CGAP member donors provide hundreds of millions of dollars to ease and increase poor people's access to financial service. Many donors encounter difficulties in finding institutions to support, however, given limited technical staff and mechanisms to identify promising opportunities. Once funding is extended, they often find themselves again without sufficient time or resources to thoroughly evaluate and monitor microfinance providers.

At the same time, many microfinance providers must manage separate relationships with multiple donors who often require different reporting periods, information, and conditions. In response to the needs of both groups-donors and microfinance providers-CGAP launched its Appraisal and Monitoring Service in 2001. This service is a) joint due diligence of microfinance providers by interested donors and investors and b) a consortium approach to funding that consolidates the reporting and monitoring requirements of all who choose to fund.

Appraisal and Monitoring Service Process

1. CGAP considers potential candidates for the Appraisal and Monitoring Service from recommendations that come primarily from CGAP member donors, but also from the IDB-CGAP Rating Fund, institutions reporting to the Microfinance Information eXchange (MIX) Market, and other promising opportunities. Candidates are selected first based on their potential to increase sustainable financial services for poor people and then on their potential attractiveness to donors and investors. CGAP then offers a shortlist of opportunities to its member donors and socially responsible investors.

2. With sufficient interest from at least two donors, CGAP commissions a rating from one of the pre-approved rating agencies from the Rating Fund (unless a rating has been completed in the last 6-9 months). Interested donors and investors then join CGAP to discuss findings with the rating team and identify the scope of the subsequent due diligence. CGAP generally conducts due diligence on behalf of interested donors and investors, who are also welcome to join the due-diligence mission. The due-diligence mission focuses on broader strategic and institutional issues, poverty focus, and any questions raised during the rating.

3. Once the rating and due diligence have been completed, CGAP provides these reports to all potential funders (regardless of whether they participated in the appraisal mission) and organizes a conference call among these donors to discuss key findings with the institution and make recommendations for funding.

4. After the conference call, these donors and CGAP each formally decide whether to fund and negotiate minimum performance thresholds with the institution. Each funding donor would have a direct contractual relationship with the institution, and all would agree to use the same core negotiated performance thresholds.

5. CGAP would then monitor the performance of the institution on behalf of the funders. Monitoring would include an evaluation of semester reports required by the partnership agreement and one monitoring visit per year.

For more information on the Appraisal and Monitoring Service, please contact Jennifer Isern or Tiphane Crenn.