Questionnaire On Foreign Exchange

HEAD OFFICE QUESTIONNAIRE
Microfinance Due Diligence Questionnaire

(To Be Used in Conjunction with Loan Application)
Name of the Institution.
Country...
Analyst:.
8/19/2009
C:\Users\wb318031\Desktop\Client Protection\Toolkit\Deutsche Bank\DB HO Due Dili with Loan App version 5.doc
TABLE OF CONTENTS
I.
II.
MFI Background Information........................................................................................................... 1

Strategy and Business Planning ........................................................................................................ 1
A. Business and Strategic Planning (CEO / Chairman of Board) ..................................................... 1
B. Competitive Environment ............................................................................................................. 4
C. Marketing (Marketing Manager) .................................................................................................. 5
III.
Social Impact (CEO / Chairman / Board Member) ...................................................................... 6
IV.
Governance and Internal Controls ................................................................................................ 8
A. Governance Structure, Board & Committees (Chairman / Board Member) ................................ 8
B. Management (CEO) .................................................................................................................... 10
C. Financial Discipline / Accounting (Comptroller or Head Accountant) ..................................... 12
D. Internal Audit (Internal Audit)) ................................................................................................. 14
E. General Internal Controls (Internal Audit) ................................................................................. 15
F. External Audit (CEO / Chairman / Internal Audit) ................................................................... 20
G. Regulatory Environment (CEO / Chairman) ............................................................................. 20
H. External Rating (CEO / Chairman)............................................................................................ 21
V. Credit Risk Management ................................................................................................................ 22
A. Underwriting Process (Head Loan Officer) ............................................................................... 22
B. Collections Process (Head Loan Officer) .................................................................................. 25
C. Loan Loss Reserves, Charge-Offs and Recovery Policies (Head Loan Officer) ...................... 28
D. Restructuring Process (Head Loan Officer) .............................................................................. 29
VI.
Capital Structure ......................................................................................................................... 30
A. Capital Plans (CFO or CEO) ..................................................................................................... 30
B. Debt & Savings (CFO or CEO) ................................................................................................. 31
VII. Market Risk ................................................................................................................................ 32
A. Asset-Liability Management (ALM) / Liquidity Risk Management (CFO or CEO) ................. 32
B. Interest Rate Risk Management (CFO or CEO) ........................................................................ 33
C. Foreign Exchange Risk Management (CFO or CEO) ............................................................... 34
VIII. Productivity and Efficiency (CFO or CEO) ............................................................................... 35
IX.
Human Resources (HR Manager) .............................................................................................. 35
X. Management Information Systems (IT Manager) .......................................................................... 38
XI.
Appendix A: Rating Table ......................................................................................................... 39
Guidelines for Using Deutsche Banks Due Diligence Questionnaire

Deutsche Banks Global Social Investment Funds (GSIF) due diligence questionnaire was designed to
be used in conjunction with Deutsche Banks GSIF loan application. It is recommended that before
conducting the due diligence visit, you review the loan application and complete as much of the credit
write up as possible using Deutsche Banks GSIF credit format write up.
Please take all notes of site visit in this document and then scan the document after you have
completed the onsite visit. The scanned document should be saved in the MFIs file.
I. MFI Background Information

1. Please update the following information. Date of Update
Number of Employees
Number of Branch Offices/Service Outlets
Plans for New Branches (when)
Number of Clients
Size of MFI in Assets
II. Strategy and Business Planning

A. Business and Strategic Planning (CEO / Chairman of Board)
Follow Up Questions from Application
1. How has your business and strategy changed over the past three years?
__________________________________________________________________________________________
__________________________________________________________________________________________
2. In what direction to you want to take the MFI in the next 1-3 years?
__________________________________________________________________________________________
__________________________________________________________________________________________
3. When was the last time your strategic medium/long-term plan was updated? _________________________
4. Do you have your competitive advantages defined? YES _____ NO _____ What are they?
_______________________________________________________________________________
_______________________________________________________________________________
5. What are three opportunities that exist for your MFI?

