Research & Analysis

Appraisal Guide for Microfinance Institutions

The Consultative Group to Assist the Poor (CGAP) produced its first guide to appraising microfinance institutions (MFIs) in 1996, for internal use in evaluating MFIs being considered for grants. Before long, colleagues from other organizations were asking for copies and adapting the document for other purposes. CGAP published a version for general use in 1999.

The present updated version is intended primarily for two types of users: funders that are considering support for, or investment in, MFIs and MFIs that are conducting self evaluations. This revised MFI Appraisal Guide includes new sections on analyzing savings, social performance, information systems, and risk management. In addition, this Guide includes new indicators and financial statement formats agreed within the microfinance industry from 2003 to 2005.

Users should note some important cautions:

  • The Guide is not a one-size-fits-all tool. It calls for a lot of detail and analysis because it was designed for use with relatively mature MFIs (generally, MFIs with more than 3,000 clients and three years’ experience) being considered for large investments (often several million dollars). For smaller or newer MFIs, or for smaller investments, a less intense review may be appropriate. Indiscriminate use of the format may result in MFIs being burdened with requirements to produce information that is either unnecessary or unlikely to be used by the donor or investor requesting it. Sample terms of reference for a lighter analysis and a more thorough analysis are included in the Resource Manual that accompanies this Appraisal Guide.
  • The Guide assumes the involvement of a highly knowledgeable analyst. It is essentially a checklist of information to be gathered, and the analyst’s judgment is critical in deciding which information is worth pursuing and in evaluating the information collected. If the person conducting the appraisal lacks substantial experience with MFIs and good financial analysis skills, the results will not be reliable.
  • This revised Guide gives more attention to assessing poverty levels and social performance impact of the MFI’s clients. However, a serious poverty analysis may require more resources than are budgeted during a typical appraisal. The Resource Manual references several guides for determining client poverty, including CGAP’s Poverty Assessment Tool.