OCTOBER 2011

1. OCTOBER 2011 Client Protection session The perspective of a microfinance rating agency Presented by: Edouard Sers, Expert Analyst esers@planetrating.com 2nd Azerbaijan Micro-finance Investor Fair Planet Rating 44 rue de Prony, 75017 Paris France Tel : 33 1 49 21 26 30 – Fax : 33 1 49 21 26 27 rating@planetrating.com – www.planetrating.com

2. MFI Funder Rating Agency Role as a microfinance rating agency Providing the information needed for a sound development of the sector by facilitating the development of relationships between MFIs and their partners Opinion of the funder based on due diligence and/or desk review On-site 5 to 7 days evaluation mission Provide a detailed second opinion; report designed to meet the specific needs of funders Social Ratings provide an opinion on the level of compliance with each of the client protection principles

3. Analysis of client protection in our ratings Rated in social ratings since 2007; emphasized since January 2010 • Appropriate product design and delivery • Prevention of Over-indebtedness • Responsible pricing • Transparency of pricing • Privacy of client data • Fair and respectful treatment of clients • Mechanisms for complaint resolution Grids of analysis of client protection principles in line with those defined for the SMART campaign

4. Analysis of client protection in our ratings Included in our pilot Responsible Financial Rating Context • Microfinance crises have shown that the performance of MFIs could be impacted by factors that are more closely looked at in Social ratings than in current financial ratings. • Direct correlation between Client Protection and long term Portfolio Quality • The reputation of some actors (and thus of the sector), has also been affected by management practices considered not to be in accordance with the claimed social goals • Through its GIRAFE ratings, Planet Rating aims at providing an opinion on the long term sustainability of MFIs. • The responsible financial rating therefore includes Client Protection and Social Performance Management factors.

5. Simple Social Performance Rating Scale 5 - Advanced 4 - Convincing 3 – In Progress 2 - Incipient 1 - Intangible 0 - Negative

6. Observations from our database of ratings Client Protection Principles are being implemented in more than 70% of the rated MFIs, but with important room for improvement in 50% of the cases (database for 75 ratings) 71%

7. Observations from our database of ratings Compliance with Client Protection Principles is highly correlated with institutional performance

8. Observations from our database of ratings Compliance with Client Protection Principles is not correlated with ROA

9. Observations from our database of ratings Compliance with Client Protection Principles is highly correlated with Governance

10. Observations from our database of ratings Other preliminary observations • High correlation observed between Client Protection and… • Regulation • Governance • Social Performance Management • Financial Services Management • Funding Strategy

11. Thank you ! Teşekkür edirem ! Questions and Answers

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