Portfolio Analysis Manual Sample Pages

MODULE 4. PORTFOLIO ANALYSIS Steps towards an optimized EduFinance portfolio

1

CONTENTS Level 1: CEO EdPack ............................................................................................................ 3 I. Standard Dashboard | Executive Summary ................................................................ 5 II. Standard Dashboard | Active Graphical Summary .................................................. 6 III. Standard Dashboard | Sales Summary ...................................................................... 6 IV. Standard Dashboard | Risk Summary ....................................................................... 8 V. Standard Dashboard | Graphical Cumulative Summary ...................................... 10 VI. Optional Dashboard | Profitability ............................................................................. 11 VII. Optional Dashboard | SWOT Analysis ................................................................... 12 Level 2: Customised Productivity Analysis ...................................................................13 VIII. Productivity Analysis...................................................................................................13 Level 3: Risk Management ................................................................................................14 X. Risk Adjusted Pricing (RAP) in Credit ....................................................................... 15 Level 4: Social Performance Management (SPM) ....................................................... 17 XI. Dashboard | Social Impact .......................................................................................... 17 What it Takes to Get Started .......................................................................................... 20

FIGURES Figure 1. EduFinance Overview .................................................................................................... 3 Figure 2. Executive Summary ....................................................................................................... 5 Figure 3. Constant vs Current Dollar Reporting ................................................................... 6 Figure 4. Sales Summary ................................................................................................................ 7 Figure 5. PAR>30 ................................................................................................................................ 8 Figure 6. Year-on-Year PAR>30 .................................................................................................. 9 Figure 7. PAR Ladder ........................................................................................................................ 9 Figure 8. PAR Distribution ............................................................................................................... 10 Figure 9. Cumulative Disbursements ..................................................................................... 10 Figure 10. Contribution to Overheads .................................................................................... 11 Figure 11. Sustainability over Time ........................................................................................... 12 Figure 12. Bankwide Productivity ............................................................................................. 13 Figure 13. Individual Productivity .............................................................................................. 13 Figure 14. RO Productivity Table .............................................................................................. 14 Figure 15 Identifying Common Characteristics Driving Risk ....................................... 14 Figure 16 Risk Adjusted Pricing ................................................................................................. 15 Figure 17 Expected Loss Calculation ...................................................................................... 16 Figure 18 Enhancing the Credit Process ............................................................................... 16 Figure 19 Simple Pricing Tool .................................................................................................... 17 Figure 20 Expected Trends in Enrolment ............................................................................ 17 Figure 21. Cumulative Child Impact ......................................................................................... 18 Figure 22. Social Impact Metrics .............................................................................................. 18

2

Module 4: Portfolio Analysis

Level 1: CEO EdPack Introduction Opportunity International’s (OI) partner financial institutions (FIs) play an important role in helping students, families and communities overcome barriers to high quality education. Through a variety of EduFinance products, including school improvement loans (SIL), school fee loans (SFL), and tertiary tuition loans (TTL), partner banks enable the establishment of quality schools, infrastructure improvement, and the expansion of educational opportunities.

Figure 1. EduFinance Overview

As illustrated in Figure 1, OI’s EduFinance program is operating in 20 countries through 38 partner FIs. Since its inception, the program has disbursed close to 250,000 loans,

3

Portfolio Analysis Handbook

valued at over $209 million dollars. Such efforts are estimated to have have benefitted over 3.4 million children by providing them with access to quality education.

In order to continue providing their services, OI’s partner banks – like all businesses – must ensure their financial viability. Regularly monitoring and measuring business performance is therefore essential. Consistent and reliable data can aid such efforts by providing insights into partner FIs’ financial health and social outreach. While data is one of the most valuable assets that any business can have, transforming that data into meaningful business intelligence can often be tedious, time-consuming and expensive.

