ACCION CAMEL   Financial Assessment Instrument for Microfinance Institutions Lynne Curran Senior Director; Financial Analy...
<ul><li>Over 30 years experience in microfinance </li></ul><ul><ul><li>Financial Management Unit: </li></ul></ul><ul><ul><...
ACCION CAMEL <ul><li>Capital Adequacy </li></ul><ul><li>Asset Quality </li></ul><ul><li>Management </li></ul><ul><li>Earni...
ACCION CAMEL:  What is it? <ul><li>Internal evaluation and financial assessment instrument of microfinance institutions (M...
1978 Creation of the traditional CAMEL instrument by the U.S. Federal Reserve Bank   1980s ACCION Latin America Bridge Fun...
<ul><li>To issue a rating of the financial performance and possiblel risks facing the MFI in the medium term </li></ul><ul...
<ul><li>Definition of key variables  </li></ul><ul><ul><li>Including establishment of  how  variables should be measured <...
ACCION CAMEL:  Versions Measure progress Demonstrate financial situation Management Main Purpose 1 consultant 6 days 2 con...
<ul><li>Microfinance-specific </li></ul><ul><li>Prove MFIs can meet the same standards as traditional financial institutio...
ACCION CAMEL:  Target Market <ul><li>Third Parties:  </li></ul><ul><ul><li>Commercial Banks </li></ul></ul><ul><ul><li>Pri...
<ul><li>20 Key Indicators </li></ul><ul><ul><li>Rated between 0 and 5 </li></ul></ul><ul><ul><ul><ul><li>(optimal = 5) </l...
ACCION CAMEL Quantitative and Qualitative Indicators <ul><li>Quantitative Indicators: </li></ul><ul><ul><li>Portfolio Qual...
<ul><li>Qualitative Indicators:  </li></ul><ul><ul><li>Indicators that are not quantifiable </li></ul></ul><ul><ul><ul><li...
When to conduct  ACCION CAMEL Rating <ul><li>Most common examples: </li></ul><ul><ul><li>Potential Investment/Loans </li><...
ACCION CAMEL Quantitative and Qualitative Indicators Portfolio Classification System  3 Productivity of Long-term Assets  ...
ACCION CAMEL Quantitative and Qualitative Indicators Qualitatitive Indicators Quantitative Indicators Interest Rate Policy...
ACCION CAMEL Quantitative and Qualitative Indicators Qualitatitive Indicators Quantitative Indicators   54% Total    46% L...
<ul><li>Increased MFI access to national and international capital markets </li></ul><ul><ul><li>Reducing risk profile thr...
 
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ACCION CAMEL Financial Assessment Instrument for Microfinance ...

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ACCION CAMEL Financial Assessment Instrument for Microfinance ...