_______________________________________________________________________________________
_______________________________________________________________________________________
6. What are three threats to your MFI?
_______________________________________________________________________________________
_______________________________________________________________________________________
7. What are three weaknesses of your MFI?
_______________________________________________________________________________________
_______________________________________________________________________________________
8. What are three strengths that your MFI have to combat any strengths or weaknesses?
_______________________________________________________________________________________
_______________________________________________________________________________________
9. What factors are considered in setting rates for loans?
a. Type of loan:
______
b.
c. Collateral:
______
d.
e. Competition
______
f.
g. Savings/Share Guarantee
______
h.
Risk:
_____
Spread Management
_____
Regulation
_____
Other:
__________________
10. Would you have problems raising the loan interest rates if it were necessary? YES _____ NO _____
If Yes why?
_______________________________________________________________________________________
_______________________________________________________________________________________
(Skip if no savings)
11. Are your savings interest rates above, below or about the same as the competition? __________________
12. What factors are considered in setting rates on savings?
a. Competition:
______________________
b. Other:
____________________________
Inflation: ______________________
Other: ________________________
13. Would you have problems raising the interest rates paid on savings to become more aggressive in the
market? YES _____ NO _____
14. Who authorizes interest rate changes in the following specific areas:
c. Loan Portfolio Rate ___________________________________________________
d. Savings Product Rate
___________________________________________________
e. Dividend Return/Rate
___________________________________________________
15. Which sectors of the community are not currently being served and have the most potential?
_______________________________________________________________________________
_______________________________________________________________________________
16. In your opinion, what is the image of your MFI in the community?
_______________________________________________________________________________
_______________________________________________________________________________
17. Do you compare the annual operating budget regularly with actual expenses? YES _____ NO _____
18. Have the CEO walk through the performance projected in the business plan for the latest quarter or year
with actual results. Discuss variation / deviation and plans to get back on track. Put notes below.
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
B. Competitive Environment
1. How are you improving your competitive position? (Note: You should review loan application to
determine what they believe their competitive position is as well as how competitive the market place is.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
2. What types of new activities/products have you seen from key existing competitors or potential new
competitors (e.g. full service bank platforms)?
_______________________________________________________________________________
_______________________________________________________________________________
3. Are your loan interest rates above, below or about the same as the competition? ___________________
4. Have there been any recent competitive developments (e.g. pricing pressures, anticipated market
consolidation)? Who do you view as you primary competitors and why?
_______________________________________________________________________________
_______________________________________________________________________________
5. Are there concerns about clients becoming over-marketed? If so, how are you and industry peers handling
this potential for over-indebtedness?
_______________________________________________________________________________
_______________________________________________________________________________
Section Rating & Rationale (Include Loan Application Observations)

1=Excellent; 2=Significantly Above Average; 3=Above Average 4=Average; 5=Below Average; 6=Significantly Below Average; 7=Seriously Deficient
Rating: ______
C. Marketing (Marketing Manager)

1. Name of the person(s) being interviewed.
__________________________________________________________________________________________
2. How long has s/he been involved with the MFI?
__________________________________________________________________________________________
3. What relevant experience does s/he have fulfilling his/her role at the financial institution?
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Do you have your market position defined? (i.e. how does the MFI compare to competitors in price,
service, dist., etc.
YES _____ NO _____ If Yes, what do you believe is the MFIs market position?
_______________________________________________________________________________________
5. How do you evaluate the effectiveness of your marketing efforts?
_______________________________________________________________________________________
6. Do you have clients that use bank or other financial institution services? YES _____ NO _____
7. If Yes, what services? Why dont you offer these services?
_______________________________________________________________________________________
_______________________________________________________________________________________
8. What is the population of the economically active people in your market? ______________________
9. **PERSONAL OBSERVATION BY PERSON ADMINISTERING QUESTIONNAIRE**
10. Professional
11. Needs Improvement
Building
Reception
Furniture and Equipment
Security
Presentation of Personnel

Rating: ______
III. Social Impact (CEO / Chairman / Board Member)


__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
9. In your view, what is the primary target market of the institution? Is this accurately reflected by your
current client base? If not, how do you expect to get there?
__________________________________________________________________________________________
__________________________________________________________________________________________
10. What type of organization or business will the MFI be in 3-5 years (i.e. microfinance, bank, etc.)
__________________________________________________________________________________________
__________________________________________________________________________________________
11. Have you had any problems keeping focused on the primary mission of your institution? Do you have any
plans to modify your mission? Review client breakdown and average loan size in light of response.
__________________________________________________________________________________________
12. Who are your founding members? Are they on the MFIs Board?
__________________________________________________________________________________
__________________________________________________________________________________
13. What methods do you utilize to determine the MFIs impact on the client and/or community? If there are
written impact studies, ask for a copy.
__________________________________________________________________________________________
__________________________________________________________________________________________
14. How frequently do you use the above mentioned methods? Skip if No to question above.
__________________________________________________________________________________________
15. How do you use the information collected in these impact studies? Skip if No to question above.
__________________________________________________________________________________________
__________________________________________________________________________________________
16. (Check loan application to see if this applies.) Please elaborate on your non-financial services (business
development, education, health).
__________________________________________________________________________________________
__________________________________________________________________________________________
17. Do you distinguish between and test whether loans are utilized for productive purposes?
YES _____ NO _____ Cross check this with the breakdown of the loan portfolio by loan type.
18. How do you ensure that your loans ultimately are used for productive purposes (& not consumer)? (Does
the MFI conduct any post-loan evaluations that verifies the actual destination of the money?)
_______________________________________________________________________________
_______________________________________________________________________________
19. Is your institution a signatory to the Client Protection Principles?
_______________________________________________________________________________
20. Does your Board monitor your institutions activities in relation to the Client Protection Principles?
_______________________________________________________________________________
21. In terms of social impact, how does the MFI rank nationally and internationally? What measures do you use
to determine this ranking?
_______________________________________________________________________________________

