- GIRAFE is an innovative and unique rating approach conceived by Planet Rating in order to evaluate the performance and institutional risk of MFIs. This methodology is present in all our products and services, and therefore is the masterpiece of our job. The objective of GIRAFE is to promote an international standard of performance thereby strengthening the confidence of commercial investors.
- GIRAFE completes the financial analysis by including a qualitative approach. The analysis is based on data that belong to both quantitative and qualitative categories. The qualitative, non-financial aspects, linked to performance and risk, are essential components of an evaluation of a young, rapidly developing sector.
- GIRAFE respects the standards of the sector. Planet Rating systematically refers to financial tools implemented by microfinance specialists like MIX and CGAP and works in close cooperation with them. The GIRAFE rating methodology is based on the six following areas:
- GOVERNANCE
- This area relates to the analysis of the effectiveness of the ownership structure, the protection of the assets and the relevance of the MFI's strategy. We also assess the skills of the management team and the entire staff, including an evaluation of the human resource management system.
- INFORMATION
- Adequate information is critical to the success of any organization. In this area we evaluate the availability and accuracy of information as well as the security of the management information system.
- RISK MANAGEMENT
- In this area we evaluate the quality of control of operational risks. We review the procedures of internal control, their respect, the internal audit process, and the overall approach to risk management. We also assess the quality of the legal environment and of the supervision of the institution.
- ACTIVITIES AND SERVICES
- MFIs disburse loans and potentially mobilize savings. In this area we evaluate the quality of the management of these services as well as the quality of the loan portfolio. This analysis includes a review of credit procedures as well as the application of those procedures in the field. Our rating is based on the analysis of certain indicators that measure portfolio quality and risk coverage.
- FINANCING AND LIQUIDITY
- This area includes an analysis of the MFI's financing structure, its appropriateness with assets (interest rate risk, foreign exchange risk, and maturity risk), and its financing strategy for the future. Special attention is also placed on liquidity management, the management of short-term investments and cash flow projections.
- EFFICIENCY AND PROFITABILITY
- The analysis of this area determines if the MFI is sustainable in the long run without subsidies and if it is efficient. An evaluation of this area is necessary whether or not the MFI seeks to be profitable, as an MFI's efficiency determines its outreach capacity with favorable conditions.
The global rating gives a general estimate of risks. The area rating makes it possible to identify strengths and weaknesses of the MFI. It includes 6 areas which are scored from "a" (highest) to "e" (lowest). A weighting system is then applied in order to obtain a global rating from the scores assigned to each area.
- A+, A, A-
- Excellent: The institution excels in the evaluation area and is a model for the sector. There is a long-term vision for continual improvement. There are no risks in the short and medium term for operations. Long-term risks are well monitored.
- B+, B, B-
- Good: Procedures are well developed, effective, and incorporate a long-term perspective. Medium-term and long-term risks exist but are identified by the institution. Some improvements could be made to efficiency and risk management.
- C+, C, C-
- Minimum required: Procedures are functional but with certain failings. There are risks in the medium term for operations.
- D
- Insufficient: Procedures are in place, but with failings, and certain problems are only partially addressed. There are medium-term, and possibly short-term risks for operations.
- E
- Immediate risk of default or very insufficiant: There are immediate or underlying risks for operations or an unacceptable under performance.
- Trend
- The Rating Committee rates an MFI based on current performance and assigns a trend based on the future prospects as positive, stable, or negative. An uncertain trend will be assigned if there are sufficient uncertainties regarding performance over the next year.