balancing financial and social returns frances sinha, director, eda rural systems (india) and board...
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Introduction to microfinance rating Frances Sinha ▫MD, EDA Rural Systems ▫Co-promoter M-CRIL ▫SPTF Board memberTRANSCRIPT
![Page 1: Balancing Financial and Social Returns Frances Sinha, Director, EDA Rural Systems (India) and board member of SPTF Alok Misra, CEO, M-CRIL December 2,](https://reader036.vdocuments.net/reader036/viewer/2022081514/5a4d1b5f7f8b9ab0599ac8b5/html5/thumbnails/1.jpg)
Balancing Financial and Social Returns
Frances Sinha, Director, EDA Rural Systems (India) and board member of SPTF
Alok Misra, CEO, M-CRILDecember 2, 2014
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Agenda •Introduction to Microfinance Institutional
Rating and Social Rating•Case Study: Balancing Financial and
Social Returns•Q&A
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Introduction to microfinance rating•Frances Sinha
▫MD, EDA Rural Systems▫Co-promoter M-CRIL▫SPTF Board member
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The purpose and benefits of rating•Provided mostly by specialist rating
agencies created to bridge a market and technical gap left by corporate credit rating agencies
•Recognise essential features and potential viability of microfinance – as a service to the BOP
•Respond to emerging market requirements, debt and equity funding, and need for responsible practice
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Evolution •4 microfinance specialist rating agencies
•‘Financial ratings’
•Convergence for 2 types of rating:
Social rating Microfinance institutional rating-MIR
Start:Late1990s
2005
2012
Organisational and financial analysis
Aligned to USSPM
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Social Rating. An opinion on capacity to achieve social mission and goals in line with social values
MIR an opinion on long term institutional viability and credit-worthiness, based on comprehensive assessment of risks
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Details in the Rating Guides
Published by the Rating Initiative, with contributions byM-CRIL, Microfinanza Rating, Microrate, Planet Rating
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Useful for•Investors – as a second opinion in the
investment decision-making process; providing transparent and objective information on risks and performance
•Financial institutions – a tool not only to access capital but to improve operations, by benchmarking, and identifying areas for improvement
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Balancing Financial & Social Performance –Time to Walk the Talk
Alok Misra, CEO, Micro-Credit Ratings International Ltd602 Pacific Square, 32nd Milestone NH8, Gurgaon 122001 INDIA
[email protected] Tel: +91 124 405,0739, 426 8707
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Context of MFI• Geographical focus: The MFI operates in relatively
less developed districts of South India• Model: Self Help Group model; 10-20 women form a
group. Balanced development approach, microfinance as a catalyst
• Services: A range of client-centric products and services▫ Credit ▫ Savings – as a Business Correspondent of banks▫ Insurance – innovative insurance product at very low cost to
clients▫ Pension – aggregator for Pension Regulatory authority▫ Development activities – sustainable farming, education, etc.
• Outreach: Microfinance programme focuses on low-income women in less developed rural areas.
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Comparison of financial performance Key Financial Ratios MFI PeersCapital Adequacy Ratio (CAR) 8.2% 16%
Operating Efficiency Ratio (OER) 6.8% 9%Financial Cost Ratio (FCR) 12.2% 14.5%Portfolio Yield 20.0% 27%
RoA 0.6% 4.2%
• Low CAR
• Service oriented staff, and efficient model, has resulted in a low OER.
• Low cost fund from lenders owing to MFI’s goodwill
• Low Yield, owing to low rate of interest charged
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Social Performance aspects• Diverse services to suit low-income,
financially excluded client segment – Credit, Savings (as a BC), Micro-insurance, Pension (Govt scheme), other development activities
• Good client retention – Low client dropout (8% as against ~25% for peers) as diverse needs of clients are met from single source
• Good performance in Client Protection – Appropriate products, good performance in transparency and prevention of over-indebtedness – Service oriented staff, clients treated with respect. – Responsible pricing - APR of 20%, against 26% by peers
• Satisfied staff with high mission orientation. Management highly approachable and sensitive to personal needs of staff.
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Points to consider for funders-Will you fund it or prefer peers?
Positive Negative• Good social performance
as seen in mission orientation, responsibility to staff and clients
• Low interest rates• Good portfolio quality• Profitable – Not loss
making• Committed Board• CEO to LO salary ratio
1:15
• Low profitability• CAR low as retained
surplus the main source• Board does not have
“professionals” but social workers
• Committed to pass gains to clients- not interested in increasing profitability
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The real picture• Being a “real” case (with some changes to
mask identity), the facts are• Private lenders (Commercial banks in India and
International funders) have kept away • Still, it has grown big and has very diversified
debt sources from 13 Public sector commercial banks and 2 social investors
• Are funders more concerned about profitability than social performance – even in debt funding?
• Do “normal” financial numbers give more confidence?
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Social Aspects Ignored in Peers•High LO productivity – 650 borrowers per staff•HR stress (80% staff)•LO:CEO compensation 1: 40•High staff turnover (~25%)•Risk mitigation through plain vanilla products
and keeping loan size low•Pricing focused on regulatory cap•Not focused on providing complete suite of
financial services (pensions, savings through BC)
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Q&A