Kiva Due Diligence Template

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  • Here is another really high quality DD template from Vumero
    http://www.vumero.com/bucket/models/mergers--acquisitions-due-diligence-request-list-15
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Kiva Due Diligence Template

  1. 1. Name of the Organization Location Kiva Potential Partner Evaluation Report Fastrack Greenlight Report Final Report Prepared by: Name of MPM/PDS Date of Due Diligence 1
  2. 2. Table of Contents SECTION 1 – MFI OVERVIEW AND HIGHLIGHTS.............................................................................3 SECTION 2 – SOCIAL PERFORMANCE.................................................................................................6 SECTION 3 – RISK......................................................................................................................................14 APPENDIX 1 – PRODUCTS AND SERVICES...........................................................................................................19 APPENDIX 2 – FINANCIAL PERFORMANCE..........................................................................................................20 APPENDIX 3 – FINANCIAL PROJECTIONS............................................................................................................21 2
  3. 3. Section 1 – MFI overview and highlights 1.1 Executive Summary Overview 1 Commitment to Microfinance Organization Start Date Network Affiliation Number of Branches Country Legal Memo (y/n) DOT and DOJ Terrorist Exclusion (y/n) OFAC check (y/n) Legal Status For profit/ Non-profit? Regulated? Date of latest MIX Market Data Gross Outstanding Portfolio Loan Growth Desired Funding 30% of Total Portfolio Size 42% of Total Portfolio2 Projected Risk Star Rating Limit Projected Overall Limit Expected start date with Kiva Kiva’s country penetration Loans that meet criteria (size, term) (Number) Loans that meet criteria (size, term) (USD) Risk Overall estimated risk rating Stakeholders commitment to financial sustainability3 Audited Financial Statements (date) Borrower Growth Over Previous Year Portfolio Growth Over Previous Year PAR30 (as of ) OSS (as of ) Current Ratio (as of ) Debt to Equity (as of ) 1 GLP< 30% of Assets (1); GLP< 50% of Assets (2); GLP< 70% of Assets (3); GLP> 70% of Assets (4). 2 Kiva’s 30% limit on financing relative to the portfolio is dynamic and, therefore, changes, as the portfolio grows. For new organizations, a simulation can be created in which the current portfolio financed by non- Kiva sources remains exactly the same and Kiva funding is additional to the portfolio size. This simulative multiplies the current portfolio size by 3/7 (42%) instead of 3/10 (30%). 3 How does the MFI rate the objective of financial sustainability? Not an objective (1); Minor objective (2); Important objective but cannot be reached in the short term (3); Major objective to be reached within 2 to 3 years (4); The institution is already financially sustainable (5). 3
  4. 4. Social Performance Overall estimated Social Performance rating Stakeholders commitment to Social Performance4 Goal of poverty reduction? (y/n) Endorsed Consumer Protection Principles? Code of Conduct? OK with Client Waiver? Consumer Protection Principles – Data available? Principle 1: Prevent over-indebtedness Principle 2: Transparent Pricing Principle 3: Appropriate Collections Practices Principle 4: Ethical Staff Behavior Principle 5: Mechanisms for Complaints Handling and Resolution Principle 6: Privacy of client data Fair Pricing Below or Above MF Transparency APR curve? (if available) Can provide interest and fee per borrower? (y/n) Lending methodologies (individual lending, group lending, village banking, other) Total Active Clients Total Active Borrowers/ Total Active Women Borrowers Total Active Voluntary Savers/ Total Active Women Voluntary Savers Breakdown by geographical area Total/ % Active Borrowers in urban areas Total/ % Active Borrowers in semi-urban areas Total/ % Active Borrowers in rural areas Breakdown by type of enterprise % portfolio in microenterprise % portfolio in small enterprises % portfolio in medium enterprises % portfolio in large microenterprises 4 Comment on the social objectives of the main stakeholders (managers, staff, clients, shareholders, donors, banks/investors, etc.) and how they ensure that the social mission is accomplished. Is there a strong culture of social performance at all levels of the institution? No (1); Only among top management (2); Only among top management and selected employees (3); Yes among most employees (4); Yes among all employees and clients? (5). 4
