Tana MFI Branch Grading System

Branch Grading System at Tana Microfinance Institution (Tana MFI)

A Research-Based Branch Evaluation Document

Prepared by: Team

Institution: Tana Microfinance Institution

Date: April 2025

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 Tana MFI Branch Grading System

Table of Contents

Table of Contents
Executive Summary..................................................................................................................................................... 4
Introduction.................................................................................................................................................................. 5
Statement of the Problem....................................................................................................................................... 5
Objectives....................................................................................................................................................................... 5
Scope of the Study...................................................................................................................................................... 5
Limitations of the Study...........................................................................................................................................5
Comparative Practices from Other MFIs..........................................................................................................6
Dynamic Microfinance Institution Overview.............................................................................................6
Metemamen Microfinance Institution (MMFI).........................................................................................7
Lieyu Microfinance Institution.........................................................................................................................8
Peace Microfinance Institution (PEACE MFI).........................................................................................10
Harbu Microfinance Institution....................................................................................................................11
Eshet Microfinance Institution......................................................................................................................12
Methodology.............................................................................................................................................................. 12
Benefits of Branch Grading..................................................................................................................................12
Discussion................................................................................................................................................................... 13
Conclusion................................................................................................................................................................... 13
Recommendations...................................................................................................................................................14
References................................................................................................................................................................... 15
Appendices.................................................................................................................................................................. 16

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 Tana MFI Branch Grading System

List of Acronyms

MFI: Microfinance Institution

Tana MFI: Tana Microfinance Institution

KPI: Key Performance Indicator

PAR: Portfolio at Risk

DMFI: Dynamic Microfinance Institution

MMFI: Metemamen Microfinance Institution

LMFI: Lieyu Microfinance Institution

PEACE MFI: Peace Microfinance Institution

NPL: Non-Performing Loan

CSO: Customer Service Officer

HO: Head Office

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Executive Summary
This research document presents a comprehensive analysis of the Branch Grading System
employed by Tana Microfinance Institution (Tana MFI). Designed to strengthen
performance accountability and strategic decision-making, the grading system evaluates
branches using five core Key Performance Indicators (KPIs). Two models—the Full
Criteria Success Model and the Weighted Rating Model—provide a balanced framework
for branch assessment.

Key findings highlight the system's ability to align employee motivation with institutional
goals, promote transparency, and foster data-driven management. Comparative analysis
with other Ethiopian MFIs confirms that Tana MFI is aligned with national best practices.
The study concludes with actionable recommendations, including system automation,
enhanced training, and periodic benchmarking, to ensure sustainable operational
improvements.

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Introduction
Tana Microfinance Institution (Tana MFI) is a reputable financial organization that plays
a critical role in promoting financial inclusion across rural and semi-urban regions. With
an expanding network of branches, the institution faces the need to systematically assess
and enhance branch-level performance. This research document investigates the Branch
Grading System implemented at Tana MFI, detailing its strategic framework, operational
methodology, and impacts on both staff performance and institutional development.

Statement of the Problem

As the number of branches in microfinance institutions grows, ensuring consistent and
measurable performance across geographically dispersed units becomes increasingly
difficult. Without a standardized grading system, management may struggle to identify
high and low-performing branches, misallocate resources, or make uninformed strategic
decisions. This inconsistency can hinder organizational efficiency, limit outreach efforts,
and affect overall institutional sustainability.

Objectives
The branch grading system is introduced with several key objectives:

 To provide a standardized framework for evaluating branch performance.

 To ensure transparency and fairness in performance assessments.
 To motivate branches to achieve higher service quality and efficiency.
 To support strategic planning and informed decision-making by management.

Scope of the Study

This study focuses on all active branches under Tana MFI’s operational jurisdiction. It
includes the evaluation of financial, operational, compliance, and outreach indicators.
The study covers internal documentation review, branch-level performance data analysis,
and comparative assessments with selected microfinance institutions in Ethiopia.

Limitations of the Study

Data availability and consistency varied across branches, limiting comprehensive bench-
marking.

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Peer institutions provided limited access to proprietary methodologies, requiring reliance

on secondary sources.

The grading framework is developed under current organizational capacity, and

implementation success may depend on future system enhancements and staff readiness.

