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Financial Assessment Instrument for Microfinance Institutions

Lynne Curran Senior Director; Financial Analysis 28 May, 2005 Bucharest, Romania

ACCION International
Over 30 years experience in microfinance
Financial Management Unit:
Autonomous unit dedicated to financial

assessments (ACCION CAMEL), performance monitoring, financial projections and other analytical tasks

Capital Adequacy
Asset Quality Management Earnings

Liquidity Management

ACCION CAMEL: What is it?

Internal evaluation and financial assessment instrument of microfinance institutions (MFIs) In-depth analysis of all areas of the MFI

Provides recommendations for improvements to management

History of the CAMEL

1978 1980s 1992 1993 1999 1998 1999 + 2000 +

Creation of the traditional CAMEL instrument by the U.S. Federal Reserve Bank

Creation of Publication of ACCION CAMEL ACCION CAMEL Technical Note instrument for MFIs ACCION CAMEL evaluations of ACCION Latin ACCION Network America Bridge members only Fund Transfer of ACCION CAMEL methodology to supervisory agencies and lending institutions

Expanding use of ACCION CAMEL beyond Network and Latin America

Why was the ACCION CAMEL created?

To issue a rating of the financial performance and possiblel risks facing the MFI in the medium term To demonstrate the financial health of MFIs to banks and potential investors, via recognized financial performance measurements To provide quality information/evaluation for improved management of MFIs To establish indicators and benchmarks for improved management of MFIs

Challenges in Creation of ACCION CAMEL

Definition of key variables
Including establishment of how variables should be measured

Definition of standards Availability of required information

Sensitivity of the MFI to being rated



Main Focus
Main Purpose

In-depth analysis of all areas of MFI


Financial strengths & Previously identified weaknesses risks

Demonstrate financial situation Measure progress

Average Level of Effort (consultant days)

46% Quantitative 54% Qualitative

3 consultants 15 days each

60% Quantitative 40% Qualitative

2 consultants 8 days each

Same as previous CAMEL

1 consultant 6 days

Characteristics of the ACCION CAMEL

Microfinance-specific Prove MFIs can meet the same standards as traditional financial institutions Not an audit Not an impact measure Confidential results

ACCION CAMEL: Target Market

Third Parties:
Commercial Banks Private Investors Second-tier lenders

Supervisory agencies (Central Banks and Bank Superintendencies)

Rated MFIs:
NGOs in transformation to regulated institutions Regulated MFIs (banks and finance companies)

ACCION CAMEL Characteristics

20 Key Indicators
Rated between 0 and 5
(optimal = 5)

7 Quantitative Indicators: 13 Qualitative Indicators: 20 Key Indicators: 46% 54% 100%

Supporting quantitative and qualitative indicators Trend analysis (two years, or three periods)

ACCION CAMEL Quantitative and Qualitative Indicators

Quantitative Indicators:
Portfolio Quality and Financial Analysis
To measure the viability of the MFI as a commercial institution To standardize the analysis of different MFIs

Optimal ranges established based on in-depth

analysis of the performance of MFIs worldwide

ACCION CAMEL Quantitative and Qualitative Indicators

Qualitative Indicators:
Indicators that are not quantifiable
Direct impact on the financial situation and overall condition of the MFI

Analysis based on:

Interviews of staff, board members, clients Review of policies and procedures

When to conduct ACCION CAMEL Rating

Most common examples:
Potential Investment/Loans
Requested by the MFI

Requested by donor or other third party

Transformation from NGO to regulated institution Technical Assistance

ACCION CAMEL Quantitative and Qualitative Indicators

Quantitative Indicators
Capital Adequacy (16%)
Capital Adequacy Ratio Adequacy of Reserves 5 6 Ability to Raise Equity 5

Qualitatitive Indicators

Asset Quality
Portfolio at Risk Loan Loss Rate

8 7 Portfolio Classification System Productivity of Long-term Assets 3 3

ACCION CAMEL Quantitative and Qualitative Indicators

Quantitative Indicators
Management (23%)
Governance Management Human Resources Processes, Controls, Audit Information Systems Strategic Planning & Budgeting 4 4 4 4 4 3

Qualitatitive Indicators

ROE Operating Efficiency ROA

5 8 7 Interest Rate Policy 4

ACCION CAMEL Quantitative and Qualitative Indicators

Quantitative Indicators
Liquidity (16%)
Liability Structure 8 Cash Flow Projections 4 Productivity of Liquid Assets 5

Qualitatitive Indicators




Achievements of the ACCION CAMEL Instrument

Increased MFI access to national and international capital markets
Reducing risk profile through an objective evaluation

Standardization of variables and indicators used to measure MFIs Database to analyze the evolution of the microfinance industry