Microfinance Credit Risk Dashboard User Guide PlaNet Finance Microfinance Robustness Program Risk Management Public Tools Series Microfinance is at a new stage where risk management will be decisive for the sustainable growth of the sector. Robustness will be the necessary foundation for further growth, to start and improve deposit taking initiatives, control over indebtedness, and access new sources of funding, including capital markets. Through the Microfinance Robustness Program, PlaNet Finance aims to help the microfinance sector prepare for its long term success and integration within the financial system by strengthening risk management in line with internationally accepted frameworks and guidelines, and delivering tools that will become references in the sector for risk management best practices. With the support of : 1/20
Table of Content 1. Introduction to the Risk Dashboard... 3 2. General Structure... 4 3. Credit Risk Dashboard... 5 3.1 Using the Credit Risk Dashboard... 5 3.1.1 Cover Page... 5 3.1.2 Lookup... 6 3.1.3 Balance Sheet... 7 3.1.4 Limit Storage System... 8 3.1.5 Limit Management... 8 3.1.6 Dashboard Credit... 11 3.2 Updating the Dashboard... 16 3.2.1 Update the Data in the In-File... 16 3.2.2 Update the List of Loan Officers... 18 3.2.3 Update Other Information in the Out-File... 19 3.3.4 Update In-File after Adding New Branches and Products or Changing Branches or Products... 19 2/20
1. Introduction to the Risk Dashboard Credit risk reporting for financial institutions is a key function of risk management. Most MIS systems are capable of collecting a decent amount of credit risk data. However, it is necessary to focus on the right amount of information as well as the right visualization to make a credit risk report useful. As such, a dashboard can be a powerful tool to aid the Risk Manager in monitoring credit risks. It is used to visualize the existing credit risk exposure of the microfinance institutions (MFIs) and help the Risk Manager discover trends across the loan portfolio and to visualize concentrations. This manual provides information about the use of the credit risk dashboard developed under the PlaNet Finance Microfinance Robustness Program. In regards to the use of this credit risk dashboard, please note the following: A certain degree of technical proficiency in Excel and data management is required in order to correctly utilize the dashboard. This version of the credit risk dashboard is specifically designed for the Chinese market This is a generic credit risk dashboard, which should be individualized to reflect the preferences of the financial institution, the user, the market, and the country. The dashboard can be updated manually in excel. However, the dashboard also allows the possibility to be linked directly to the IT system in order to achieve real-time reporting. PlaNet Finance can be contacted in order to train institutions in the use of the dashboard. In particular, PlaNet Finance can work remotely or on-site with institutions to tailor the credit risk dashboard to their requirements, testing the dashboard, as well as support in the linking of a dashboard to their IT systems. Please send your inquiry to info@mfchina.cn. 3/20
2. General Structure The dashboard consists of three types of files: "In Files" are used to store data and to run data analysis like pivot tables. In the simple form, these "In Files" come in the format of Microsoft Excel files in which the data and the pivot table analysis are combined. In a more advanced version, the pivot tables analyze data stored in a database such as Microsoft Access. The end user will use the In Files only in order to update the data as described further in the text. "Calc Files" are used to conduct all the calculations necessary in order to import raw data into the dashboard. They are the core part of the reporting tool. The end user does not need to work with this file. It only needs to be open when the dashboard is being used. "Out Files" contain the actual dashboard as well as all other forms that are necessary for the user to analyze the data. This includes the limit management system, the selection of variables, and the customization of the dashboard. This is the main file for the end user to work with. 4/20
3. Credit Risk Dashboard This section is split into two categories: Introduce the functionality of the credit risk dashboard, which is relevant for the daily use and the analysis of the loan portfolio Introduce the process of maintaining the dashboard, which includes the processes necessary to update the data as well as changes to the static data. 3.1 Using the Credit Risk Dashboard Due to the complexity of the linkages among the three dashboard files, users are advised to save all three excel worksheets downloaded from PlaNet Finance website into a single folder. All three files must be open before the dashboard starts to operate. When you open the dashboard, enable the automatic update for all three files before any data input or adjustment. Figure 1 Security Warning in Dashboard The actual dashboard exists in Out files. The starting point for working with the dashboard is the worksheet Cover Page. 3.1.1 Cover Page Relevant analysis dates are selected in this worksheet, including: Analysis Date : the date of the analysis of data Comparison Date : the reference date against which the Analysis Date is compared Further Dates : used as data points for the charts in the Dashboard. 5/20
