How We Operate
At MicroWorld we strive to be as transparent as possible about the way we operate. This, we believe, is the least we can do in return for the generous 0% loans from our members. This section will describe our processes surrounding the selection of microfinance institutions, our due diligence and decision-making, and our ongoing reviews. It will also describe the loan process from start to finish. We hope you find it interesting.
Microfinance Institution (MFI) Selection
Our partner microfinance institutions (MFIs) are an integral part of our operations. They are responsible for vetting potential borrowers, for posting loans onto the MicroWorld website, for disbursing the money, and for collecting repayments. For this reason, we take the selection of MFIs very seriously.
Quality, not quantity
Rather than partner with a large number of MFIs, our aim is to form long-term relationships with only a select few of the best MFIs. We have limited ourselves to a maximum of one MFI partner per country, and we choose partners that are solid and successful MFIs with a strong social mission. We hope that our relationship can grow with both our organisations, to the mutual benefit of both parties.
There are several stages to the MFI selection process:
1. MFI pre-selection
Before the selection process can begin, it is necessary to reduce the 10,000 or so MFIs in existence to a manageable number. This is done with the assistance of PlaNIS (PlaNet Finance’s specialised microfinance funding arm), and is based on publicly available data, using a two-part scoring method:
a. Country scoring – 8 criteria including risk of war, currency exchange barriers, corruption, poverty, and inequality. The sources of this data include the World Bank, Transparency International, and The Economist Microscope Index.
b. MFI scoring – 5 criteria: social performance, transparency, financial performance, qualitative factors, and country score.
Each of these criteria is weighted, with the greatest weight being given to the social performance of MFIs. MFIs can also be excluded for a number of reasons, such as size (too large or small), or high-risk indicators. The final result is list of the top 100 potential MicroWorld partners.
2. PlaNIS refined list
From the top 100 MFIs, PlaNIS extracts a smaller number of recommended MFIs based on its knowledge, experience, and contacts. For each new partnership, PlaNIS must propose 5 suitable MFIs from which the potential partner will be chosen.
3. Investment and Risk Committee
The investment and risk committeeselects potential partners from the shortlist provided by PlaNIS. At this initial stage, they are required to give the go-ahead before due diligence can be carried out.
4. Due Diligence
The objective of the due diligence process is to evaluate the risks existing in an MFI in order to make an informed investment proposal. The process, therefore, is mandatory for each MFI with which MicroWorld considers signing a partnership agreement. Due diligence is one of the key areas where MicroWorld is able to leverage the resources and expertise of PlaNet Finance, and in this case the particular analysis experience of PlaNIS, who conduct on-site due diligence on the MFI once given approval by the investment committee.
The process is as follows:
a. Preparation – 2 to 4 weeks before the on-site due diligence, PlaNIS requests data from the MFI, which it then analyses to identify potential high-risk areas.
b. On-site due diligence – PlaNIS spends several days at the MFI conducting interviews and investigating all pre-identified topics plus any additional issues identified by the investment and risk committee. It uses a set book of procedures to analyse risk areas.
c. Investment memorandum – Following the on-site due diligence, PlaNIS produce an investment memorandum that summarises their findings, putting them in context, and gives details of the many different areas covered by their analysis. These include the history of the MFI, regulatory context, competition, governance and management, financial risk, audit quality, portfolio quality, and procedure risk. PlaNIS also provides recommendations on funding limits and other technical aspects of the partnership.
5. Operational Audit
During the on-site due diligence, members of MicroWorld’s operations team also visit the MFI with the purpose of conducting an operational audit. This involves analysis and evaluation of the operational processes of the MFI, with a view to determining the optimum method of integrating MicroWorld’s processes. Many variables are taken into consideration, such as the most suitable branches to work with, the best products for the MicroWorld website, the volume of loans to publish each month, and procedures for data collection.
6. Investment Decision
The Investment and Risk Committee meet to review the outcomes of the due diligence exercise and the operational audit. Based on the documents and presentations, they decide whether to approve or reject an MFI, and if approved, the funding conditions for the MFI.
7. Investment Policy Monitoring
The Investment and Risk Committee revisit the investment policy, if not more regularly, and sometimes at random, to confirm that the judgements are still sound and applicable. MicroWorld also re-confirms that all of its conditions are still applicable.