Rating: ______
IV. Governance and Internal Controls

A. Governance Structure, Board & Committees (Chairman / Board Member)

__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Please walk through the general governance structure and how it works in practice. What changes have
been made in the last year relative to your governance structure and members? Please include any changes
in committees, format and periodicities of meetings.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
5. Is the CEO a member of the Board?
YES _____ NO _____
6. What is the role of the CEO in the Board meetings?

_______________________________________________________________________________________
_______________________________________________________________________________________
7. Do any Board members have operational duties in the MFI, either through direct employment or consulting
services or contracts?
YES _____ NO _____
8. What types of decisions does the Board make, and what type of information and what frequency do they
receive it?
Report
Frequency
Balance Sheet
Income Statement
Credit Risk Management Reports
Recovery / Charge-Off of Delinquent Loans
Cash Flow / Liquidity
Asset-Liability Management (Maturity)
Interest Rate Risk
Foreign Currency Exposure
Budget Analysis
New Product Approvals
Other (Specify)
9. How regularly does the Board meet?

_______________________________________________________________________________________
10. How does the Board ensure that the decisions of Senior Management and Board are always aligned with the
interest of the organization and its mission?
_______________________________________________________________________________________
_______________________________________________________________________________________
11. What were a few of the key strategic decisions taken by the board and senior management this year?
_______________________________________________________________________________________
_______________________________________________________________________________________
12. What are the roles of each committee and their members? How involved is the Board in strategy &
operations?
_______________________________________________________________________________________
_______________________________________________________________________________________

Rating: ______
B. Management (CEO)

__________________________________________________________________________________________
2. How long have you been involved with the MFI?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. What type of information do you use to manage the MFI and what frequency do you receive it?
Report
Frequency
Balance Sheet
Income Statement
Credit Risk Management Reports
Recovery / Charge-Off of Delinquent Loans
Cash Flow / Liquidity
Asset-Liability Management (Maturity)
Interest Rate Risk
Foreign Currency Exposure
Budget Analysis
Other (Specify)
5. Which of the above reports is most useful in helping you manage the MFI? Why?
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
10
6. What are the elements of your business that keep you up at night?
__________________________________________________________________________________________
__________________________________________________________________________________________
7. Where has the Board been most useful in supporting your management of key issues? Where are their gaps
in the Boards support?
__________________________________________________________________________________________
__________________________________________________________________________________________
8. What are the strategic initiatives that you are working on or plan to work on that are key to your MFIs
performance or future?
__________________________________________________________________________________________
__________________________________________________________________________________________
9. What are the key issues with your investors / donor organizations?
__________________________________________________________________________________________
__________________________________________________________________________________________

Rating: ______
11
C. Financial Discipline / Accounting (Comptroller or Head Accountant)


__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Where do the majority of accounting discrepancies come from? What are you doing about this?
__________________________________________________________________________________________
__________________________________________________________________________________________
5. What is the date of the latest unaudited financials? ______________ (Note: We should have the latest
audited financials. Audited financial statements should be completed in a few months after the fiscal year
end. Delays in audited financials can indicate a problem.)
6. Do you accrue interest from loans? If so, what are the criteria for reversing accrued income on loans made
to clients? If not, what are the policies followed by the banking sector?
__________________________________________________________________________________________
__________________________________________________________________________________________
7. Do you have a policy to control & minimize the amount of non-earning assets? YES _____ NO _____
(Ask for a copy) In general, how is this policy applied?
8. Does the accounting system have any suspense accounts where accounting differences are noted?
YES _____ NO _____
12
9. If so, how big is this account? Is there variability around it? If not, how do they handle accounting
discrepancies?
__________________________________________________________________________________________
10. Does the accounting system have separate results for financial and non-financial services?
YES _____ NO _____
11. Does accounting register all guarantees in off-balance sheet accounts?
YES _____ NO _____
12. Please outline any areas that could be improved in the current accounting system.
__________________________________________________________________________________________
__________________________________________________________________________________________
13. What are the current strengths of the accounting system?
__________________________________________________________________________________________
__________________________________________________________________________________________
14. Review the General Ledger account and separate out the amount of Other Assets (sometimes called
OREO or Other Real Estate Owned) that are directly related to loan recoveries. This should be measured
as a percentage of the total loan portfolio. If larger than 2%, when reviewing loan files make sure to look at
credit analysis closely to see if undue weight is placed on the Collateral as opposed to the Capacity of the
borrower to repay.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________

Rating: ______
13
D. Internal Audit (Internal Audit))