Comparative Practices from Other MFIs

Common grading criteria

Number of Depositors, Average Net Savings (ETB), Active Clients, Loan Portfolio
(ETB) and Portfolio at Risk (PAR)

Based on assessments from six other MFIs located in Addis Ababa, several patterns
emerge:

 Most MFIs implement hybrid models combining full-criteria and weighted

ratings.
 Peer institutions emphasize consistent performance, with strict treatment of high
PAR levels.
 Integration of grading with HR decisions is becoming standard in the sector.
 Bench marking against regional/national peers is vital to remain competitive.
 Integration with HR systems ensures grading impacts staffing decisions,
promotions, and capacity-building programs.
 Portfolio at Risk (PAR) should be evaluated excluding loans disbursed within 30
days to reduce distortion.
 Regular training and recalibration of grading models is necessary as the institution
scales or diversifies services

Dynamic Microfinance Institution Overview

Dynamic Microfinance Institution (DMFI) was established in 2001 E.C. It operates
across three major regions in Ethiopia: Amhara, Addis Ababa, and Oromiya. The
institution currently has 32 branches and operates with a capital base of over 82 million
birr. To effectively manage performance and operations, DMFI has implemented a
branch grading system.

According to the latest grading results based on the dynamic grading system, DMFI has
categorized its branches as follows:
- Three branches are classified as Grade 3 (Medium Branch)
- Eight branches are classified as Grade 2 (Lower Branch)

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- The remaining branches fall under Grade 1 (Satellite Branch)

All branches currently operate under one district management structure.

Dynamic Grading System Summary

Branch Voluntary Active Outstanding Loan Yearly Avg. PAR > Branch Type
Grade Depositors Borrowers (NPL>90 days) Voluntary 90 Days
Saving

Grade I Up to 1,500 Up to 120 Up to 10,000,000 Up to < 3% Satellite Branch

2,000,000

Grade II 1,501 - 2,500 121 – 250 10M - 25M 2M - 4M < 3% Lower Branch

Grade III 2,501 - 4,000 251 – 350 25M - 40M 4M - 7M < 3% Medium Branch

Grade IV Above 4,000 Above 350 Above 40M Above 7M < 3% Higher Branch

Metemamen Microfinance Institution (MMFI)

Operating in Addis Ababa, Metemamen MFI is recognized for its commitment to

providing financial services to underserved communities. Although detailed information
about their branch grading criteria is limited, MMFI's focus on client outreach and
financial inclusion implies the use of performance indicators to assess branch
effectiveness.

Grading System Overview

The MFI (Microfinance Institution) Branch Grading System is a structured framework

designed to categorize branches based on their performance indicators. These indicators
include the number of active clients, savers, borrowers, loan outstanding, saving balance,
and portfolio at risk (PAR) under 30 days. Each branch is assigned a grade level and
corresponding job grade, which helps in determining the appropriate level of
management and resources required.

Benefits of the Grading System

- Ensures uniform performance assessment across branches.

- Aids in better human resource allocation based on branch performance.
- Supports decision-making in branch upgrades or restructuring.
- Encourages competition and performance improvement among branches.
- Enables targeted support to underperforming branches.
Branch Grading Table

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N Branch Job Manager’s Locate Active Active Active Loan Saving PAR<30
o Grade Level Grad Position d on Clients Savers Borrowe Outstanding Balance Days
e rs

1 Sub-Branch III Senior CSO or Rural <800 <1000 <1000 <5 million <2.5 million >3%
CSO

2 Branch X Branch Manager Urban <1200 <1500 <1200 <10 million <5 million >3%
Manager IV IV

Rural <1000 <1200 <1000 <8 million <4 million >3%

3 Branch XI Branch Manager Urban <2500 <2800 <2500 <20 million <10 million >3%
Manager III III

Rural <2000 <2500 <2000 <16 million <8 million >3%

4 Branch XII Branch Manager Urban <3600 <5600 <3600 <45 million <24 million >3%
Manager II II

5 Branch XIII Branch Manager Rural <2800 <3600 <2800 <36 million <20 million >3%
Manager I I
Urban <5200 <8000 <5200 <65 million <36 million >3%

Rural <4200 <6500 <4200 <52 million <30 million >3%

Lieyu Microfinance Institution

Information regarding Lieyu MFI's branch grading practices is scarce. However, as a

microfinance institution operating within Ethiopia's regulatory framework, it is likely that
they employ standard performance metrics to evaluate branch operations, aligning with
industry norms.