MFI Integration
Once an MFI has been selected and contracts agreed between MicroWorld and the MFI, the operations department are responsible for making it possible for the MFI to post loans on the website. A member of the operations department visits the MFI for an extended period in order to conduct detailed training of the MFI team. Back at MicroWorld headquarters, the operations team begin setting up the MFI on the internal MicroWorld systems, ready to post their loans.
MicroWorld believes in minimising its impact on the MFIs, therefore it tries to be as flexible as possible when implementing its processes at the MFI.
The MicroWorld Correspondent
MicroWorld ensures that its procedures are performed to the highest standard by asking each MFI to employ a local agent, otherwise known as a MicroWorld correspondent, who will be responsible for all MicroWorld loan postings for that MFI. MicroWorld covers the cost of the local agent’s salary, the cost of his/her computer, and mobile camera-phones for the loan officers, in order to reduce the cost burden on the MFI.
The MicroWorld correspondent uses their local knowledge and experience to conduct any necessary training of loan officers, to act as an intermediary between the MFI and MicroWorld, to post engaging loans on the website, and to perform regular audit checks on behalf of MicroWorld. They also write articles about their country and the MFI, which can give MicroWorld members a deep and unique insight into microfinance in the field. These articles can be found in the From The Field section of the website.
Mariela - the MicroWorld Correspondent for Fundesurco in Peru
The Loan Process
Once an MFI has been selected and integrated with MicroWorld, it is ready to start posting loans on the website. To minimise impact on the MFI, MicroWorld is committed to remaining flexible and able to adapt its processes to suit the MFI. For this reason, actual processes may vary from MFI to MFI.
1. Loan application
A prospective borrower applies for a loan with one of our partner MFIs. The person may already be a client of the MFI who is applying for a new loan, or may be applying for their first loan.
2. Application evaluation
A loan officer, employed by the MFI, visits the client to assess their application. This will involve an assessment of the client’s wealth, character, business plan, and credit history. The loan officer explains to the client about MicroWorld and asks if they would like to be a MicroWorld borrower. If they agree, in addition to normal requirements, the loan officer will ask some additional questions for the website, and take a photograph of the client using their mobile phone.
3. Loan approval
Back at the branch, the loan officer submits the loan application to the branch manager. Small loans can be approved by another loan officer, or sometimes the branch manager. Larger loans must be approved by head office. At the same time as submitting the application, the loan officer uploads the client photo, and a photo of their application form, to the MicroWorld system.
4. Disbursal and Loan Posting on the MicroWorld Website
If the loan is approved, the loan is disbursed to the client within 48 hours. The process is fast to enable to MFI to remain competitive amongst rival MFIs. Once the loan has been approved, the MicroWorld correspondent uses the information sent by the loan officer to create a loan profile in the MicroWorld system. This can then be published on the website, ready to be funded.
5. Funding
Once on the loan is live on the website, it can be funded by MicroWorld members. Although the loan has been pre-disbursed, a contractual agreement is entered between the lender and the MFI that their money will be used to backfill the account of the borrower. The loan will remain on the site for a limited period which will vary between MFIs. If a loan reaches expiry before it has been fully funded, MicroWorld will send the amount that has been raised to the MFI.
6. Fund transfer
To reduce transaction costs, payments between the MFI and MicroWorld take place monthly on a net billing system, meaning that the net of loans less loan repayments will be transferred between the two parties.
7. Repayment
The loan officer visits the client on a regular basis, weekly or monthly, to collect repayments. Once the loan is completely repaid, the full amount will be transferred back to MicroWorld and will show in the lenders' MicroWorld accounts.
The Investment And Risk Committee
The primary responsiblity of the Investment And Risk Committee is to choose MFI partners for MicroWorld, and to decide on a maximum outstanding balance for each MFI partner. The committee also approves MicroWorld’s risk and audit policies.
The committee consists of six members:
• Alexandre Allard (President of Allard Group, representing shareholders)
• Emmanuelle Javoy (General Director of Planet Rating, an MFI rating agency)
• Minh-Huy Lai(Associate Director of Degree Programs of HEC Exeducative Education and former General Manager of SPBD, a Samoa-based MFI)
• David Langlois, Vice-President of Committee (General Director of MicroWorld)
• Anne-Sophie Perrachon, President of Committee (Operations and Risk Director of MicroWorld)
• Arnaud Ventura (Vice-President of PlaNet Finance Group)