  5. 5. 1.2 Executive Summary Narrative Please provide a brief summary of the following, in paragraph form: • Full name of MFI, legal status, regulatory and supervision status and any related implications when working with Kiva • Brief History of operations – when / where / why were they founded? How has the MFI evolved into what it is today? • Note whether the MFI meets all minimum criteria. If not, explain the reason for overriding the minimum criteria • Mission, vision and values, and their alignment with Kiva • Financial & non-financial product /service offerings, and target clientele. Include information about any particular focuses the MFI has (women / IDP / refugees / youth / other) • Explain the capability and adequacy of current governance, leadership, long term vision • Describe MFIs current financial performance, status of operations • Describe the MFI’s level of transparency and market position – Do they have a rating? (Include score) Affiliations? Funders (international / national)? Who do they report to? Other international references? • Comment on current risk assessment, internal controls, internal and external audit • Explain how this potential partnership feeds into your regional goals and the overall Kiva strategy, and how the MFI will use Kiva funding (innovation, rural financing, etc) 1.3 Rationale for Kiva Partnership Explain intended use of Kiva funding by MFI. Why does Kiva want to work with this MFI? 1.4 SWOT Analysis Strengths Weaknesses • • Opportunities Threats • • 1.5 Market Context Comment on the microfinance market, and where the MFI fits in this landscape. Include the following: • Kiva market penetration • Size – Total portfolio, # of MFIs, different type of institutions, coverage • MFI Networks • Regulatory Bodies • Relevant laws governing MFI (interest rate caps, etc) • Funding Landscape • Country Rating • Political Climate 5
  6. 6. Section 2 – Social Performance Kiva Social Performance Model Core Criteria: Risk Model Core Criteria Max Score Score Given 1 Targeting and outreach 5 Geographic targeting Individual targeting Pro-poor methodology 2 Products and Services 5 Range of traditional services Quality services Innovative and non-financial services 3 Benefits to Clients 5 Economic benefits for clients Client participation Social capital/client empowerment 4 Social Responsibility 5 Social responsibility to employees Social responsibility to clients Social responsibility to the community and environment 2.1 Social Priorities Specifically, discuss the MFI’s Mission and Vision and its Social Performance Reporting (including awards). Indicate below whether the MFI is reporting its social performance using any of the following tools: Report to MIX MIX Award? (indicate Gold or Silver) SPS Report (data in XL) Social Performance Rating Market Study Focus group study PPI Report PPI data (data XL) PPI presentation (PPT) Environment Policy Report CERISE SPI (data XL) CERISE SPI (data Word) CERISE SPI Report Poverty Assessment Tool (PAT) Quality Assessment Tool (QAT) Other (Specify) 6
  7. 7. How does MFI management ensure the social mission is accomplished? How would the MFI rank the four dimensions of the SPI tool in terms of social priorities? 1. Not an 2. Minor 3. Neutral 4. Important 5. Major objective objective objective objective Targeting & outreach Products and services Benefits to clients Social responsibility 2.2 Targeting and Outreach Discuss the MFI’s target market. Specifically, indicate the extent to which the MFI is targeting and reaching poor, marginalized, excluded borrowers. MFI target market: Women Adolescent and youth (below the age of 18) Indigenous people and ethnic minorities Clients living in rural areas Clients living in urban/ semi-urban areas Clients living in underdeveloped areas5 Marginalized and/or socially vulnerable groups6 No specific target (all population) Other (specify) Poverty level of MFI target market (of clients that the MFI aims to reach): Very poor clients Poor clients Low income clients No specific focus (all population) Poverty Level Benchmark (Definition for ‘poor’ or ‘very poor’clients): Poor: Persons living below the poverty line established by the national government Persons living on less than $2 a day international poverty line Other (specify) Very poor: 5 Areas with little or no access to basic services: water, electricity, education, health, sanitation, infrastructure; marginalized areas with basic services but far removed or isolated from metropolitan areas; areas with an above average concentration of poor people. 6 Definition: excluded groups may be defined by race, caste, ethnicity or religion, and may include persons with disabilities, homeless, internally displaced persons or refugees. Also may include persons often excluded from microfinance such as farmers or young people between 16-25 years of age. The data must be less than two years old. Indicate the definition of groups considered socially marginalized or vulnerable in the MFI country, and indicate the definition used by the MFI. 7
  8. 8. Persons in the bottom 50% of those living below the poverty line established by the national government Persons living on less than $1 a day international poverty line Other (specify) Type of enterprises supported by the MFI: Micro enterprises (less than 10 employees) Small enterprises (between 10 and 50 employees) Medium enterprises (between 50 and 250 employees) Large enterprises (more than 250 employees) Development objective(s): Poverty reduction Employment generation Development of start-up enterprises Growth of existing business Income and productivity growth Adult education improvement Children schooling Health improvement Gender equality and women’s empowerment Other (specify) If the institution has any other social goals please state them here What is the MFI’s strategy regarding outreach to the poor and the excluded? How does the economic, legal, social and cultural environment facilitate or limit the implementation of a strategy regarding the poor and the excluded? Indicate if the MFI tracks the poverty level of its clients. If not, is it planning on doing it in the future? If yes, indicate the tool used to track poverty levels. Poverty measurement tool: Progress out of Poverty Index (PPI) (Grameen Foundation) Poverty Assessment Tool (PAT) (USAID-IRIS) Cashpoor Housing Index Participatory Wealth Ranking (PWR) Means Test Food Security Index Household income Per Capita Household Expenditure Per Capita Household Income Own Proxy Poverty Index Other (specify) 2.3 Products and Services 8
