Kiva Due Diligence Template

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Name of the Organization Location Kiva Potential Partner Evaluation Report Fastrack Greenlight Report Final Report 1

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Transcript of Kiva Due Diligence Template

Page 1: Kiva Due Diligence Template

Name of the OrganizationLocation

KivaPotential Partner Evaluation Report

Fastrack

Greenlight Report

Final Report

Prepared by:Name of MPM/PDS

Date of Due Diligence

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Table of Contents

Section 1 – MFI overview and highlights........................................................................................................3

SECTION 2 – SOCIAL PERFORMANCE.................................................................................................6

SECTION 3 – RISK.....................................................................................................................................13

APPENDIX 1 – PRODUCTS AND SERVICES..................................................................................................18APPENDIX 2 – FINANCIAL PERFORMANCE.................................................................................................19Appendix 3 – Financial Projections...........................................................................................................20

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Section 1 – MFI overview and highlights1.1 Executive Summary

OverviewCommitment to Microfinance1

Organization Start DateNetwork AffiliationNumber of BranchesCountry Legal Memo (y/n)DOT and DOJ Terrorist Exclusion (y/n)OFAC check (y/n)Legal StatusFor profit/ Non-profit?Regulated?Date of latest MIX Market DataGross Outstanding Portfolio

Loan GrowthDesired Funding30% of Total Portfolio Size 42% of Total Portfolio2

Projected Risk Star Rating Limit Projected Overall LimitExpected start date with Kiva Kiva’s country penetrationLoans that meet criteria (size, term) (Number)Loans that meet criteria (size, term) (USD)

RiskOverall estimated risk ratingStakeholders commitment to financial sustainability3

Audited Financial Statements (date)Borrower Growth Over Previous YearPortfolio Growth Over Previous YearPAR30 (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).

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Social PerformanceOverall estimated Social Performance ratingStakeholders 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-indebtednessPrinciple 2: Transparent PricingPrinciple 3: Appropriate Collections PracticesPrinciple 4: Ethical Staff BehaviorPrinciple 5: Mechanisms for Complaints Handling and ResolutionPrinciple 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 ClientsTotal Active Borrowers/ Total Active Women BorrowersTotal Active Voluntary Savers/ Total Active Women Voluntary SaversBreakdown by geographical area

Total/ % Active Borrowers in urban areasTotal/ % Active Borrowers in semi-urban areasTotal/ % 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).

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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

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Section 2 – Social Performance

Kiva Social Performance Model Core Criteria:Risk Model Core Criteria Max

ScoreScoreGiven

1 Targeting and outreach 5Geographic targeting Individual targetingPro-poor methodology

2 Products and Services 5Range of traditional servicesQuality servicesInnovative and non-financial services

3 Benefits to Clients 5Economic benefits for clientsClient participationSocial capital/client empowerment

4 Social Responsibility 5 Social responsibility to employees Social responsibility to clientsSocial responsibility to the community and environment

2.1 Social PrioritiesSpecifically, 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 MIXMIX Award? (indicate Gold or Silver)SPS Report (data in XL)Social Performance RatingMarket StudyFocus group studyPPI ReportPPI data (data XL)PPI presentation (PPT)Environment Policy ReportCERISE SPI (data XL)CERISE SPI (data Word)CERISE SPI ReportPoverty Assessment Tool (PAT)Quality Assessment Tool (QAT)Other (Specify)

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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 objective

2. Minor objective

3. Neutral 4. Important objective

5. Major objective

Targeting & outreach Products and servicesBenefits 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.

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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

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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:

Credit General loans Microenterprise

loans SME loans Line of credit Education loans Housing loans Loans for immediate household needs

Health loans Energy loans Water loans Other (specify)

Savings Checking

accounts Savings accounts Fixed term

deposits Special purpose savings accounts (Education, Health, Housing, Other)

Mandatory savings

Other (specify)

Insurance Credit life

insurance Life insurance House insurance Livestock and agricultural insurance

Health insurance Other (specify)

Other financial services Debit/ credit card Savings

facilitation service Money transfer

service Payment by

check Other (specify)

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Non-financial services:

Enterprise services Enterprise skills

development Business

development service Other (specify)

Adult education Financial literacy Basic health/ nutrition education

Other (specify)

Health services Basic medical

services Special medical services for women and children

Other (specify)

Women empowerment

Business training to enhance women’s market opportunities

Women’s leadership training

Training on rights and responsibilities as leaders in participative models

Women’s rights education/ Gender issues (training for men and women)

Counseling/ Legal services for women victims of violence

Other (specify)

Other non-financial services

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):

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MFI

Median for Peers

Avg. Portfolio Yield Avg. Loan Size (as Per Capita Income) Avg. Return on AssetsKiva Loan Product #1 (repeat for all products to be posted on Kiva)

For MFI

For corresponding avg. loan size on MFT 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 responsibility...

