1. What are the benefits of participating in CGAP's Transparency Award contest?

In addition to receiving an external opinion on financial reporting disclosure, CGAP FTA winners and awardees have an excellent opportunity to gain local and international publicity. Their efforts to promote financial transparency and their compliance with IFRS and industry guidelines will be recognized on CGAP Web site and disseminated among CGAP Members and partners.

2. Why is it called a "financial transparency" award if its only focus is audited financial statements?

Mr. Ziad Alrefai, JMCC Tamweelcom, receives the 2005 FTA merit certificate from Rula Dababneh, CGAP.

As advertised, the award recognizes excellence in disclosure in annual financial reporting with a goal to encourage MFIs to adopt International Financial Reporting Standards (IFRS) on disclosure and the industry - specific disclosure guidelines developed by CGAP. The review does not assess transparency as whole - including the quality and reliability of information systems, regular and standardized reporting in general - but rather focuses strictly on the quality of financial information contained in the audited financial statements. In practice, an institution's level of disclosure is influenced by its auditor's views of what disclosures are considered important. Hence, one of the purposes of the award is to offer guidance to both MFIs and auditors on the most important disclosures for a microfinance operation in order to help users fully understand performance and risk, and in particular, asset quality.

3. Are industry-specific guidelines a means of simplifying International Financial Reporting Standards (IFRS) so that MFIs can apply them?

The industry-specific guidelines are not a substitute for IFRS. The industry-specific guidelines are disclosure guidelines only. Unlike IFRS, they do not direct the choice of accounting method. They complement IFRS to the extent that they require certain additional information not normally found in published financial statements but which is essential for understanding the financial results of microfinance operations particularly profitability and asset quality. Such complementary guidelines are similar to IFRS guidelines for specific industries developed to take into account unique business features such as in extractive industries or construction contracts.

4. Is supplemental information to the audited financial statements admissible?

No. The goal is to ensure that audited annual financial statements are user-friendly. Therefore, only audited financial statements are considered and any supplemental information outside of the audited financial statements is not admissible for the contest. For example, regular reporting to the MicroBanking Bulletin, while encouraged, is not a substitute since it is not publicly available information. Nor is additional information provided on the MIX Market acceptable. For proof of authenticity of audited financial statements, MFIs are required to upload on the MIX Market scanned versions of their audited financial statements complete with the Directors' and auditor's signatures.

5. Can an MFI that is not transparent on interest rates charged to clients become a Merit Awardee?

Yes. Full disclosure of effective fees and interest rates charged to clients is among the 40 criteria used in the CGAP Financial Transparency Award but applicants only need to comply with 80% of criteria to earn Merit recognition. Therefore, it is possible that an MFI that is not fully transparent on effective interest rates charged to clients is selected as a Merit Awardee.

While this is possible, CGAP urges all MFIs to be clear, truthful and responsible to their clients in disclosing real interest rates. We believe that whether or not is required by law, it is the ethical duty of lenders to tell microfinance clients how much they are truly paying for a loan, that is interest rates and any fees that are charged with the loan. If we expect clients to repay, our responsibility is to make sure they enter into a loan with their eyes open and are fully aware of what it is expected of them.

6. What gives CGAP the authority to issue a "transparency" award?

Generally speaking, any type of award functions not because of the authority of the organizer/promoter, but because of the meaning the award has for contestants and other stakeholders. Hence, though anyone can promote a financial transparency award, CGAP is especially well positioned since - through its unique membership, global network and activities - it has become an important convening platform to generate global consensus on standards and best practices, serving as a resource center and advisory group for the microfinance community as a whole.