Recognizing the value of timely business intelligence, OI’s EduFinance team has invested in a data management system that harnesses the power of cloud-based technology and automated data analytics to generate monthly information packages for partner FIs – also known as “EdPacks.” These EdPacks are designed to provide partner bank managers with information about their businesses in a way that is accurate, accessible and easy to understand. OI anticipates that EdPacks will serve as a valuable tool in improving partner banks’ portfolio management and overall performance.

The Business Case for EdPacks In the past, OI and its partner FIs relied on a manual system for data processing and analysis, resulting in a cumbersome and time-consuming Excel workbook. To remove the bottlenecks to efficient business reporting, OI invested in a data management system that connects the Excel workbook to Microsoft’s Azure SQL database for secure, reliable and efficient data analysis. The analysis generated by the database is then presented in the form of various dashboards that comprise the EdPack.

OI first rolled out EdPacks in early 2014 using data that had been collected from partner banks for over two years. Since then, the EduFinance team has been incrementally finetuning the EdPacks to provide partners with better data-driven insight. The current version of the EdPacks is the culmination of an iterative process that included partners’ user-driven feedback and validation.

The EdPack is a powerful tool, with the following main features: •

Insightful data visualization: By consolidating, arranging and presenting key business metrics in graphical presentation (e.g. charts and graphs), dashboards transform complex information into digestible pieces. This allows bank managers to instantaneously absorb information, rather than having to sift through hundreds (or thousands) of data points. Moreover, these dashboards are not designed to just summarise data; by presenting data that is segmented, contextualised and trended over time, EduPack dashboards provide compelling and actionable insights.

•

Real-time 1 accurate information: Because OI partner banks’ data is fully integrated with the cloud-based data management system, dashboards

1

“Real-time” information does not mean always mean occurring immediately, but can be understood as information that is made available in a relatively short and within a relevant timeframe that allows action to be taken in response. See more at UN Global Pulse (2012). Big Data for Development: Challenges and Opportunities. http://www.unglobalpulse.org/sites/default/files/BigDataforDevelopmentUNGlobalPulseJune2012.pdf

4

Portfolio Analysis Handbook

continuously self-update as more raw data gets input. Automated computations reduce human error, providing the assurance of objective, up-to-date information in all EduPacks.

•

Empowered decision-making: Well-designed dashboards do not only serve as a snapshot of banks’ business performance, but are linked to their strategic goals and visions. By showcasing trends, risks and projections, the contents in the EduPacks help partner banks stay to be both proactive and empowered in their portfolio management.

EdPack Overview

The purpose of this manual is to articulate the various components of the EdPack, so as to ensure that accurate conclusions are drawn from the dashboards. The structure of this manual is aligned with that of the EdPacks. It is divided into 9 sections which correspond to each of the 6 standard dashboards available in all EdPacks, in addition to three optional dashboards: I. II. III. IV. V. VI. VII. VIII. IX.

Executive Summary Active Graphical Summary Sales Summary Risk Summary Graphical Cumulative Summary Social Impact Summary Profitability Summary (optional) SWOT Analysis (optional) Productivity Summary (optional)

I. Standard Dashboard | Executive Summary

This dashboard features key charts and graphs that allows the audience to get an instantaneous snapshot of the FI’s overall portfolio. It also features a short, written analysis of the FI’s business performance (See Figure 2. Executive Summary).

Figure 2. Executive Summary

5

Portfolio Analysis Handbook

Level 2: Customised Productivity Analysis Introduction The CEO EdPack provides high level insights and information regarding portfolio size, health and productivity. However, to gain a better understanding of the data and what is driving these outputs, Opportunity International’s (OI) partner financial institutions (FIs) can dig deeper, using transaction level data. The individual loan listings from FIs enable EduFinance to identify the most productive loan officers, branches, regions for each product. The use of historical trend analysis can identify whether or not training courses are successful, if product redesign are having a positive effect on risk or the impact of the Education Quality program on levels of risk.

