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INDEPENDENCE OBJECTIVITY - EXCELLENCE
Presented by Emmanuelle Javoy, Director, Planet
Rating SAS ejavoy_at_planetrating.com
Pilots of social performance evaluation Planet
ratings experience
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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
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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)

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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 ?

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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

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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

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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.

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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

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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
Institutional rating
2 days
1014 man-days
610 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
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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
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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 clients 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 clients home
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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 clients needs

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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 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