What is a Performance Rating?

1. Whatis a Performance Rating? Gregory Thys MicroRate Africa Manager

2. Supervision Information Systems External Audit InternalControls Ratings Performance Monitoring Benchmarking Financial Transparency • Refers to the production, testing, dissemination and use of financial information produced by MFIs. Analyze and understand the story behind the numbers Check accuracy of information Synthesize the analysis in a rating Collect data internally Compare

3. Principles of a Rating Combine : A source of information… …with an analytical approach Qualitative data / Operational practices Trends Quantitative data Risk Analysis Comparison with market standards / Best practices Ratios

4. What a Rating is NOT… • A Financial / Accounting / Portfolio Audit • An Advisory / Consultancy Service • A Donor Report • A Benchmark Report

5. Rating Methodology • Growth • Product offer and conditions • Microcredit methodologies • Process standardization • Operational Risks • Other Operations • Profitability and Sustainability • Liquidity • Treasury Management • Funding Strategy • Capital Structure • Market Risks • Financial Risks • Management • Legal statute and Ownership • Structure, Capacity and Vision of the Board • Control and Leadership • Market Positioning • Strategy and adequacy of its implementation • Trade-off between Social and Economical objectives • Portfolio at Risk • Write-offs • Risk Coverage • Risky Practices (i.e.: Renewals, Refinancing) • Portfolio Concentration • Monitoring and Collection of arrears • Structure and Quality of Management • HR Management: Recruitment and Training • Internal Controls • Staff productivity and Operational Efficiency • Management and Information Systems (MIS)

6. The Rating Process Otto Wormgoor Operations Manager, Planet Rating

7. Rating Process: Preparation (1/3) • Identify your own needs • Fund raising (debt, equity, grants) • Identifying strengths & weaknesses, benchmarking with other MFIs • Select a rating or assessment product • Rating or Assessment? • Financial rating • Social rating – with or without survey? • Request proposals from Rating Agencies

8. Rating Process: Preparation (2/3) • Select a Rating Agency • Quality: rating report; image of the rating agency; added value to your organization; knowledge of the sector in your country; timeliness • Price: cancelation fees? payment terms? hidden costs? • Conditions: publication (public vs. private ratings); ownership of the report; review contract clauses • Request co-financing • Rating Initiative can provide co-financing for both assessments, financial and social ratings; for first (70%) and second (50%) ratings; of small and medium sized MFIs (max 1 billion KES in assets) • Contact: admin@ratinginitiative.org • Be aware: reimbursement at the end of the rating or evaluation process

9. Rating Process: Preparation (3/3) • Contracting and planning • Set a date for the rating that is convenient for your organization • Sign the contract for the rating • Preparing for the rating • Make sure you know the information required by the rating agency • Prepare your board, management team and staff for the rating