VIII. Productivity Analysis

The Productivity Analysis dashboard provides a summary of the sales performed by Relationship Officers (ROs) and individual branches, which are measured against their active portfolio values, monthly sales volumes and values, and profitability. It allows partner bank CEOs to view their employees’ work efficiency and performance on an aggregate and individual basis. It is important to highlight here that in order for such analysis to occur, partner banks will be required to share their most sensitive information – their banking system data and loan listings. Sensitive details, such as client information can be easily removed prior to sending. The first section of the dashboard provides the bank’s total portfolio productivity (see Figure 12).

Figure 12. Bankwide Productivity

In the second section, individual productivity and profitability data of the ROs are provided (see Figure 13).

Figure 13. Individual Productivity

13

Portfolio Analysis Handbook

mission. As such, the Social Impact Dashboard provides a snapshot of some the immediate and quantifiable effects of the EduFinance efforts on target communities.

Indicators include the number of children enrolled in schools, school improvement (including number of seats created), proprietors trained, estimated job creation (full-time school jobs, part-time school jobs, and related community jobs), as well as the number of Edusave accounts (see Figure 21 and Figure 22).

It is important to remember that the indicators shown are proxies, and that the figures are estimates. This is because the true social impact of the EduFinance initiative is farreaching with many multiplier effects, and therefore can only be fully captured through a more comprehensive evaluation. The dashboard is nonetheless illuminating and provides an understanding of the breadth of the each FI’s social outreach.

Figure 21. Cumulative Child Impact

Figure 22. Social Impact Metrics

In addition to providing specific impact metrics on EduFinance, Opportunity EduFinance can provide a dashboard that demonstrates the partner FIs impact

18

Portfolio Analysis Handbook

What it Takes to Get Started Level 1: CEO EdPack On a monthly basis, the Data and Business Intelligence team will send the designated contact at a partner FI a reminder that they are collecting that month’s portfolio snapshot.

The template requires simply the following statistics: - Value outstanding (in local currency) - Volume outstanding - Value sold that month (in local currency) - Volume sold that month - PAR>1, 30, 90, 180 (in local currency) - Total FI loan portfolio outstanding value (in local currency) The template is filled in and returned to EduFinance by the 5th of each calendar month and the final reports are published no later than the 15th of each calendar month.

Repeating this process over time enables much greater detailed analysis.

Cost: Free of Charge

Level 2: Customised Productivity Analysis

On a frequency determined between FI and Opportunity EduFinance, the Data and Business Intelligence team will send the designated contact at a partner FI a reminder that they are collecting that month’s data extract. The partner FI must remove any sensitive data that is not intended to be shared priort to sending. The analysis can be conducted and turned around within a matter of days.

Cost: Free of Charge

Level 3: Risk Management

The typical Risk Management module can consist of 1-4 steps.

- Initial desktop assessment of the loan portfolio. Analysis of the portfolio extracts will enable the isolation of key risk factors that are driving changes in the EL of the portfolio. Duration: 1-2 weeks, off-site.

- Funding cost evaluation: Factoring in the building blocks of a uniform pricing analysis, EduFinance can help determine the required interest rates for bank profitability. Duration: c. 1 week on-site.

- Risk Adjusted Pricing Model: Depending on the starting point for the bank EduFinance will work with the FI to determine the impact that various elements of client behaviour have on loan repayment. With this, a Risk Adjusted Pricing model will be delivered, allowing the FI to give loans at lower interest rates to higher quality customers. Duration: 2-4 week assignment, partly on-site at the FI. Cost: Varies by FI

Level 4: Social Performance Management (SPM)

Following an initial call to determine which factors of SPM are most important to management, EduFinance will create a template report for the FI. Following this, the Data and Business Intelligence team will send the designated contact at the partner FI a reminder that they are collecting that month’s portfolio snapshot. The report can be produced alongside the CEO EdPack or at a less frequent interval if desired.

Cost: Free of Charge, but can vary by FI

20