Micro-Credit Ratings International Limited 104 Qutab Plaza, DLF City-1, Gurgaon 122002 INDIA

A Window on Asian Microfinance Micro-Credit Ratings International Limited 104 Qutab Plaza, DLF City-1, Gurgaon 122002 INDIA www.m-cril.com

M-CRIL in India and Asia One of the international pioneers of the rating of microfinance institutions (MFIs) Established in 1998 has undertaken over 240 ratings of MFIs in India and Asia Unique as an institution dedicated to the support and facilitation of the m-f sector Focussed its activities on India and Asia to enable specialisation, understanding of context

M-CRIL’s achievement Become recognised as a specialist in Asian as well Indian microfinance Well known throughout the region from Kazakhstan to the Philippines Has a team of 10 analysts with significant experience of microfinance Established credibility with investors – donors and lenders

M-CRIL’s ratings outside India* • Ratings MFIs • India 200 124 • Bangladesh 12 7 • Nepal 4 4 • Sri Lanka 1 1 • Cambodia 6 4 • East Timor 3 2 • Indonesia 8 8 • Myanmar 3 3 • Philippines 4 4 • Kazakhstan 2 1 • _______ _______ • 243 158 *until 15 October 2004

Ratings have enabled… The identification of MFIs that are credit-worthy or have the potential to become sustainable in the near future Latest rating grades of 145 MFIs Creditworthy MFIs Unviable MFIs

…financial flows Substantial investment in MFIs, ~$150mn

...contributed to capacity enhancement • Rating reports provide • substantive feedback on MFI strengths and weaknesses in the key areas of performance assessment - governance - strategy - management systems - financial performance - long-term sustainability • comparison with key industry performance benchmarks on growth, outreach, portfolio quality, financial results and sustainability

The impact… • Enabling progressive and concerned MFI managements to • undertake substantive systemic improvements • concerned donors and lenders to provide capacity building support where necessary M-CRIL has further contributed to this process by publishing • a documentation of “best practices” emerging from the experience of the best Indian MFI to facilitate knowledge and understanding of systems • periodic analytical reviews of sector performance – the M-CRIL Microfinance Review – to enable benchmarking

M-CRIL Microfinance Review 2003 • Ratings until June 2003, 170 • Covered 123 MFIs • Report uses data from 110 MFIs • Nearly 2.7 million clients, 1.9m in India • Active borrowers: 7,800 [MBB: 15,500]

Financial services • Mainly credit and savings, some insurance • 90 Indian MFIs have $52m outstanding • Client deposits = $32m • Average savings, ~$20 per client

Operating efficiency – mixed • Cost per borrower $12, MBB $66 • Operating expense ratio 19.9%; typical 38% [19.1%] • Yields much lower; typical 18.7% [33.6%] • Age & model are both important

Staff productivity – reasonable • India average 123 clients per staff member • MBB 121; M-CRIL Top10 139 • Portfolio = $8,900 per staff member • MBB $44,500; Top10 $16,800

Portfolio quality – needs improvement • PAR60 11.2%, typical 17.6%; Top10 4.2% • Determined by model, portfolio size • Grameen are more disciplined • More disciplined MFIs achieve scale

Client savings – major source of funds • Total liabilities, $83m; net worth 33% • Client savings account for 58% of portfolio • Top10 have ltd grants; >20% own funds • For profit structures more successful than charities

Portfolio deployment – requires focus • Loan portfolio = $52m, 63% of total assets • Investments absorb 23% • Efficient mixed model MFIs make best use of funds • Top10 have good allocation; 77% portfolio, 7% cash

Financial performance – mixed • Yield-APR ratio: 91% not great, but • RoA of –1.5% not too bad; Top10 earn 1.5% • SHG MFIs highly unsustainable, but • Large (>$0.5m) and old (>7yrs) MFIs perform better

…and efficient MFIs serve most clients, • MFIs with OSS>100% serve 33% clients, • 50% borrowers • OSS>90% serve 51% clients, 70% borrowers • so there is positive movement…

…since the face of Indian m-f is changing – growth

…since the face of Indian m-f is changing – financial performance

…since the face of Indian m-f is changing – portfolio quality

…since the face of Indian m-f is changing- sustainability

But populist concerns about interest rates could derail the entire effort to serve large numbers of low income families…

…so consider the cost structure

…and what it implies

Conclusions • In order to be efficient Asian MFIs need • to improve • staff productivity/reduce operating expenses • MIS and tracking of overdues for better • portfolio quality • yields on portfolio • deployment of funds in portfolio and • investments

Conclusions …but they also need a more supportive environment • freedom to set interest rates in a competitive • not a politically constrained environment • an institutional/regulatory framework that • facilitates the collection of deposits while • protecting the interests of depositors – * the creation of the microfinance company is imperative

Thank you for your attention

Micro-Credit Ratings International Limited 104 Qutab Plaza, DLF City-1, Gurgaon 122002 INDIA