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Microfinance and the Role of Policies and Procedures in Saturated Markets and During Periods of Fast Growth

MicroBanking Bulletin, September 2011

10 Pages Posted: 1 Oct 2011  

Adrian Gonzalez

Doing Business Report

Emmanuelle Javoy

affiliation not provided to SSRN

Date Written: September 1, 2011


This article evaluates the role that governance, management information systems (MIS), risk management procedures, and lending methodologies play in different scenarios, with emphasis on their interaction with external factors like market saturation levels and MFI growth rates. We use consistent measures for procedures and policies, based on data from almost 200 ratings of 130 microfinance institutions by Planet Rating using the GIRAFE methodology.

The study shows that Financial Services Management (A) is the most important determinant of portfolio quality, under all growth scenarios and saturation levels. This is not surprising, as the main components of this category involve credit procedures and policies that are used to select potential borrowers, assess repayment capacity and follow-up on issued loans. Governance (G) and Risk Management (R) are the next most important sets of metrics, depending on the proxy used for credit risk (e.g. either portfolio at risk over 30 days, write-off ratio or total credit risk) and the scenario under consideration.

One of the most important findings of this research is the validation of the predictive power of Planet Rating’s GIRAFE scores to forecast credit risk 12 months in advance. As the microfinance industry searches for early warning indicators for credit risk and over-indebtedness, this research suggest that MFIs with lower scores or recent downgrades in their grades are more prone to credit risk problems, and overindebtedness, than MFIs with better grades, in most scenarios.

Keywords: ratings, microfinance, risk, Planet Rating, GIRAFE, market saturation, portfolio quality, credit risk

Suggested Citation

Gonzalez, Adrian and Javoy, Emmanuelle, Microfinance and the Role of Policies and Procedures in Saturated Markets and During Periods of Fast Growth (September 1, 2011). MicroBanking Bulletin, September 2011. Available at SSRN:

Adrian Gonzalez (Contact Author)

Doing Business Report ( email )

2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States


Emmanuelle Javoy

affiliation not provided to SSRN ( email )

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