__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Review the description of IA from loan application. Be sure that five bullet points for first question are
answered completely. Where they have left out issues, complete below. Make sure IA reporting is outlined.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
5. How many staff members are in the department? ______
Date _______________
6. Does your institution distinguish between the internal control and internal audit functions? Who performs
which?
__________________________________________________________________________________________
__________________________________________________________________________________________
7. Who does Internal Audit department report to and who evaluates your work?
__________________________________________________________________________________________
14
8. Where were the MFIs key weaknesses this past year? What is being done to address them? Are you
satisfied with the steps and the progress?
__________________________________________________________________________________________
__________________________________________________________________________________________
9. Have there been any significant changes to Internal Audits review process in the last 12 months?
__________________________________________________________________________________________
__________________________________________________________________________________________
10. What issues keep you up at night relative to your MFIs future?
__________________________________________________________________________________________
__________________________________________________________________________________________
11. In your audits do you look for corruption and code violations? (Client Protection Principles question, Staff
Ethical Codes of Conduct)
__________________________________________________________________________________________
__________________________________________________________________________________________
12. In your audits do you check that complaints are resolved satisfactorily? (Client Protection Principles
question, Client Complaint Resolution)
__________________________________________________________________________________________
__________________________________________________________________________________________

Rating: ______
E. General Internal Controls (Internal Audit)

15
1. Have you strengthened / modified internal control structure as the institution has grown to provide stronger
oversight for more geographically diverse / more complex products?
__________________________________________________________________________________________
__________________________________________________________________________________________
2. Are any key internal control statistics tracked such as number of frauds, amounts, etc.? (Note, if the
institution is participating in Basle II, then they have to track these statistics. Ask for report.)
YES _____ NO _____
3. If so, what statistics are tracked? Ask for report.
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Have you experienced any losses from errors or fraud?
YES _____ NO _____
When reviewing loan files, simple checks on calculations and analysis can highlight existing control
strengths/weaknesses.
5. (If answer above was affirmative) Please describe the fraud including what proportion of total branches have
experienced fraud, if staff were let go as a result, etc.
__________________________________________________________________________________________
__________________________________________________________________________________________
6. What measures are you implementing to address these fraud issues?
__________________________________________________________________________________________
__________________________________________________________________________________________
7. Do you have a mandatory two-week leave policy?
YES _____ NO _____
Is the policy enforced?
YES _____ NO _____
(You can investigate this further by discussing how they cover for the person when absent. If they dont have a
well thought-out plan, it is likely that it is not rigorously enforced.)
8. Is there some type of check in place to ensure that large expenses are verified as to accuracy and rationale?
YES _____ NO _____ Explain:
9. Who reviews the monthly/weekly expenses? __________________________________________________
__________________________________________________________________________________________
16
10. Do you have segregation of the following key duties:

- Key / combination of vault
- Credit analysis / disbursement of cash,
- Entry to vault / handling of cash
- Bank reconciliation / Check signing
YES _____ NO _____

YES _____ NO _____
YES _____ NO _____
YES _____ NO _____
11. Does your MFI disburse and collect cash from clients?
YES _____ NO _____ Please describe
process, i.e. who disburses cash, who receives cash (do loan officers do either?), etc. and any changes that
have occurred in the last 12 months.
__________________________________________________________________________________________
__________________________________________________________________________________________
12. Are there procedures for controlling and maintaining a balanced cashier drawer such as?
- Internal audit conduct random audits of teller drawers?.
YES _____ NO _____
- Clear oversight of tellers by management (video camera can also be used)YES _____ NO _____
- Daily reconciliation of teller drawers to general ledger
YES _____ NO _____
- Dual controls of cash and cash management
YES _____ NO _____
Random audits are generally not an effective control point and can sometimes be an inconvenience to
clients.
13. What are the procedures for signing checks and handling the MFIs bank accounts? Is there clear separation
of duties, dual signatures, no Bearer checks issued, etc.
__________________________________________________________________________________________
__________________________________________________________________________________________
14. What is the policy for changing the safe combination and location of duplicate keys?
__________________________________________________________________________________________
__________________________________________________________________________________________
15. How are checks and receipts handled? Should have someone from accounting walk through process with
accountant and teller to ensure understand process.
__________________________________________________________________________________________
__________________________________________________________________________________________
16. Do you have insurance against fraud for all employees that handle funds (fidelity bonding)?
YES _____ NO _____
17. How oftern are the MFIs bank accounts reconciled?
__________________________________________________________________________________________
18. Does Internal Audit review the bank reconciliation process?
__________________________________________________________________________________________
17
__________________________________________________________________________________________
19. Which department/person is responsible for reviewing the adequacy of the documentation prior to
disbursement of funds for a loan?
__________________________________________________________________________________________
__________________________________________________________________________________________
20. Do loan officers disburse money, or do tellers/cashiers make loans?
YES _____ NO _____
21. Does accounting/internal audit randomly spot-check appraisals and ensure that documentation is complete?
YES _____ NO _____
22. What is required (documentation, authorization, etc.) to release a lien on an asset?
__________________________________________________________________________________________
__________________________________________________________________________________________
23. Do you have a contingency plan in the event of a catastrophe or destruction of the head office?
YES _____ NO _____
24. Is there a silent alarm against robbery?
YES _____ NO _____
25. Is there a fire detector and alarm?

