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ACCION CAMEL Financial Assessment
Instrument for Microfinance Institutions
Lynne CurranSenior Director; Financial Analysis28 May, 2005Bucharest, Romania
• 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
ACCION International
ACCION CAMEL
• 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
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
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
Why was the ACCION CAMEL created?
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
Challenges in Creation of ACCION CAMEL
ACCION CAMEL: Versions
TRADITIONAL CAMEL
RATING CAMEL (“MINI-CAMEL”)
UPDATE CAMEL
Main Focus In-depth analysis of all areas of MFI
Financial strengths & weaknesses
Previously identified risks
Main Purpose Management Demonstrate financial situation
Measure progress
Weighting 46% Quantitative54% Qualitative
60% Quantitative40% Qualitative
Same as previous CAMEL
Average Level of Effort (consultant days)
3 consultants15 days each
2 consultants8 days each
1 consultant6 days
• Microfinance-specific
• Prove MFIs can meet the same standards as traditional financial institutions
• Not an audit
• Not an impact measure
• Confidential results
Characteristics of the ACCION CAMEL
ACCION CAMEL: Target Market
Third Parties:
Commercial Banks
Private Investors
Second-tier lenders
Supervisory agencies (Central Banks and Bank Superintendencies)
Rated MFIs: NGOs
NGOs in transformation to regulated institutions
Regulated MFIs (banks and finance companies)
20 Key Indicators
– Rated between 0 and 5
(optimal = 5)
– Weighting7 Quantitative Indicators: 46%13 Qualitative Indicators: 54%20 Key Indicators: 100%
– Supporting quantitative and qualitative
indicators
– Trend analysis (two years, or three periods)
ACCION CAMELCharacteristics
ACCION CAMELQuantitative and Qualitative IndicatorsQuantitative Indicators:
Portfolio Quality and Financial Analysis
Adjustments:
•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
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
ACCION CAMELQuantitative and Qualitative Indicators
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
Quantitative Indicators
Qualitatitive Indicators
Capital Adequacy (16%)Capital Adequacy Ratio 5Adequacy of Reserves 6
Ability to Raise Equity 5
Asset Quality (21%)
Portfolio at Risk 8Loan Loss Rate 7
Portfolio Classification System 3Productivity of Long-term Assets
3
ACCION CAMELQuantitative and Qualitative Indicators
Quantitative Indicators Qualitatitive IndicatorsManagement (23%)
Governance 4Management
4Human Resources 4Processes, Controls, Audit
4 Information Systems
4Strategic Planning & Budgeting 3
Earnings (24%)ROE 5Operating Efficiency
8ROA 7
Interest Rate Policy 4
ACCION CAMELQuantitative and Qualitative Indicators
Quantitative Indicators Qualitatitive IndicatorsLiquidity (16%)
Liability Structure 8Cash Flow Projections 4Productivity of Liquid Assets
5
Total 46% 54%
ACCION CAMELQuantitative and Qualitative Indicators
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
Achievements of the ACCION CAMEL Instrument