Liyu MFI aged about 28 years ago by know activated by 3 Regions with 30 Branches in
Amahara, Oromia and Addis Ababa region having 1.6 billion outstanding loan with
bellow 3% of PAR.

The orography of LMFI Head office, Region, Branch and 11saving facility satellite
offices. The Mfi affiliated by NGO.

The Region hand over the activities of branches from planning up to implementing the
performance of Branches and evaluated employees. The HO focused on strategic issues
and highly capacitated by technology. Authorization of loan based on the delegation by
Branch and region and by HO based on their authorization.

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In Liyu Microfinance, the grading of branches is typically based on several key

performance indicators (KPIs) and operational metrics. While the exact criteria may vary
depending on the institution's policies, common factors include:
1. Financial Performance

 Loan Portfolio Quality (e.g., PAR >30, PAR >90 days)

 Profitability (Net income, revenue growth)
 Loan Disbursement Volume (Total loans issued)
 Repayment Rate (On-time repayment percentage)
 Cost Efficiency (Operational cost vs. revenue)

2. Operational Efficiency

 Customer Turnaround Time (Speed of loan processing)

 Staff Productivity (Loans per loan officer)
 Compliance with Policies (Adherence to lending procedures)
 Fraud & Risk Management (Cases of defaults due to fraud)

3. Customer Service & Outreach

 Client Satisfaction Scores (Feedback from borrowers)

 Number of Active Clients (Customer retention & growth)
 Market Penetration (Expansion in underserved areas)

4. Compliance & Reporting

 Regulatory Compliance (Meeting central bank/FI requirements)

 Timely Reporting (Submission of financial & operational reports)
 Audit Results (Internal/external audit findings)

5. Growth & Innovation

 New Product Adoption (Introduction of new loan products)

 Digital Transformation (Use of fintech solutions)
 Branch Expansion (Opening new sub-branches if applicable)

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Grading Scale (Example)

Branches may be classified as:

 Grade A (Excellent) – Exceeds all targets, high profitability, low PAR.

 Grade B (Good) – Meets most KPIs with minor issues.
 Grade C (Average) – Requires improvement in key areas.
 Grade D (Poor) – Underperforming, needs urgent intervention.

Peace Microfinance Institution (PEACE MFI)

Established in November 1999, PEACE Microfinance S.C. operates 32 branches across

Ethiopia, utilizing a core banking system to connect its branches with the head office.
The institution focuses on providing financial services to rural farmers and small-scale
entrepreneurs, with a majority of clients being women. PEACE MFI offers both
agricultural and non-agricultural loans, with annual lending rates of 18% and 15%
respectively. While specific branch grading systems are not publicly detailed, the
institution's structured loan products and client eligibility requirements indicate a
systematic approach to evaluating branch performance.

Branch Grading Table

Branch Grade Job Manager’s Located Active Active Active Loan PAR<3
No Saving Balance
Level Grade Position on Clients Savers Borrowers Outstanding 0 Days

Senior CSO
1 Sub-Branch III Rural <800 <1000 <1000 <5 million <2.5 million >3%
or CSO

Branch Branch
2 X Urban <1200 <1500 <1200 <10 million <5 million >3%
Manager IV Manager IV

Rural <1000 <1200 <1000 <8 million <4 million >3%

Branch Branch
3 XI Urban <2500 <2800 <2500 <20 million <10 million >3%
Manager III Manager III

Rural <2000 <2500 <2000 <16 million <8 million >3%

Branch Branch
4 XII Urban <3600 <5600 <3600 <45 million <24 million >3%
Manager II Manager II

Rural <2800 <3600 <2800 <36 million <20 million >3%

5 Branch XIII Branch Urban <5200 <8000 <5200 <65 million <36 million >3%

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 Tana MFI Branch Grading System

Branch Grade Job Manager’s Located Active Active Active Loan PAR<3
No Saving Balance
Level Grade Position on Clients Savers Borrowers Outstanding 0 Days

Manager I Manager I

Rural <4200 <6500 <4200 <52 million <30 million >3%

Harbu Microfinance Institution

Based in Addis Ababa, Harbu MFI is dedicated to providing financial services to low-
income individuals. While explicit information about their branch grading system is not
found, Harbu MFI's operational focus suggests the implementation of performance
assessments to ensure service quality and efficiency.