26. Do you have a security guard or other security measure?
YES _____ NO _____

YES _____ NO _____
27. Are there instructions on how to proceed in case of an assault?
YES _____ NO _____
28. Do you use pre-numbered and authorized receipts to create an audit trail of the expenses and incomes?
YES _____ NO _____
29. Do you accept post dated checks?
YES _____ NO _____
30. Do you cash all checks daily?
YES _____ NO _____
31. Are all payments (larger than amounts authorized for petty cash) made with check?
YES _____ NO _____
32. What documentation is required to cancel a loan that has been completely repaid?
__________________________________________________________________________________________
33. Does Internal Audit do reviews of the off-balance sheet accounts?
YES _____ NO _____
34. Do you have a code of conduct for employees?
YES _____ NO _____
35. Is the code enforced in practice?
YES _____ NO _____
36. Do you have a client/consumer protection policy?
YES _____ NO _____
18
37. How often are policies and procedures updated? _______________________________________

38. Which group ensures that policies are updated with regular frequency? ___________________________

Rating: ______
19
F. External Audit (CEO / Chairman / Internal Audit)

G. Regulatory Environment (CEO / Chairman)

1. How effective / good do you believe the regulatory environment to be?

__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
20
H. External Rating (CEO / Chairman)

21
V. Credit Risk Management

A. Underwriting Process (Head Loan Officer)

__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Please walk me through your loan underwriting process. Key to this exercise is to determine what criteria
are used to approve or deny a loan (ability to pay, guarantee, share leverage, credit history, etc.)
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
22
6. Could you please rank the following criteria considered in the credit analysis
Criteria
Rank
Savings Leverage Factor
Type/Amount of Guarantee
Repayment Capacity
Credit History
Character of the Individual
7. Do you maintain a list of all guarantors as a control to determine the level of risk for each guarantor?
YES _____ NO _____
8. Do you register your interest on collateral on loans to clients? YES _____ NO _____ If no, why not?
__________________________________________________________________________________________
9. How is a loans repayment period determined? Do the loan terms and repayment methods coincide with the
cash flows from the financed activity? For example, agricultural loans are generally term loans, as the
farmer borrows money to buy seeds, fertilizer, feed etc., and then after the crop has been harvested pays
back the loan with the money generated from the sale of the crop.
__________________________________________________________________________________________
10. Review loan classification table. Should confirm if interest is charged against the outstanding balance or
amount disbursed (flat)?
i. Outstanding Balance
____
ii. Amount Disbursed (Flat)
____
11. How do you calculate the effective rate of interest that you charge your clients?
__________________________________________________________________________________________
__________________________________________________________________________________________
Compare this rate to the portfolio yield in the projections further discussion may be required in case of
substantial differences.
12. Do you make second mortgage, piggy-back loans or top-ups?
YES _____ NO _____ If they do,
make sure to pull at least one of these loans in your loan file review and evaluate the credit analysis
conducted for these types of loans to evaluate analysis.
13. Do you have concentration limits by type of credit product? YES _____ NO _____
14. Is there a maximum loan size based on equity of the institution? YES _____ NO _____
15. If YES, how is it determined? As a rule of thumb, loans that are larger than 10% of equity would be
considered a concentration of risk. It can also be a sign of insider abuse or lack of internal control.
__________________________________________________________________________________________
23
16. Does a third-party review loan analysis & documentation to ensure that it adheres to documented policies and
procedures? YES _____ NO _____ Dept? ________________________________________
As the institution grows in geographical size and complexity, it is important that transactions are reviewed more
consistently than a periodic internal audit visit.
17. Does someone review disbursement documentation to ensure compliance with policies and procedures?
YES _____ NO _____ Who? ________________________________________
If answer is the branch manager, than individual loan file read is important, as branch managers many times do
not have time to thoroughly review documentation, or in the event of fraud could be involved.
18. Are interviews by loan officers required for all new loans or are there circumstances where an interview is
not required?
__________________________________________________________________________________________
19. Are there circumstances where an applicant would not be eligible? Ask the loan officer/manager to provide
examples of recent applicants that were rejected. If the loan officer/manager cannot readily provide
examples, this should be a red flag and loan process should be looked at more closely.
__________________________________________________________________________________________
20. Who verifies that collateral is registered. In small institutions, it is likely that the loan officer will be
responsible for this task. In an ideal world, there should be a separation of duties. However, in situations
where this is not possible, additional control mechanisms should be put in place such as more frequent
internal audit reviews, or at a minimum, external auditors should include this in their review.
__________________________________________________________________________________________
21. Do loan officers handle cash in the field? YES _____ NO _____ If so, how do you manage the risks?
__________________________________________________________________________________________
__________________________________________________________________________________________
22. Does Management regularly obtain information about debt levels among the MFIs clients? (Client
Protection Principles question, Avoiding Client Over-Indebtedness) YES _____ NO _____ If so, ask to
see the reports that contain that information.
_______________________________________________________________________________________
24