  9. 9. Refer to Appendix 1 and discuss the MFI’s products and services. Specifically, does the MFI have appropriate products and services for its target clientele, and a client-centric approach? How many different types of loan products does the MFI offer? (Products are considered different when at least two of the following characteristics are different: purpose, disbursement conditions, minimum-maximum amount, term, collateral, interest rate and repayment schedule. Example: A MFI offers two loans. One has a 3 month term, the other a 5 month term. The purpose, minimum and maximum amounts, collateral, interest rates and schedule are the same for both. In this questionnaire, these two types of loans must be considered as a single product). What is the MFI’s strategy regarding the adaptation of products and services to target clients? How does the economic, legal, social and cultural environment facilitate or limit the implementation of a strategy to adapt products and services? Put a check mark if the MFI offers any of the following: Financial Services: Other (specify) Credit General loans Microenterprise loans SME loans Insurance Line of credit Credit life Education loans insurance Housing loans Life insurance Loans for House insurance immediate Livestock and household needs agricultural Health loans insurance Energy loans Health insurance Water loans Other (specify) Other (specify) Other financial services Savings Debit/ credit card Checking accounts Savings facilitation Savings accounts service Fixed term Money transfer deposits service Special purpose Payment by check savings accounts Other (specify) (Education, Health, Housing, Other) Mandatory savings 9
  10. 10. Non-financial services: Business training to enhance Enterprise services women’s market Enterprise skills opportunities development Women’s Business leadership training development service Training on rights Other (specify) and responsibilities Adult education as leaders in Financial literacy participative Basic health/ models nutrition Women’s rights education education/ Other (specify) Gender issues (training for men Health services and women) Basic medical Counseling/ Legal services services for Special medical women victims services for of violence women and Other (specify) children Other (specify) Other non-financial services Women empowerment Does the MFI offer the non-financial services directly or through a third party? Fair Pricing A financial institution can measure up to this principle by offering quality services for the price, demonstrating its competitiveness in the marketplace, and favoring a long-term beneficial relationship with the customer over short-term profit maximization. How does the MFI state the interest rate? • Declining balance method • Flat interest method What is the main loan product offered by the MFI? What percentage of the portfolio does it represent? Annual Percentage Rate for the MFI’s main loan product (using Deutsche Bank interest rate tool):
  11. 11. MFI Median for Peers Avg. Portfolio Yield Avg. Loan Size (as Per Capita Income) Avg. Return on Assets Kiva Loan Product #1 (repeat for all For For corresponding avg. loan size on MFT products to be posted on Kiva) MFI curve (when available) Avg. Loan Size (in Local currency) APR for Kiva loan product 2.4 Benefits to Clients What is the MFI’s strategy for ensuring improvement in the economic and social situation of clients? How does the economic, legal, social and cultural environment facilitate or limit the implementation of a strategy for improving the situation of clients? In particular, what are the pre-existing social networks in the operating areas? Is there strong social cohesion? Do community members/ clients share values of solidarity? 2.5 Social Responsibility Policy of the MFI on Social Responsibility7 Does the MFI have a policy defining its social (1) (2) (3) (4) (5) responsibility... ... to clients (client protection policies)? ... to the community? ... to staff (human resources)? ...vis à vis the environmental impact of the businesses it finances? ... vis à vis its own environmental impact at HQ and branches (e.g., use of energy, water, paper, waste)? What is the MFI’s strategy regarding social responsibility? How does the economic, legal, social and cultural environment facilitate or limit the implementation of a socially responsible strategy? Social Responsibility towards Clients As an endorser of the Consumer Protection Principles (CPP), Kiva is committed to ensuring that the principles are promoted to its MFI 7 None (1); None, but planned for the future (2); Under development (3); No formal policy but the values are reflected in operations (4); Yes, the MFI has a formal, written policy (5).