(1) (2) (3) (4) (5)

... 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?

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).

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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 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.

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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.

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.

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Section 3 – Risk

Kiva Risk Model Core Criteria:

Risk Model Core Criteria Max Score ScoreGiven

1 People 5Board ManagementStaffReputation Planning

2 Financial Performance 5Overall Financial PerformanceTransparency and Responsiveness

3 Risk Control 5Internal AuditInternal ControlsSustainabilityFX HedgingMIS

4 Oversight 5 Recommendation of Local Experts Funding HistoryRegulation and SupervisionNetwork Affiliation

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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 Recent Year

Previous Year

Previous Year-1

Previous Year-2

Previous Year-3

Unprovisioned PAR30 / Equity

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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 Recent Year

Previous Year

Previous Year-1

Previous Year-2

Previous Year-3

Current Ratio8

Debt/Equity RatioForeign Exchange Gap / EquityCompulsory Savings Intermediation Ratio

Financing Source

Loan Amount

Currency denomina

tion

Terms Collateral, 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

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.

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Year 1 Year 2 Year 3 Year 4 Year 5Current Ratio9

Debt/Equity RatioForeign Exchange Gap / EquityCompulsory Savings Intermediation RatioDiscuss 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:

Functionality9 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.

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Reporting Back-ups Access Controls and Audits Problems Technical Support

3.4 Regulatory environment and oversight

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

partner organiza

tion

Type of organizati

on(Network support,

TA providers

etc)

How long has the

MFI had a relationship with the organizati

on?

Basis of partnership

( e.g., financial/te

chnical assistance)

Level of Influence

on MFI(High,

medium or low)

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 NameSignalingInformationTechnical AssistanceImplicit Guarantor

Discuss the Recommendation of Local and Non-local Experts on the MFI:

Name of the Expert

Designation Major Recommenda

tions

Reasoning for recommenda

tions

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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 Produc

t

Will

be posted

on Kiva?

Description

Sector

(green,

education

, healt

h, wate

r, other

)

Lending

Methodology

If group methodology (solidar

ity or village bankin

g, averag

e numbe

r of members per group)

Collateral Require

d

Average

Loan

Amoun

t

Average

GDP

per capita

(PPP) in

local

country (see country data

section

)

Average Loan

Amount/ Average GDP Per Capi

ta (PPP

)

MFI Product (continued)

Average Loan Term

Repayment

Frequency

Interest Method(flat, declining)

Annual Interest Rate (%)

Up-front Fees (%)

Value-added Tax (%)

Compulsory Savings (%)

Savings Interest Paid (%)

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Appendix 2 – Financial Performance(in Local Currency) Most

RecentPrevious Year

Previous Year-1

Previous Year-2

Previous Year-3

Total AssetsGross Loan Portfolio% ChangeTotal LiabilitiesTotal EquityRevenue% ChangeOSSFSSNet IncomeROAROECurrent RatioLeverage RatioNet WorthPAR30Write-offsNumber of Borrowers% ChangeNumber of BranchesRevenue/ StaffCost Structure BreakdownPortfolio YieldNon-Portfolio Financial revenue RatioOperating Expense RatioFinance Expense RatioLoan Loss Provision Expense RatioEfficiency AnalysisLoans/ Loan OfficerLoan Officers/ Total StaffLoans/ Staff MemberCost per LoanAverage 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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Appendix 3 – Financial Projections(in Local Currency) Projecti

ons Year 1

Projections Year 2

Projections Year 3

Projections Year 4

Projections Year 5

Total AssetsGross Loan Portfolio% ChangeTotal LiabilitiesTotal EquityRevenue% ChangeOSSFSSNet IncomeROAROECurrent RatioLeverage RatioNet WorthPAR30Write-offsNumber of Borrowers% ChangeNumber of BranchesRevenue/ StaffCost Structure BreakdownPortfolio YieldNon-Portfolio Financial revenue RatioOperating Expense RatioFinance Expense RatioLoan Loss Provision Expense RatioEfficiency AnalysisLoans/ Loan OfficerLoan Officers/ Total StaffLoans/ Staff MemberCost per LoanAverage Disbursed Loan (Local Currency)Average Outstanding Loan (Local Currency)Average Disbursed Loan (USD) Average Outstanding Loan (USD) Number of Loan

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Officers