Rating: ______
B. Collections Process (Head Loan Officer)

1. Please walk me through your loan monitoring and collection process. This should include dates of contacts,
written notices, when sent to court, etc.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
25
2. Do you have covenants or the ability to demand payment of the loan when the conditions for repayment have
deteriorated or the precept of the original loan had been falsified? YES _____ NO _____
3. How many days past due before a loan is considered to be delinquent? Days: ________________
4. Is the entire loan balance included in the delinquency calculation or just the amount of payment that is late?
(Walk through a couple of examples to be sure.)
______ Balance ____ Payment
5. What is the total amount and percent of delinquent loans? Amount ____________ Percent _________%
As of date: ___________
6. What type of analysis is done on guarantors of loans?
__________________________________________________________________________________________
__________________________________________________________________________________________
7. Is there an established hierarchy for partial repayment of delinquent loans in the loan policies, (i.e. legal
costs, delinquency charges and interest should be deducted before reducing the principal)?
YES _____ NO _____
If so, what is it?
__________________________________________________________________________________________
__________________________________________________________________________________________
8. In the last year, how many times have you collected from a client using (estimate unless collect information):
a. Savings
_______________
b. Collected from Co-maker
_______________
c. Liquidated Collateral
_______________
d. Attorney Collection
_______________
e Arbitration
_______________
f Court Action
_______________
9. How many lawyers do you have working on collection efforts? _________
Date __________
10. Is the transfer to legal collections mechanical (i.e. by date) or is there subjectivity involved? Under what
circumstances are exceptions allowed? It is important to review the actual transfer of loans into legal
collection to see how it actually happens in practice?
__________________________________________________________________________________________
__________________________________________________________________________________________
11. Do loan officers stay involved in the collection process after it is passed to lawyers for collection? If so,
what is their role in the process?
__________________________________________________________________________________________
__________________________________________________________________________________________
26
12. Do you monitor/track the work that lawyers are doing? What controls do you have in place?
__________________________________________________________________________________________
__________________________________________________________________________________________
13. Have you liquidated any assets used to guarantee a loan in the last year? YES _____ NO _____
How many? ____
_______________________________________________________________________________________
_______________________________________________________________________________________
14. Are any of the loans to Board or employees delinquent? YES _____ NO _____ Who, Why, How:
_______________________________________________________________________________________
_______________________________________________________________________________________

Rating: ______
27
C. Loan Loss Reserves, Charge-Offs and Recovery Policies (Head Loan Officer)
1. Do you have a policy for charging-off uncollectible loans? Make sure that description includes time period
after which loans are written-off. Also note if there is any subjectivity in charge-off policies or clean up
comes after a number of days (i.e. collectibility is not a factor).
_______________________________________________________________________________________
2. When was the last time you wrote-off an uncollectible loan?
_______________________________________________________________________________________
3. How are recoveries of loans that are charged-off moved back onto the balance sheet or income statement?
_______________________________________________________________________________________
4. When you seize collateral, what is the process for liquidating it and paying down the delinquent loan? Do
they appraise the property value before recording the value in the books? If not, how can they be certain of
the value of the asset? What value is recorded in the financial statements when assets are seized?
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________

Rating: ______
28
D. Restructuring Process (Head Loan Officer)

1. Can delinquent loans be refinanced or paid later than their contracted date without penalty?
YES _____ NO _____ What are the criteria used?
_______________________________________________________________________________________
_______________________________________________________________________________________
2. Are restructured loans included in the delinquency calculation?
_______________________________________________________________________________________
_______________________________________________________________________________________

Rating: ______
29
VI. Capital Structure

A. Capital Plans (CFO or CEO)

__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. What reports do you use to monitor the financial performance, capital structure and leverage of your MFI?
__________________________________________________________________________________________
__________________________________________________________________________________________
5. Since you filled out the application, have you started discussions with any organization/investors with respect
to strategic investors? Are there any special features (e.g. repurchase agreements, right of first refusal etc.)?
__________________________________________________________________________________________
__________________________________________________________________________________________
6. Review with CFO or CEO the existing employees that own a share of the MFI. How were sales
handled/valuation? Is it part of an ESOP or profit sharing program?
__________________________________________________________________________________________
__________________________________________________________________________________________
30