  12. 12. partners. If the MFI has not endorsed CPP, explain why and provide timeline for when the will endorse them. Describe the MFIs activities around consumer protection. 1. Principle 1: Prevent over-indebtedness. A financial institution measures up to this principle by carefully establishing the borrower’s ability to afford the loan and repay it. Clients should be able to handle debt service payments without sacrificing their basic quality of life. Highlight measures that have been implemented and what the MFI is doing to ensure that these measures are effective. If the MFI clients are borrowing from other institutions or money lenders, indicate percentage). Highlight if the MFI provide some type of loan-insurance in case of death of the borrower (insurance on the loan that frees the family from the burden of debt in case of death of the borrower). 2. Principle 2: Transparent Pricing. A financial institution measures up to this principle by ensuring that complete information is made available to customers in clear language that is not misleading and that the customer is able to understand. Describe how the MFI ensures transparent communication with clients about prices, terms and conditions of financial products. Include a description on how the MFI discloses the information and how it ensures that the communication is clear and understandable. 3. Principle 3: Appropriate Collections Practices. A financial institution measures up to this principle by maintaining high standards of ethical behavior even when clients fail to meet their contractual commitments. Describe MFI collection practices and how the MFI ensures that appropriate collections practices are followed. 4. Principle 4: Ethical Staff Behavior. A financial institution measures up to this principle by creating a corporate culture that values high ethical standards among staff and ensuring safeguards are in place to prevent, detect and correct corruption or mistreatment of clients. Describe how the MFI ensures staff ethical codes of conduct are consistently followed.
  13. 13. 5. Principle 5: Mechanisms for Complaints Handling and Resolution. A financial institution measures up to this principle by having a mechanism for collecting, responding in a timely manner, and resolving problems for their clients. Describe MFI policies and procedures in place for complaint resolution and client problem solving. 6. Principle 6: Privacy of client data. A financial institution measures up to this principle by respecting the privacy of client data, ensuring the integrity and security of client information, and seeking the client’s permission to share information with outside parties prior to doing so. Describe how the MFI safeguard privacy of clients’ data. If the MFI has other policies or practices designed to protect clients and ensure their fair treatment, describe as well.
  14. 14. Section 3 – Risk Kiva Risk Model Core Criteria: Risk Model Core Criteria Max Score Score Given 1 People 5 Board Management Staff Reputation Planning 2 Financial Performance 5 Overall Financial Performance Transparency and Responsiveness 3 Risk Control 5 Internal Audit Internal Controls Sustainability FX Hedging MIS 4 Oversight 5 Recommendation of Local Experts Funding History Regulation and Supervision Network Affiliation
  15. 15. 3.1 People Discuss the MFI’s Board of Directors, including: • Composition – list board members, length of time on board, and qualifications • Structure – discuss structure, including notes on involvement and support • Involvement and Support Discuss the background and qualifications of the Management Team, including: • Leadership and senior managers • Middle Management Discuss the Formalization of the Human Resource Function: • Is there a formal HR department • Employee turnover • Appraisal • Incentive Schemes • Training • Succession planning 3.2 Financial Performance Fill Appendix 2. Discuss Profitability and Sustainability drivers, including: • Revenue Growth • Trends in Profitability, including OSS • Efficiency and Profitability • ROE and ROA • Margin Analysis Discuss the Portfolio and Asset Quality drivers, including: • Provisioning Adequacy • Product offerings • Delinquency • Write-offs, rescheduling and policies • Concentrations by branch, product or sector PAR Most Previous Previous Previous Previous Recent Year Year-1 Year-2 Year-3 Year Unprovisioned PAR30 / Equity
  16. 16. Discuss the Capital Structure and Asset Liability Management, including: • Leverage • Financing Structure • Interest Rate Risk • Maturity Risk and Liquidity Management • Compulsory Savings Intermediation • FX Risk ALM Most Previous Previous Previous Previous Recent Year Year-1 Year-2 Year-3 Year Current Ratio8 Debt/Equity Ratio Foreign Exchange Gap / Equity Compulsory Savings Intermediation Ratio Financing Source Loan Amount Currency Terms Collateral, denomination Covenants, and Inter-creditor Issues Discuss the confidence in Audited Financial Statements. Discuss the Business Planning process, including: • Expansion plans • Hiring plans Fill Appendix 3. Discuss Financial Projections (cover same areas as for current financial performance listed above). ALM Projections Projections Projections Projections Projections Year 1 Year 2 Year 3 Year 4 Year 5 Current Ratio9 Debt/Equity Ratio Foreign Exchange Gap / 8 Juhudi Kilimo cannot distinguish between the current and non-current portions of its portfolio. For calculation, the analysts have assumed all of the portfolio is current. 9 Juhudi Kilimo cannot distinguish between the current and non-current portions of its portfolio. For calculation, the analysts have assumed all of the portfolio is current.