All three types of dates need to be in sequential order (descending). Otherwise a warning comment appears on the cover page. After the dates are entered, the user can proceed with the next worksheet. Figure 2 Worksheet "Cover Page" 3.1.2 Lookup Institutional information is entered in this worksheet, including product category, branch, loan officer, etc. All the data has to be entered in the light blue area. Category Requirement Product Category Up to 5 categories can be filled Branches Up to 15 branches can be filled Analysis Date Up to 22 analysis dates can be filled, only one date from each month LO Name and Branch Up to 143 LO can be filled with their branches Sector Up to 15 sectors can be filled Distribution Channel Up to 5 distribution channels can be filled Exceptions Up to 10 exceptions can be filled, such as no ID, no collateral Approval Up to 5 approval status can be filled Up to 5 collateral categories can be filled, such as Collateral according to collateral type (property, equipment, etc. ) or according to its collateral rate (30%,40%, etc.) Note: All the information filled in this worksheet must to be consistent with the raw data from In Files. Any information exceeding the limit will not be recognized by the dashboard. The worksheet Lookup is not relevant for the daily use of the dashboard. The use of this worksheet is explained in the chapter 3.2 错 误! 未 找 到 引 用 源. 6/20
3.1.3 Balance Sheet The institution s balance sheet information is entered in this worksheet, which is important for the management of Limits within the dashboard. All the data has to be entered in the light blue area. The user can define various categories under Assets, Liabilities, Equity, and P&L. However, the user cannot change the summary lines Total Assets, Total Liabilities, Total Equity, and (Loss)/Profit for the year. Starting from cell N7, the user can enter the dates of respective financial statement data horizontally. Those dates need to be identical with the analysis dates selected in the cover sheet, but do not need to be in sequential order. The user can start on the leftmost columns and the add each month to the next column. Once all columns are filled, he can start at the leftmost column again and overwrite the existing information. Figure 3 Worksheet "Balance Sheet" 7/20
3.1.4 Limit Storage System The user name and define the limits in this worksheet. Generally speaking, the user selects a category from the balance sheet and defines the limit as a percentage number relative to the selected reference position. For example, the user could limit the maximum loan exposure in a branch to 20% of the Total Equity. Therefore, a limit needs to be defined and named. The name can be selected freely, but it should relate to the actual purpose of the limit e.g. Maximum Exposure per Branch. Next, in the reference column, Total Equity is selected from the drop-down menu. The drop-down menu contains all positions that have been used in the financial statements of the previous worksheet. Then, for each reporting month the percentage value needs to be entered. The dates do not need to be in sequential order. The user can start on the leftmost columns and then add each month to the next column. Once all columns are filled, he can start at the leftmost column again and overwrite the existing information. Figure 4 Worksheet Limit Storage Table 3.1.5 Limit Management This worksheet has three sections: financial statement, limit storage, and limit management. In the uppermost section, the user can select the various categories that are of relevance for the setting of limits. The actual values are drawn from the worksheet balance sheet. In the following section, the user does not need to enter any data. This part visualizes all the limits including the actual values in percentage and in currency terms. 8/20
In the last section, the user can select the respective limit for each of the major limit categories. In the dashboard, limits for several categories are pre-defined. Changes to those limit categories would require an adjustment of the dashboard. In the current version, individual limits can be set in the following categories: By product category, individually for each of the 5 product categories. The limit can be different, depending on whether the total institution or the individual branch level has been selected. The individual branch limit is the same for all branches. By individual location. This is the actual place where the client is based. By Branch, total, for all products or on an individual branch level By Sector, total, for all sectors or on an individual sector level Figure 5 Worksheet Limit Management, upper part 9/20
