Microfinance Rating Systems: Girafe rating system.

Stage 1: Evaluation. After some preliminary preparation, two consultants (one of whom is a local consultant) will conduct the mission in the field during one to two weeks. The presence of a local consultant who is aware of distinctive regional characteristics is essential and peculiar to GIRAFE methodology. The evaluation takes into account the financial performance of the institution (financial statements/ portfolio follow up); it has to be completed by more qualitative information, available from other sources of the institution's information system and from personal contacts with board members, management, staff and clients. Field visits are intended to verify the financial documents and to approach sensitively the institutions' activities. Accounting and financial adjustments are carried out using a rigorous methodology in order to standardize the accounts and reintegrate various hidden costs: accountancy adjustments; inflation adjustment, and subsidized resources.

Stage 2: Formal Rating. Following a rating scale of 26 qualitative and quantitative factors and using a detailed questionnaire, the rating team assigns each factor a grade ranging from 0 (minimal grade) to 5 (maximal grade). After each of the 26 factors has been assigned a rough rate, a weight is applied to each of the factors to achieve a global weighted rating for each of the six areas of assessment. The final grade, on a scale of 12 (G1, G1*, …G4*, G5, G5* where G5* represents the highest rating grade) is assigned by PlaNet Rating's rating committee on the basis of the scoring and the evaluation report.

This grading system results in the G.I.R.A.F.E. rating stellar graph. After each of the 26 factors has been assigned a rough rate, a weight is applied to each of the factors to achieve a global weighted rating for each of the six areas of assessment.

Area	Number of Qualitative factors	Number of Quantitative factors	Total Number	Weight of Qualitative factors	Weight of Quantitative factors	Total Weight
G	4	3	7	11%	7%	18%
I	3	0	3	12%	0%	12%
R	2	0	2	12%	0%	12%
A	3	2	5	14%	9%	23%
F	1	1	2	6%	6%	12%
E	1	6	7	2%	21%	23%
	14	12	26	57%	43%	100%

A GIRAFE rating is analyzed at a dual level. A global rating is given, from G1 to G5, along with a composite rating, scoring the 6 areas of assessment from "e" to "a". It allows the rater to approach fiduciary risk (G, I, R areas: analysis of governance, underperformance) and credit risk (loan portfolio management, but also counterpart risk and clientele analysis) separately.

Global Ratings
Investment Recommended
G5*: Outstanding performance on all areas of assessment.
The institution achieved total financial and operational self-sufficiency. Minimal risk.
The institution should be able to face all kind of hazard.

G5: Excellent overall performance.
The institution achieved a high level of professional competency (good technical and financial self-sufficiency).
Risk is very limited.
G4*: High global performance.
Nevertheless, one area of assessment may be weak. Advanced professional competency. Technically self-sufficient.
Low risk, related to identified areas that can be controlled (cf. composite rating)

Conditional Investment/Concessional Funding
G4: Satisfactory overall performance.
Nevertheless, some areas of assessment may be weak.
The institution is technically self-sufficient, but fragile.
Moderate risk; related to several areas (cf. composite rating)

G3: Some weaknesses in several areas of assessment, but institutionalisation is under way; the institution has to firm up.
Moderate to significant risk.
Support investment, to be completed by technical assistance.

Investment not recommended
G2: Underperforming institution, not mature enough to be refinanced.
The predictability of activities is low.
High risk.

G1: Serious weaknesses in all areas of assessment.
Substantial risk, even in the short term (institutional and credit risks)

Composite Ratings
a. The benchmark.
b. Average value in the sector, allowing the institution to drive its operations in the short and medium term, but without real predictability over the long term.
c. Strongly unfavourable situation, than can be harmful to the institution's health even in the short term.
e. Extreme cases, when performance in this area represents a real danger for the institution's sustainability, even in the short term.

Degree of Market Formulation
Quantitative Measures	Performance Evaluation
Active borrowers Conversion ratio (loans lent as a % of applicants or outreach contacts) Percentage of staff time spent on outreach and group formation	Number of contacts needed to find, screen, and yield clients, or efficiency of staff outreach and marketing
Development Impact
Quantitative Measures	Performance Evaluation
Number of clients served Percentage increase in customer incomes Number of businesses created, maintained, or grown Jobs created (including self-employment) Qualitative gains/personal development	Whether the intended results are being achieved and whether they remain appropriate
Operating Results
Quantitative Measures	Performance Evaluation
Total costs per average loan Revenues per average loan Clients per loan officer/staff person Staff expense as a percentage of average assets Net interest margin Unit cost ratio Cost per currency unit lent	Whether annual volume of clients is increasing and whether costs are decreasing per loan
Financial Condition
Quantitative Measures	Performance Evaluation
Average portfolio outstanding Liquidity ratio Delinquency and loan ageing reports Ratio of losses to average portfolio outstanding	Portfolio credit risk and financial health of the organization
Required Subsidy
Quantitative Measures	Performance Evaluation
Self-sufficiency ratio	The percentage of total operating costs that are met from internal revenue sources (interest on loans, interest on investments, and fee income).