  17. 17. Equity Compulsory Savings Intermediation Ratio Discuss the Transparency and Responsiveness, including: • External Transparency (including financial and social reporting to MIX) • Internal Transparency • Responsiveness 3.3 Risk Control, Program Methodology and Systems/ Documentation Discuss the following: • Internal Audit Department– does the MFI have one? Structure? Quality? • Internal Control Department – does the MFI have one? Structure? • Cash Handling • Foreign exchange policies • MIS Data Quality • Reconciliation • Ghost clients/ Cases of fraud to date Comment on the existence and quality of the following manuals: • Operations Manual • Finance Manual • Credit Manual • HR Manual • Internal Audit/ Internal Controls Discuss the MFI’s program methodology and credit discipline: • Program Methodology in general • Credit decision making and delegation of authority • Delinquency monitoring Discuss the MFI’s MIS/ Information System: • Functionality • Reporting • Back-ups • Access Controls and Audits • Problems • Technical Support 3.4 Regulatory environment and oversight
  18. 18. Discuss the Regulatory Environment under which the MFI operates: • Legal Operation • Savings Handling • Regulation • Legal Status Discuss the MFI’s External Relationships: Name of the Type of How long has Basis of Level of partner organization the MFI had a partnership ( e.g., Influence on MFI organization (Network relationship with financial/technical (High, medium support, TA the assistance) or low) providers etc) organization? Typically, Kiva has relied on network relationships for signaling (whether the MFI is good), for information (feedback on the MFI), for ongoing technical assistance to improve an organization’s risk profile, and as an implicit guarantor on an MFI’s debt to Kiva. Name Name Signaling Information Technical Assistance Implicit Guarantor Discuss the Recommendation of Local and Non-local Experts on the MFI: Name of the Expert Designation Major Reasoning for Recommendations recommendations
  19. 19. Appendix 1 – Products and Services List the Main characteristics of the MFI’s Products and Services and highlight which ones will be posted on Kiva. MFI Will Descriptio Sector Lending If group Collatera Averag Averag Average Produc be n (green, Methodolog methodolog l e Loan e GDP Loan t poste education, y y (solidarity Required Amount per Amount/ d on health, or village capita Average Kiva? water, banking, (PPP) in GDP Per other) average local Capita number of country (PPP) members (see per group) country data section) MFI Average Repayment Interest Annual Up- Value- Compulsory Savings Product Loan Term Frequency Method Interest front added Savings (%) Interest (continued) (flat, Rate (%) Fees Tax (%) Paid (%) declining) (%)
  20. 20. Appendix 2 – Financial Performance (in Local Currency) Most Recent Previous Previous Previous Previous Year Year-1 Year-2 Year-3 Total Assets Gross Loan Portfolio % Change Total Liabilities Total Equity Revenue % Change OSS FSS Net Income ROA ROE Current Ratio Leverage Ratio Net Worth PAR30 Write-offs Number of Borrowers % Change Number of Branches Revenue/ Staff Cost Structure Breakdown Portfolio Yield Non-Portfolio Financial revenue Ratio Operating Expense Ratio Finance Expense Ratio Loan Loss Provision Expense Ratio Efficiency Analysis Loans/ Loan Officer Loan Officers/ Total Staff Loans/ Staff Member Cost per Loan Average Disbursed Loan (Local Currency) Average Outstanding Loan (Local Currency) Average Disbursed Loan (USD) Average Outstanding Loan (USD) Number of Loan Officers
  21. 21. Appendix 3 – Financial Projections (in Local Currency) Projections Projections Projections Projections Projections Year 1 Year 2 Year 3 Year 4 Year 5 Total Assets Gross Loan Portfolio % Change Total Liabilities Total Equity Revenue % Change OSS FSS Net Income ROA ROE Current Ratio Leverage Ratio Net Worth PAR30 Write-offs Number of Borrowers % Change Number of Branches Revenue/ Staff Cost Structure Breakdown Portfolio Yield Non-Portfolio Financial revenue Ratio Operating Expense Ratio Finance Expense Ratio Loan Loss Provision Expense Ratio Efficiency Analysis Loans/ Loan Officer Loan Officers/ Total Staff Loans/ Staff Member Cost per Loan Average Disbursed Loan (Local Currency) Average Outstanding Loan (Local Currency) Average Disbursed Loan (USD) Average Outstanding Loan (USD) Number of Loan Officers

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