Figure 6 Worksheet Limit Management, lower part Red Limits and Yellow Limits The dashboard is set up to handle two levels of limits, also referred to as red limits and yellow limits visually using a traffic light system. The concept behind this twolevel limit system is to provide the risk manager with a warning signal (yellow limit) before the actual limit (red limit) is hit. In this way, the risk manager has the ability to apply early measures to correct a limit that has been exceeded 10/20
3.1.6 Dashboard Credit The dashboard is the main output worksheet. It visualizes the current exposure to credit risk within the institution. The worksheet consists of several sections. In some sections, the user is able to choose between the perspectives of the visual output. Part I Summary (Total Portfolio) In this section, the dashboard displays an overall summary of the current exposure to credit risk in the institution, including the total amount of the outstanding portfolio, the number of clients, and the average remaining time to maturity of the performing loans (unit: day) based on the analysis date and the comparison date selected. For the first two categories, the respective number of non-performing and restructured loans is shown as well. The lower section labeled Disbursement shows the number of disbursed loans by amount and number, differentiated by product category. In addition, the % rate of approved loans compared to the total processed loans is provided. An arrow Figure 8 Worksheet Credit Dashboard - middle part Portfolio at Risk Development 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 15.01% 3.87% 2.24% 2.71% 2.16% Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Outstanding Portfolio Development by Product PAR >1-30 decreased from 3.87% to 2.71% 8.26% PAR 31-90 decreased from 2.24% to 2.16% PAR 91+ decreased from 15.01% to 8.26% Select: Absolute Value SME increased from 4253.4k to 4797k Micro increased from 1750k to 2015.5k Housing increased from 236.9k to 293.8k Individual increased from 119.3k to 173.6k Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Start-up increased from 5.5k to 19.7k the dashboard does not show cumulative PAR numbers. Figure 7 - Worksheet Credit Dashboard - upper left I. SUMMARY (Total Portfolio) Outstanding Portfolio Loan Amount Outstanding thereof non-performing (PAR >1) thereof restructured Number of Loans thereof non-performing (PAR >1) thereof restructured Average Loan Amount of all Loans Average Maturity Performing Loans Disbursement Loan Amount Outstanding SME Micro Housing Individual Start-up Number of Loans SME Micro Housing Individual Start-up Average Loan Amount of all Loans Average Apporval Rate Dec-11 7,299,618 962,190 13.18% Nov-11 314,843 4.31% 325,990 4.46% 1,538 1,529 behind the number visualizes the trend compared to the previous month. The charts on the right part of the section show the longer term trends for the institution over all selected comparison dates The next section contains two charts showing the development of the portfolio at risk by month differentiated by PAR category, and the volume development by product category by mont. The second chart can show absolute values or relative shares of each product. Each chart is completed by a legend and a brief verbal description of the trend. This description is automated. Please be aware that unless explicitly stated, 327 42 4,746-82 17 45 19 1 6,987 96% 20.73% 54.88% 23.17% 1.22% 0.00% 7,302,342 1,204,887 16.5% 349 44 4,776 860 843 12/2011 11/2011 572,965 557,016 379,277 66.20% 262,118 47.1% 167,545 24,346 1,797-29.24% 266,398 47.8% 4.25% 0.31% 0.00% 19,324 8,578 599 142 14 103 72.5% 16 11.3% 8 1 3,923 100% 3.5% 1.5% 0.1% 9.9% 5.6% 0.7% 11/20
Figure 9 Worksheet Credit Dashboard Portfolio Snapshots Portfolio Snapshot by Branch Branch 1 Other Branch 2 Branch 7 Branch 8 Branch 4 Top 5 1 Branch 1 2 Branch 2 3 Branch 7 4 Branch 4 5 Branch 8 Other Outstanding 1,167,562 1,103,719 857,010 776,461 746,503 2,648,361 % Share 16.0% 15.1% 11.7% 10.6% 10.2% 36.3% Portfolio Snapshot by Product HousingIndividual Micro SME Start-up Top 5 1 SME 2 Micro 3 Housing 4 Individual 5 Start-up Outstanding % Share 4,797,036 65.7% 2,015,481 27.6% 293,775 4.0% 173,618 2.4% 19,708 0.3% Portfolio Snapshot by Sector Other Sector 8 Sector 6 Sector 3 Sector 5 Sector 1 Top 5 1 Sector 1 2 Sector 5 3 Sector 3 4 Sector 6 5 Sector 8 Other Outstanding % Share 3,776,190 51.5% 1,120,915 15.3% 718,981 9.8% 471,053 6.4% 362,088 4.9% 879,137 12.0% Part II Portfolio Diversification Analysis This section consists of three parts. The left part visualizes the portfolio as a total and split by product category. The user can select to look at the overall institution or at a specific branch. The two charts visualize the five product categories divided up individually as a snapshot of the reporting month, as well as the development of the PAR categories over the period of all comparison dates. On the very left Figure 10 Worksheet Dashboard Credit Loan Information by Branch column, the limits are visualized. The light grey box shows the yellow limit and the combined light and grey boxes show the red limit. Next to the total amount, the limits are shown. In addition, the number of loans as well as the percentage values for each PAR category are shown. Arrows next to the numbers visualize the change from the comparison date to the analysis date. The traffic light colors on the left side show the total exposure relative to the limit. 12/20
