CRS Microfinance Alliance for Global Impact (MAGI) Accreditation Tool History of the MAGI

The CRS Microfinance Alliance for Global Impact was first developed in 1999. The Alliance was created to establish quality standards for CRS microfinance partners in terms of financial performance, governance as well as adherence to the CRS poverty lending principles. In order to become a member of the MAGI, institutions are required to undergo a MAGI Accreditation Assessment, or rating assessment. CRS developed this tool because at the time, there were no other tools that systematically evaluated the social mission of an institution in addition to financial and non-financial analysis. CRS also felt there needed to be greater emphasis on human resources development and financial services analysis. The results from the MAGI assessment help determine technical assistance needs and help steer partners towards growth and sustainability and possible transformation into regulated institution. The benefits for partners include recognitions from CRS, CRS endorsement in attracting donors as well as priority for CRS funding for technical assistance and loan capital. The benefits for CRS include the assurance of program and institutional quality and capacity, the means with which to encourage programs to excel in poverty lending and building sustainable institutions, and a systematic way for identifying and addressing support needs.

Evolution of the MAGI Accreditation Tool
After initial testing in 1999, CRS found that many partners were not mature enough for an accreditation assessment, rather several institutional weaknesses kept institutions from scoring high enough to become accredited MAGI members. As a result, the MAGI tool was divided into two separate processes. The Planning Assessment was developed as a first step to help partners identify and address institutional weaknesses. Each institution develops an Institutional Strengthening Plan, which then paves the way for the second phase, the Accreditation Assessment, to be conducted within 2-4 years after the initial Planning Assessment. The Accreditation tool involves more rigorous evaluation techniques including scoring for the individual areas of analysis which are combined to achieve the minimum Global Assessment score necessary to become an Accredited MAGI Member. CRS has been conducting MAGI planning and accreditation assessments for over 5 years now (40 Planning Assessments, 6 Accreditation Assessments) and has recently finished an extensive revision of the MAGI Accreditation tool with the goal of incorporating new industry standards, including more areas of analysis as well as an improved poverty scoring section that rates an institution’s ability to target and serve very poor entrepreneurs.

MAGI Accreditation Process – 2004 Revisions
The Accreditation process includes a thorough document review, an 8-day visit to the institution, and a final report with scoring in 9 different areas. During the visit, a team of 3 consultants conducts interviews with both field and headquarters staff and extensive interviews with clients, village banks and solidarity groups. Results from these interviews as well as findings from document reviews and data collection are then incorporated into

the scoring matrix, which calculates the institution’s final score. The score determines the final rating. D <65 C 65 C+ 70 B 75 B+ 80 A 85 A+ 90 AA 95 AAA 100

Global Assessment Score

The revised Accreditation tool scores 9 different sections comprising the following: Area Planning Market Financial Performance Services MIS Internal Controls Financial Administration Organizational Structure Poverty Lending Total Weight 5% 5% 35% 6% 6% 6% 10% 12% 15% 100%

While the financial performance and market sections comprise 40% of the score, nonfinancial areas, including planning, services, MIS, internal controls, financial administration and organizational structure comprise 45% and poverty, 15%. This breakdown was established as a result of a thorough analysis of similar ratings methodologies and the incorporation of industry standards particularly in the financial and governance areas. CRS scores more heavily than similar ratings tools on Organizational Structure (human resources), Services and Poverty due to their importance to the overall mission, objectives and sustainability of the institution. Future of the MAGI Accreditation Tool Currently CRS is in the test phase of the newly revised Accreditation Tool and so far has conducted two accreditation assessments at partner institutions in Latin America and Southeast Asia. We are planning several more in Latin America and Central Asia during FY’05. Once the testing phase is completed and the tool is finalized, our ultimate goal is to introduce the MAGI Accreditation tool as a rating tool for the industry. We at CRS realize that there is a growing demand on the part of MFIs, donors and social investors to rate an institution in terms of outreach and social impact in addition to the traditional areas of analysis found in similar rating tools. In response to this, CRS would like to eventually invite non-CRS partners to go through a MAGI Accreditation Assessment.

For more information please contact Lara Storm Microfinance Accreditation Specialist Catholic Relief Services 209 West Fayette Street Baltimore, MD 21201 (410) 951-7478

Goal of Workshop We have been working with Laura on these indicators and hope to take the opportunity to present our poverty lending indicators to the PAWG, and anyone else interested, to ensure consensus and to encourage participants to continue thinking about innovative ways to reach the very poor with appropriate financial services. The purpose of this 30-minute presentation is to gather feedback on the poverty lending indicators section of the Accreditation Tool. I would specifically like to present the three different areas we rate in the poverty scoring section:  Institutional Policy o Institutional commitment to serving the very poor (ie mission statement) o Poverty targeting tools used o Appropriateness of products for reaching the very poor Outreach o Average loan size o % Female clients o % Of clients in rural areas o % Of portfolio dedicated to agricultural activities Access o Type of guarantee o Support in growing client savings o Client Surveys to determine whether clients are moving out of poverty o Use of this information in management decisions

Lessons learned from case studies: Cast Study 1: In Case Study 1, the Institution scored relatively poorly in all three areas. Findings revealed that the institution, although functioning in an area with a 70% poverty rate, was no longer serving its original client base of poor women. Our analysis revealed that the average loan size had grown 17% over the last year while the number of clients remained the same. The institution was continually losing its female clientele, which had dropped to less than 50%; and the average loan size was significantly higher than the regional benchmark. We found that the institution, although equipped with a poverty focused mission statement, did not know how to assess whether its clients were indeed very poor and was not interested or didn’t have the resources to be able to measure the social impact of its services. These findings have reinforced the need to deal with mission drift and have specifically highlighted the potential disconnect between an institution’s mission statement and the reality of its activities. We have also learned that CRS

must do more to educate partners in poverty lending and to ensure they are adequately trained in the use of poverty targeting tools. Case Study 2: The institution scored very well on the Outreach indicators and scored relatively low on Policy and Access. The institution works in an extremely poor region where women make up 90% of the client base and rural areas are significantly represented in the portfolio (94%). As a start-up NGO, the partner used government poverty maps to identify potential markets. Since converting into a regulated institution, however, the focus has been transferred to working in economically viable areas. There was also no effort to measure social impact. This led us to the conclusion that, despite the attractive indicators, there is a potential for future mission drift. Conclusions  The analysis of both quantitative indicators and qualitative indicators helps to distinguish between an institution’s core values and the reality of its environment The tool helps identify the areas within the poverty analysis section that may be a result of external factors (ie high poverty rate) rather than internal factors (ie institutional culture). This then helps to identify the risk of mission drift in the future. The tool has helped CRS identify institutional needs in terms of learning to identify the neediest clients as well as measuring the social impact of services. Useful tool for helping to guide institutional development in terms of mission, objectives and product design.

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