Case Study
Performance and Standards in Microfinance: ACCION's Experience with CAMEL Instrument
Has CAMEL proved to be a successful tool for microfinance institutions?
60 pages
Documents ACCION International's experience with the financial diagnostic instrument CAMEL (denoting five measurements of a financial institution - Capital adequacy, Asset quality, Management, Earnings, Liquidity management). This instrument was used to:
- Generate a standardised evaluation framework that would assist ACCION affiliates in understanding their performance in comparison to others;
- Serve as a management tool, allowing affiliates to concentrate on efforts in improving management and financial areas so as to access commercial sources of funding in order to grow;
- Serve as a basis for an eventual rating system that could serve the investor community interested in obtaining objective information on the performance of microfinance institutions(MFIs).
ACCION has completed 27 CAMEL analyses between 1993, when it was first applied, and 1997, with its affiliates in Latin America
Lessons learnt in the application of CAMEL to MFIs by ACCION include:
- CAMEL is valuable as a quality control mechanism for the Network and as a planning tool with affiliates for technical assistance needs;
- Provides evidence that MFIs can be evaluated with the same standards as those used for commercial banks;
- Team members with varied skills and expertise are important for enabling completion of examinations;
- The instrument complements but does not substitute for the due diligence process for ACCION's financing mechanisms;
- It strengthens the relationship between ACCION and the Boards of Directors of affiliate institutions.
Lessons drawn by MFIs include:
- Camel is valuable as an indicator of an institution's performance, measured against standards recognised by the formal sector;
- It is valuable as a planning and management tool and enables an institution to make its technical assistance relationship more strategic.
Concludes in specifying future challenges relating to CAMEL for ACCION and the microfinance industry.
[Adapted from author's abstract]
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