1. 2nd European Microfinance Conference 2005
WORKSHOP
« Scoring or not scoring your clients? »
Barcelona 27 October 2005

2. Rating and scoring – Experiences of Finnvera Plc EMN Micro Credit Seminar Barcelona, October 27, 2005 Ilpo Jokinen

3. State-owned specialised financing company
Finnvera plc
State-owned specialised financing company
Loans, Guarantees and Export Guarantees
27,100 clients
outstanding commitments as at 30 June 2005
export credit guarantees and special guarantees ca. EUR 4,8 billion
credits and domestic guarantees ca. EUR 2,2 billion
personnel 409
Oulu
Kuopio
Rovaniemi
Kajaani
Seinäjoki
Jyväskylä
Mikkeli
Tampere
Lahti
Turku
Regional office
Head and regional office
Vaasa
Joensuu
Pori
Lappeenranta
Helsinki & Uusimaa

4. Business/corporate analysis
Business analysis is a process that evaluates the profitability and the future outlooks of an enterprise
Business analysis gives basis for
financing decisions
risk assessment
Analysis is summarised in a written business analysis report and after that in a risk rating-symbol
The scope and depth of an analysis depends on the size and investment, risks and development stage of a company

5. Business analysis and rating
In its original form the business analysis report was supposed to come to the conclusion about the financial viability of the applicant
a kind of yes/no-judgement had to be made
The implementation of rating has brought there an new aspect: it has become necessary to also rank yes-applicants in a way or other
Risk classification (A, B1, B2, B3, C)
good enough points will lead to positive credit decision
Rating was implemented in the beginning of 1990’s after the deep recession, when it came obvious to be able to monitor the risk level of the portfolio

6. Basic elements of rating in Finnvera
Rating is based on business analyses and assessment of rating factors
qualitative analyses
quantitative analysis (financial statements)
Assessment of rating factors
rational thinking: factors favourable to the success of a company and factors harmful to success
Management skills, market position, competitiveness, product development, etc
”Mechanical” rating, which controls the functionality of the system

7. Rating process -after the business analysis
Business analysis report
Assessment of company’s
management
ownership & structure of company
key persons & organisation
business
industry, products, customers
marketing, competitiveness
technology
financial analyses
profitability
cash flow
capital structure
Weights and points for rating “tool”

8. Rating “tool” (prototype of the model)

9. Rating and scoring - similarities
In a rating process business analyst gives points 1 – 5 for several characters of an entrepreneur and a company
management skills, organization
In a small company entrepreneur = management
products or services, market focus
financials and capital structure
Finnvera normally grants financing companies obtaining classification B2, special cases also to B3
Risk classification helps to direct financing for acceptable projects and makes it possible to set targets for risk level

10. Risk classes in 2000’s (1) “Investment grade”

11. Finnvera’s rating in 2000’s (2) “Speculative grade”

12. One-year default rate, yearly measurements 1991 - 2004
Average

13. One-year ”default” rate - average of 13 year’s quarterly measurements

14. Utilisation of rating Pricing (risk premium)
Delegation of financial decisions
Measurement of risk in financial decisions
Follow-up of client behaviour
transition matrixes: how the clients are behaving on the rating scale in general (upwards/downwards/stable)