Inclusion’s Financial Sustainability Rating System (“FSRS”) assesses an organization’s financial performance and viability based on an analysis of the institution’s capacity and ability to oversee, manage and monitor its performance in its drive to achieve operational and financial sustainability. In other words, the FSRS reviews how effective the organization is at protecting and using financial resources to achieve its social mission.
The FSRS is based on a scorecard, where data captured from documents and information provided directly by the MFI to ISR analysts, is input directly. It also incorporates management interviews conducted in situ in the field and/or telephonically, and interviews with branch staff to assess the levels of financial performance that result from activities of the organization.
The scorecard utilizes proprietary algorithms weighted by an analytical hierarchy process that considers multiple objective and subjective criteria to arrive at an implied Financial Sustainability Rating. The FSRS takes into account the views of relevant participants in the microfinance sector, whose contributions were used to determine the financial performance factors and indicators, or measures, that are incorporated into the scorecard and that the FSRS uses to arrive at a rating.
It is our belief that an organization that performs better and receives a higher FSR will be more likely to positively affect the lives of its customers in the future and will be less likely to be financially unsustainable.
The factors we measure:
1 - Stakeholder Balance
2 - Effective Use of Financing Resources
3 - Capital Structure
4 - Asset Quality
5 - Management Strength
6 - Earnings Power
7 - Liquidity
Download our Methodology
How we score our FSR
A FSR1 rating indicates that the infrastructure and processes of an MFI are consistent with a very high likelihood of operating in the best interests of its clients and, at the same time, generate sufficient income to remain viable in the long run. An FSR1 grade is consistent with an MFI that:
- has a highly coordinated and strategic operation to achieve its financial goals;
- uses its financial resources effectively to support its mission;
- adheres to best practice in all of the key FSR factors and most of the sub-factors;
- demonstrates it has well-established and reliable information systems, internal controls and procedures related to the information provided for the FSR;
- maintains the highest standards in terms of client and financial assets protection practices;
- has a good track record of solid financial results, shows good financial strength at present and there are no apparent risks to future earnings.
A FSR2 grade indicates that the infrastructure and processes of an MFI are consistent with a high likelihood of operating in the best interests of its clients, that this is among its highest priorities and that the risk of causing adverse effect to its clients and other stakeholders is low. An FSR2 rating is consistent with an organization that:
- coordinates strategic operations to fulfill its social mission while at the same time delivering good financial results;
- adheres to best practice in almost all of the key FSR factors;
- demonstrates that it has reliable information systems, internal controls and procedures related to the information provided for the FSR;
- has a good track record of financial results and has a stable financial position with low risks for future earnings;
- maintains good standards in terms of beneficiary and financial resource protection.
A FSR3 grade indicates that an organization’s infrastructure and processes are consistent with a good likelihood of operating in the best interests of its clients and beneficiaries, that this is among its high priorities and that it attempts to manage the risk of causing adverse effect to its beneficiaries and other stakeholders. An FSR3 rating is consistent with an MFI that:
- adheres to good practice in most of the key FSR factors;
- demonstrates that it has adequate information systems, internal controls and procedures related to the information provided for the FSR;
- exhibits a decent trend of financial results and there are some risks to future earnings potential;
- maintains reasonable standards in terms of client and financial resource protection practices.
A FSR4 rating indicates that an MFI’s infrastructure and processes show some adherence to operate in the best interests of its clients, and that this is one of its priorities. An FSR4 rating is consistent with an MFI that:
- adheres to good practices on some of the key FSR factors;
- it has weak information systems, internal controls and procedures related to the information provided for the FSR;
- shows weak historical trends of financial performance and the current financial position is not good. There are some risks to future earning;
- maintains some standards in terms of client and asset protection practices.
A FSR5 rating indicates that an MFI’s infrastructure and processes do not show evidence of being in the best interests of its clients or beneficiaries, and that this may not be among its priorities. This category also indicates that the MFIs medium to long-term viability is in question. An FSR5 rating is consistent with an MFI that:
- does not have adequate information systems, internal controls and procedures related to the information provided for the FSR;
- it has poor historical and current financial results, while there are apparent risks to future earnings;
- does not maintain standards in terms of client protection.