Rating: ______
B. Debt & Savings (CFO or CEO)

1. How do you ensure quality growth of the loan portfolio when placing large amounts of funding?
The MFI needs to be able to place this money while maintaining portfolio quality.
__________________________________________________________________________________________
__________________________________________________________________________________________
2. What percentage of your total loan portfolio would new loan from Deutsche Bank represent? ____%
3. Is the current creditor list provided up to date?
YES _____ NO _____ (If not, request updated table)
4. What additional funding or debt issuance do you have in the pipeline? Get names and dates. How is your
relationship with your current creditors?
__________________________________________________________________________________________
__________________________________________________________________________________________
5. Do you intend to eventually mobilize savings?
YES _____ NO _____ If so when? _________
__________________________________________________________________________________________
__________________________________________________________________________________________
6. Do you have a policy to protect clients savings value against inflation? _____________________
31
7. Given that your institution is mobilizing savings, why are you interested in taking out a loan with Deutsche
Bank? Why do you need additional funding? Are you looking for subordinated debt to shore up your
capital base? How much sub-debt do they have? Be sure to ask questions with liability structure in mind?
_______________________________________________________________________________________
_______________________________________________________________________________________

Rating: ______
VII. Market Risk

A. Asset-Liability Management (ALM) / Liquidity Risk Management (CFO or CEO)
1. Do you have liquidity reserves (short term investments for liquidity)? Please describe.
YES _____ NO _____ (this would be more important for institutions that mobilize savings)
2. Where are your liquidity reserves held? _____________________________________________________
3. Has the MFI ever had any liquidity problems? YES _____ NO _____
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Review funding sources, duration and repayment and compare that with the term lengths for the various loan
products that they offer. Ideally, average loan term should be shorter than funding. If not, then discuss with
Management its strategy for matching asset-liability repayment periods.
__________________________________________________________________________________________
__________________________________________________________________________________________
32

Rating: ______
B. Interest Rate Risk Management (CFO or CEO)


Rating: ______
33
C. Foreign Exchange Risk Management (CFO or CEO)

1. Walk through what the MFI described in the loan application with respect to how the MFI handles FX
exposure.
__________________________________________________________________________________________
__________________________________________________________________________________________
2. What is your open FX exposure? {(Borrowing in FC Assets in FC)/Equity} Walk the MFI through the
open FX exposure and compare to DB covenant of 25%. ___________________

Rating: ______
34
VIII. Productivity and Efficiency (CFO or CEO)


Rating: ______
IX. Human Resources (HR Manager)


__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
35
4. If they answered affirmative on job descriptions or criteria defined for the recruitment of new personnel,
review materials used for recruitment. Are the materials comprehensive?
_______________________________________________________________________________________
5. Are the salaries for personnel competitive with other banks and financial institutions?
YES _____ NO _____ How do you know?
_______________________________________________________________________________________
6. Does your compensation program adjust salaries and incentives by position? YES _____ NO _____
7. Do you have a system for evaluation of personnel? YES _____ NO _____
8. How stable are personnel? What is the average tenure of senior management? Of loan officers?
_______________________________________________________________________________________
_______________________________________________________________________________________
9. Do you conduct exit interviews with outgoing employees?
YES _____ NO _____
10. What is the most common reason(s) employees leave your MFI?
_______________________________________________________________________________________
_______________________________________________________________________________________
11. Is management making the necessary changes to attract and retain staff?
_______________________________________________________________________________________
_______________________________________________________________________________________
12. Is there a Board-approved code of ethics that defines organizational values and ethical standards expected for
staff? YES _____ NO _____ If the answer is yes, ask to see the code. (Client Protection Principles
question, Staff Ethical Codes of Conduct)
__________________________________________________________________________________________
__________________________________________________________________________________________
13. Are there staff rules that describe acceptable/unacceptable behavior, reprimands and violations that can result
in employment termination? YES _____ NO _____ If the answer is yes, ask to see a copy of the rules.
(Client Protection Principles question, Staff Ethical Codes of Conduct)
__________________________________________________________________________________________
__________________________________________________________________________________________
14. Do all staff sign annual pledges to follow ethical codes? YES _____ NO _____ If the answer is yes, ask to
see a copy of the pledge. (Client Protection Principles question, Staff Ethical Codes of Conduct)
36
__________________________________________________________________________________________
__________________________________________________________________________________________
15. Do hiring procedures assess employees for compatibility with organizational values and ethics? YES _____
NO _____ (Client Protection Principles question, Staff Ethical Codes of Conduct)
__________________________________________________________________________________________
__________________________________________________________________________________________
16. Are there anti-corruption policies in place, provided to each staff member and enforced by decision-makers?
YES _____ NO _____ If the answer is yes, ask to see a copy of the policies. (Client Protection Principles
question, Staff Ethical Codes of Conduct)
__________________________________________________________________________________________
__________________________________________________________________________________________

