ratings should be done in combination with an institutional rating or incorporate an institutional assessment • Poor institutional performance (for instance a rating of D or E, meaning that the future of the institution is at high risk) is a strong limitation to social performance • Social ratings is likely to be capped by our institutional ratings for bad performers • Social ratings and institutional ratings to be performed during the same mission • Synergies between the two processes are important

  9. Draft report MFI comments Final report Level of effort needed for social performance ratings Preparation of documents On-site mission Debriefing session Interviews HQ: management team (specifically ED, marketing/ research manager, and operations manager) Two to three branches: loan officers, branch managers,clients Board of directors’ members Information verification Clients surveys data, loan database Impact studies, surveys, research Loan documentation Rating Committee Report dissemination Institutionalrating 2 days 10–14 man-days 6–10 man-days (spread over 4weeks) + ½ man-day + 2 to 4 man-days + 3 man-days Social rating Price range : 2,500 USD to 4,000 EUR

  10. Finalize the evaluation framework • Define the stakes and the ideal situations, in qualitative terms • Determine which indicators (one or two) can be sufficiently robust to be used a quantitative indicators (while other indicators can be used to support the analysis but not necessarily be rated as such) • Define the weighing of each factor / indicator • Reduce the number of quantitative Indicators • First ratings will come out without an overall grade In institutional ratings we only rate 6 quantitative indicators

  11. Finalization of the indicators: example of cost of the service • Cost of the service will be rated : direct costs as well as other transaction and opportunity costs • Test of the AMAP approach • Zakoura given a higher grade because It goes at the client’s home to collect repayments (5.e: % of clients visited for regular financial transactions) • But repayment procedures more efficient at Al Amana which is not taken into account in the grade here • Keep first two ones (interest rate) as a quantitative indicator • Optimization of other transaction / opportunity costs as a qualitative indicator Real portfolio yield Yield / prime lending rate Days to disburse a loan % loans with social collateral % transactions at client’s home

  12. Planned activities • Six social ratings in Mali for medium sized institutions • First update of a social rating (enda-inter arabe, Tunisia) • Inclusion of “client friendliness” section in our Mini-Ratings in Uganda • Social responsibility to the client • Adaptation of services to client’s needs

  13. Planet Rating SAS: 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, Middle East & Asia • Lima Office: covering Latin America • Dakar Office: covering Africa Most diversified rating team in the industry: • Multicultural: American, Canadian, Colombian, French, Lebanese, Senegalese, Spanish, Vietnamese citizens • Multilingual: Arabic, Italian, English, French, Spanish, Portuguese, Vietnamese, Wolof speakers Qualified & experienced team: • Planet Rating’s Managing Director is the only head of rating agencies that has operational microfinance experience; he was former General Manager of SPBD – Samoa’s 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