Branch Grade Job Manager’s Located Active Active Active Loan PAR<30
No Saving Balance
Level Grade Position on Clients Savers Borrowers Outstanding Days

Senior CSO
1 Sub-Branch III Rural <500 <1000 <500 <5 million <2.5 million >3%
or CSO

Branch Branch
2 X Urban <800 <800 <1200 <8 million <4 million >3%
Manager IV Manager IV

Rural <1000 <1200 <1000 <7 million <3 million >3%

Branch Branch
3 XI Urban <1500 <1800 <1500 <15 million <8 million >3%
Manager III Manager III

Rural <1000 <1500 <1000 <12 million <7 million >3%

Branch Branch
4 XII Urban <3600 <5600 <3600 <45 million <24 million >3%
Manager II Manager II

Rural <2800 <3600 <2800 <36 million <20 million >3%

Branch Branch
5 XIII Urban <5200 <8000 <5200 <65 million <36 million >3%
Manager I Manager I

Rural <4200 <6500 <4200 <52 million <30 million >3%

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Eshet Microfinance Institution

Established in March 2000, Eshet MFI operates primarily in the Oromia Regional State,
offering various loan products, including six-month, nine-month, and annual loans, with
an annual lending rate of 24%. Eshet MFI serves both urban and rural clients,
emphasizing group guarantees over physical collateral. Although specific branch grading
criteria are not detailed, Eshet MFI's structured loan products and client eligibility
requirements indicate a systematic approach to evaluating branch performance.

Generally Eshet Mfi branch grading system criteria mainly depend on the amount of
portfolio and branch profitability.

Methodology
The grading system utilizes both qualitative and quantitative criteria. Five primary Key
Performance Indicators

Indicators (KPIs) serve as the foundation of the grading model:

1. Number of Depositors
2. Average Net Savings
3. Number of Active Clients
4. Outstanding Loan Portfolio
5. Portfolio at Risk (PAR)

Two major approaches are employed for calculating scores:

1. The Full Criteria Success Model: This requires a branch to meet all thresholds to
qualify for a specific grade.
2. The Weighted Rating Model: Each KPI is individually scored, and the sum of
these scores is compared against the 100% benchmark.

Benefits of Branch Grading

A. For Employees:

 Employees are given a clear understanding of performance expectations.

 Opportunities for recognition and career growth are linked to tangible results.
 It cultivates a culture of healthy competition and self-improvement.

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B. For Management:

 Facilitates the identification of high-performing branches.

 Assists in allocating resources efficiently.
 Enhances accountability and operational control.

Discussion
The implementation of the grading system offers insights into performance trends and
gaps. Analysis suggests that branches often fluctuate between grades based on seasonal
factors and local economic conditions. Therefore, a consistent six-month performance
rule is necessary for grade changes to avoid volatility-driven miscalculation.

Moreover, excluding recent disbursement data from PAR calculations enhances the
reliability of portfolio health assessments.

Conclusion
The branch grading system at Tana MFI is an essential instrument for operational
excellence. It not only promotes transparency and fairness, but also provides a structured
mechanism for capacity-building at the branch level.

When consistently applied, this system will significantly contribute to sustainable growth
and customer satisfaction.

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Recommendations
 Automate performance tracking dashboards.
 Cross-train branch managers on grading metrics.
 Conduct quarterly reviews and feedback loops.
 Link grading outcomes with incentive structures.
 Benchmark periodically against national and regional MFIs.

This grading Criteria and Standards may meet to our institution

The grading standards are detailed as follows:

KPI Grade 1 Grade 2 Grade 3

Number of 0 – 1,500 1,501 – 2,500 4,000 and above

Depositors

Average Net 0 – 10,000,000 10M – 17M 25M and above

Savings (ETB)

Active Clients 0 – 120 121 – 250 Above 400

| Loan Portfolio 0 – 18,000,000 18M – 25M 45M and above

(ETB)

Portfolio at Risk ≤ 5% ≤ 4% ≤ 3%
(PAR)

Promotion/Demotion Logic:

o ≥ 85% score results in Grade 2.

o ≥ 90% score results in Grade 3.
o Grade 2 demotion occurs if the score drops below 75%.
o Grade 3 demotion occurs if the score drops below 85%.