Rating: ______
37
X. Management Information Systems (IT Manager)


__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
4. Do you have an adequate computer system (with technical support, internal controls, system audits,
contingency plans, etc.?) YES _____ NO _____ Explain.
_______________________________________________________________________________________
_______________________________________________________________________________________
5. Is there a backup/contingency plan? Please describe it.
_______________________________________________________________________________________
_______________________________________________________________________________________
6. Are transactions in the loan/savings ledgers of clients tied directly to the general ledger? Note: This question
was in the loan application, but is repeated here to confirm with IT. If the MFI has separate systems or is
manual, there is a significant risk of discrepancies between what has been registered on the clients account
and what has been entered into the accounting system.
YES _____ NO _____

Rating: ______
38
XI. Appendix A: Rating Table

Sect.
Component
Rating
I.
MFI Background Information
N/A
II.
Strategy and Business Planning
II. A.
Business & Strategic Planning
II. B.
Competitive Environment
II. C.
Marketing
III.
Social Impact
IV
Governance & Internal Controls
IV. A.
Governance Structure, Board &
Committees
IV. B.
Management
IV. C.
Financial Discipline
IV. D.
Internal Audit
IV. E.
General Internal Controls
IV. F.
External audit
IV. G.
Regulatory Environment
IV. H.
External Rating
V.
Credit Risk Management
V. A.
Underwriting Process
V. B.
Collections Process
V. C.
Loan Loss Reserves, Charge-Offs,
& Recovery Policies
V. D.
Restructuring Process
VI.
Capital Structure
VI. A.
Capital Plans
VI. B.
Debt & Savings
VII.
Market Risk
VII. A.
Asset-Liability Management (ALM)
Liquidity Risk Management
VII. B.
Interest Rate Risk Manaement
VII. C.
Foreign Exchange Risk Mngmnt.
VIII.
Productivity and Efficiency
IX.
Human Resources
X.
MIS
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HEAD OFFICE QUESTIONNAIRE

Microfinance Due Diligence Questionnaire

Name of the Institution.

MFI Background Information........................................................................................................... 1

Guidelines for Using Deutsche Banks Due Diligence Questionnaire

I. MFI Background Information

II. Strategy and Business Planning

5. What are three opportunities that exist for your MFI?

Section Rating & Rationale (Include Loan Application Observations)

C. Marketing (Marketing Manager)

Section Rating & Rationale (Include Loan Application Observations)

III. Social Impact (CEO / Chairman / Board Member)

6. Name of the person(s) being interviewed.

Section Rating & Rationale (Include Loan Application Observations)

IV. Governance and Internal Controls

1. Name of the person(s) being interviewed.

YES _____ NO _____

6. What is the role of the CEO in the Board meetings?

9. How regularly does the Board meet?

Section Rating & Rationale (Include Loan Application Observations)

1. Name of the person(s) being interviewed.

Section Rating & Rationale (Include Loan Application Observations)

C. Financial Discipline / Accounting (Comptroller or Head Accountant)

1. Name of the person(s) being interviewed.

YES _____ NO _____

Section Rating & Rationale (Include Loan Application Observations)

D. Internal Audit (Internal Audit))

1. Name of the person(s) being interviewed.

Section Rating & Rationale (Include Loan Application Observations)

E. General Internal Controls (Internal Audit)

10. Do you have segregation of the following key duties:

YES _____ NO _____

YES _____ NO _____

25. Is there a fire detector and alarm?

YES _____ NO _____

27. Are there instructions on how to proceed in case of an assault?

YES _____ NO _____

YES _____ NO _____

30. Do you cash all checks daily?

YES _____ NO _____

YES _____ NO _____

34. Do you have a code of conduct for employees?

YES _____ NO _____

35. Is the code enforced in practice?

YES _____ NO _____

36. Do you have a client/consumer protection policy?

YES _____ NO _____

37. How often are policies and procedures updated? _______________________________________

Section Rating & Rationale (Include Loan Application Observations)

F. External Audit (CEO / Chairman / Internal Audit)

G. Regulatory Environment (CEO / Chairman)

1. How effective / good do you believe the regulatory environment to be?

H. External Rating (CEO / Chairman)

V. Credit Risk Management

1. Name of the person(s) being interviewed.

Section Rating & Rationale (Include Loan Application Observations)

B. Collections Process (Head Loan Officer)

Section Rating & Rationale (Include Loan Application Observations)

Section Rating & Rationale (Include Loan Application Observations)

D. Restructuring Process (Head Loan Officer)

Section Rating & Rationale (Include Loan Application Observations)

VI. Capital Structure

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _

YES _ NO _ (If not, request updated table)

YES ___ NO _ If so when? _______

YES _ NO _

YES _ NO _