Nexii Webinar Series 2012: M-CRIL Ratings

Nexii Webinar Series 2012: M-CRIL Ratings

• 1.
  Nexii Webinar Series2012 M-CRIL Ratings of Impact Investments with Sanjay Sinha September 2012
• 2.
  M-CRIL’s contribution toimpact investing A company established in 1998 to promote transparency and facilitate the flow of funds into microfinance and other socially relevant development activities M-CRIL has undertaken over 1,200 performance ratings of around 900 development finance & other institutions, from • commercial banks with a microfinance portfolio, • through rural banks, NBFIs, cooperatives and impact enterprises, to • village level community development funds 1,500 1,000 500 in 32 countries of Asia, former Soviet Union 0 and Africa 2
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  Our range ofservices  Microfinance Institutional Ratings  Ratings of Social Enterprises – including MFIs  Ratings of Microfinance Investment Funds (MIVs)  Assessment of NGOs engaged in community development  Assessment of Value Chain promotion programmes  Assessment of Low Cost Private Schools  Due diligence, code of conduct assessments  Advisory to banks, aid agencies and apex funders 3
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  Key clients Multilateral development agencies Asian Development Bank, World Bank, IFC, CGAP FAO, UNOPS, UNCDF Bilateral agencies  Swiss Agency for Development & Cooperation (SDC)  Department for International Development, UK  GiZ & KfW Germany International donor institutions Ford Foundation, Cordaid, Hivos, ICCO, Belgian Technical Cooperation, Stromme Foundation Apex institutions/banks/international investors NHFC South Africa, NABARD, SIDBI India, RMDC Nepal, Pakistan Microfinance Network, MISFA Afghanistan, Blue Orchard Finance, NMI 4
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  Our Associations  M-CRIL was accredited with the CGAP-IDB Rating Fund and is currently accredited with The Rating Initiative of Luxembourg M-CRIL is a member of  the Governing Board of the African Microfinance Transparency (AMT) forum  the Technical Committee of the SMART Campaign  Part of an informal association of international microfinance rating agencies – along with Microfinanza Rating, MicroRate and Planet Rating  Knowledge partner of the Micro Credit Summit Campaign 5
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  Our Approach  M-CRILuses a comprehensive rating tool consisting of four categories of indicators:  Governance and strategy  Management systems  Production, technology and marketing  Financial performance  M-CRIL reports are an outcome of detailed data analysis, extensive field visits and feedback from customers, staff and management at all levels  The draft report prepared by our analysts is reviewed by the enterprise and by an external rating committee comprised of specialists in finance, sector management and development  The committee critically examines the rating rationale under the assessment areas using benchmarks and analysis norms  The report is finalized and released only after assignment of a specific grade and its endorsement by the rating committee  In case of investment recommendations, the report provides an indicative amount that would be appropriate 6
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  The rating process at Scheduling and desk analysis M-CRIL Introductory meeting – Discussions with Senior Management, data gathering Field visits: Visit to branches, meeting with visit to customers/borrowers enterprise by a team Discussion based on the field visit, follow up on of the data, concluding meeting with the 2 analysts management. Data analysis and report writing Report sent for enterprise feedback at Report presented to external Rating M-CRIL Committee Report finalized and sent to the client 7
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  Major findings fromratings Areas of achievement by impact enterprises • Notable outreach to low income customers by MFIs – over 100 million families worldwide • Substantial funds raised – around $30 billion available for investment in microfinance and other impact enterprises – a supply facilitated by the availability of specialist due diligence services such as rating • Improvement of management and efficiency of impact enterprises resulting from the application of professional benchmarking tools such as rating • Availability of downscaled products and services in geographical areas and to segments of the population generally ignored by commercial enterprises 8
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  Major findings fromratings…continued Areas of concern for investors • Unbridled growth fuelled by the availability of funds for microfinance: A race for numbers in outreach and lending to microfinance customers that became an end in itself resulting in over-indebtedness and repayment problems in significant areas of operation • Professionalisation of management is not always successful as managers with commercial experience do not always appreciate the customer empathy necessary to serve low income populations – leading to unsustainable efficiency improvements • The search for efficiency can result in products and services not necessarily appropriate to the needs of customers of impact enterprises – unsuitable products are often accepted by such customers since they have no other choice. 9
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  Assessment of impactinvestment funds • Impact investment funds are entities that aggregate the contributions of individuals and corporations in specialised vehicles with the knowledge and resources necessary to make good investments in impact enterprises • It is often assumed that it is necessary to undertake due diligence/ratings of impact enterprises but investors in funds do not need assessments to inform their decisions due to their physical proximity to the funds and their high level of knowledge of finance • Yet investments by such funds are in activities with high levels of uncertainty and in geographies far removed from the primary investors. M-CRIL provides an assessment service for impact investment funds to enable primary investors more easily to understand the investment and risk profile of such funds. 10
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  The promise ofratings for impact enterprises • Ratings facilitate due diligence of enterprises by impact investors • Ratings provide a basis for comparison between alternative investments • The process provides managements with a mirror to reflect on the performance of their enterprises • It identifies strengths and weaknesses in the enterprise’s offering and performance • The report can be used as a management consultancy document to improve enterprise performance • It can also greatly facilitate the process of sourcing additional investments Ratings represent a positive opportunity for improving functioning as well as enhancing investments in impact enterprises 11
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  Thank you