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Annual Examination Schedule:

The branch grading examination should be conducted once a year to ensure sufficient
time for performance monitoring, support, and corrective action. This timing provides a
more stable and meaningful evaluation compared to frequent reviews.

Performance Consistency Requirement:

For a branch to be eligible for promotion in grade, it must demonstrate consistent
performance for at least two consecutive quarters within the evaluation year. This ensures
that improvements are sustained and not the result of temporary fluctuations or short-term
efforts.

Clarification on KPI – Saving Indicator:

The key indicator for savings should continue to be the average net balance, which
accurately reflects the stability and depth of client savings behavior rather than temporary
spikes. This metric aligns well with assessing a branch’s long-term financial relationship
with its clients.

Beneficiaries of Grade Promotion:

When a branch's grade is promoted based on performance, only employees who have
served for at least six months at the time of evaluation shall benefit from the related
incentives, recognition, or rewards. This rule ensures that benefits are tied to consistent
contributions and discourages opportunistic timing of hires.

References
 Tana Microfinance Institution Internal Grading Manual.
 Microfinance Institution Best Practices – Addis Ababa Consortium Report.
 Ethiopian National Financial Inclusion Strategy 2022.
 All MFI organizational structure under study.

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Appendices
Appendix A – Scoring Summary Table:
Grade 2: Score ≥ 85%
Grade 3: Score ≥ 90%
Grade 2 demotion: < 75%
Grade 3 demotion: < 85%

 Grade 2: Score ≥ 85%

 Grade 3: Score ≥ 90%
 Grade 2 demotion: < 75%
 Grade 3 demotion: < 85%

Appendix B – Scoring Example (Simulated):

Branch: XYZ
- Depositors: 2,100
- Avg. Net Savings: 12M ETB
- Active Clients: 230
- Loan Portfolio: 22M ETB
- PAR: 2.8%
=> Weighted Score: 87% → Grade 2

Appendix C – Staff Eligibility Clause for Promotion/Demotion:

- Staff at Grade 3 branches eligible for fast-track promotions
- Grade 2 staff with consistent performance (>85% score for 2 periods) eligible
- Grade demotion below thresholds results in management review

Standard Branch Performance Evaluation Form (Weighted Score Model)

This form is designed to evaluate branch performance using Tana MFI's Weighted Score
Model. Each KPI is rated based on established grading standards, with corresponding
weights applied to derive the total score.

KPI Branch Input Benchmark Score (0– Weight (%) Weighted

Ranges 100) Score

Number of Grade 1: 0– 10
Depositors 1,500 | Grade

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2: 1,501–
2,500 | Grade
3: ≥4,000

Avg. Net Grade 1: 0– 25

Savings 10M | Grade
(ETB) 2: 10M–17M
| Grade 3:
≥25M

Number of Grade 1: 0– 15
Active 120 | Grade
Clients 2: 121–250 |
Grade 3:
>400

Loan Grade 1: 0– 30
Portfolio 18M | Grade
(ETB) 2: 18M–25M
| Grade 3:
≥45M

Portfolio at Grade 1: 20
Risk (PAR) ≤5% | Grade
2: ≤4% |
Grade 3:
≤3%

Scoring Guidelines:

- 100 points for meeting or exceeding Grade 3 benchmark

- 85 points for meeting Grade 2 benchmark
- 75 or fewer points for Grade 1 performance
Final weighted score is computed by multiplying each KPI score with its weight.

Final Grade Determination:

Score ≥ 90% → Grade 3 (High Performing)

Score 85%–89% → Grade 2 (Good Performing)
Score < 85% → Grade 1 (Needs Improvement)
Grade 3 demotion if score < 85%
Grade 2 demotion if score < 75%

Prepared by

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1. Yihenew Andargie chair _______________________

2. Asnakew yehuala member _______________________

3. Dessalegn Atinafu secretary _______________________

4. Dessalegn Kindu member _______________________

5. Meretush Bogale Member _______________________

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