In the chart, PAR categories are also shown as columns individually. Please pay special attention to how the PAR categories are calculated. For example, the PAR 1-30 category only shows the exposure classified in this specific range and not those that are more than 30 days late. The accompanying visual tables show the data in a more granular level. Part III Portfolio Risk Factor Analysis The next section shows a series of charts and tables. The portfolio is broken down by several criteria with the objective of discovering performance patterns. For each chart a table below lists the absolute values. Figure 11 Worksheet Dashboard Credit Portfolio Risk Factor Analysis The charts explain: Portfolio development by client (new and repeat), performance of new vs. repeat clients by PAR>1 Portfolio development by distribution channel, including PAR>1 percent values for each channel Loan approval rates by branch and by product. The two charts allow the selection by branch and product Portfolio development by maturity, including PAR>1 percent values for maturity band 13/20
Portfolio development by collateral, including PAR>1 percent values for each collateral category Portfolio performance by exception The chart at the bottom explains the vintage analysis, whereby the user can select to compare up to 5 vintage categories : Figure 12 Worksheet Dashboard Credit Vintage Analysis Part IV Concentration Analysis The concentration analysis consists of Top 10 lists for the following categories: outstanding loans, new loans, and PAR >1-30, PAR 31-90, and PAR 91+. For each loan the account number, branch, product type, sector, new/renewed flag, loan officer and amount are shown. For all categories, the outstanding amount is used, except for new loans, where disbursed amounts are shown. The user can select to look at the overall institution or at each branch separately. Figure 13 Worksheet Dashboard Credit Top 10 List Part V Loan Officer Analysis The last section allows us to analyze the performance of each loan officer. The user can select the loan officer. The outstanding amount is shown as well as the PAR 14/20
numbers for the loan officer. Traffic lights show whether the performance of the individual loan officer is above or below the MFI's average. Separately, tables with the loan officers who have the highest PAR % numbers are shown. Figure 14 Worksheet Dashboard Credit Loan Officer Analysis 15/20
3.2 Updating the Dashboard This section provides instruction on how to update the dashboard. It is advised that the user update the dashboard on a monthly basis following the steps in the exact order as explained below. 3.2.1 Update the Data in the In-File 1) Open the In File and select the worksheet Data. 2) The columns in blue contain calculations. The columns in white contain the actual data from the MIS system and need to be updated. Two alternative approaches can be used: a. Download all the data of past months from the MIS system. When upload the data into the dashboard, all the previous information will be overwritten every time. b. Download the latest data of the past period from the MIS system. When upload the data into the dashboard, only enter the latest month information every time. The user must follow the instruction below to update the data fields in white. Category Requirement Sample Report Month Date, follow the format of yyyy/mm/dd 2012/12/31 Account Number of the account or other unique 010000 number Branch Name Branch X Loan Officer Name James Smith Location 2 Most granular XX City Location 1 Less granular XX State/Province Disbursement Date, follow the format of yyyy/mm/dd 2012/5/15 Date Gender Only fill in Female or Male Male Client Age Number 42 Loan Amount Number, no unit 300000 Delinquent Only fill in Delinquent or Current Delinquent Income Number, no unit 120000 Sector Text Transportation Relationship Age Number 3 PAR Category No longer in use, can stay blank Maturity Date Date, follow the formate of yyyy/mm/dd 2013/5/15 Principal Due Number 135 16/20
Days Restructured Only fill in 0 (for not restructured) or 1 0 (restructured) Outstanding Number only, no unit 270000 Loan Product Text, up to 5 defined products SME Repeat 1 Only fill in 0 (for new clients) or 1 (for 1 old clients) Approval Status Only fill in Approved or Declined Approved Distribution Text, up to 5 distribution channels Newspaper Channel Collateral Only fill in 0 (with collateral) or 1 0 (without collateral) Policy Exception Text, up to 5 policy exception No ID Warning Do not change the structure and the data types of the respective field. A number field always needs to stay a number field. If choose to use alternative a method to update all values, the user need to ensure the data download from the MIS system to be consistent with the data requirement described above, before copy the respective columns and overwrite the existing data in the In Files. Warning When overwriting all existing data, make sure that all