Due Diligence

Do you run a Microfinance Institution (MFI) or Small and Growing Business (SGB) making a difference in the developing world? We want to support your work. Review MCE’s due diligence process below and, if you think you qualify, send us a note.

Microfinance Institutions

1. Initial Screening

Potential MFI borrowers must first meet MCE’s initial screening criteria, including:

  • Serves at least 5,000 borrowers or have a minimum US$1MM gross loan portfolio; maintain portfolio-at-risk below 10%; be operationally self-sufficient or able to demonstrate a clear plan to achieve operational self-sufficiency; have independent audit reports covering at least the two most recent years; have a business plan with three years of financial projections; and have a credit rating or other similar external evaluation/recommendation.
  • Serves a high percentage of individuals and families living in poverty; serve a high percentage of women; extend its operations to isolated rural communities; or operate or provide linkages to programs like financial literacy; health education; or business training.

2. Due Diligence Package

An interested borrower completes and submits MCE’s Initial Appraisal Package of basic information. If approved by MCE, the organization submits a Due Diligence Package, which includes extensive financial data; portfolio and client data; and institutional, human resource, and financial/risk management information.

3. Site Visit

If MCE’s Portfolio Team determines that the loan is worth pursuing further, a member of the team visits the MFI in person to meet its leadership, review its operations, confirm the accuracy of the submitted information, review processes, and procedures, meet with internal and external auditors, and meet with end beneficiaries.

4. Loan Committee

If the site visit is successful, MCE’s Portfolio Team drafts and submits a 15 to 25 page Loan Memorandum to MCE’s Loan Committee, which then approves or rejects the loan. The Loan Committee is composed of Guarantors and is supported by several expert advisors. View sample Loan Memorandum. The Loan Committee looks carefully at the following variables:

  • Creditworthiness. This includes the MFI’s finances and portfolio (profitability, portfolio composition, growth, funding, and capital structure) and quantitative data (ratings, products, ownership, governance, management, internal and external audits, operations, MIS, human resources, and client protection principles).
  • Risk factors. These include external factors (like competition and market analysis, political and economic environment, currency, crime and violence, and over-indebtedness) and internal factors (like potential conflict of interest or fraud, abnormal debt-to-equity ratios, operational risks, key employee risks, and high cost of funds).
  • Social impact. This includes the percentage of women clients, the percentage of clients in rural areas, the pro-poor nature of the organization, the existence and scope of any “Credit Plus” services, and the organization’s overall dedication to a social mission.

5. Approval, Disbursement, and Monitoring

After approval and disbursement, MCE requires monthly or quarterly submission of financial statements from each of its MFI partners. MCE’s portfolio managers also schedule quarterly monitoring calls with each client to discuss the organization’s current status, challenges, and opportunities.

Small and Growing Businesses

1. Initial Screening

Potential SGB borrowers must first meet MCE’s initial screening criteria, including:

  • At least three years of operation (not startups); sustainable sources of revenue, and reasonably expected to be profitable or break-even within 3-5 years; scalable, with a three-year business plan; fewer than 250 employees; available audit for at least 1 year, with financial statements produced at least quarterly; low Debt/Equity ratio.
  • Impact in one or more of the following sectors: agriculture value chain; water, waste, and sanitation; clean energy; other non-financial services such as health and education; and bottom of pyramid financial institutions targeting SGBs.

2. Due Diligence Package

If MCE’s Portfolio Team determines that a SGB meets these requirements, MCE might invite it to submit a Due Diligence Package, which can include several items, such as an audit report, unaudited year-to-date financial statements, data on current outstanding debt, cash forecast for at least the next six months, number of employees and offices, description of main risks, institutional information like affiliations, by-laws, legal registration, and social impact metrics.

3. Site Visit

If MCE’s Portfolio Team determines that the loan is worth pursuing further, a member of the team visits the SGB in person to meet its leadership, review its operations, confirm the accuracy of the submitted information, review processes, and procedures, meet with internal and external auditors, and meet with end beneficiaries.

4. Loan Committee

If the site visit is successful, MCE’s Portfolio Team drafts and submits a 15 to 25 page Loan Memorandum to MCE’s Loan Committee, which then approves or rejects the loan. The Loan Committee is composed of Guarantors and is supported by several expert advisors. The Loan Committee looks carefully at the following variables:

  • Creditworthiness. This includes the potential borrower’s financial metrics (growth, funding and capital structure, projections, competition and market position, audit reports, unaudited year-to-date financial statements, cash forecasts for at least the next six months, etc.) and qualitative data (products, affiliations, ownership, management and staff, operations, MIS, and human resources).
  • Risk factors. These include external factors (like competition and market analysis, political and economic environment, currency, crime and violence, and over-indebtedness) and internal (like potential conflict of interest or fraud, abnormal debt-to-equity ratios, operational risks, key employee risks, and high cost of funds).
  • Social Impact. This includes the percentage of women beneficiaries, the percentage, of beneficiaries in rural areas, number of potential jobs created, and impact in one or more of the following sectors: agriculture value chain; water, waste, and sanitation; clean energy; other non-financial services such as health and education; and bottom of pyramid financial institutions targeting SGBs.

5. Approval, Disbursement, and Monitoring

After approval and disbursement, MCE requires monthly or quarterly submission of financial statements from each of its SGB Fund partners. MCE’s portfolio managers also schedule quarterly monitoring calls with each client to discuss the organization’s current status, challenges, and opportunities.

Contact Us

If you are interested or have questions, please send us a note.