New STAR

Risk Rating
Model

August,
2010
Kiva’s STAR Risk Rating Model
What does the STAR Rating measure?
 The Kiva STAR Rating is a measure of institutional
risk or the risk of the Field Partner defaulting.

 The Kiva STAR Rating does not give an indication of

whether individual borrowers will default.
• The Kiva delinquency rate and the Kiva default rate have
no impact on the rating since they do not indicate when an
MFI is about to default. 
• Conversely, the credit quality of the MFI’s total portfolio is
included in the risk rating since it is an indication of its
probability of defaulting.

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Kiva’s STAR Risk Rating Model
Developed in 2010 based on Kiva’s experience
in working with Microfinance Institutions in
over 50 countries

Comprised of
 10 Global Categories with,
 38 Variables and
 Specific sub-variables with assigned risk
weightings of 1 to 5 for each Variable

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Kiva Risk Rating Model – 10 Categories

Transparency Board

MIS and Controls Management

Capital Star Rating Model Staff

Liquidity Planning

Earnings Financial Audit

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Categories with associated Variables

Board Management Staff Planning Audit

 Qualifications  Qualifications  Staff Resources  Process  Audit Result

 Track Record  Track Record  HR Management  Quality  Audit Confidence
 Structure  Structure  Funding Gaps
 Reputation  Reputation

Earnings Liquidity Capital MIS and Controls Transparency

 Operational Self  Current Ratio  Gross Loan Portfolio  Internal Audit  Funder Oversight
Sufficiency  Leverage Ratio  Internal Audit Quality
 Cash Flow Planning  Regulatory Oversight
 Risk Coverage Ratio  Portfolio Divers.  Quality of internal
 Sustainability of  Micro Finance Rating
 Operating Expense Funding Sources Controls Review
 FX Gap
Ratio  MIS Quality
 FX Hedging Policies  Association
 MIS Reports
 Asset Quality  Network
Indicator  MIS Usability

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Board of Directors
1. Qualifications – backgrounds and skills of
Board members including whether there is
microfinance experience.
2. Track Record – level of engagement in
governance of the MFI.
3. Structure – existence of regular meetings
and whether there are conflicts of interest.
4. Reputation – Board can garner external
support for the MFI.

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Management
1. Qualifications – backgrounds and skills of
the MFI Management.
2. Track Record – ability of MFI Management to
address vulnerabilities and meet objectives.
3. Structure – adequacy of management team
structure, the existence of key person risk and
whether there are conflicts of interest.
4. Reputation – Management can garner
external support for the MFI.

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Staff
1. Staff Resources – staff has adequate skill
levels, does not show excessive turnover and
the organization is not under-staffed.

2. Human Resource Management – existence

of sound compensation and incentive
mechanisms as well as staff development
activities.

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Planning Activities
1. Planning Process – existence of a strategic
plan and how it is developed.
2. Planning Quality – the credibility of the
strategic plan and its extensiveness in dealing
with external factors and known
contingencies.
3. Planning Funding – the plan identifies
possible funding gaps with sources of funding
identified or contingency plans developed.

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Audit Review
1. Audit Result – whether the audited financial
statements are unqualified or not
2. Audit Confidence –whether the external
audit firm has microfinance experience and
the quality of the audited financial statement’s
footnotes.
 Please note that the audit score serves as a
cap for the next three scores that are based
on the financial statements

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Earnings
1. Operating Self Sufficiency – Operating
Revenue / (Operating Expense, Financing
Cost and Bad Debt Expense).
2. Risk Coverage Ratio – Loan Loss Reserve
divided by the level of Portfolio at Risk over
30 days (PAR30).
3. Operating Expense Ratio – Operating
Expenses / Average Gross Loan Portfolio.

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Liquidity
1. Current Ratio – Current Assets / Current
Liabilities.

2. Cashflow Planning – the extent to which the

MFI forecasts its cash position throughout a
year.

3. Sustainability of Funding – whether the

organization can replace funding if Kiva were
to halt operations with the MFI.

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Leverage
1. GLP Size – size of gross loan portfolio.
2. Leverage Ratio – Total Liabilities / Equity.
3. Portfolio Diversification – concentration
levels in any region or activity.
4. FX Gap – Foreign Exchange Gap or
difference between assets and liabilities in
foreign currency.
5. FX Hedging – how FX risk is managed.
6. Asset Quality Indicator – Write-offs during
year plus level of PAR30.
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Internal Controls and MIS
1. Internal Audit Structure – existence of
internal audit function and autonomy.
2. Internal Audit Quality – the function has
sufficient resources and sound procedures.
3. Quality of Internal Controls – clear control
mechanisms and sound cash management.
4. MIS Quality – the soundness of MIS
5. MIS Reports – quality / frequency of reports
6. MIS Usability – the ease of MIS use and
existence of appropriate backups.
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Transparency
1. Funder Oversight – existence of other
funding sources and their potential oversight
2. Regulatory Oversight – existence of strong
local regulatory authority for the MFI
3. Rating Reviews – extent to which MFI has
gotten external ratings.
4. Association – relation with a local
microfinance association and the extent of
advocacy and quality of information shared.
5. Network – whether the MFI is part of an
international network that provides support..
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