data of the past version is overwritten. Check the bottom of the In File table. Especially if the number of reporting months in the current reporting month is lower than in the previous month or if the number of loans is shrinking, it is possible that not all values are overwritten. Make sure that the remaining lines at the bottom of the table are deleted. Warning Do not overwrite the names of the columns in the first row! Do not change the names of the columns in the first row If choose to use alternative b method to update all values, the user only needs to add the latest data at the bottom of the table. If old and unused data needs to be deleted, this step needs to be done AFTER step 3a. 3) Update the calculated fields. The columns in blue are calculated values. In order to keep the size of the In-File small, only row 2 contains the formula. The following steps need to be done to add formula for all other rows: a. For each of the columns A to H and AE to AK, select the formula in the second row. For example, select cell A2 which contains the formula =AB2+J2/1000000. Copy this formula and select all fields in column A from A2 downwards to the row containing the last value of the updated white columns. Paste the formula. Repeat this for all columns (B to H and AE to AK) 17/20
b. Additional step if Alternative 2b is chosen: To delete a specific month of data, select the whole table (by clicking in the field on the top left of the table (above the row number 1 and left of the column number A). Add a filter to the table by selecting DATA Filter. Select the month to be deleted from the Column I Report Month and delete the rows containing data of that month. Thereafter unselect the filter again. c. Next, the formulas copied in step 3a need to be replaced with values again, in order to save space. Select all rows of the data table, starting with row 3. Copy the columns and paste them in the same spot by using PASTE SPECIAL Values d. Save the In File (overwrite the existing In-File) Warning Do not delete the formulas from row 2 as they will be needed in the subsequent months to repeat the processes described here! 4) Update the Pivot Tables. Select a worksheet of the In File that contains pivot tables, e.g. Worksheet Pivot. Select one cell in one of the pivot tables. Click the right mouse button and select Refresh. This updates the pivot tables with new data. Without this step, the dashboard will continue to show the data used before. This step needs to be done only once. MS Excel updates all pivot tables automatically. Save the In file again. 3.2.2 Update the List of Loan Officers It is likely that the list of loan officers needs to be updated, as additional loan officers are employed. The following steps are necessary: 1) Select the column containing the names of loan officers from the In-File (Column L Loan Officer). Copy the column into a new worksheet in the In-File or any other empty worksheet of another file. Select the whole copied column in this new worksheet and remove all duplicate values by selecting DATA Remove Duplicates. MS Excel will count the number of unique values found. 2) Select all the unique values and sort them by selecting Data A->Z 3) Copy the sorted list of loan officer names and switch to the File Dashboard Out, select Worksheet Lookup. Paste the names of loan officers in the column AF, 18/20
starting at AF8. Please be aware that the list of loan officers can hold a maximum of 176 names. If more loan officers are tracked, please contact the developer. 4) Save the In File 3.2.3 Update Other Information in the Out-File After updating the In File, several adjustments are necessary in the Out File. Select the Out File, worksheet Lookup. 1) If the names of the product categories need to be adjusted, change them in the cells B8 to B12. Please be aware that the dashboard can handle a total of 5 products 2) If the names of branches change or if new branches are added, please adjust cells L8 to L22. Please be aware that a maximum of 16 branches can be tracked. Also, if names of branches are changed or adjusted, the In File needs to be updated. 3) Adjust the list of analysis dates in cells V8 to V23 so that all data points of the In File are represented 4) Save the Out File 3.2.4 Update In-File after Adding New Branches and Products or Changing Branches or Products The following steps need to be done: 1. For updated branches select Cell F2, for updated product select Cell G2. Copy the formula and select all fields in the respective column downwards to the row containing the last value. Paste the formula. 2. Next, the formulas copied in step A need to be replaced with values again, in order to save space. Select all cells in rows F and G of the data table, starting with row 3. Copy the columns and Paste them in the same spot by using PASTE SPECIAL Values 3. Save the In File (overwrite the existing In-File) 19/20
If you have any questions, please send the email to info@mfchina.cn For latest update of the risk management tool series and risk management information, please visit PlaNet Finance China Risk Management Blog http://www.planetfinancechina.org/blog 20/20