  1. 2. ACCION CAMEL Financial Assessment Instrument for Microfinance Institutions Lynne Curran Senior Director; Financial Analysis 28 May, 2005 Bucharest, Romania
  2. 3. <ul><li>Over 30 years experience in microfinance </li></ul><ul><ul><li>Financial Management Unit: </li></ul></ul><ul><ul><ul><li>Autonomous unit dedicated to financial assessments (ACCION CAMEL), performance monitoring, financial projections and other analytical tasks </li></ul></ul></ul>ACCION International
  3. 4. ACCION CAMEL <ul><li>Capital Adequacy </li></ul><ul><li>Asset Quality </li></ul><ul><li>Management </li></ul><ul><li>Earnings </li></ul><ul><li>Liquidity Management </li></ul>
  4. 5. ACCION CAMEL: What is it? <ul><li>Internal evaluation and financial assessment instrument of microfinance institutions (MFIs) </li></ul><ul><li>In-depth analysis of all areas of the MFI </li></ul><ul><li>Provides recommendations for improvements to management </li></ul>
  5. 6. 1978 Creation of the traditional CAMEL instrument by the U.S. Federal Reserve Bank 1980s ACCION Latin America Bridge Fund 1992 Creation of ACCION CAMEL instrument for MFIs 1993 – 1999 ACCION CAMEL evaluations of ACCION Network members only Transfer of ACCION CAMEL methodology to supervisory agencies and lending institutions Expanding use of ACCION CAMEL beyond Network and Latin America 1999 + 2000 + History of the CAMEL 1998 Publication of ACCION CAMEL Technical Note
  6. 7. <ul><li>To issue a rating of the financial performance and possiblel risks facing the MFI in the medium term </li></ul><ul><li>To demonstrate the financial health of MFIs to banks and potential investors, via recognized financial performance measurements </li></ul><ul><li>To provide quality information/evaluation for improved management of MFIs </li></ul><ul><li>To establish indicators and benchmarks for improved management of MFIs </li></ul>Why was the ACCION CAMEL created?
  7. 8. <ul><li>Definition of key variables </li></ul><ul><ul><li>Including establishment of how variables should be measured </li></ul></ul><ul><li>Definition of standards </li></ul><ul><li>Availability of required information </li></ul><ul><li>Sensitivity of the MFI to being rated </li></ul>Challenges in Creation of ACCION CAMEL
  8. 9. ACCION CAMEL: Versions Measure progress Demonstrate financial situation Management Main Purpose 1 consultant 6 days 2 consultants 8 days each 3 consultants 15 days each Average Level of Effort (consultant days) Same as previous CAMEL 60% Quantitative 40% Qualitative 46% Quantitative 54% Qualitative Weighting Previously identified risks Financial strengths & weaknesses In-depth analysis of all areas of MFI Main Focus UPDATE CAMEL RATING CAMEL (“MINI-CAMEL”) TRADITIONAL CAMEL
  9. 10. <ul><li>Microfinance-specific </li></ul><ul><li>Prove MFIs can meet the same standards as traditional financial institutions </li></ul><ul><li>Not an audit </li></ul><ul><li>Not an impact measure </li></ul><ul><li>Confidential results </li></ul>Characteristics of the ACCION CAMEL
  10. 11. ACCION CAMEL: Target Market <ul><li>Third Parties: </li></ul><ul><ul><li>Commercial Banks </li></ul></ul><ul><ul><li>Private Investors </li></ul></ul><ul><ul><li>Second-tier lenders </li></ul></ul><ul><ul><li>Supervisory agencies (Central Banks and Bank Superintendencies) </li></ul></ul><ul><li>Rated MFIs: </li></ul><ul><ul><li>NGOs </li></ul></ul><ul><ul><li>NGOs in transformation to regulated institutions </li></ul></ul><ul><ul><li>Regulated MFIs (banks and finance companies) </li></ul></ul>
  11. 12. <ul><li>20 Key Indicators </li></ul><ul><ul><li>Rated between 0 and 5 </li></ul></ul><ul><ul><ul><ul><li>(optimal = 5) </li></ul></ul></ul></ul><ul><ul><li>Weighting </li></ul></ul><ul><ul><ul><ul><li>7 Quantitative Indicators: 46% </li></ul></ul></ul></ul><ul><ul><ul><ul><li>13 Qualitative Indicators: 54% </li></ul></ul></ul></ul><ul><ul><ul><ul><li>20 Key Indicators: 100% </li></ul></ul></ul></ul><ul><ul><li>Supporting quantitative and qualitative indicators </li></ul></ul><ul><ul><li>Trend analysis (two years, or three periods) </li></ul></ul>ACCION CAMEL Characteristics
  12. 13. ACCION CAMEL Quantitative and Qualitative Indicators <ul><li>Quantitative Indicators: </li></ul><ul><ul><li>Portfolio Quality and Financial Analysis </li></ul></ul><ul><ul><li>Adjustments : </li></ul></ul><ul><ul><ul><li>To measure the viability of the MFI as a commercial institution </li></ul></ul></ul><ul><ul><ul><li>To standardize the analysis of different MFIs </li></ul></ul></ul><ul><ul><li>Optimal ranges established based on in-depth analysis of the performance of MFIs worldwide </li></ul></ul>
  13. 14. <ul><li>Qualitative Indicators: </li></ul><ul><ul><li>Indicators that are not quantifiable </li></ul></ul><ul><ul><ul><li>Direct impact on the financial situation and overall condition of the MFI </li></ul></ul></ul><ul><ul><li>Analysis based on: </li></ul></ul><ul><ul><ul><li>Interviews of staff, board members, clients </li></ul></ul></ul><ul><ul><ul><li>Review of policies and procedures </li></ul></ul></ul>ACCION CAMEL Quantitative and Qualitative Indicators
  14. 15. When to conduct ACCION CAMEL Rating <ul><li>Most common examples: </li></ul><ul><ul><li>Potential Investment/Loans </li></ul></ul><ul><ul><li>Requested by the MFI </li></ul></ul><ul><ul><li>Requested by donor or other third party </li></ul></ul><ul><ul><li>Transformation from NGO to regulated institution </li></ul></ul><ul><ul><li>Technical Assistance </li></ul></ul>
  15. 16. ACCION CAMEL Quantitative and Qualitative Indicators Portfolio Classification System 3 Productivity of Long-term Assets 3 Portfolio at Risk 8 Loan Loss Rate 7 Asset Quality (21%) Ability to Raise Equity 5 Capital Adequacy Ratio 5 Adequacy of Reserves 6 Capital Adequacy (16%) Qualitatitive Indicators Quantitative Indicators
  16. 17. ACCION CAMEL Quantitative and Qualitative Indicators Qualitatitive Indicators Quantitative Indicators Interest Rate Policy 4 ROE 5 Operating Efficiency 8 ROA 7 Earnings (24%) Governance 4 Management 4 Human Resources 4 Processes, Controls, Audit 4 Information Systems 4 Strategic Planning & Budgeting 3 Management (23%)
  17. 18. ACCION CAMEL Quantitative and Qualitative Indicators Qualitatitive Indicators Quantitative Indicators 54% Total 46% Liability Structure 8 Cash Flow Projections 4 Productivity of Liquid Assets 5 Liquidity (16%)
  18. 19. <ul><li>Increased MFI access to national and international capital markets </li></ul><ul><ul><li>Reducing risk profile through an objective evaluation </li></ul></ul><ul><li>Standardization of variables and indicators used to measure MFIs </li></ul><ul><li>Database to analyze the evolution of the microfinance industry </li></ul>Achievements of the ACCION CAMEL Instrument

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